**EXHIBIT 10.1**

TOROTEL, INC. RESTRICTED STOCK AGREEMENT

This RESTRICTED STOCK AGREEMENT (“Agreement”) ismade 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 theCompany and its stockholders will be promoted by hiring talented individualsfor the Company and, to induce such individuals to accept employment with theCompany, the Company believes a key component of such individuals’ compensationshould be granting equity ownership opportunities based upon the acceptance ofemployment and the continuing employment of such individual.

The Employee is a recently hired key managementemployee of the Company and will provide valuable services to the Company.  The Board of Directors (the “Board”) hasdetermined that to induce the Employee to accept employment with the Company,it was appropriate to grant to the Employee shares of Common Stock of theCompany subject to certain conditions and restrictions set forth in thisAgreement.  The Board further determinedthat the value of the Employee’s services less the compensation to be paid tothe Employee for such services equals the aggregate par value of the CommonStock 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 theterms and conditions set forth herein..

THEREFORE, in consideration of the premises and thecovenants herein contained, and other good and valuable consideration, thereceipt 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 FiveThousand (25,000) shares of Common Stock, .01 par value per share, of theCompany (the “Restricted Shares”), subject to the restrictions, terms andconditions set forth herein.

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

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

THE SHARESREPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES AND SUBJECT TO CERTAINCONDITIONS UNDER THE APPLICABLE RESTRICTED STOCK AGREEMENT DATED FEBRUARY 12,2007.  THESE SHARES ARE SUBJECT TO A RISKOF FORFEITURE AND CANNOT BE SOLD, DONATED, TRANSFERRED OR IN ANY OTHER MANNERENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT, A COPY OFWHICH 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 andrisk of forfeiture Five Thousand (5,000) Shares per Year for Five (5) yearsbeginning February 12, 2008 and each anniversary thereof.  Accordingly, as each of the Release Dates setforth below, that number Shares set forth in the column “Number of RestrictedShares (Cumulative) Released” shall reflect the total number of Shares vestedat such time:

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| 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 ofRestricted Shares.

(a)  If the Employee ceases to be an employee ofthe Company other than by reason of death, disability or termination by theCompany without Cause (as hereinafter defined) and prior to all of theRestricted Shares having been released, all Restricted Shares then stillsubject to restrictions under this Agreement shall be forfeited and returned tothe Company as of the date on which such cessation of employment occurs.  As used herein, the term “disability” means acondition that, in the judgment of the Board of Directors in its sole andexclusive discretion, has rendered the Employee completely and presumablypermanently 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 ofdishonesty or moral turpitude by the Employee which are materially detrimentaland adverse to the Company, (3) material breach of the Employee’s duty ofloyalty or other fiduciary duties to the Company, (4) material failure bythe Employee to obey the lawful orders of the Board of Directors or (5) grossnegligence or intentional misconduct by the Employee in the performance of theEmployee’s obligations hereunder.

(b)  If the Employee ceases to be an employee ofthe Company by reason of death, disability or termination by the Companywithout Cause (as defined above), and prior to all of the Restricted Shareshaving been released, the Restricted Shares then still subject to restrictionsunder this Agreement shall be released and no longer subject to restrictionsunder this Agreement

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

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

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

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

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

7.          Dividends and Voting Rights.  While the Restricted Shares are subject tothe restrictions of Section 2 and prior to any forfeiture thereof, any shares,securities or property, other than cash dividends, received by the Employeewith respect to the Restricted Shares shall be subject to the samerestrictions, terms and conditions as are imposed upon the Restricted Sharesunder Section  While the RestrictedShares are subject to the restrictions of Section 2 and prior to any forfeiturethereof, any cash dividends payable with respect to the Restricted Shares (orwith 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 annumequal to the Applicable Federal Short-Term Rate (as hereinafter defined) and(iii) shall be subject to the same terms, conditions and restrictions as are imposedupon the Restricted Shares under Section 2. The Applicable Federal Short-Term Rate shall mean the rate per annumequal to the then applicable Federal rate for short-term obligationscompounding monthly, as determined by the United States Secretary of theTreasury.  The Employee shall have allvoting rights with respect to the Restricted Shares.

8.          Powers of Company Not Affected.  The existence of the Restricted Shares shallnot affect in any way the rights or powers of the Company or its directors orstockholders to make or authorize any combination, subdivision orreclassification of shares of Common Stock of the Company or anyreorganization, merger, consolidation, arrangement, business combination,exchange of shares of Common Stock of the Company, or other change in theCompany’s capital structure or its business, or any issue of bonds, debenturesor shares having rights or preferences equal, superior or affecting theRestricted Shares or the rights thereof, or any dissolution or liquidation ofthe Company, or any sale or transfer of all or any part of its assets orbusiness, or any other corporate act or proceeding, whether of a similarcharacter or otherwise.  Nothing in thisAgreement shall confer upon the Employee any right to continue in the employmentof the Company, or interfere with or limit in any way the right of the Companyto terminate the Employee’s employment at any time.

9.          Withholding. To the extent that the release of any of the Restricted Shares grantedthe Employee hereunder may obligate the Company to pay withholding taxes onbehalf of the Employee, the Company will pay the minimum amount of suchwithholding taxes then due by (i) withholding such amount from the Employee’swages or other payments due the Employee, (ii) paying such amount from fundsthen delivered by the Employee to the Company for such purpose, or (iii) anycombination of (i) or (ii) above.

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

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

12.        Securities Representations of Employee.  Employee acknowledges that the RestrictedShares 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 tobe exempt from the registration requirements of the 1933 Act and any otherapplicable law.  Employee represents andwarrants that: (i) Employee has such knowledge and experience in financial andbusiness matters as to be capable of evaluating the merits and risks of theprospective investment, (ii) Employee has been allowed free and full access tothe properties, assets and records of the Company in order to make suchinvestigation as Employee shall have desired of the affairs of the Company andthe value of the Restricted Shares and (iii) Employee is acquiring theShares for Employee’s own account and for the purpose of investment and notwith a view to the sale or distribution thereof.  Employee acknowledges that the RestrictedShares must be held indefinitely unless a subsequent disposition thereof isregistered under applicable law or is exempt from registration.  Employee agrees that Employee will not sellor otherwise dispose of the Restricted Shares in the absence of an effective

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registration statement under applicable law or anexemption 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 tohave reaffirmed each representation, warranty, acknowledgement and covenantcontained in this Section.

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

14.        Complete Agreement; Amendment.  This Agreement contains the entireunderstanding and the full and complete agreement of the parties with respectto the subject matter hereof and supersedes any prior understandings, agreementsor representations by or between the parties, written or oral, relating to thesubject matter hereof.  This Agreementmay not be modified or amended except by a written agreement signed by theparties.

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

16.        Headings. Headings included in this Agreement are for convenience only and are notintended to limit or expand the rights of the parties.

The parties hereto have executed this Agreement asof 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 |
|        |                          |  |  |  |  |  |

 

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