EXHIBIT 10.1


TOROTEL, INC. 

RESTRICTED STOCK AGREEMENT


This RESTRICTED STOCK AGREEMENT (“Agreement”) is
made with an effective date of February 12, 2007 and is between Torotel, Inc.,
a Missouri corporation (the “Company”), and E. Mark Flynn (the “Employee”).


The Company has determined that the interests of the
Company and its stockholders will be promoted by hiring talented individuals
for the Company and, to induce such individuals to accept employment with the
Company, the Company believes a key component of such individuals’ compensation
should be granting equity ownership opportunities based upon the acceptance of
employment and the continuing employment of such individual.


The Employee is a recently hired key management
employee of the Company and will provide valuable services to the Company.  The Board of Directors (the “Board”) has
determined that to induce the Employee to accept employment with the Company,
it was appropriate to grant to the Employee shares of Common Stock of the
Company subject to certain conditions and restrictions set forth in this
Agreement.  The Board further determined
that the value of the Employee’s services less the compensation to be paid to
the Employee for such services equals the aggregate par value of the Common
Stock of the Company to be issued pursuant to this Agreement and, therefore,
has approved the issuance of shares of Common Stock to the Employee under the
terms and conditions set forth herein..


THEREFORE, in consideration of the premises and the
covenants herein contained, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:


1.          Grant of Award. 
The Company hereby grants to the Employee an award of Twenty Five
Thousand (25,000) shares of Common Stock, .01 par value per share, of the
Company (the “Restricted Shares”), subject to the restrictions, terms and
conditions set forth herein.


2.          Restrictions. 
Except as otherwise provided herein, the Restricted Shares shall be
subject to forfeiture and may not be sold, transferred, pledged, assigned,
encumbered or otherwise alienated or hypothecated by the Employee unless and
until the Employee remains in the employ of the Company until the dates of
release as provided herein (the “Release Dates”).


3.          Legend. 
Certificates for the Restricted Shares shall be issued as soon as
practicable in the name of the Employee and shall be issued with a legend
similar to the following:


THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES AND SUBJECT TO CERTAIN
CONDITIONS UNDER THE APPLICABLE RESTRICTED STOCK AGREEMENT DATED FEBRUARY 12,
2007.  THESE SHARES ARE SUBJECT TO A RISK
OF FORFEITURE AND CANNOT BE SOLD, DONATED, TRANSFERRED OR IN ANY OTHER MANNER
ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT, A COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY.


4.          Release Dates. 
Based upon Employee attaining mutually agreed upon written annual goals,
the Restricted Shares shall be released from the restrictions on transfer and
risk of forfeiture Five Thousand (5,000) Shares per Year for Five (5) years
beginning February 12, 2008 and each anniversary thereof.  Accordingly, as each of the Release Dates set
forth below, that number Shares set forth in the column “Number of Restricted
Shares (Cumulative) Released” shall reflect the total number of Shares vested
at such time:











 


	
  Release Date

  	
   

  	
  Number of Restricted Shares

  (Cumulative) Released

  
	
  February 12,
  2008

  	
   

  	
  5,000 Shares (1/5th)

  
	
  February 12, 2009

  	
   

  	
  10,000 Shares (2/5ths)

  
	
  February 12,
  2010

  	
   

  	
  15,000 Shares (3/5ths)

  
	
  February 12,
  2011

  	
   

  	
  20,000 Shares (4/5ths)

  
	
  February 12,
  2012

  	
   

  	
  25,000 Shares (5/5ths)

  



 


