Document:

ttlo_Ex_103

		
			Exhibit 10.3
		

		
			 
		

		
			FIRST AMENDMENT TO
		

		
			BUSINESS LOAN AGREEMENT (ASSET BASED)
		

		
			 
		

		
			 
		

		
			This First Amendment Agreement made and entered into this 30th day of October, 2017, by and between Torotel Products, Inc. (hereinafter referred to as “Borrower”) and Commerce Bank (hereinafter referred to as “Lender”);
		

		
			 
		

		
			WHEREAS, the Borrower and Lender are parties to a Business Loan Agreement (Asset Based) dated August 15, 2017, (hereinafter referred to as the “Agreement”);
		

		
			 
		

		
			WHEREAS, Borrower has requested the Lender to amend certain terms of the Agreement upon the terms and conditions herein contained.
		

		
			 
		

		
			NOW, THEREFORE, in consideration of the mutual promises and agreements heareafter made by and between the parties hereto, the parties hereto do mutually agree as follows:
		

		
			 
		

			
	
			
				 1.
			

			
	
			
			Words and phrases having defined meanings in the Agreement will have the same meanings when used herein.

			
	
			
				 2.
			

			
	
			
			The section entitled ADDITIONAL EVENT OF DEFAULT is hereby amended in its entirety to read as follows:

		
			ADDITIONAL EVENT OF DEFAULT.  It shall be an additional Event of Default if guarantor, Torotel, Inc., fails to maintain any one of the following covenants: EBITDA to Fixed Charge Coverage Ratio.  Maintain a ratio of EBITDA to Fixed Charges in excess of 1.10 to 1.00.  “Fixed Charge Coverage Ratio” means (a) EBITDA divided by (b) Fixed Charges.  “EBITDA” means, for the period in question, the sum of (a) the after tax net income during such period, plus (b) to the extent deducted in determining such net income, the sum of (i) interest expense during such period including the interest portion of all capitalized lease expense, plus (ii) all provisions for any Federal, state, local and/or foreign income, value added and similar taxes made during such period (whether paid or deferred), plus (iii) all depreciation and amortization expenses during such period, plus (iv) any extraordinary losses during such period, plus (v) any losses from the sale or other disposition of property other than in the ordinary course of business during such period, minus (c) to the extend added in determining such net income, the sum of (i) any extraordinary gains during such period plus (ii) any gains from the sale or other disposition of property other than in the ordinary course of business during such period, all determined on a consolidated basis and in accordance with GAAP.  “Fixed Charges” means, for the period in question, the sum of (a) the aggregate amount of all principal payments required to be made on all Funded Debt during such period (but excluding principal payments on revolving lines of credit), plus (b) interest expense during such period, plus (c) all provisions for any Federal, state, local and/or foreign income taxes incurred during such period (whether paid or deferred), plus (d) all dividends or distributions paid on or with respect to any of its capital stock or membership, partnership or other ownership interests during such period, all determined on a consolidated basis and in accordance with GAAP.  “Funded Debt” means, as of the date of determination thereof, the sum of (a) all indebtedness for borrowed money or which has been incurred in connection with the purchase or other acquisition of property (other than unsecured trade accounts payable incurred in the ordinary course of business), plus (b) all obligations under or in respect of capital leases plus (c) all contingent reimbursement obligations with respect to the aggregate undrawn face amount of all letters of credit together with all unreimbursed drawings with respect thereto, plus (d) all guarantees of Funded Debt of others, all determined on a consolidated basis and in accordance with GAAP.  This coverage ratio will be evaluated as of each four (4) consecutive fiscal quarter period of Borrower commencing with the four (4) consecutive fiscal quarter period of Borrower ending next after the date of this Agreement.  Tangible Net Worth:  Guarantor shall maintain at all times a minimum Tangible Net Worth of not less than $4,500,000.00 commencing with the date of this Agreement.  “Tangible Net Worth” means Guarantor’s total assets excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expense, and similar intangible items, but including leaseholds and leasehold improvements) less total debt, determined in accordance with GAAP.
		

