MTS SYSTEMS CORP (Form: 8-K, Received: 10/28/2008 17:01:42)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2008

MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)


Minnesota (State or other jurisdiction of incorporation)	0-2382 (Commission File Number)	41-0908057 (IRS Employer Identification No.)

14000 Technology Drive Eden Prairie, Minnesota (Address of principal executive offices)		55344 (Zip Code)

Registrant’s telephone number, including area code: (952) 937-4000

N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On October 27, 2008, the Compensation Committee of the Board of Directors of MTS Systems Corporation (the “Company”) approved amendments to various Company compensation plans for executive officers and management of the Company. Specifically, the Compensation Committee approved the First Amendment to the Company’s 2006 Stock Incentive Plan, the First Amendment to the Company’s Executive Variable Compensation Plan, and amendments to the Company’s Executive Deferred Compensation Plan (2005) (collectively, the “Plans”). All of the amendments to Plans were made in order to comply with Section 409A of the Internal Revenue Code (the “Code”). The full text of the amendments to the Plans is attached hereto as Exhibits. 10.1, 10.2 and 10.3, respectively, and is incorporated herein by reference.

Also, on October 27, 2008, in an effort to comply with Section 409A of the Code, the Compensation Committee approved amendments to the form of change in control agreements the Company uses with those executive officers who are subject to change in control agreements. The new form of agreement will replace or amend existing change in control agreements. The form of change in control agreement is attached hereto as Exhibit 10.4 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.


(d)	Exhibits.

	Exhibit No.	Description of Exhibit

	10.1	First Amendment to 2006 Stock Incentive Plan.
	10.2	First Amendment to Executive Variable Compensation Plan.
	10.3	Executive Deferred Compensation Plan (2005).
	10.4	Form of Change in Control Agreement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MTS SYSTEMS CORPORATION
	(Registrant)

Date: October 28, 2008	By:	/s/SUSAN E. KNIGHT

		Susan E. Knight
		Vice President and Chief Financial Officer

MTS SYSTEMS CORPORATION
FORM 8-K CURRENT REPORT

INDEX TO EXHIBITS


Exhibit No.		Description of Exhibit

10.1		First Amendment to 2006 Stock Incentive Plan.
10.2		First Amendment to Executive Variable Compensation Plan.
10.3		Executive Deferred Compensation Plan (2005).
10.4		Form of Change in Control Agreement.

Exhibit 10.1

FIRST AMENDMENT

MTS SYSTEMS CORPORATION

2006 STOCK INCENTIVE PLAN

THIS INSTRUMENT, amending the 2006 Stock Incentive Plan (the “Plan”), is made and entered into by MTS Systems Corporation (“MTS”), and shall be effective December 31, 2008.

RECITALS

WHEREAS, the Board of Directors, at a meeting held on November 29, 2005, authorized the establishment of the Plan, which was subsequently approved by shareholders at a meeting held on January 31, 2006; and

WHEREAS, Section 12.1 of the Plan authorizes the Compensation Committee of the Board of Directors (formerly the Human Resources Committee) to amend the Plan from time to time, subject to shareholder approval if certain conditions provided in Section 12.1 are met; and

WHEREAS, the Committee has determined that the changes proposed in this First Amendment do not require shareholder approval as provided in Section 12.1;

NOW, THEREFORE, the Plan is hereby amended to add a new Article 16 at the end thereof to read as follows:

SECTION 16
COMPLIANCE WITH CODE SECTION 409A


16.1	DEFERRED COMPENSATION means any Stock Incentive under this Plan that provides for the “deferral of compensation” as defined in Treas. Reg. Section 1.409A-1(b) and that would be subject to the taxes specified in Code Section 409A(a)(1) if and to the extent the Stock Incentive Agreement does not meet or is not administered and interpreted in compliance with the requirements of Code Section 409A(a)(2), (3) and (4) and the regulations promulgated thereunder. Deferred Compensation shall not include any amount that is otherwise exempt from the requirements of Code Section 409A and the regulations promulgated thereunder.

16.2	SPECIFIED EMPLOYEE means, if any stock of the Company, the Parent or any Subsidiary is publicly traded on an established securities market or otherwise on the Participant’s Separation from Service, a Participant who is a key employee as described in Code Section 416(i)(1)(A), disregarding paragraph (5) thereof. For purposes of determining key employees under Code Section 416(i)(1)(A), the definition of compensation shall be the same as defined in the Company’s Retirement Savings Plan, but excluding any compensation of a Participant whose location is not effectively connected with the conduct of a trade or business within the United States. If a Participant is a key employee at any time during the 12 months ending on each September 30, the Participant is a Specified Employee for the 12 month period commencing on the next January 1. Any such identification of a Specified Employee under this Plan shall apply to all nonqualified deferred compensation plans in which the Specified Employee participates. In the case of certain corporate transactions (a merger, acquisition or spin-off), or in the case of nonresident alien employees, the Company will determine Specified Employees in accordance with Treas. Reg. §1.409A-1(i).

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16.3	LIMITATION ON PAYMENT OR EXERCISE. With respect to any Stock Incentive that constitutes Deferred Compensation, such Stock Incentive shall provide for payment or exercise only upon: (a) a fixed date or schedule that complies with the requirements of Treas. Reg. §1.409A-3; (b) on a date based upon the Participant’s “separation from service,” or “disability,” or “unforeseeable emergency” as those terms are defined under Code Section 409A and the regulations promulgated thereunder; (c) the Participant’s death; or (d) a Change in Control as defined in Section 11.1. Any election permitted under any Stock Incentive that constitutes Deferred Compensation shall comply with the requirements of Treas. Reg. Section 1.409A-2 and shall be irrevocable as of the date of grant of the Stock Incentive. In addition, with respect to any Stock Incentive that constitutes Deferred Compensation, except to the extent acceleration or deferral is permitted by or complies with the requirements of Code Section 409A and the regulations and other guidance promulgated thereunder, neither the Committee nor a Participant may accelerate or defer the time or schedule of any payment or exercise of, or the amount scheduled to be reported as income as a result.

16.4	DELAY IN PAYMENT OR EXERCISE FOR SPECIFIED EMPLOYEES. Notwithstanding anything in the Plan, unless the Stock Incentive Agreement specifically provides otherwise, no Stock Incentive that constitutes Deferred Compensation shall be paid to or exercised by a Specified Employee earlier than 181 days following the Participant’s “separation from service” as defined for purposes of Code Section 409A (or if earlier, upon the Specified Employee’s death), except as permitted under Code Section 409A and the regulations and other guidance promulgated thereunder. The Committee may specify in the Stock Incentive Agreement that the amount of the Deferred Compensation delayed pursuant to this Section 16.4 shall accumulate interest or earnings during the period of such delay.

Except as amended herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, MTS has caused this First Amendment to be executed on its behalf by its officer, who has been duly authorized by its Compensation Committee.


			MTS SYSTEMS CORPORATION

Date:			By:


			Its:

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Exhibit 10.2

FIRST AMENDMENT

MTS SYSTEMS CORPORATION

EXECUTIVE VARIABLE COMPENSATION PLAN

THIS INSTRUMENT, amending the Executive Variable Compensation Plan (the “Plan”), is made and entered into by MTS Systems Corporation (“MTS”), and shall be effective as of December 31, 2008.

RECITALS

WHEREAS, on November 24, 2004, the Board of Directors, established the MTS Systems Corporation Executive Variable Compensation Plan, to provide incentive compensation to certain executives, which Plan was subsequently approved by shareholders; and

WHEREAS, Section 8.2 of the Plan authorizes the Compensation Committee of the Board of Directors (formerly the Human Resources Committee) to amend the Plan from time;

NOW, THEREFORE, Section 7.1 of the Plan is hereby amended in its entirety to read as follows:

“7.1

Payouts . Payouts of Bonus Awards will be made in cash or other readily-available funds within 90 days of the end of the Performance Period, provided that, with respect to Performance-Based Awards, no payment shall be made until the Committee certifies to the achievement of the Performance Goals as provided in Section 6.6. Payouts are intended to be exempt from the requirements applicable to nonqualified deferred compensation plans pursuant to Code §409A and regulations promulgated thereunder. To this end, any payment required under this Plan shall be made no later than 2½ months following the last day of Corporation’s or the Participant’s taxable year in which the Performance Period ends. This Plan shall be administered and interpreted in a manner that is consistent with and gives effect to such intention.”

Except as amended herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, MTS Systems Corporation has caused this First Amendment to be executed on its behalf by its officer, who has been duly authorized by its Compensation Committee.


