Item 1.01 Entry into a Material Definitive Agreement.
On October 19, 2018, Torotel, Inc. (the Company) entered into three new business loan agreements (the Financing Agreements) with Cornerstone Bank (the Bank). The Financing Agreements provide for (1) an asset-based revolving line of credit, (2) a guidance line of credit, and (3) a real estate term loan, respectively.
Revolving line of credit
The asset-based revolving line of credit is intended to be used for working capital purposes and has a capacity of $1,000,000 with a 12-month term that is renewable annually upon mutual agreement of the Company and the Bank. The borrowing base of
the revolving line of credit is limited to 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 80% of eligible equipment. The associated interest rate is 0.750 percentage points over the Cornerstone Bank Corporate Base Rate (currently 6%) or a floor of 5%. Monthly repayments of interest only are required, with the principal due at maturity. This revolving line of credit is cross collateralized and cross defaulted with the other Financing Agreements. The revolving line of credit is secured by a first lien on all business assets of the Company pursuant to a Commercial Security Agreement dated October 19, 2018, between the Company and the Bank, which was entered into in connection with the Financing Agreements (the Commercial Security Agreement). Under the revolving line of credit, if the aggregate principal amount of the outstanding advances exceeds the applicable borrowing base, the Company must pay the Bank an amount equal to the difference between the outstanding principal balance of the revolving line of credit and the borrowing base.
Guidance line of credit
The guidance line of credit is intended to be used for equipment purchases and has a capacity of $250,000 with a 12-month term that is renewable annually upon mutual agreement of the Company and the Bank. The advance rate of this facility is 0.750 percentage points over the Cornerstone Bank Corporate Base Rate (currently 6%) or a floor of 5%. Monthly repayments of interest only are required, with the principal due at maturity. This guidance line of credit is cross collateralized and cross defaulted with the other Financing Agreements and is secured by a purchase money security interest in the assets purchased as well as a first lien on all business assets of the Company. Upon execution of the agreement, the Company received initial advances of $54,000 under the guidance line of credit.
Real estate term loan
The real estate term loan is in the principal amount of $815,000 and contains a 5-year term with a 20-year amortization period, with the balance payable at maturity on October 19, 2023. The associated interest rate is fixed at 5.35%. Monthly repayments of approximately $5,573, consisting of both interest and principal, are required. The final payment of approximately $690,829 is due on the maturity date. This real estate term loan is cross collateralized and cross defaulted with the other Financing Agreements and, pursuant to the Commercial Security Agreement, is secured by a first lien priority real estate mortgage on the Companys property located at 620 North Lindenwood Drive in Olathe, Kansas.
These Financing Agreements are a refinancing of the previous real estate loan, equipment loans, and revolving line of credit between the Companys wholly owned subsidiary, Torotel Products, Inc., and Commerce Bank, N.A., with an aggregate payoff amount of approximately $1,625,000. The prior financing agreements between Torotel Products, Inc., and Commerce Bank, N.A., have been terminated pursuant to their terms, subject to a nominal and immaterial early prepayment fee. The Financing Agreements contain customary representations, warranties, and covenants of the Company for the benefit of the Bank, as well as customary default provisions. Other than the borrowing base limitations under the asset-based revolving line of credit, none of the Financing Agreements requires the Company to comply with any financial covenants. Prepayments are allowed without penalty under all of the Financing Agreements.
The foregoing summary of the Financing Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full texts of the three Financing Agreements,
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