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EXHIBIT 10.1
 

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www.nts.com

 
CHANGE OF CONTROL AGREEMENT
 
July 25, 2012
 
Mr. Michael El-Hillow
99 Monomoscoy West Road
Mashpee, Massachusetts  02649

Dear Michael:

The Company considers it essential to the best interests of its shareholders to
attract top executives and to foster the continuous employment of key management
personnel.  In this connection, the Board of Directors of the Company (the
“Board”) 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 management
personnel to the detriment of the Company and its shareholders.

The Board has determined that appropriate steps should be taken to ensure the
continuity of management and to foster objectivity in the face of potentially
disturbing circumstances arising from the possibility of a change in control of
the Company. In order to induce you to accept employment with the Company and in
consideration of your further services to the Company, the Company agrees that
effective as of the date hereof you shall receive the severance benefits set
forth in this letter agreement (“Agreement”) in the event your employment with
the Company terminates subsequent to a Change in Control of the Company (as
defined in Section 2(d) hereof) under the circumstances described below.

 
1.
Term of Agreement.   This Agreement shall commence on the date hereof and shall
continue in effect until the earlier of (i) the termination of your employment
with the Company for any reason other than within 12 months following a Change
in Control or for cause; (ii) satisfaction of all the Company’s obligations
under this Agreement; (iii) the execution of a written agreement between the
Company and you terminating this Agreement; or (iv) your death.

 
2.
Definitions.         As used in this Agreement:

 
(a.)
“Annual Compensation” means the greater of:

 
(i.)
one year of base salary, computed at the highest base salary rate that you were
paid by the Company for any one month during the 12-month period prior to the
date of your termination of employment (the “Look-Back Period”); or

 
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Mr. Michael El-Hillow
July 25, 2012
 
 
(ii.)
100% of the aggregate cash compensation received by you including base salary,
bonuses, incentive compensation and commissions for any 12-month period ending
within the Look-Back Period.

 
(b.)
“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).

 
(c.)
“Cause” means (i) any act of personal dishonesty taken by you in connection with
your responsibilities as an employee and intended to result in substantial
personal enrichment to you, (ii) a willful act by you which constitutes Gross
Misconduct and which is injurious to the Company; or (iii) your conviction of a
felony which the Board reasonably believe had or will have a material
detrimental effect on the Company’s reputation or business.  The Board shall
give you written notice (“For Cause Notice”) of the actions which it has
determined constitute Cause.  You, or your authorized representative, shall have
the right to appear before a quorum of the Board within 30 days following your
receipt of the For Cause Notice and following such appearance (or after 30 days
following the For Cause Notice if no appearance before the Board takes place),
the Board shall issue a final determination either confirming or retracting the
For Cause Notice.  If confirmed, the date of confirmation shall be deemed the
date of termination for Cause.  If retracted, your at-will employment by the
Company shall continue.

 
(d.)
“Change in Control” of the Company means and includes each and all of the
following occurrences:

 
(i.)
The shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company’s assets; or

 
(ii.)
The acquisition by any Person as Beneficial Owner, directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company's then outstanding voting securities.

 
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Mr. Michael El-Hillow
July 25, 2012
 
Any other provision of this Section notwithstanding, the term Change in Control
shall not include either of the following events undertaken at the election of
the Company:

 
(i.)
Any transaction, the sole purpose of which is to change the state of the
Company’s incorporation; or

 
(ii.)
A transaction, the result of which is to sell all or substantially all of the
assets of the Company to another corporation (the “surviving corporation”);
provided that the surviving corporation is owned directly or indirectly by the
shareholders of the Company immediately following such transaction in
substantially the same proportions as their ownership of the Company’s Common
Stock immediately preceding such transaction; and provided further, that the
surviving corporation expressly assumes this Agreement.

 
(e.)
“Code” means the Internal Revenue Code of 1986, as amended.