			MTS SYSTEMS CORPORATION

Date:			By:


			Its:

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Exhibit 10.3


		MTS Systems Corporation
		Executive Deferred Compensation Plan

December 31, 2008
Restated

Table of Contents


Section		Page

Section 1.	Purpose of the Plan	3

Section 2.	Definitions	3

Section 3.	Eligibility and Participation in the Plan	5

Section 4.	Deferred Compensation and Company Contributions	6

Section 5.	Plan Accounts	7

Section 6.	Distribution from Accounts	8

Section 7.	Form of Distribution	11

Section 8.	Funding and Rights to Benefits	12

Section 9.	Administration and Claims	12

Section 10.	Amendment and Termination	13

Section 11.	General Provisions	14

MTS SYSTEMS CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN (2005)
(Restated December 31, 2008)

THIS INSTRUMENT, amending and restating the MTS Systems Corporation Executive Deferred Compensation Plan (2005), is adopted by MTS Systems Corporation, a corporation organized under the laws of the state of Minnesota (the “Company”), and shall be effective as of December 31, 2008.

RECITALS

WHEREAS, the Company established, effective January 1, 2005, the MTS Systems Corporation Executive Deferred Compensation Plan (2005) (the “Plan”), an unfunded and nonqualified supplemental executive retirement plan, to provide additional retirement income to select members of management and other highly compensated employees of the Company in addition to any benefits such employees may obtain under the Company’s qualified 401(k) plan;

WHEREAS, the Plan was established as a separate plan from the nonqualified supplemental executive retirement plan established by the Company effective as of December 19, 1994 entitled the “MTS Systems Corporation Executive Compensation Deferral Plan” (the “1994 Plan”);

WHEREAS, the Plan is intended to comply with the requirement of Code §409A, and the Company desires to amend and restate the Plan to comply with the final regulations promulgated under Code §409A;

NOW, THEREFORE, the MTS Systems Corporation Executive Deferred Compensation Plan (2005) is amended and restated in its entirety effective December 31, 2008 to read as follows:

1. Purpose of the Plan . The purpose of this Plan is to provide Participants with the ability to supplement the retirement benefits provided by the Qualified Plan of the Company in part by voluntarily deferring some of their annual compensation as set forth herein.

2. Definitions .

2.1 Account . “Account” is an appropriate bookkeeping account of record maintained by the Company for the sole purpose of measuring and determining the amounts, if any, to be paid to a Participant pursuant to this Plan and shall consist of Deferred Compensation, if any, Company Contributions, if any, and equivalent interest credited thereon. Each Participant shall have a single Account except that, at the election of the Company, separate subaccounts for Deferred Compensation and Company Contributions may be established.

2.2 Affiliate . “Affiliate” is an entity that would be considered with the Company a single employer under Code §414(b) and (c) and §1563(a), except that 50% shall be substituted for the 80% each place it appears in Code §414(b) and (c) and §1563(a).

2.3 Aggregated Plans . “Aggregated Plans” includes this Plan and any other like-type plan of the Company or any Affiliate in which a given Participant participates and as to which Treas. Reg. §1.409A-1(c)(2) requires the aggregation of all such nonqualified deferred compensation in applying Code §409A, but shall not include the 1994 Plan. Notwithstanding the foregoing: (a) the plan for a Participant is treated as a separate plan from the plan for any other Participant, even though such plans may be incorporated into a single written document such as this Plan and covering all Participants; (b) with respect to each Participant, Deferred Compensation, Company Contributions shall represent

separate plans; and (c) two otherwise Aggregated Plans in which the Participant participates as an employee in one plan and as a director or independent contractor in the other are two separate plans.

2.4 Code . “Code” is the Internal Revenue Code of 1986, as amended.

2.5 Committee . “Committee” is the Human Resources Committee of the Board of Directors of the Company, or such other committee designated by the Board of Directors to administer this Plan.

2.6 Company . “Company” is MTS Systems Corporation, a corporation organized under the laws of the state of Minnesota, and any Affiliates.

2.7 Company Contributions . “Company Contributions” are amounts, if any, credited by the Company to the Account of a Participant under Section 4.2 and that are not subject to the election under Section 4.1.

2.8 Compensation . “Compensation” is any compensation paid to a Participant by the Company in any Plan Year, as would be reported on Form W-2, including any form of variable compensation and any amounts of compensation which would have been paid to the Participant in such year except that such Participant elected to defer such amounts under this Plan, any tax-qualified or non-tax qualified plan of deferred compensation maintained by the Company, but shall exclude any compensation recognized as a result of the exercise of a stock option and any taxable distribution from the Qualified Plan or any other non-tax qualified plan of deferred compensation maintained by the Company. For a non-employee member of the Board of Directors of the Company, “Compensation” is the director’s fees paid by the Company other than in the common stock of the Company.

2.9 Deferred Compensation . “Deferred Compensation” is the Participant’s Compensation which the Participant has elected to have treated as Deferred Compensation under Section 4.1 of this Plan, in addition to the Company Contributions, if any, to the Plan.

2.10 Measuring Investments . “Measuring Investments” is a hypothetical investment used for the purpose of measuring income, gains and losses to the Accounts of Participants (as if the Accounts had in fact been so invested); provided that such amounts reflect actual predetermined investments or notional amounts in accordance with Treas. Reg. §31.3121(v)(2)-1(d)(2).

2.11 Participant . “Participant” is any management or highly compensated employee or classification of such employees of the Company, selected from time to time to participate in this Plan as provided in Section 3.1 and any non-employee member of the Board of Directors of the Company.

2.12 Performance-Based Compensation . “Performance-Based Compensation” is that portion of the Participant’s Compensation, if any, where the amount of, or entitlement to, is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months, provided that the performance criteria are established not later than 90 days after commencement of the performance period and the outcome is substantially uncertain at the time. The Company will determine the status of Compensation as Performance-Based Compensation in accordance with Treas. Reg. §1.409A-1(e).

2.13 Plan . “Plan” is the MTS Systems Corporation Executive Deferred Compensation Plan (2005), as restated effective December 31, 2008.

2.14 Plan Administrator . “Plan Administrator” shall mean the Committee, or other person or committee designated by the Committee in accordance with Section 7.2.

2.15 Plan Year . “Plan Year” shall mean the calendar year, ending each December 31.

2.16 Qualified Plan . “Qualified Plan” is the MTS Retirement Savings Plan, effective as of October 1, 1966, as amended from time to time.

2.17 Separation from Service . “Separation from Service” shall mean the Participant’s termination of employment with the Company and its Affiliates whether on account of death, retirement, disability or otherwise. The Company will determine whether a Participant has incurred a Separation from Service based on the facts and circumstances and as described in Treas. Reg. §1.409A-1(h)(1)(ii). A Participant incurs a Separation from Service if the Company and the Participant reasonably anticipate, based on the facts and circumstances, the Participant will not perform any additional services after a certain date or that the level of bona fide services (whether performed as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period (or, if less, the period the employee has rendered service to the Company) (“Average Prior Service”). A Participant is presumed to have incurred a Separation from Service if the Participant’s service level decreases to 20% or less than the Average Prior Service and is presumed to not have incurred a Separation from Service if the Participant’s service level continues at a rate which is 50% or more of the Average Prior Service. No presumption applies where the Participant’s service level is more than 20% and less than 50% of the Average Prior Service. A Participant does not incur a Separation from Service if the Participant is on military leave, sick leave, or other bona fide leave of absence if such leave does not exceed a period of 6 months, or if longer, the period for which a statute or contract provides the Participant with the right to reemployment with the Company. If a Participant’s leave exceeds 6 months but the Participant is not entitled to reemployment under a statute or contract, the Participant incurs a Separation from Service on the next day following the expiration of 6 months, (12 months where a leave of absence is due to a condition that may constitute a disability unless the Company or the Participant terminate the leave sooner). In accordance with and subject to Treas. Reg. §1.409A-1(h)(4), if the Company sells its assets to an unrelated party purchaser where the Participants otherwise would incur a Separation from Service and where such Participants will provide services to the purchaser after the sale closing, the Company and the purchaser retain discretion no later than the asset sale closing date to specify in writing whether the Participants will incur a Separation from Service; provided however that all affected Participants shall be treated uniformly.

