NOTE 4—FINANCING AGREEMENTS

Torotel Products has a financing agreement (the “financing agreement”) with Commerce Bank, N.A. (the “Bank”). The financing agreement provides for a revolving line of credit, a guidance line of credit, and a real estate term loan. Torotel serves as the guarantor to all promissory notes described below. A summary of the notes outstanding under the financing agreement is provided below:


		July 31, 2018		April 30, 2018
4.05% mortgage note payable in monthly installments of $4,873, including interest, with final payment of $349,000 due January 27, 2019	$	363,000	$	373,000
4.00% working capital line of credit with a maturity date of October 20, 2018		751,000		751,000
4.00% building line of credit with a maturity date of October 20, 2018		465,000		465,000
Capital lease obligations (see Note 11)		147,000		170,000
Borrowings under an equipment financing line of credit:
4.75% note payable in monthly installments of $2,269, including interest, with final payment made on May 27, 2018		-		2,000
4.05% note payable in monthly installments of $3,680, including interest, with final payment due January 10, 2020		64,000		75,000
Total long-term debt		1,790,000		1,836,000
Less current installments		1,687,000		1,706,000
Long-term debt, excluding current installments	$	103,000	$	130,000

Under the financing agreement, prepayment of the mortgage note up to $100,000 per year is allowed without penalty so long as the funds used for any repayment are generated through internal cash flow and not borrowed from a separate financial institution. The mortgage note is cross collateralized and cross defaulted with all other credit facilities of Torotel Products and is secured by a first real estate mortgage on the property located at 620 North Lindenwood Drive in Olathe, Kansas.

The working capital revolving line of credit is renewable annually. The associated interest rate is equal to the greater of the floating Commerce Bank Prime Rate (currently 5.00%) or a floor of 4% (as listed above). Monthly repayments of interest only are required under the working capital revolving line of credit promissory note with the principal due at maturity. This working capital revolving line of credit is cross collateralized and cross defaulted with all other credit facilities and arrangements of Torotel Products with the Bank and is secured by a first lien on all business assets of Torotel Products. This working capital revolving line of credit is scheduled to mature on October 20, 2018, and Torotel Products expects to negotiate an extension of that maturity date.

On March 31, 2017, Torotel Products entered into a $500,000 building revolving line of credit, which is available for working capital purposes and is renewable annually. The associated interest rate is equal to the greater of the floating Commerce Bank Prime Rate (currently 5.00%) or a floor of 4% (as listed above). Monthly repayments of interest only are required with the principal due at maturity. The maximum borrowing of this building line of credit is $500,000. This facility is cross collateralized and cross defaulted with all other facilities and is secured by a first lien on the building located at 620 North Lindenwood Drive in Olathe, Kansas. This building revolving line of credit is scheduled to mature on October 20, 2018, and Torotel Products expects to negotiate an extension of that maturity date.

The equipment note is a guidance line of credit to be used for equipment purchases. Monthly repayments consisting of both interest and principal are required. This note is cross collateralized and cross defaulted with all other facilities of Torotel Products and is secured by a purchase money security interest in the assets purchased as well as a first lien on all business assets of Torotel Products. The maximum borrowing of this line of credit is $500,000.

Torotel Products is required to comply with specified financial covenants of the financing agreement with Commerce Bank. As of July 31, 2018, Torotel Products was not in compliance with the covenants in such financing agreement that require (1) a ratio of EBITDA (as defined in the financing agreement) to fixed charge coverage (as defined in the financing agreement) in excess of 1.100 to 1.000, and (2) that Torotel maintain a minimum Tangible Net Worth (as defined in the financing agreement) of $4,500,000. A waiver for non-compliance with these covenants was received from Commerce Bank for the period ending July 31, 2018.

Irrevocable Standby Letter of Credit

Under the terms of a lease amendment for its manufacturing facility located in Olathe, Kansas (see Note 11), Torotel provided the landlord an irrevocable standby letter of credit in the original amount of $350,000 as additional security. The balance under the letter of credit will automatically reduce in accordance with the below schedule if not drawn upon:


Date of Reduction		Amount of Reduction		Balance of Letter of Credit
January 1, 2020	$	75,000	$	225,000
January 1, 2021		75,000		150,000
January 1, 2022		75,000		75,000
January 1, 2023		75,000		-