Exhibit 10.s

   

CHANGE IN CONTROL AGREEMENT

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

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        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 Douglas E.
Marinaro (the”Executive”), residing at Eden Prairie, and shall be effective as
of this 28th day of January, 2003.

        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.

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

        1.    Term of Agreement. This Agreement shall be effective from and
after the date hereof and shall continue in effect through December 31, 2003,
and shall automatically be extended for successive one-year periods thereafter
unless the Board of Directors of the Company (the “Board”)

 

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Change in Control Agreement

shall have approved, and the Executive is notified in writing, prior to January
1, 2004 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

        (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

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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.

        (a)    Disability; Retirement. If, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of the Executive’s duties with the Company for at least
three (3) consecutive months, and within 30 days after written Notice of
Termination is given the Executive shall not have returned to the full-time
performance of the Executive’s duties, the Company may terminate the Executive’s
employment for “Disability”. Any question as to the existence of the Executive’s
Disability upon which the Executive and the Company cannot agree shall be
determined by a qualified independent physician selected by the Executive (or,
if the Executive is unable to make such selection, it shall be made by any adult
member of the Executive’s immediate family), and approved by the Company. The
determination of such physician made in writing to the Company and to the
Executive shall be final and conclusive for all purposes of this Agreement.
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).

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

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        (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
which 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.

        (c)    Good Reason. The Executive shall be entitled to terminate his or
her employment for Good Reason. For purposes of this Agreement, “Good Reason”
shall mean, without the Executive’s express written consent, any of the
following:

        (i)    The authority, powers, functions, responsibilities or duties
assigned to the Executive, as compared to those in effect immediately prior to
the Change in

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Control, are materially and adversely diminished without the Executive’s written
consent (except for any diminution that occurs solely as a result of the fact
that the Company ceases to be a public company);

        (ii)    A reduction by the Company in the Executive’s annual
compensation including, but not limited to, base pay or short and/long term
incentive pay in effect immediately prior to a Change in Control;

        (iii)    The Company requiring the Executive to relocate his or her
office, or to be based in an office, more than 50 miles from his or her office
immediately prior to the Change in Control (except for required travel on the
Company’s business to an extent substantially consistent with the Executive’s
business travel obligations immediately prior to the Change in Control);

        (iv)    The failure by the Company to continue to provide the Executive
with benefits at least as favorable to those enjoyed by the Executive under any
of the Company’s pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive awards, incentive stock options, or
savings plans in which the Executive was participating immediately prior to the
Change in Control, the taking of any action by the Company which would directly
or indirectly materially reduce any of such benefits or deprive the Executive of
any material fringe benefit enjoyed immediately prior to the Change in Control,
or the failure by the Company to provide the Executive with the number of paid
vacation or sick days to which Executive is entitled immediately prior to the
Change in Control, provided, however, that the Company may amend any such plan
or programs as long as such amendments do not reduce any benefits to which the
Executive would be entitled upon termination;

        (v)    The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 8;

        (vi)    any material violation of this Agreement by the Company;

        (vii)    the Company requests the Executive’s resignation from
employment; or

        (viii)    any purported termination of the Executive’s employment which
is not made pursuant to a Notice of Termination satisfying the requirements of
this

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Agreement; for purposes of this Agreement, no such purported termination shall
be effective.

        (d)    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 which 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.

        (e)    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); and

        (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).

        (f)    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

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addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts under this Agreement.

        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 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

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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 be calculated without giving effect to any reduction in
such compensation which 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 24-month period after the Date of Termination, the
Company shall arrange to provide, at its sole expense, the Executive with life,
disability, accident and health insurance benefits substantially similar to
those which 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, (recognizing that the
Executive shall remain responsible for payment of the same relative percentage
of total premiums as the Executive paid prior to the Date of Termination). 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 such 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

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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).

        (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.

        (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.

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        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 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.     Potential Excise Tax.

        (a)    Gross-Up Payments. In the event it shall be determined that any
payment, distribution or benefit made or provided by or on behalf of the Company
to or for the benefit

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of the Executive (pursuant to this Agreement or contemplated hereunder) (a
“Payment”), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the “Code”), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, being, collectively referred to as the “Excise
Tax”), then the Company shall pay the Executive in cash an additional amount
(the “Gross-Up Payment”) such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including but not limited to income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed on the Payments. Notwithstanding the foregoing, no amount
shall be paid under this Section 6, and the amounts payable to the Executive
under this Agreement shall be reduced to the amount at which no such Excise Tax
is payable, if the result of such reduction is to place Executive in the same or
a better after-tax position than would result from making the additional
payments provided under this Section.

        (b)    Determination of Gross-Up Payment. Subject to sub-paragraph (c)
below, all determinations required to be made under this Section 6, including
whether a Gross-Up Payment is required and the amount of the Gross-Up Payment,
shall be made by the firm of independent public accountants selected by the
Company to audit its financial statements for the year immediately preceding the
Change in Control (the “Accounting Firm”) which shall provide detailed
supporting calculations to the Company and the Executive within 30 days after
the date of the Executive’s termination of employment. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group affecting the Change of Control, the Executive may appoint another
nationally recognized accounting firm to make the determinations required under
this Section 6 (which accounting firm shall then be referred to as the
“Accounting Firm”). All fees and expenses of the Accounting Firm in connection
with the work it performs pursuant to this Section 6 shall be promptly paid by
the Company. Any Gross-Up Payment shall be paid by the Company to the Executive
within 5 days of the receipt of the Accounting Firm’s determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to report the
Excise Tax on the Executive’s applicable federal income tax return would not
result in the imposition of a penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
(“Underpayment”). In the event that the Company exhausts its remedies pursuant
to sub-paragraph (c) below, and the Executive is thereafter required to make a
payment of Excise Tax, the Accounting Firm shall promptly determine the amount
of the Underpayment that has occurred and any such Underpayment shall be paid by
the Company to the Executive within

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5 days after such determination.

        (c)   Contest. The Executive shall notify the Company in writing of any
claim made by the Internal Revenue Service that if successful, would require the
Company to pay a Gross-Up Payment. Such notification shall be given as soon as
practicable but in no event later than ten (10) business days in the case of an
assessment and twenty (20) business days in all other cases after the Executive
knows of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which the Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Employee
shall:

(1)  

give the Company any information reasonably requested by the Company relating to
such claim;

(2)  

take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, without limitation, accepting
legal representation with respect to such claim by an attorney elected by the
Company and reasonably acceptable to the Executive;

(3)  

cooperate with the Company in good faith in order to effectively contest such
claim; and

(4)  

permit the Company to participate in any proceedings relating to such claim,
provided that the Company shall bear and pay directly all costs and expenses
(including interest and penalties) incurred in connection with such contest
including, upon request, advancing Executives’ legal and administrative costs
associated with such contest, and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses.

  Without limitation on the foregoing provisions of this subparagraph (c), the
Company shall control all proceedings taken in connection with such contest. At
its sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner. The
Executive agrees to prosecute such contest to a determination before any

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  administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine, provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. The Company’s control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder, and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority. Furthermore, the Company agrees to hold in confidence
and not to disclose, without the Executive’s prior written consent, any
information with regard to Executive’s tax position which the Company obtains
pursuant to this Section 6.

        (d)    Suit for Refund. If the Company directs the Executive to pay any
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis. If the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall promptly
pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

        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

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Change in Control Agreement

the Company or its successor). If and to the extent there are not amounts in
trust sufficient to pay 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.    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

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Change in Control Agreement

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.

        11.    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 

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   Its          Chairman and CEO

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EXECUTIVE:

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Douglas E. Marinaro

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