2.18 Specified Employee . “Specified Employee” is, if any stock of the Company or any Affiliate is publicly traded on an established securities market or otherwise on the Participant’s Separation from Service, a Participant who is a key employee as described in Code §416(i)(1)(A), disregarding paragraph (5) thereof. For purposes of determining key employees under Code §416(i)(1)(A), the definition of compensation shall be the same as defined in the Company’s Retirement Savings Plan, but excluding any compensation of a Participant whose location is not effectively connected with the conduct of a trade or business within the United States. If a Participant is a key employee at any time during the 12 months ending on each September 30, the Participant is a Specified Employee for the 12 month period commencing on the next January 1. Any such identification of a Specified Employee under this Plan shall apply to all nonqualified deferred compensation plans in which the Specified Employee participates. In the case of certain corporate transactions (a merger, acquisition or spin-off), or in the case of nonresident alien employees, the Employer will determine Specified Employees in accordance with Treas. Reg. §1.409A-1(i).

2.19 Valuation Date . “Valuation Date” is any date designated by the Committee on which the fair market value of the Accounts of Participants is determined. For purposes of determining the time of payment of any distribution from this Plan, Valuation Date shall mean the last day of each calendar month during the Plan Year.

3. Eligibility and Participation in the Plan .

3.1 Employee Eligibility . The Committee, in its sole discretion, will select the employees or classification of employees of the Company who shall be eligible to become Participants in the Plan, provided that each such employee would be a member of a select group of management or highly compensated employees, as determined under the Employee Retirement Income Security Act of 1974,

as amended, and regulations thereunder. Any change in the employee status as a member of a classification eligible for the Plan (other than upon Separation from Service) shall be effective as of the first day of the next Plan Year. An employee who becomes eligible or who is selected to participate in the Plan during the Plan Year shall become a Participant on the first day of the next month following such selection and shall make an election in accordance with Section 4.1.

3.2 Director Eligibility . A non-employee member of the Board of Directors of the Company shall be eligible to participate in this Plan upon the director’s initial election as a member of the Board. A director who becomes eligible shall become a Participant on the first day of the next month following such election and shall make an election in accordance with Section 4.1.

3.3 Termination of Eligibility and Participation . Each designated employee or classification of employees shall be eligible to contribute to this Plan and to receive any Company Contributions until such time as the Committee revokes such designation; provided, however, that the employee shall continue to be a Participant in this Plan to receive benefits until the Participant’s Account is fully paid. A non-employee director shall eligible to contribute to this Plan and to receive any Company Contributions until such time as the director incurs a Separation from Service; provided, however, that the director shall continue to be a Participant in this Plan and to receive the Participant’s Account until such time as the Participant’s Account is fully paid.

4. Deferred Compensation and Company Contributions .

4.1 Deferred Compensation Election . Each Participant may elect to defer and contribute any or all of the Participant’s Compensation for the Plan Year.


	a. Each election (or deemed election) to defer an amount to the Participant’s Account as Deferred Compensation under this Section shall:

		i) be made upon forms furnished by the Company or by evidencing such election using an electronic or telephonic medium available to such individual and acceptable to the Company, at such time as the Company shall determine and shall conform to such other procedural and substantive rules as the Company shall establish;

		ii) except as provided in Section 6.2, be irrevocable after the first day of the Plan Year for which the deferral election is made; and

		iii) except as provided in subsection 4.1(b) and (c), be received by the Company prior to the first day of the Plan Year for which the deferral election is made.

	b. With respect to an eligible employee or director who first becomes a Participant during the Plan Year, the Participant’s election to defer Compensation for that Plan Year must be received by the Company no later than 30 days after the date of the Participant’s initial eligibility, and, if so received, the deferral election shall be effective as of the first day of the month following such receipt, shall be irrevocable for the remainder of the Plan Year and shall only apply to Compensation earned following the effective date of the election. With respect to an election to defer a bonus earned over a specified period that does not constitute Performance-Based Compensation, only that portion of the bonus will be deferred based on a fraction, the numerator of which is the number of days remaining in the service period and the denominator of which is the total number of days in the service period.

	c. With respect to Performance-Based Compensation, the Participant’s election to defer may be made no later than 6 months before the last day of the performance period to which the payment of Performance-Based Compensation relates.


	d. The Participant may elect to defer a dollar amount or percentage of Compensation, which shall be applicable to all or any portion (such as base salary, variable compensation or commission) of the Participant’s Compensation earned during the Plan Year, as determined by the Committee; provided that the designation of the types of Compensation eligible for deferral shall be determined prior to the first day of the Plan Year and shall be irrevocable during such Plan Year.

	e. The Participant shall also elect in writing on the form on which the deferral election is made, the form of payment as provided in Section 7.1, which election shall be irrevocable, except as provided in Sections 7.2.

	f. A new election may be made for each subsequent Plan Year in accordance with the provisions of subsection 4.1(a); provided however, that in the absence of a timely election, the Participant’s written deferral election for the preceding Plan Year shall apply to the succeeding Plan Year.

4.2 Company Contribution . In addition to Deferred Compensation, the Company may, but shall not be obligated to, contribute to the Plan on behalf of one or more Participants. The amount of any Company Contribution may be based on all or any portion (salary, bonus or commissions) of a Participant’s Compensation, and may take into account contributions that the Company has made under the provisions of its Qualified Plan and/or as Deferred Compensation. Company Contributions shall not be subject to the election provided under Section 4.1, and need not be uniform for all Participants. The Company may, prior to the date the Participant has a legally binding right to such Company Contribution, designate the time and form of payment of such Company Contributions (including any income, gains or losses thereon) and in the absence of such designation, the time and form of payment in effect for the Participant’s Deferred Compensation for that Plan Year shall apply (or if no such election is in effect, in a lump sum in accordance with Section 6).

4.3 Vesting . Each Participant shall have a fully vested and nonforfeitable interest in his or her amounts of Deferred Compensation contributed to the Plan under Section 4.1. Company Contributions under Section 4.2 may be subject to a vesting schedule or other conditions, including but not limited to non-competition, as determined by the Committee, in its sole discretion, provided such restrictions are established at the time such contributions are first credited to the Participant’s Account.

5. Plan Accounts .

5.1 Establishment of Accounts . On the date that an amount of Deferred Compensation under Section 4.1 would otherwise be paid to the Participant, that amount shall be credited to an Account on behalf of the Participant on the books of the Company. As of the last day of the Plan Year, or such earlier date as the Committee determines, the amount of any Company Contribution under Section 4.2 shall be credited to the Participant’s Account. No Participant shall derive any rights or benefits in or to any assets of the Company solely from the establishment or maintenance of such Accounts on the books of the Company. The Account shall not constitute or be treated as an escrow or trust fund of any kind.

5.2 Designation of Measuring Investments . In the discretion of the Company and in accordance with procedures to be established by the Company, each Participant shall elect, as part of the initial enrollment process, and from time to time thereafter, one or more Measuring Investments that shall be used to determine the value of such Participant’s Account. If permitted by the Company, a Participant’s change in Measuring Investments shall designate:


	a. one or more Measuring Investments for the current Account balance, and

	b. one or more Measuring Investments for amounts that are credited to the Account in the future.

An effective change in Measuring Investments shall be effective as of the day after the Valuation Date coincident with or immediately following the date the election change is filed. A Participant’s change in Measuring Investments shall not be effective unless such election change complies with the procedures established by the Company. The Company may, in its sole discretion, add, discontinue or substitute a Measuring Investment. In the event the Company does not permit Participant election of Measuring Investments, each Participant’s Account shall be credited with interest at a rate of return based on a fixed income investment of 1-10 years maturity as determined in good faith by the Committee from time to time.

5.3 Adjustments of Accounts . As of each Valuation Date, the value of each Account shall be adjusted for credits, distributions and withholding subtractions under Section 11.3 during the valuation period and the value of each Account shall be adjusted for income, gains and losses during the valuation period as if the Account had in fact been invested in the Measuring Investments selected by the Participant during such period. The Committee shall establish additional rules for the adjustment of Participants’ Accounts as it deems necessary and appropriate. All such determinations shall be final and binding on all Participants. The Company shall provide to the Participant at least annually a written statement setting for current value of each Account and any changes to the Account.

6. Distributions from Accounts .

6.1 Separation from Service .


	a. With respect to a Participant who is not a Specified Employee, unless earlier distributed as provided herein or except as permitted by Section 6.7, distribution of the Participant Account shall commence on the Valuation Date coincident with or immediately following the Participant’s Separation from Service with the Company and shall be made as soon as practicable (but no later than the 90th day) after such Valuation Date in the form elected by the Participant in accordance with Section 4.1 or, if applicable, as designated by the Employer in accordance with Section 4.2.

	b. With respect to a Participant who is a Specified Employee, unless earlier distributed as provided herein or except as permitted by Section 6.7, distribution of the Participant Account shall commence on the Valuation Date coincident with or immediately following the 181 ^st day after the date of the Participant’s Separation from Service with the Company and shall be made as soon as practicable (but no later than the 90 ^th day) after such Valuation Date in the form elected by the Participant in accordance with Section 4.1 or, if applicable, as designated by the Employer in accordance with Section 4.2.