5.          Effect of Termination of Employment; Forfeiture of
Restricted Shares.


(a)  If the Employee ceases to be an employee of
the Company other than by reason of death, disability or termination by the
Company without Cause (as hereinafter defined) and prior to all of the
Restricted Shares having been released, all Restricted Shares then still
subject to restrictions under this Agreement shall be forfeited and returned to
the Company as of the date on which such cessation of employment occurs.  As used herein, the term “disability” means a
condition that, in the judgment of the Board of Directors in its sole and
exclusive discretion, has rendered the Employee completely and presumably
permanently unable to perform the duties of his regular occupation.  As used herein, termination for “Cause” means
(1) conviction of the Employee for having committed a felony, (2) acts of
dishonesty or moral turpitude by the Employee which are materially detrimental
and adverse to the Company, (3) material breach of the Employee’s duty of
loyalty or other fiduciary duties to the Company, (4) material failure by
the Employee to obey the lawful orders of the Board of Directors or (5) gross
negligence or intentional misconduct by the Employee in the performance of the
Employee’s obligations hereunder.


(b)  If the Employee ceases to be an employee of
the Company by reason of death, disability or termination by the Company
without Cause (as defined above), and prior to all of the Restricted Shares
having been released, the Restricted Shares then still subject to restrictions
under this Agreement shall be released and no longer subject to restrictions
under this Agreement


6.          Acceleration Upon Change in Control.  If, prior to all of the Restricted Shares
having been released, the Company undergoes a change in control (as defined
below), then all of the Restricted Shares shall be released and no longer
subject to restrictions under this Agreement. 
For purposes of this Agreement, a change in control of the Company means
the occurrence of any of the following events:


(i)   the purchase or other acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the “Exchange Act”) (a “Person”) that is the beneficial
owner (as such term is defined in Rule 13d-3 under the Exchange Act) of 50
percent or more of either the outstanding shares of common stock of the Company
(or any entity which directly or indirectly controls the Company) or the
combined voting power of the issued and outstanding voting securities of the
Company (or any entity which directly or indirectly controls the Company) other
than the acquisition by a trustee or other fiduciary holding securities under
any employee benefit plan (or related trust) sponsored or maintained by the
Company (or any entity which directly or indirectly controls the Company) or by
any employee benefit plan (or related trust) sponsored or maintained by the
Company (or any entity which directly or indirectly controls the Company);


(ii)  the approval by the stockholders of the
Company (or any entity which directly or indirectly controls the Company) of a
reorganization, merger, or consolidation, in each case, with respect to which
Persons who were stockholders of the Company (or any entity which directly or
indirectly controls the Company) immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own more than 50
percent of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated issued and outstanding
securities of the Company (or any entity which directly or indirectly controls
the Company); or


(iii) a liquidation or dissolution of the Company (or
any entity which directly or indirectly controls the Company); or











(iv) the sale of all or substantially all of the
assets of the Company (or any entity which directly or indirectly controls the
Company).


7.          Dividends and Voting Rights.  While the Restricted Shares are subject to
the restrictions of Section 2 and prior to any forfeiture thereof, any shares,
securities or property, other than cash dividends, received by the Employee
with respect to the Restricted Shares shall be subject to the same
restrictions, terms and conditions as are imposed upon the Restricted Shares
under Section  While the Restricted
Shares are subject to the restrictions of Section 2 and prior to any forfeiture
thereof, any cash dividends payable with respect to the Restricted Shares (or
with respect to other securities held in escrow pursuant to this Section) (i)
shall be deposited immediately in escrow with the Company by the Employee, (ii)
shall earn interest from the date of deposit into escrow at a rate per annum
equal to the Applicable Federal Short-Term Rate (as hereinafter defined) and
(iii) shall be subject to the same terms, conditions and restrictions as are imposed
upon the Restricted Shares under Section 2. 
The Applicable Federal Short-Term Rate shall mean the rate per annum
equal to the then applicable Federal rate for short-term obligations
compounding monthly, as determined by the United States Secretary of the
Treasury.  The Employee shall have all
voting rights with respect to the Restricted Shares.