			
	
			
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			The paragraph entitled Borrowing Base under the section entitled DEFINITIONS is hereby amended in its entirety to read as follows:  Borrowing Base.  The words “Borrowing Base” mean, as determined by Lender from time to time, the lesser of (1) $850,000 or (2) 75.000% of the aggregate amount of Eligible Accounts; provided, however, during the period between October 30, 2017 and April 30, 2018, the Borrowing Base shall be the lessor of (1)$1,250,000.00 or (2) the sum of (a) 75.000% of the aggregate amount of Eligible Accounts, plus (b) 50.000% of the aggregate amount of Eligible Inventory which for purposes of this Agreement means raw material but Eligible Inventory will only be used in the calculation if a draw is requested on the Line of Credit Note dated October 30, 2017.

			
	
			
				 4.
			

			
	
			
			The following Paragraph titled Eligible Inventory is hereby added under Section titled DEFINITIONS: Eligible Inventory.  The words “Eligible Inventory” mean, at any time, all of Borrower’s inventory as defined below, except: (1) Inventory which is not owned by Borrower free and clear of all security interests, liens, encumbrances, and claims of third parties.  (2) Inventory which Lender, in its sole discretion, deems to be obsolete, unsalable, damaged, defective, or unfit for further processing.  (3) Work in progress.

			
	
			
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			The following Paragraph title Inventory is hereby added under Section titled DEFINITIONS: The word “Inventory” means all of Borrower’s raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which Borrower now has or hereafter acquires any right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing.  Inventory includes inventory temporarily out of Borrower’s custody or possession and all returns on Accounts.

		
			

		 

 

		

			
	
			
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			Oral or unexecuted agreements or commitments of loan money, extend credit or forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable, regardless of the legal theory upon which it is bases that is in any way related to the credit agreement.  To protect you (Borrower(s)) and us (Creditor) from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it.

			
	
			
				 7.
			

			
	
			
			It is expressly understood that this First Amendment Agreement modifies the Agreement and that all the terms, covenants, conditions, representations, warranties, and provisions thereof, unless specifically modified herein, are to apply to this First Amendment Agreement and are made a part hereof as though they were expressly incorporated herein and shall remain in full force and effect except as specifically amended herein.

		
			 
		

		
			IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first above written.
		

		
			 
		

		
			COMMERCE BANK
		

		
			By:____________________________________
		

		
			
		

		
			 
		

		
			TOROTEL PRODUCTS, INC.
		

		
			By:____________________________________ttlo_Ex_104

		
			Exhibit 10.4
		

		
			 
		

		
			PROMISSORY NOTE
		

		
			 
		

			
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						Borrower:

					
					
						    

					
					
						TOROTEL PRODUCTS, INC.

					
					
						 

					
					
						 

					
					
						    

					
					
						 

				
	
					
						 

					
					
						 

					
					
						520 N Rogers Road

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						Olathe, KS 660621276

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						Lender:

					
					
						 

					
					
						Commerce Bank, N.A.

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						Lenexa Banking Center

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						8700 Monrovia, Ste 206

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						Lenexa, KS 66215

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				

		
			 
		

		
			 
		

			
					
						 

					
					
						 

					
					
						 

				
	
					
						Principal Amount:   $850,000.00

					
					
						    

					
					
						 

				
	
					
						Date of Note:  October 20, 2017

					
					
						 

					
					
						 

				

		
			 
		

		
			 
		

		
			PROMISE TO PAY. TOROTEL PRODUCTS, INC. (“Borrower”) promises to pay to Commerce Bank, N.A. (“Lender”), or order, in lawful money of the United States of America, the principal amount of Eight Hundred Fifty Thousand & 00/100 Dollars ($850,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.
		

		
			 
		

		
			PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on October 20, 2018. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning November 30, 2017, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.
		

		
			 
		

		
			VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the per annum rate from time to time announced by Lender at its main office as the “Prime Rate”, or as the case may be, the base, reference or other rate then in use for commercial loan reference purposes, not necessarily the lowest or even favored rate, which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower.  Lender will tell Borrower the current Index rate upon Borrower’s request.  The interest rate change will not occur more often than each day. Rates of interest tied to the Index shall change with and be effective on the date of each change in the Index. Notwithstanding the foregoing, at no time shall the index applicable to this Note be less than zero. The initial rate and the current Index described above are based on the information available as of the date of preparation of this note and is subject to change if there is any change in the Index between the note preparation date and the Loan Date and Date of Note recited above. Borrower understands that Lender may make loans based on other rates as well. Interest on the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate equal to the Index. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.000% per annum or more than the maximum rate allowed by applicable law.
		

		
			 
		

		
			INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.
		