	6.2	Unforeseeable Emergency .

	a. If the Committee determines that the Participant has incurred an Unforeseeable Emergency, the Participant shall receive a distribution from the Participant’s Account as of the Valuation Date coincident with or immediately preceding the date of the approval of the Unforeseeable Emergency by the Committee, and shall be made in a single lump sum as soon as practicable (but no later than the 30th day) after such approval. To receive such a distribution, the Participant must file a written distribution request with the Committee, specifying the basis for the Unforeseeable Emergency and the amount requested, and shall furnish such supporting documentation of the request as the Committee may require. The amount of the payment based on Unforeseeable Emergency shall not exceed the amount that is reasonably necessary to satisfy the emergency, and shall include the amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the payment, or the value of the Participant’s Account, whichever is less. A distribution for an Unforeseeable Emergency shall not be made after the death of the Participant or after the occurrence of any distribution event.


b. “Unforeseeable Emergency” means:

	i) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, a beneficiary or the Participant’s dependent (as defined in Code §152(a) but without regard to Code §152(b)(1), (b)(2) and (d)(1)(B));

	ii) loss of the Participant’s property due to casualty; or

	iii) other similar extraordinary and unforeseeable circumstances arising as a result of the events beyond the control of the Participant.

c. Whether a Participant is faced with an Unforeseeable Emergency that may permit a distribution to be made under Section 6.2 is to be determined based on the relevant facts and circumstances of each case and Treas. Reg. §1.409A-3(i)(3), but, in any case, a distribution on account of an Unforeseeable Emergency may not be made to the extent that such emergency is or may be relieved:

		i) through reimbursement or compensation from insurance or otherwise;

	ii) by liquidation of the Participant’s assets to the extent the liquidation of such assets would not itself cause severe financial hardship; or

		iii) by cessation of deferrals under the Plan.

The Company must take into account any additional compensation available upon the cessation of deferrals under the Plan, but may disregard amounts available as a hardship distribution or a loan from the Qualified Plan or as an unforeseeable emergency distribution under another nonqualified plan sponsored by the Company.

d. A Participant may cancel an existing and otherwise irrevocable election for that Plan Year at any time following the Participant’s receipt of a distribution for an Unforeseeable Emergency or of a distribution from the Company’s Qualified Plan based on a hardship within the meaning of Treas. Reg. §1.401(k)-1(d)(3).

e. Neither a Participant’s request nor failure to request a distribution upon an Unforeseeable Emergency or the Company’s acceptance or rejection of such a request shall be deemed a change in payment election under this Plan.

6.3 Disability .

a. If the Participant has incurred a Disability, payment of the Participant’s Account shall be made to the Participant’s beneficiary as of the Valuation Date coincident with or immediately following the Participant’s Separation from Service as a result of the Disability and shall be made in a single lump sum payment as soon as practicable (but no later than the 90th day) after such Valuation Date.

b. “Disability” is any medically determined physical or mental impairment that is expected to result in death or continue for at least 12 months and that renders the Participant unable to engage in any substantial gainful activity or for which the Participant receives at least three months of benefits under a Company-sponsored disability plan.


	6.4 Death .

	a. If the Participant dies, whether prior to the commencement of payment or after payments have begun, payment of the Participant’s Account (or any portion that remains unpaid) shall be made to the Participant’s beneficiary in a single lump sum payment as of the Valuation Date coincident with or immediately following the Participant’s death and shall be made as soon as practicable (but no later than the 90th day) after such Valuation Date.

	b. Each Participant shall file with the Company, on form prescribed by the Company, a written designation of the person or persons to receive the Participant’s Account under this Plan. This right shall include the right to name and change primary and contingent beneficiaries, but any designation of beneficiaries shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. Prior to the death of the Participant, no spouse or surviving spouse of a Participant and no person designated to be a beneficiary shall have any rights or interest in the benefits credited under this Plan including, but not limited to, the right to be the sole beneficiary or to consent to the designation of beneficiaries (or the changing of designated beneficiaries) by the Participant. In the absence of such written designation or if the beneficiaries so named predeceased the Participant, the Participant’s beneficiary shall be the same person(s) designated as such under the terms of the Qualified Plan.

	6.5	Change in Control .

	a. In the event of a Change in Control of the Company, distribution of the Participant’s Account shall be made as of the Valuation Date coincident with or next following the Change in Control and shall be made in a lump sum payment as soon as practicable (but no later than the 90th day) after such Valuation Date.

	b. “Change in Control” is a change in control as defined in the Company’s 2006 Stock Incentive Plan, as amended from time to time.

6.6 Permissible Acceleration . Notwithstanding anything in this Article 6, the Committee, in its sole discretion and without any Participant discretion or election, operationally may elect to accelerate the time or schedule of payment from the Plan in any or all of the circumstances described in Treas. Reg. §§1.409A-3(j)(4)(ii) through (xiv); provided that the Committee must treat all similarly situated Participants on a reasonably equivalent basis. Such circumstances include, but are not limited to:

	a. the mandatory lump-sum payment of the remaining balance in the Participant’s Accounts in the Plan and all Aggregated Plans, provided the payment amount does not exceed the applicable dollar amount under Code §402(g)(1)(B);

	b. any required withholding of income or employment taxes with respect to any amounts in a Participant’s Account (whether or not distributable at the time) shall be distributed from the Participant’s Account at the time such withholding is required to be paid, and shall be applied to pay such required withholding; and

	c. any payment pursuant to Section 8.5.

	6.7	Subsequent Election to Defer .

	a. A Participant may elect to further defer distribution of the Participant’s Account payable upon a Separation of Service if:


		i) the election to further defer is made at least twelve months prior to the date of the Participant’s Separation from Service; and

		ii) such Participant has not previously elected pursuant to this Section to defer distribution of the Participant’s Account.

	No spouse, former spouse, designated beneficiary or other person shall have any right to participate in the Participant’s decision to further defer distribution of all or a portion of the Participant’s Account.

	b. The Participant must elect that, except in the event of death, Disability or Unforeseeable Emergency, the Participant’s Account will distributed on either:

		i) the fifth anniversary of the date of the Participant’s Separation from Service; or

		ii) the first day of the month following the date the Participant attains age 60, provided such date is later than the fifth anniversary of Participant’s Separation from Service.

	c. An election to change the form of payment under Section 7.2 shall be considered a subsequent election to defer and shall comply with the provisions of this Section.

	7. Form of Distribution .

7.1 Form . Upon a Participant’s Separation from Service, unless distributed earlier in accordance with the Plan, distribution of the Participant’s Account shall be made in one or more of the following forms designated by the Participant provided the election is made at the same time and subject to the conditions set forth in Section 4.1:

		a. a single lump sum; or

	b. a series of monthly installments over 60 months, provided, however, that installments shall be made quarterly if the aggregate amount of monthly payments per quarter would be less than $5,000.

If the Participant shall have failed to make a timely designation of the form of distribution or as otherwise provided in Section 6.6(a), the distribution shall be made in a single lump sum.

7.2 Election to Change Form . An election to change the form of payment under Section 7.1 with respect to amounts previously credited to the Participant’s Accounts shall be considered a subsequent election to defer and shall comply with the provisions of Section 6.7. For purposes of Section 6.7 and the requirements of Treas. Reg. §1.409A-2(b), a series of monthly installments shall be treated as a single payment.

7.3 Incompetency . Every person receiving or claiming benefits under this Plan shall be conclusively presumed to be mentally competent until the date on which the Plan Administrator receives a written notice in a form and manner acceptable to the Plan Administrator that such person is incompetent and that a guardian, conservator or other person legally vested with the care of his estate has been appointed. In such event, the Plan Administrator may direct payments of benefits to such guardian, conservator or other person legally vested with the care of his estate and any such payments so made shall be a complete discharge of the Company and the Plan Administrator to the extent so made.

8. Funding and Rights to Benefits .

8.1 Unsecured Creditors . The rights of Participants and the beneficiaries to benefits from this Plan are solely as unsecured creditors of the Company. Benefits payable under this Plan shall be payable from the general assets of the Company, and there shall be no fund or other assets securing the payment of such benefits. In its discretion, the Company may purchase or set aside assets to provide for the payment of benefits hereunder but such assets shall in all cases remain assets of the Company. No Participant or former Participant shall have any legal or equitable right or interest in any Account or in any funds set aside by the Company or in any assets in which the Company may invest, from time to time, to fund this Plan.