 
(f.)
“Company” means National Technical Systems, Inc., a California corporation, its
wholly owned subsidiaries, including, but not limited to, NTS Technical Systems,
a California corporation, and any successor as provided in Section 7 hereof.

 
(g.)
“Disability” means that, at the time your employment is terminated, you have
been unable to perform the duties of your position for a period of 180
consecutive days as the result of your incapacity due to physical or mental
illness.

 
(h.)
“Good Reason” means any of the following that occur without your express written
consent:

 
(i.)
a material reduction of your duties, position or responsibilities, or your
removal from such position and responsibilities, unless you are provided with a
comparable position (i.e., a position of equal or great organizational level,
duties, authority, and compensation);

 
(ii.)
a reduction by the Company in your base compensation or overall compensation
package (base salary, incentive compensation and bonus) as in effect immediately
prior to such reduction;

 
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Mr. Michael El-Hillow
July 25, 2012
 
 
(iii.)
a material reduction by the Company in the kind or level of employee benefits to
which you are entitled immediately prior to such reduction with the result that
your overall benefits package is significantly reduced;

 
(iv.)
you are requested to relocate (except for office relocations that would not
increase your one way commute by more than 20 miles) which relocation causes a
material change in the geographic location at which you must perform services;
or

 
(v.)
the failure of the Company to obtain the assumption of this Agreement pursuant
to Section 7.

 
Notwithstanding the foregoing, in order for you to resign for Good Reason: (x)
you must notify the Company in writing within 30 days of the initial existence
of the condition described in (i) through (v) above and must provide the Company
with 30 days to remedy such condition (y) the Company must fail to remedy the
condition within 30 days after its receipt of your written notice, and (z) you
must terminate your employment for Good Reason within ten days following the
Company’s failure to remedy the Good Reason condition.
 
 
(i.)
“Gross Misconduct” means (i) theft or intentional damage of Company property;
(ii) use, possession, sale or distribution of illegal drugs; (iii) being under
the influence of alcohol or drugs (except to the extent medically prescribed)
while on duty or on Company premises; (iv) involvement in activities
representing conflicts of interest; (v) improper disclosure of confidential
information; (vi) conduct endangering, or likely to endanger, the health or
safety of another employee, or (vii) intentionally falsifying or misrepresenting
material information on Company records.

 
 
(j.)
“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(4) thereof, including a group
as defined in Section 13(d) of the Exchange Act but excluding the Company and
any subsidiary and any employee benefit plan sponsored or maintained by the
Company or any subsidiary (including ay trustee of such plan acting as Trustee).

 
 
(k.)
“Qualifying Termination of Employment” means the termination of your employment
with the Company (i) by the Company other than for Cause, death, or Disability,
or (ii) due to your resignation for Good Reason.  For purposes of this Plan, a
Qualifying Termination of Employment must also constitute a Separation from
Service.

 
 
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Mr. Michael El-Hillow
July 25, 2012
 
 
(l.)
“Separation from Service” has the same meaning provided to such terms under Code
Section 409A and the final regulations and other official regulatory guidance
promulgated thereunder.

 
(m.)
“Severance Payment” means the payment of severance compensation as provided in
Section 3 (a).

 
 
3.
Payment Upon Qualifying Termination of Employment Following a Change in
Control.  Subject to Sections 3(c) and 4 below, if you experience a Qualifying
Termination of Employment within 12  months following a Change in Control, then:

 
(a.)
You will be entitled to a Severance Payment in an amount computed as follows:

 
(i.)
A payment equal to one (1) times Annual Compensation.  The Company shall pay the
Severance Payment as determined under this Section 3(a)(i) in a cash lump sum
payment within 15 days following the “55-day Period” in which you are required
to execute and not revoke the “Release” (as such terms are defined in Section
3(c) below); and

 
(ii.)
The same percentage of Company-paid health insurance benefits as were provided
to you and your eligible dependents under plans of the Company immediately prior
to the Change in Control for a total of 12  months.  Notwithstanding the
foregoing, the Company may, at its option, satisfy any requirement that the
Company provide coverage under any Company-sponsored plan by instead providing
coverage under a separate plan or plans providing coverage that is no less
favorable or by paying you the monthly equivalent sufficient to provide you and
your eligible dependents with equivalent coverage under a third party plan that
is reasonably available to you and your eligible dependents.