8.          Powers of Company Not Affected.  The existence of the Restricted Shares shall
not affect in any way the rights or powers of the Company or its directors or
stockholders to make or authorize any combination, subdivision or
reclassification of shares of Common Stock of the Company or any
reorganization, merger, consolidation, arrangement, business combination,
exchange of shares of Common Stock of the Company, or other change in the
Company’s capital structure or its business, or any issue of bonds, debentures
or shares having rights or preferences equal, superior or affecting the
Restricted Shares or the rights thereof, or any dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.  Nothing in this
Agreement shall confer upon the Employee any right to continue in the employment
of the Company, or interfere with or limit in any way the right of the Company
to terminate the Employee’s employment at any time.


9.          Withholding. 
To the extent that the release of any of the Restricted Shares granted
the Employee hereunder may obligate the Company to pay withholding taxes on
behalf of the Employee, the Company will pay the minimum amount of such
withholding taxes then due by (i) withholding such amount from the Employee’s
wages or other payments due the Employee, (ii) paying such amount from funds
then delivered by the Employee to the Company for such purpose, or (iii) any
combination of (i) or (ii) above.


10.        Transfer of Employee’s Rights.  Except as expressly provided herein, the
rights of the Employee under this Agreement may not be transferred or assigned
by the Employee other than by will or the laws of descent and distribution and
may be exercised during the lifetime of the Employee only by the Employee.


11.        Interpretation by Board of Directors.  The Employee agrees that any dispute or
disagreement which may arise in connection with this Agreement shall be
resolved by the Board of Directors and that any interpretation by the Board of
Directors of the terms of this Agreement and any determination made by the
Board of Directors under this Agreement may be made in the sole discretion of
the Board of Directors and shall be final, binding, and conclusive.  Any such determination need not be uniform
and may be made differently among employees awarded Restricted Shares.


12.        Securities Representations of Employee.  Employee acknowledges that the Restricted
Shares have not been registered under the Securities Act of 1933 (“1933 Act”)
or any other applicable law and are being issued in a transaction intended to
be exempt from the registration requirements of the 1933 Act and any other
applicable law.  Employee represents and
warrants that: (i) Employee has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
prospective investment, (ii) Employee has been allowed free and full access to
the properties, assets and records of the Company in order to make such
investigation as Employee shall have desired of the affairs of the Company and
the value of the Restricted Shares and (iii) Employee is acquiring the
Shares for Employee’s own account and for the purpose of investment and not
with a view to the sale or distribution thereof.  Employee acknowledges that the Restricted
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under applicable law or is exempt from registration.  Employee agrees that Employee will not sell
or otherwise dispose of the Restricted Shares in the absence of an effective











registration statement under applicable law or an
exemption from such registration requirements. 
Employee acknowledges that by making payment for, or taking delivery of,
any Restricted Shares pursuant to this Agreement, Employee shall be deemed to
have reaffirmed each representation, warranty, acknowledgement and covenant
contained in this Section.


13.        Binding Agreement. 
This Agreement shall be binding upon and inure to the benefit of the
respective heirs, executors, administrators, distributees and successors of the
parties hereto, except as otherwise specifically provided herein.


14.        Complete Agreement; Amendment.  This Agreement contains the entire
understanding and the full and complete agreement of the parties with respect
to the subject matter hereof and supersedes any prior understandings, agreements
or representations by or between the parties, written or oral, relating to the
subject matter hereof.  This Agreement
may not be modified or amended except by a written agreement signed by the
parties.


15.        Choice of Law. 
This Agreement shall be construed and its provisions enforced and
administered in accordance with the laws of the State of Kansas.


16.        Headings. 
Headings included in this Agreement are for convenience only and are not
intended to limit or expand the rights of the parties.


The parties hereto have executed this Agreement as
of the day and year first above written.


	
  

  	
  TOROTEL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dale H.
  Sizemore, Jr.

  	
   

  
	
   

  	
  Name:

  	
  Dale H. Sizemore, Jr.

  	
   

  
	
   

  	
  Title:

  	
  Chairman and CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ E. Mark Flynn

  	
   

  
	
   

  	
  E. Mark Flynn,
  Employee