8.2 Insurance . The Company may, but is not required to, obtain insurance in connection with its obligations under this Plan. The Company shall be the owner and beneficiary of the proceeds of such insurance contract. The Participant, as a condition of participation under this Plan, shall cooperate with the Company and shall execute any documents reasonably requested by the Company to obtain any such insurance.

8.3 Trust . The Company may establish a grantor trust or other similar arrangement to fund this Plan, provided that no such arrangement shall be established which results in the Participant having any rights other than those of a general unsecured creditor of the Company.

8.4 Assignment and Levy . The Plan is for the benefit and protection of Participants and their beneficiaries and the rights, privileges and except as provided in Section 8.5 benefits herein conferred shall not, to the extent permitted by law, be subject to alienation, assignment, pledge, levy, attachment, garnishment or other legal process or in any manner anticipated, encumbered, committed, withdrawn or surrendered, and neither shall the same be subject or liable in any way for debts, contracts, or agreements or other claims of creditors of such Participants or their beneficiaries whether such claims are now contracted or which may hereafter be contracted or incurred.

8.5 Domestic Relations Orders . The Plan Administrator may permit the assignment of the interest of a Participant in the Plan to a Participant’s former spouse as part of a judgment decree or order, including approval of a property settlement agreement, that relates to provision of alimony payments, or marital property rights to a former spouse, made pursuant to state domestic relations law (including a state community property law) and that creates a former spouse’s right to all or a portion of the Participant’s Account under the Plan. Such payments shall not impair the rights of any former spouse under any such order previously accepted by the Plan with respect to the Participant’s Account. Payment of benefits may be made in a single lump sum as of a date specified in the order. To the extent feasible, the rules and procedures for the determination of an order under this Plan shall be consistent with the procedures for a qualified domestic relations order under the Qualified Plan.

9. Administration and Claims .

9.1 Administration . The Plan shall be administered by the Committee; provided, however, that the Committee may delegate any and all of its powers and authority to a person or committee appointed by the Company, subject to its review, and in that case, all references in the Plan to the Committee shall instead mean such person or other committee. The Committee shall have full power to construe, interpret and administer this Plan, including to make any determination required under this Plan and to make such rules and regulations as it deems advisable for the operation of this Plan. A majority of the Committee shall constitute a quorum. Actions of the Committee shall be by a majority of persons constituting a quorum and eligible to vote on an issue. Meetings may be held in person or by telephone. Action by the Committee may be taken in writing without a meeting provided all disinterested members of the Committee execute such action. To the extent it is feasible to do so, determinations, rules and regulations of the Committee under this Plan shall be consistent with similar determinations, rules and regulations of the Qualified Plan. All determinations of the Committee shall be final and binding on all parties, subject only to the review of the Board of Directors of the Company.

9.2 Named Fiduciary and Plan Administrator . The Company is designated as the Named Fiduciary and the Plan Administrator of the Plan. The Chief Financial Officer of the Company is authorized to perform general administrative functions under the Plan on behalf of the Plan Administrator. Personnel acting within the scope of their employment on behalf of the Company in the performance its duties on behalf of the Named Fiduciary and the Plan Administrator under this Plan shall not become or be deemed to be fiduciaries in their individual capacity.

9.3 Claims Procedure and Review . A Participant or beneficiary (the “claimant”) may make a claim for Plan benefits within the time and in the manner described herein. Such claim shall be made within 60 days after the claim arises by filing a written request with the President of the Company, on behalf of the Plan Administrator. The claim shall be determined by the Plan Administrator within a reasonable time after the receipt of the written claim. Notice of the Plan Administrator’s decision shall be communicated to the claimant in writing. If the claim is denied, the notice shall include the specific reasons for the denial (including reference to pertinent Plan provisions), a description of any additional material or information necessary for the Plan Administrator to reconsider the claim, the reasons for any of such additional material or information, and an explanation of the review procedure.

9.4 Appeal . The claimant or his or her duly authorized representative may, within 90 days after receiving such written notice, request the Committee to review the Plan Administrator’s decision. The Committee shall afford the claimant a hearing and the opportunity to review all pertinent documents and submit issues and comments orally and in writing and shall render a review decision in writing within 60 days after receipt of request for review. The review proceeding shall be conducted in accordance with the rules and regulations adopted from time to time by the Committee, which, to the extent feasible, shall be consistent with the rules and regulations for the Qualified Plans.

9.5 Indemnification . The Company shall indemnify and hold harmless each member of the Committee and any other employee or officer acting on behalf of the Company against any and all claims, loss, damages, expenses (including reasonable attorneys’ fees), and liability (including any amounts paid in settlement) as a result of the administration of the Plan or the exercise of discretion or from any other action or failure to act hereunder, except when the same is judicially determined to be due to gross negligence or willful misconduct of such person. Notwithstanding the foregoing, the Company does not assure or guarantee the tax consequences of benefits provided hereunder or other matters beyond its control.

10. Amendment and Termination .

10.1 Amendments .


	a. The Company reserves the right to amend or modify, in whole or in part, any or all of the provisions of this Plan at any time by a written instrument approved by the Committee; provided, however, that, except as provided in subsection (b), no amendment or modification shall be made which will deprive any Participant or any Participant’s beneficiary of any vested benefits to which he or she is entitled under the Plan.

	b. Notwithstanding the foregoing, the Company reserves the right to amend or modify, in whole or in part, any or all of the provisions of this Plan at any time by written instrument approved by the Committee to the extent the Committee determines in its sole discretion, to comply with the Code §409A, and regulations and other guidance promulgated thereunder, provided that such amendment will not result in taxation to any Participant under Code §409A. As a condition to receiving benefits under this Plan, each Participant is deemed to consent to any such amendment or modification, without further action, including any reduction in any benefits otherwise considered accrued and vested prior to the effective date of such amendment or modification.

10.2 Termination . Continuation of the Plan is not assumed as a contractual obligation of the Company and the right is reserved by the Company, by written instrument approved by the Committee, to

at any time reduce, suspend or discontinue the Plan, provided no such reduction, suspension or discontinuance shall deprive any Participant or beneficiary of any benefits that become vested under the Plan. The Company, by written instrument approved by the Committee, may terminate the Plan and distribute all of the Accounts of the Plan under the following circumstances:


	a. within 12 months following a dissolution taxable under Code §331 or with approval of a bankruptcy court under 11 U.S.C. §503(b)(1)(A), provided that the Plan Accounts are paid to the Participants and are included in the Participants’ gross income in the latest of (or, if earlier, the taxable year in which the amount is actually or constructively received):

		i) the calendar year in which the plan termination and liquidation occurs; or

		ii) the first calendar year in which the payment is administratively practicable.

	b. by irrevocable action taken within the 30 days preceding or the 12 months following a Change in Control, provided the Company distributes all Plan Accounts (and must distribute the accounts under any Aggregated Plans which plan the Company also must terminate and liquidate as to each Participant who has experienced the Change in Control) within 12 months following the date of Company’s irrevocable action to terminate and liquidate the Plan and Aggregated Plans. Where the Change in Control results from an asset purchase transaction, the entity that is primarily liable after the transaction to pay the Participants’ Accounts shall exercise the discretion to terminate the Plan and distribute the Accounts.

		c. for any other reason in the Company’s discretion provided that:

		i) the termination and liquidation does not occur proximate to a downturn in the Company’s financial health;

		ii) the Company also terminates all Aggregated Plans in which any Participant also is a participant;

		iii) the Plan makes no payments in the 12 months following the date of the Company’s irrevocable action to terminate and liquidate the Plan other than payments the Plan would have made irrespective of Plan termination;

		iv) the Plan makes all payments within 24 months following the date of the Company’s irrevocable action to terminate and liquidate the Plan; and

		v) the Company within 3 years following the date of the Company’s irrevocable action to terminate and liquidate the Plan does not adopt a new plan covering any Participant that would be an Aggregated Plan.

11. General Provisions .

11.1 Participant’s Rights . The establishment of this Plan shall not create any legal or equitable right against the Company unless such right is specifically provided for in this Plan. Furthermore, nothing in this Plan shall be construed as giving a Participant the right to be retained in the employment of the Company, and a Participant shall remain subject to discharge at any time to the same extent as if this Plan had not been adopted.