 
(b.)
As a condition to receiving any benefits provided under this Section 3, you must
(i) deliver to the Company an executed separation agreement and release of
claims in the form prescribed by the Company, of all known and unknown claims
that you then have against the Company or persons affiliated with the Company
(the “Release”), (ii) not revoke the such release, and (iii) the Release must
become effective within fifty-five (55) days from your Qualifying Termination of
Employment (the “55-Day Period”).

 
 
(c.)
Notwithstanding any provision to the contrary, the Company shall have no
obligation to make any payment or offer any benefits to you under this Agreement
if your employment is terminated prior to a Change in Control; or (ii) if your
employment is terminated within 12  months following a Change in Control for
Cause, death, Disability, or resignation other than for Good Reason; or (iii) if
your employment is terminated for any reason after 12  months following a Change
in Control.

 
 
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Mr. Michael El-Hillow
July 25, 2012
 
 
4.
Parachute Payments.  Notwithstanding Section 3 above, if all or any portion of
the payments or benefits provided under Section 3, either alone or together with
other payments or benefits which you receive or are then entitled to receive
from the Company, would constitute a "parachute payment" within the meaning of
Code Section 2800, such payments or benefits provided to you under Section 3
shall be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Code Section 4999; but only if, by reason
of such reduction, your net after tax benefit shall exceed the "net after tax
benefit" if such reduction were not made.  "Net after tax benefit" for purposes
of this Agreement shall mean the sum of: (i) the total amount payable to you
under Section 3, plus (ii) all other payments and benefits which you receive or
are then entitled to receive from the Company that would constitute a "parachute
payment" within the meaning of Code Section 2800, less (iii) the amount of
federal income taxes payable with respect to the payment and benefits described
in (i) and (ii) above calculated at the maximum marginal income tax rate for
each year in which such payments and benefits shall be paid to you (based upon
the rate in effect for such year as set forth in the Code at the time of the
first payment of the foregoing), less (iv) the amount of excise taxes imposed
with respect to the payments and benefits described in (i) and (ii) above by
Code Section 4999.

 
 
5.
No Mitigation.  You shall not be required to mitigate the amount of any payment
provided for in Section 3 hereof by seeking other employment or otherwise, nor
shall the amount of such payment be reduced by any other payments you receive
from the Company or from any wages, income or compensation you receive from any
source whatsoever after your termination of employment with the Company.

 
 
6.
Exclusive Remedy.  In the event of a Qualifying Termination of Employment within
12 months following a Change in Control, the provisions of Section 3 are
intended to be and are exclusive and in lieu of any other rights or remedies to
which you or the Company may otherwise be entitled, whether at law, tort or
contract, in equity, or under this Agreement.  You shall not be entitled to any
severance benefits, compensation, or other payments or rights upon Qualifying
Termination of Employment within 12 months following a Change in Control other
than those benefits expressly set forth in Section 3.

 
 
7.
Company's Successors.  The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform the obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place.  As used in this Section 7, Company includes
any successor to its business or assets as aforesaid which executes and delivers
this Agreement or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.

 
 
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Mr. Michael El-Hillow
July 25, 2012
 
 
8.
Notice.  Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or three (3) days after deposit with postal authorities transmitted by
United States certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first or last page of
this Agreement, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

 
 
9.
Amendment.  No provision of this Agreement may be modified or amended unless you
and the Company agree to such modification or amendment in a writing stating
that it is intended to amend or modify this Agreement.