		
			 
		

		
			PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest.  Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further 

		 

 

amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Commerce Bank, N.A.; Lenexa Banking Center; 8700 Monrovia, Ste 206; Lenexa, KS 66215.
		

		
			 
		

		
			LATE CHARGE.  If a payment is 15 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $250.00, whichever is less.
		

		
			 
		

		
			INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding an additional 3.000 percentage point margin (“Default Rate Margin”).  The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default.  However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.
		

		
			 
		

		
			DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:
		

		
			 
		

		
			Payment Default. Borrower fails to make any payment when due under this Note.
		

		
			 
		

		
			Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
		

		
			 
		

		
			Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.
		

		
			 
		

		
			False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
		

		
			 
		

		
			Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
		

		
			 
		

		
			Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
		

		
			 
		

		
			Events Affecting Guarantor.  Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.
		

		
			 
		

		
			Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
		

		
			 
		

		
			Adverse Change.  A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
		

		
			 
		

		
			 
		

		
			Insecurity. Lender in good faith believes itself insecure.
		

		
			 
		

		
			LENDER’S RIGHTS.  Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.
		

		
			 
		

		
			ATTORNEYS’ FEES; EXPENSES.  Lender may hire or pay someone else who is not Lender’s salaried employee to help collect this Note if Borrower does not pay. Borrower will be liable for all reasonable costs incurred in the collection of this 

		 

 

Note, including but not limited to, court costs, attorneys’ fees and collection agency fees, except that such costs of collection shall not include recovery of both attorneys’ fees and collection agency fees.
		

		
			 
		

		
			JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.
		

		
			 
		

		
			GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Kansas without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Kansas.
		

		
			 
		

		
			RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.
		

		
			 
		

		
			LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender’s address shown above, written notice of revocation of such authority: Dale H. Sizemore, Jr, CEO and President of TOROTEL PRODUCTS, INC.; and Heath Hancock, CFO and Assistant Secretary of TOROTEL PRODUCTS, INC. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.
		

		
			 
		

		
			SUCCESSOR INTERESTS.  The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.
		

		
			 
		

		
			ELECTRONIC RECORDS.  The undersigned agrees that this document and all paper records related to the transaction with which this document is a part and whether or not the paper records were submitted in advance of, contemporaneously with or subsequent to, the execution of this document may, at the option of the Lender, be converted by any digital or electronic method or process to an electronic record or substantially further converted or migrated to another electronic record format or electronic storage medium. The undersigned further agrees that upon conversion to an electronic record as authorized herein such electronic record shall be the record of transaction and the electronic record shall have the same legal force and effect as the paper documents from which it was converted.  The undersigned waives any legal requirement that any documents digitally or electronically converted be embodied, stored, or reproduced in a tangible media. The undersigned further agrees that a printed or digitally reproduced copy of the electronic record shall be given the same legal force and effect as a signed writing.  In addition, the undersigned authorizes and agrees to destruction of the paper documents by the Lender upon conversion of the paper documents to a digital or electronic record.
		

		
			 
		

		
			GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.
		

		
			 
		

		
			 
		

		

		 

 

	
					
						

					
						Borrower’s Initials

					
					
						    

					
					
						NO ORAL AGREEMENTS. This written agreement is the final expression of the agreement between Lender and Borrower and may not be contradicted by evidence of any prior oral agreement or of a contemporaneous oral agreement between Lender and Borrower.

				
	
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						NONSTANDARD TERMS. The following space contains all nonstandard terms, including all previous oral agreements, if any, between Lender and Borrower:

				
	
					
						 

					
					
						 

					
					
						 

				
	
					
						Lender’s Initials

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						By initialing the boxes to the left, Lender and Borrower affirm that no unwritten oral agreement exists between them.

				

		
			 
		

		
			 
		

		
			PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
		

		
			 
		

		
			BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
		

		
			 
		

		
			BORROWER:
		

		
			 
		

		
			 
		

			
					
						 

					
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						TOROTEL PRODUCTS, INC.

					
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
					
						 

					
					
						 

					
					
						 

				
	
					
						By:

					
					
						 /S/

					
					
						 

					
					
						By:

					
					
						 /S/

				
	
					
						 

					
					
						Dale H. Sizemore, Jr, CEO and President of TOROTEL PRODUCTS, INC.

					
					
						 

					
					
						 

					
					
						Heath Hancock, CFO and Assistant Secretary of TOROTEL PRODUCTS, INC.

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