11.2 Notices . Notices required by this Plan to be given to the Company or a Participant shall be in writing and shall be considered to have been duly given or served if personally delivered, or sent by first class, certified or registered mail.

11.3 Tax Withholding . The Company shall, at the time required for such payment, deduct from the Participant’s Account and remit to the Company or the proper governmental authorities an amount sufficient to satisfy federal, state, and local tax withholding requirements with respect to amounts credited to the Participant’s Account or distributed to the Participant, as the case may be.

11.4 Effect on Other Plans . This Plan shall supplement and not supersede, modify or amend any other plan or program sponsored by the Company, including but not limited to, the Qualified Plan and the 1994 Plan.

11.5 Release . Any payment to or for the benefit of any Participant or designated beneficiaries in accordance with the provisions hereof shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Company.

11.6 Severability . The invalidity or partial invalidity of any portion of this Plan shall not invalidate the remainder thereof, and said remainder shall remain in full force and effect.

11.7 Successors . All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

11.8 Governing Law . The laws of the State of Minnesota shall govern construction and administration of this Plan, except to the extent preempted by federal law.

***

IN WITNESS WHEREOF, MTS Systems Corporation has caused its duly authorized officer to execute this Plan on its behalf, who has been duly authorized by its Compensation Committee as of the effective date stated above.


	MTS SYSTEMS CORPORATION

	By:


	Its:

Exhibit 10.4


	CHANGE IN CONTROL AGREEMENT

MTS Systems Corporation 14000 Technology Drive Eden Prairie, MN 55344-2290 Telephone 952-937-4000 Fax 952-937-4515

THIS CHANGE IN CONTROL AGREEMENT is made and entered into by and between MTS Systems Corporation, a Minnesota corporation with its principal offices at 14000 Technology Drive, Eden Prairie, MN 55344 (the “Company”) and ____________________ (the “Executive”), residing at ____________________, and shall be effective as of this 31 ^st day of December, 2008

WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and

WHEREAS, the Executive has made and is expected to continue to make, due to the Executive’s intimate knowledge of the business and affairs of the Company, its policies, methods, personnel, and problems, a significant contribution to the profitability, growth, and financial strength of the Company; and

WHEREAS, the Company, as a publicly held corporation, recognizes that the possibility of a Change in Control may exist, and that such possibility and the uncertainty and questions which it may raise among management may result in the departure or distraction of the Executive in the performance of the Executive’s duties, to the detriment of the Company and its shareholders; and

WHEREAS, it is in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of management personnel, including the Executive, to their assigned duties without distraction and to ensure the continued availability to the Company of the Executive in the event of a Change in Control; and

WHEREAS, the Company and the Executive previously signed a Change in Control Agreement and now desire to amend and restate that Agreement in its entirety to exempt it from the requirements applicable to nonqualified deferred compensation plans pursuant to Section 409A of the Code and regulations promulgated thereunder, and this Agreement shall be construed and administered in a manner that is consistent with and gives effect to such intention.

THEREFORE, in consideration of the foregoing and other respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:

Change in Control Agreement

1. Term of Agreement . This Agreement shall be effective from and after the date hereof and shall continue in effect through December 31, 2009, and shall automatically be extended for successive one-year periods thereafter unless the Board of Directors of the Company (the “Board”) shall have approved, and the Executive is notified in writing, prior to January 1, 2010 and each January 1 thereafter, that the term of this Agreement shall not be extended or further extended; provided , however , that if a Change in Control shall have occurred during the original or any extended term of this Agreement, this Agreement shall continue in effect for a period of 24 months from the date of the occurrence of a Change in Control or, if an event triggering the Company’s severance payment obligations to the Executive under Section 4(d) has occurred during such 24-month period, this Agreement shall continue in effect until the benefits payable to the Executive hereunder have been paid in full. In the event that more than one Change in Control shall occur during the original or any extended term of this Agreement, the 24-month period shall follow the last Change in Control. This Agreement shall neither impose nor confer any further rights or obligations on the Company or the Executive on the day after the end of the term of this Agreement. Expiration of the term of this Agreement of itself and without subsequent action by the Company or the Executive shall not end the employment relationship between the Company and the Executive.

2. Change in Control . No benefits shall be payable hereunder unless there shall have been a Change in Control. For purposes of this Agreement, a “Change in Control” of the Company shall mean a change in control which would be required to be reported in response to Item 6(e) on Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement, including, without limitation, if:


	(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities; or

	(b) During any period of two consecutive years (not including any period ending prior to the effective date of this Agreement), the Incumbent Directors cease for any reason to constitute at least a majority of the Board of Directors. The term “Incumbent Directors” shall mean those individuals who are members of the Board of Directors on the effective date of this Agreement and any individual who subsequently becomes a member of the Board of Directors (other than a director designated by a person who has entered into agreement with the Company to effect a transaction contemplated by Section 2(c)) whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the then Incumbent Directors; or

Change in Control Agreement

(c) (i) The Company consummates a merger, consolidation, share exchange, division or other reorganization of the Company with any corporation or entity, other than an entity owned at least 80% by the Company, unless immediately after such transaction, the shareholders of the Company immediately prior to such transaction beneficially own, directly or indirectly 51% or more of the combined voting power of resulting entity’s outstanding voting securities as well as 51% or more of the Total Market Value of the resulting entity, or in the case of a division, 51% or more of the combined voting power of the outstanding voting securities of each entity resulting from the division as well as 51% or more of the Total Market Value of each such entity, in each case in substantially the same proportion as such shareholders owned shares of the Company prior to such transaction; (ii) the shareholders of the Company approve an agreement for the sale or disposition (in one transaction or a series of transactions) of assets of the Company, the total consideration of which is greater than 51% of the Total Market Value of the Company, or (iii) the Company adopts a plan of complete liquidation or winding-up of the Company. “Total Market Value” shall mean the aggregate market value of the Company’s or the resulting entity’s outstanding common stock (on a fully diluted basis) plus the aggregate market value of the Company’s or the resulting entity’s other outstanding equity securities as measured by the exchange rate of the transaction or by such other method as the Board determines where there is not a readily ascertainable exchange rate.

3. Termination Following Change in Control . If a Change in Control shall have occurred during the term of this Agreement, the Executive shall be entitled to the benefits provided in subsection 4(d) unless such termination is (A) because of the Executive’s death or Retirement, (B) by the Company for Cause or Disability, or (C) by the Executive other than for Good Reason. The Company and the Executive shall take all steps necessary (including with regard to any post-termination services by the Executive) to ensure that any termination described in this Section 3 constitutes a Separation from Service as defined in subsection 3(h).


	(a) Disability . Termination by the Company or the Executive of the Executive’s employment based on “Disability” may occur in the event the Executive has incurred or is afflicted with any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, and as a result, has become eligible for and begun receiving income replacement benefits under the terms of the Company’s long-term disability plan or policy as may be in effect from time to time.

	(b) Retirement . Termination by the Company or the Executive of the Executive’s employment based on “Retirement” shall mean termination on or after attaining age sixty-five (65).

Change in Control Agreement


	(c) Cause . For purposes of this Agreement, “Cause” shall mean:

		(i) the willful and continued failure by the Executive (other than any such failure resulting from (1) the Executive’s incapacity due to physical or mental illness, (2) any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason or (3) the Company’s active or passive obstruction of the performance of the Executive’s duties and responsibilities) to perform substantially the duties and responsibilities of the Executive’s position with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the duties or responsibilities;

		(ii) the conviction of the Executive by a court of competent jurisdiction for felony criminal conduct which, in the good faith opinion of the Company, would impair the Executive’s ability to perform his or her duties or impair the business reputation of the Company; or

		(iii) the willful engaging by the Executive in fraud or dishonesty that is demonstrably and materially injurious to the Company, monetarily or otherwise.

	No act, or failure to act, on the Executive’s part shall be deemed “willful” unless committed, or omitted by the Executive in bad faith and without reasonable belief that the Executive’s act or failure to act was in the best interest of the Company and the Executive shall have either failed to correct, or failed to take all reasonable steps to correct, such act or failure to act within sixty (60) days from the Executive’s receipt of written notice from the Company demanding that the Executive take such action. The Executive shall not be terminated for Cause unless and until the Company shall have delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive’s conduct was Cause and specifying the particulars thereof in detail.