 
 
10.
At-Will Employment.  This Agreement is not intended to constitute, and shall not
be deemed to constitute, an agreement of employment, and your employment with
the Company shall continue to be "at will," meaning that you are free to
terminate your employment with the Company at any time, with or without notice,
for any reason or no reason, and the Company has the similar right to terminate
your employment at any time, with or without notice, for any reason or no
reason.

 
 
11.
Sole Agreement.  This Agreement represents the entire agreement between you and
the Company with respect to the matters set forth herein, and, except for any
Long Term Incentive Plan and any Supplemental Executive Retirement Plan,
supersedes and replaces any prior agreements in their entirety.  No agreements
or representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly herein.  Notwithstanding the foregoing, nothing set forth in
this Agreement is intended to supersede, replace, or modify any Long Term
Incentive Plan and any Supplemental Executive Retirement Plan entered into by
and between the Company and you.

 
 
12.
Employee's Successors.  This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If you
should die while any amounts are still payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee, or other designee or, if there
be no such designees, to your estate.

 
 
13.
Unfunded Arrangement.   Benefits under this Agreement shall be paid, if at all,
from the Company's general assets.

 
 
14.
Waiver.  No waiver by either party of any breach of, or of compliance with, any
condition or provision of this Agreement by the other party shall be considered
a waiver of any other condition or provision, or of the same condition or
provision, at another time.

 
 
15.
Headings.  All captions and Section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.

 
 
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Mr. Michael El-Hillow
July 25, 2012
 
 
16.
Validity.  The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.

 
17.
Withholding.   All payments made pursuant to this Agreement will be subject to
withholding of applicable income and employment taxes.

 
 
18.
Applicable Law.  This Agreement shall be interpreted and enforced in accordance
with the laws of the State of California (with the exception of its conflict of laws provisions).

 
 
19.
Counterparts.  This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and the same
instrument.

 

 
20.
Arbitration. Any dispute, claim or controversy arising out of or relating to
this Agreement or breach, termination, enforcement, interpretation, or validity
thereof, including the determination of the scope or applicability of this
Agreement to arbitrate, shall be determined by arbitration in California, before
a sole arbitrator in accordance with the laws of the State of California for
agreements made in and to be performed in that State. The arbitration shall be
administered pursuant to the JAMS Streamlined Arbitration Rules and Procedures,
but can be conducted before any arbitrator agreed to by the parties. If the
parties fail to agree on an arbitrator within 15 calendar days of either party's
service a written request for arbitration on the other party, then each party
shall select one arbitrator, and those two arbitrator's shall jointly select a
third arbitrator who solely shall then conduct the arbitration pursuant to this
Section 20. Judgment on the arbitration award (the "Award") may be entered in
any California court having jurisdiction.

 

 
21.
Compliance with Code Section 409A. This Agreement is intended to comply with the
requirements of Code Section 409A. Notwithstanding any provision in the
Agreement to the contrary, if upon your Separation from Service, you are then a
"specified employee" (as defined in Code Section 409A), then to the extent
necessary to comply with Code Section 409A and avoid the imposition of taxes
under Code Section 409A, the Company shall defer payment of nonqualified
deferred compensation subject to Code Section 409A payable as a result of and
within six (6) months following such Separation from Service until the earlier
of (i) the first business day of the seventh month following your Separation
from Service, or (ii) ten (10) days after the Company receives notification of
your death. Any such delayed payments shall be paid without interest.

 
If the foregoing conforms to your understanding, please indicate your agreement
to the terms hereof by signing where indicated below and returning one copy of
this Agreement to the undersigned.
 
 
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Mr. Michael El-Hillow
July 25, 2012
 
IN WITNESS WHEREOF, this Agreement is executed effective as of the date set
forth above.
 

 
Very truly yours,
       
NATIONAL TECHNICAL SYSTEMS, INC.
       
By:
/s/ William C. McGinnis
   
William C. McGinnis
   
Chief Executive Officer

ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
 
/s/ Michael El-Hillow
 
Michael El-Hillow
 
Chief Financial Officer
 

 
 
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