	(d) Good Reason . The Executive shall be entitled to terminate his or her employment for Good Reason; provided, however, that no such termination under this Section 3(d) shall be effective unless: (A) the Executive provides written notice to the Chair of the Board of Directors of the Company of the existence of a condition specified in paragraphs (i) through (v) below within 90 days of the initial existence of the condition; (B)

Change in Control Agreement


	the Company does not remedy such condition within 30 days of the date of such notice; and (C) the Executive terminates employment within 90 days following the last day of the remedial period described above. For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s express written consent, any of the following:

		(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s authority, duties or responsibilities with respect to the Executive’s position immediately prior to the Change in Control, or any action by the Company that results in a diminution in such authority, duties or responsibilities (whether or not occurring solely as a result of the Company’s ceasing to be a publicly traded entity);

		(ii) a material reduction in the Executive’s base compensation in effect immediately prior to the Change in Control;

		(iii) a material reduction in the budget over which the Executive retains authority;

		(iv) a material change in the geographic location at which the Executive must perform services for the Company; and

		iv) Any material violation of this Agreement by the Company, including but not limited to any purported termination of the Executive’s employment that is not made pursuant to a Notice of Termination satisfying the requirements of this Agreement.

	For purposes of this Section 3(d), any good faith determination of Good Reason made by the Executive shall be conclusive. The Executive’s mental or physical incapacity following the occurrence of an event described above in paragraphs (i) through (v) shall not affect the Executive’s ability to terminate employment for Good Reason and the Executive’s death following delivery of a Notice of Termination for Good Reason shall not affect the Executive’s estate’s entitlement to the payments and benefits provided hereunder upon a termination of employment for Good Reason.

	(e) Notice of Termination . Any purported termination of the Executive’s employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 9. For purposes of this Agreement, a “Notice of Termination” shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive’s employment.

Change in Control Agreement


	(f) Date of Termination . For purposes of this Agreement, “Date of Termination” shall mean:

		(i) If the Executive’s employment is terminated for Disability, 30 days after Notice of Termination is given (provided that the Executive shall have been absent from full-time performance of duties for at least three (3) months and shall not have returned to the full-time performance of the Executive’s duties during such 30 day period, in accordance with Section 3(a) hereof);

		(ii) If the Executive’s employment is terminated pursuant to subsections (b) or (c) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (b) above shall not be less than 10 days, and in the case of a termination pursuant to subsection (c) above shall not be less than 10 nor more than 30 days, respectively, from the date such Notice of Termination is given); and

		(iii) Notwithstanding anything contained herein to the contrary, the date on which a Separation from Service takes place.

	(g) Dispute of Termination . If, within 10 days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company shall continue to pay the Executive full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts under this Agreement.

	(h) Separation from Service . Separation from Service means the Executive’s termination of employment (as defined in this subsection 3(h)) from the Company and its Affiliates. A Executive incurs a termination of employment that constitutes a Separation

Change in Control Agreement

from Service if the Executive and the Compensation Committee of the Board of Directors of the Company reasonably anticipate either than the Executive will not perform any additional services after a certain date for the Company and any Affiliate (the “Company Group”), or that the Executive’s level of bona fide services for the Company Group will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period. The Executive does not incur a Separation from Service if on military leave, sick leave, or other bona fide leave of absence if such leave does not exceed a period of 6 months, or if longer, the period for which a statute or contract provides the Executive with the right to reemployment with the Company Group, provided that there is a reasonable expectation that the Executive will return to perform further services. If an Executive’s leave exceeds 6 months but the Executive is not entitled to reemployment under a statute or contract, the Executive incurs a Separation from Service on the next day following the expiration of 6 months. Where a leave of absence is due to a Disability, the 6 month leave period described above shall be 12 months unless the leave is earlier terminated. The service of the Executive as a director of the board of any entity in the Company Group will not be considered in determining whether the Executive has incurred a Separation from Service as an employee of the Company Group. The Compensation Committee will determine whether a Executive has incurred a Separation from Service based on the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(h)(1)(ii). For purposes of this subsection 3(h), “Affiliate” means an entity that would be considered with the Company a single employer under Sections 414(b) and (c) and 1563(a) of the Code, except that 50% shall be substituted for the 80% each place it appears in Sections 414(b) and (c) and 1563(a) of the Code.

4. Compensation Upon Termination or During Disability . Following a Change in Control of the Company, as defined in subsection 2(a), upon termination of the Executive’s employment or during a period of Disability, the Executive shall be entitled to the following benefits:


	(a) During any period that the Executive fails to perform full-time duties with the Company as a result of a Disability, the Company shall pay the Executive, the Executive’s base salary as in effect at the commencement of any such period and the amount of any other form or type of compensation otherwise payable for such period if the Executive were not so disabled, until such time as the Executive is determined to be eligible for long term disability benefits in accordance with the Company’s insurance programs then in effect or the Executive is terminated for Disability.”

	(b) If the Executive’s employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason or Disability, the Company shall pay to the Executive his or her full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligation to

Change in Control Agreement


	the Executive under this Agreement, except with respect to any benefits to which the Executive is entitled under any Company pension or welfare benefit plan, insurance program or as otherwise required by law.

	(c) If the Executive’s employment shall be terminated by the Company or by the Executive for Disability or Retirement, or by reason of death, the Company shall immediately commence payment to the Executive (or the Executive’s designated beneficiaries or estate, if no beneficiary is designated) of any and all benefits to which the Executive is entitled under the Company’s retirement and insurance programs then in effect.

	(d) If the Executive’s employment shall be terminated (A) by the Company other than for Cause, Retirement, Disability or the Executive’s death or (B) by the Executive for Good Reason, then the Executive shall be entitled to the benefits provided below:

		(i) The Company shall pay the Executive, through the Date of Termination, the Executive’s base salary as in effect at the time the Notice of Termination is given and any other form or type of compensation otherwise payable for such period;

		(ii) In lieu of any further salary payments for periods subsequent to the Date of Termination, the Company shall pay a severance payment (the “Severance Payment”) equal to two times the Executive’s Annual Compensation as defined below. For purposes of this Section 4, “Annual Compensation” shall mean the Executive’s annual salary (regardless of whether all or any portion of such salary has been contributed to a deferred compensation plan), the average annual Management Variable Compensation (“MVC”) earned by the Executive during the three (3) fiscal years immediately preceding the Date of Termination or, if less, the actual number of fiscal years the Executive has participated in the MVC plan, and any other type or form of compensation paid to the Executive by the Company (or any corporation (an “Affiliate”) affiliated with the Company within the meaning of Section 1504 of the Internal Revenue Code of 1986 as it may be amended from time to time (the “Code”)) and included in the Executive’s gross income for federal tax purposes during the 12-month period ending immediately prior to the Date of Termination, but excluding: a) any amount actually paid to the Executive as a cash payment of the target bonus (regardless of whether all or any portion of such Company bonus was contributed to a deferred compensation plan); b) compensation income recognized as a result of the exercise of stock options or sale of the stock so acquired; and c) any payments actually or constructively received from a plan or arrangement of deferred compensation between Company and the Executive. All of the items included in Annual Compensation shall be those in effect on the Date of Termination and shall


Change in Control Agreement

		be calculated without giving effect to any reduction in such compensation that would constitute a breach of this Agreement. The Severance Payment shall be made in a single lump sum within 30 days after the Date of Termination;

		(iii) For the 18-month period after the Date of Termination (the “Benefit Continuation Period”), the Company shall arrange to provide, at its sole expense, the Executive with life, disability, accident and health insurance benefits substantially similar to those that the Executive is receiving or entitled to receive immediately prior to the Notice of Termination. The Executive shall be responsible for the payment of his or her portion of the premiums for such benefits at the same relative percentage of total premiums as the Executive paid prior to the Date of Termination. Following the end of the Benefit Continuation Period, the Executive shall be eligible for continued health coverage as required by Code Section 4980B or other applicable law (“COBRA Coverage”), as if the Executive’s employment with the Company had terminated as of the end of the Benefit Continuation Period, and the Company shall take such actions as are necessary to cause such COBRA Coverage not to be offset by the provision of benefits under this paragraph (iii) and to cause the period of COBRA Coverage to commence at the end of the Benefit Continuation Period. The cost of providing such benefits shall be in addition to (and shall not reduce) the Severance Payment. Benefits otherwise receivable by the Executive pursuant to this paragraph (iii) shall be reduced to the extent comparable benefits are actually received by the Executive during the Benefit Continuation Period, and any such benefits actually received by Executive shall be reported to the Company; and

		(iv) The Company shall also pay to the Executive all legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement); provided that such payment for legal fees and expenses shall be made not later than the last day of the calendar year following the year in which the Executive incurred the fees and expenses and the Executive’s right to such payment may not be liquidated or exchanged for any other benefit.

	(e) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 (except as expressly provided in Section 4(d)(iii)) be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise.


Change in Control Agreement

	(f) The Executive shall be entitled to receive all benefits payable to the Executive under the Company pension and welfare benefit plans or any successor of such plan and any other plan or agreement relating to retirement benefits which shall be in addition to, and not reduced by, any other amounts payable to the Executive under this Section 4.

	(g) The Executive shall be entitled to exercise all rights and to receive all benefits accruing to the Executive under any and all Company stock purchase and stock option plans or programs, or any successor to any such plans or programs, which shall be in addition to, and not reduced by, any other amounts payable to the Executive under this Section 4.

	(h) The Company will indemnify the Executive (and the Executive’s legal representative or other successors) to the fullest extent permitted (including payment of expenses in advance of final disposition of the proceeding) by the laws of the State of Minnesota, as in effect at the time of the subject act or omission, or the Articles of Incorporation and By-Laws of the Company as in effect at such time or on the date of this Agreement, whichever affords or afforded greater protection to the Executive; and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, against all costs, charges and expenses whatsoever incurred or sustained by the Executive or the Executive’s legal representatives in connection with any action, suit or proceeding to which the Executive (or the Executive’s legal representative or other successors) may be made a party by reason of the Executive’s being or having been a director, officer or employee of the Company or any of its subsidiaries or his or her serving or having served any other enterprise as a director, officer or employee at the request of the Company, provided that the Company shall cause to be maintained in effect for not less than six years from the date of a Change in Control (to the extent available) policies of directors’ and officers’ liability insurance of at least the same coverage as those maintained by the Company on the date of this Agreement and containing terms and conditions which are no less advantageous than such policies.

Notwithstanding anything herein to the contrary, if the Executive’s employment is governed by a separate written employment agreement that provides benefits upon a termination of employment, the aggregate of any payments or benefits payable under such employment agreement shall offset and reduce the aggregate of payments and benefits under this Agreement.

5.	Non-Compete and Confidentiality .

	(a) Noncompetition . Except as provided in subsection (c) below, the Executive agrees that, as a condition of receiving benefits under this Agreement, the Executive will not render services directly or indirectly to any competing organization, wherever located, for a


Change in Control Agreement

	period of one year following the Date of Termination, in connection with the design, implementation, development, manufacture, marketing, sale, merchandising, leasing, servicing or promotion of any “Conflicting Product” which as used herein means any product, process, system or service of any person, firm, corporation, organization other than the Company, in existence or under development, which is the same as or similar to or competes with, or has a usage allied to, a product, process, system, or service produced, developed, or used by the Company. The Executive agrees that violation of this covenant not to compete with the Company shall result in immediate cessation of all benefits hereunder, other than insurance benefits, which the Executive may continue where permitted under federal and state law at his or her own expense.

	(b) Confidentiality . The Executive further agrees and acknowledges the Executive’s existing obligation that at all times during and subsequent to his or her employment with MTS, the Executive will not divulge or appropriate to the Executive’s own use or the uses of others any secret or confidential information or knowledge pertaining to the business of MTS, or any of its subsidiaries, obtained during his or her employment by MTS or any of its subsidiaries.

	(c) Waiver - Unfriendly Change in Control . Notwithstanding anything herein to the contrary: the restriction on competition under subsection (a) shall not apply if the Executive’s employment terminates following a Change in Control which has not been approved by a majority of the Incumbent Directors in office immediately prior to the Change in Control (an “Unfriendly Change in Control”). Furthermore, in such event, the Company waives any other restriction on the Executive’s employment and consents unconditionally to any employment the Executive may subsequently obtain.

6. Limits on Payments and Benefits . In the event that the vesting, acceleration and payment of any equity awards or other compensation or benefits, together with all other payments and the value of any benefit received or to be received by the Executive would result in all or a portion of such payment being subject to excise tax under Section 4999 of the Code, then the amounts due under Section 4 that the Company shall pay to the Executive shall be either (A) the full payment or (B) such lesser amount determined by the Company in accordance with this Section 6 that would result in no portion of the payment being subject to excise tax under Section 4999 of the Code (the “Excise Tax”), whichever of the foregoing amounts, taking into account the applicable Federal, state, and local employment taxes, income taxes, and the Excise Tax, results in the receipt by the Executive, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of the payment may be taxable under Section 4999 of the Code. In the event the amounts due under Section 4 are reduced, the amounts shall be reduced in the following order of priority: first, with respect to any amount that does not constitute the “deferral of compensation” under Section 409A of the Code and regulations promulgated thereunder, disregard the acceleration

Change in Control Agreement

in the time of payment and then disregard the acceleration of vesting as a result of a Change in Control and second, with respect to any amount that constitutes the “deferral of compensation” under Section 409A of the Code and regulations promulgated thereunder, disregard the acceleration in the time of payment and then disregard the acceleration of vesting as a result of a Change in Control first with respect to Company funded amounts and then the Executive’s deferrals, in each case only to the extent necessary to satisfy (B) above. All determinations required to be made under this Section 14 shall be made by a nationally recognized accounting firm that is the Company’s outside auditor immediately prior to the event triggering the payments that are subject to the Excise Tax (the “Accounting Firm”). The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Executive. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Executive to an amount due under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Accounting Firm’s determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). For the purposes of all calculations under Section 280G of the Code and the application of this Section 6, all determination as to present value shall use 120 percent of the applicable Federal rate (determined under Section 1274(d) of the Code) compounded based on the nature of the payment, as in effect on the date of this Agreement, but if not otherwise specified, the Company and Executive agree to compound such rate on a semiannual basis. The determination by the Accounting Firm shall be final and binding on the Company and the Executive.

7. Funding of Payments . In order to assure the performance of the Company or its successor of its obligations under this Agreement, the Company may deposit in a so-called “rabbi” trust an amount equal to the maximum payment that will be due the Executive under the terms hereof; provided, however, that the Company shall deposit in trust the amount equal to the maximum payment due Executive immediately upon an Unfriendly Change in Control. Under such written trust instrument, the trustee shall be instructed to pay to the Executive (or the Executive’s legal representative, as the case may be) the amount to which the Executive shall be entitled under the terms hereof, and the balance, if any, of the trust not so paid or reserved for payment shall be repaid to the Company. If the Company deposits funds in trust, payment shall be made no later than the occurrence of the Change in Control. The written instrument governing the trust shall be irrevocable from and after such Change in Control and shall contain such provisions protective of the Executive as are contained in similar trust agreements approved by the Internal Revenue Service in published private letter rulings (provided that the assets of the trust shall be reachable by creditors of the Company as required by such rulings). The trustee shall be a national bank selected by the Company with the consent of the Executive, with trust powers and whose principal officers are located in the Minneapolis/St. Paul metropolitan area. The trustee shall invest the assets of the trust in any readily marketable securities of U.S. corporations (other than the Company, its successor, or any affiliate of the Company or its successor). If and to the extent there are not amounts in trust sufficient to pay

Change in Control Agreement

Executive under this Agreement, the Company shall remain liable for any and all payments due to Executive.

8. Successors; Binding Agreement .

(a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to 51% or more of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to the compensation and benefits from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his or her employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, successors, heirs, and designated beneficiaries. If the Executive should die while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s designated beneficiaries, or, if there is no such designated beneficiary, to the Executive’s estate.

9. Notice . For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the last known residence address of the Executive or in the case of the Company, to its principal office to the attention of each of the then directors of the Company with a copy to its Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

10. Non-application of Section 409A of the Code . It is the intent of the Company and the Executive that this Agreement satisfy those requirements of Section 409A of the Code to constitute first a “short term deferral” and then a “separation pay plan” to exempt the payments hereunder from the definition of a “nonqualified deferred compensation plan” under Section 409A of the Code, and the Agreement shall be so administered and interpreted in manner consistent with, and that gives effect to, such intention. The Company shall have the authority, without the consent of the Executive to amend such provision to maintain to maximum extent practicable the intent that this Agreement remains exempt from the requirements applicable to a “nonqualified deferred

Change in Control Agreement

compensation plan” under Section 409A of the Code and regulations and other guidance promulgated thereunder.

11. Miscellaneous . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the parties. No waiver by either party hereto at any time of any breach by the other party to this Agreement of, or compliance with, any condition or provision of this Agreement to be performed by such other-party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or similar time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota.

12. Validity . The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned officer, on behalf of MTS Systems Corporation, and the Executive have hereunto set their hands as of the date first above written.


	MTS SYSTEMS CORPORATION

	By

	Its Chair and CEO

	EXECUTIVE: