Exhibit 10.1

 

NORTECH SYSTEMS INCORPORATED

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”), effective as of February 27, 2019 (the
“Effective Date”), is made by and between Nortech Systems Incorporated, a
Minnesota corporation (the “Company”), and Jay D. Miller (“Executive”),
collectively referred to as the “parties.”

 

Recitals

 

WHEREAS, the Company currently employs Executive as Interim President under
agreement dated effective January 1, 2019 (“Existing Employment Agreement”), and
the Company and Executive desire to terminate the Existing Employment Agreement
as of the Effective Date of this Agreement;

 

WHEREAS, the Company desires to employ Executive as President and Chief
Executive Officer, and Executive desires to accept employment upon the terms and
conditions set forth herein;

 

WHEREAS, Executive represents that Executive is not subject to any other
agreement (including but not limited to a non-competition agreement,
non-solicitation agreement, or confidentiality agreement) that Executive will
violate by working with the Company or in the position for which the Company has
hired Executive and no conflict of interest or a breach of Executive’s fiduciary
duties will result by working with and performing duties for the Company;

 

WHEREAS, Executive acknowledges that during the course of his employment,
Executive will have access to and be provided with confidential and proprietary
information and trade secrets of the Company that are invaluable to the Company
and vital to the success of the Company’s business;

 

WHEREAS, the Company and Executive desire to protect such proprietary and
confidential information and trade secrets from disclosure to third parties or
unauthorized use to the detriment of the Company; and

 

WHEREAS, the Company and Executive desire to set forth in this Agreement, the
terms, conditions, and obligations of the parties with respect to such
employment

 

NOW, THEREFORE, in consideration of the foregoing recitals, premises and mutual
covenants herein contained, and intending to be legally bound hereby, the
Company and Executive hereby agree as follows:

 

1.                                      Definitions.

 

1.1.                            “Accountants” means an accounting firm selected
by the Company, which is reasonably acceptable to Executive and whose consent
shall not be unreasonably withheld.

 

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1.2.                            “Board” means the Board of Directors of the
Company.

 

1.3.                            “Cause” means (a) Executive engages in gross
negligence or intentional misconduct in the performance of Executive’s duties
for the Company or any of its subsidiaries, (b) Executive embezzles or willfully
misappropriates assets of the Company or any of its subsidiaries,  (c) Executive
is convicted of, or enters a plea of guilty or nolo contendere with respect to,
a felony, a crime involving moral turpitude, or any other crime that materially
adversely affects the Company’s business, or (d) Executive’s engaging in
business activities in violation of Executive’s obligations in Section 4
(including but not limited to Executive’s refusal or failure to perform
Executive’s duties), violation of Executive’s obligations in Section 10, and/or
breach of any restrictive covenant set forth in Section 11 of this Agreement.

 

1.4.                            “Change of Control” means (a) (1) any person or
group other than the group consisting of Curtis Squire, Inc. and members of the
Kunin family (together, the “Kunin Group”) is at any time the beneficial owner
of thirty percent (30%) or more of the equity securities of the Company entitled
to vote for the election of directors (the “Voting Securities”), and (2) such
other person or group then owns a greater percentage of the Voting Securities
than the Kunin Group or (b) the sale or disposition of all or substantially all
of the Company’s assets (including a plan of liquidation) or a merger or
consolidation of the Company with or into another corporation except for a
merger whereby the shareholders of the Company prior to the merger own more than
fifty percent (50%) of the equity securities entitled to vote for the election
of directors of the surviving corporation immediately following the transaction.

 

1.5.                            “Code” means the Internal Revenue Code of 1986,
as amended.

 

1.6.                            “Covered Payments” means the payments or
benefits provided or to be provided by the Company or its affiliates to
Executive or for Executive’s benefit pursuant to the terms of this Agreement or
otherwise.

 

1.7.                            “Disability” means if by reason of any mental,
sensory, or physical impairment, Executive is unable to perform the essential
functions of Executive’s duties hereunder with reasonable accommodations, unless
any such accommodations would impose an undue hardship on the Company’s
business. The written medical opinion of an independent medical physician
mutually acceptable to Executive and the Company will determine if Executive has
a Disability.

 

1.8.                            “Excise Tax” means the excise tax imposed under
Section 4999 of the Code (or any successor provision thereto) or any similar tax
imposed by state or local law or any interest or penalties with respect to such
taxes.

 

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1.9.                            “Good Reason” means (a) any involuntary and
material reduction in the amount or type of compensation paid to Executive or
material reduction in benefits inconsistent with benefit reductions taken by
other members of Company’s senior management; (b) any involuntary and material
diminution of Executive’s reporting responsibilities, titles and offices, and
removal of Executive from such position which has the effect of materially
diminishing Executive’s responsibility and authority; (c) the Board requiring
the Executive to be based at any office or location other than facilities within
50 miles of Minneapolis, Minnesota; or (d) any material breach by the Company of
any contract entered into between the Executive and the Company or an affiliate
of the Company, including this Agreement, which in any such event is not
remedied by Company within 30 days after receipt of notice thereof given by the
Executive within 90 days after such event occurs; provided, that any refusal of
the Company to agree to other business activities of Executive pursuant to
Section 4.3 will not constitute Good Reason.

 

1.10.                     “Parachute Payments” means parachute payments within
the meaning of Section 280G of the Code.

 

2.                                      Employment. Subject to the terms and
provisions set forth in this Agreement, the Company hereby employs Executive as
the President and Chief Executive Officer of the Company.

 

3.                                      Agreement Term. This Agreement shall
commence on the Effective Date so long as all contingencies of Executive’s offer
of employment have been satisfied, and shall continue, unless sooner terminated
in accordance with this Agreement, until February 28, 2021 (the “Initial
Period”); provided, however, this Agreement may be extended for an additional
period of up to one year by the parties’ mutual written agreement at or before
one hundred twenty (120) days prior to expiration of the Initial Period (the
“Extended Period” and together with the Initial Term, the “Agreement Period”)
During the Agreement Period, Executive’s employment may be terminated by the
Company with or without Cause, subject to the provisions of Section 6 of this
Agreement, and Executive may resign or otherwise terminate his employment with
the Company at any time, with or without notice. Notwithstanding the provisions
of this Section, the provisions of Sections 8, 9, 10, 11 and 12 shall survive
the termination of Executive’s employment (for any reason) and remain in full
force and effect thereafter.

 

4.                                      Positions, Responsibilities and Duties.

 

4.1.                            Positions. During the period of Executive’s
employment with the Company, Executive shall be employed and serve as the
President and Chief Executive Officer of the Company. Executive shall report to
the Board of Directors.  Executive shall also serve without additional
compensation as a member of the Board of Directors of the Company, and, if so
requested by the Company, as an officer or director of any subsidiary or
affiliate of the Company.

 

4.2.                            Duties. Executive shall have the duties,
responsibilities and authority normally associated with the office and position
of President and Chief Executive Officer and as otherwise established by the
Company’s Board from time to time. During the Agreement Period, subject to the
provisions of Section 4.3, Executive shall devote substantially all of his
business time, during

 

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normal business hours, to the business and affairs of the Company and Executive
shall use his best efforts to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement. Executive shall perform his
duties, responsibilities and functions to the Company to the best of his
abilities in a diligent and business-like manner.

 

4.3.                            Permitted Activities. Notwithstanding the
provisions of Section 4.2, Executive shall be allowed, to the extent such
activities do not substantially interfere with the performance by Executive of
his duties and responsibilities hereunder, to serve on corporate, civic or
charitable boards or committees.  Executive will notify the Chairman of the
Board of Directors the Company in advance of the extent and nature of any such
activities, and any such activities will be permitted only upon the approval of
the Company, which will not be unreasonably withheld.

 

5.                                      Compensation and Other Benefits.

 

5.1.                            Annualized Base Salary.  Executive shall receive
an annualized base salary payable in accordance with the Company’s normal
payroll practices of $400,000 (gross) through the first anniversary of the
Effective Date. The Board may, in its sole discretion, increase the Base Salary
at any time and may not decrease the Base Salary without Executive’s written
consent.  Executive Base Salaries are increased in accordance with the Company’s
executive compensation review process and subject to approval by the Company’s
Compensation Committee, subject to adjustment only as provided in this
Section 5.1.

 

5.2.                            Incentive Bonus. During the Agreement Period,
Executive shall be eligible to participate in the Incentive Bonus Plan in effect
for officers and executives of the Company (the “Incentive Bonus Plan”), under
which Executive will receive a performance-based bonus the amount of which, if
any, will be determined and paid based upon satisfaction of criteria determined
for each calendar year for officers and executives by the Compensation
Committee. During the Agreement Period, Executive’s stated payout percentage
under the Incentive Bonus Plan will be up to 50% of Base Salary, prorated for
the portion of the fiscal year during which Executive is employed by the
Company.  Goals for each year to be set during the first quarter, except for
2019 goals which will be set at the end of the first quarter Any bonus amounts
payable to Executive under the Incentive Bonus Plan shall be paid at the same
time as annual bonuses are paid to the Company’s other executive officers after
the end of the year in which the bonus was earned, but no later than April 15
following the end of that year.

 

For the plan year of 2019, the Company shall guarantee 50% of the bonus
($100,000.00) for which Executive is eligible provided the Executive remains
employed by the Company at the time payment is due.

 

5.3.                            Equity Incentive Plans. During the Agreement
Period, Executive shall be eligible to participate in the Company’s equity
incentive plans maintained by the Company from time to time (the “Company Equity
Plans”). On the Effective Date, Executive shall receive: (a) a grant of 100,000
Equity Appreciation Right Units under the Company’s Restated Equity Appreciation
Rights Plan, (b) a grant of 25,000 restricted shares of the Company’s Common
Stock, and (c) a non-qualified stock option to purchase 125,000 shares of Common
Stock under the 2017 Stock Incentive Plan, with an exercise price per share
equal to the fair market value of the Common

 

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Stock on the Effective Date, a term of ten years and vesting in equal annual
installments over five years with the first of such installments vesting on the
first anniversary of the date of grant and each additional installment vesting
on each anniversary thereafter.  Notwithstanding anything stated in any other
agreement between the Company and Executive that may be construed to the
contrary, upon a Change of Control: (x) any incentive grants under the Company
Equity Plans will vest immediately, and (y) any stock options held by Executive
under the Company Equity Plans will be exercisable for the remainder of their
term.

 

5.4.                            Benefit Plans. During the Agreement Period,
Executive shall be eligible to participate in all pension, 401(k) and other
employee benefit plans, policies and programs for the benefit of senior
executive officers. The Company reserves the right to modify, suspend or
discontinue any Benefit Plans at any time without notice to or recourse by
Executive, so long as such action is taken generally with respect to other
similarly situated executives employed by the Company.

 

5.5.                            Perquisites. During the Agreement Period,
Executive shall receive the perquisites described in Exhibit A (that is attached
to this Agreement and incorporated herein).

 

5.6.                            Expense Reimbursement.  During and in respect of
the Agreement Period, Executive shall be entitled to receive reimbursement for
reasonable business expenses incurred by Executive in performing his duties and
responsibilities hereunder, including travel, parking, business meetings and
professional dues, incurred and substantiated in accordance with the policies
and procedures established from time to time by the Company for senior
executives of the Company.

 

6.                                      Termination.

 

6.1.                            Termination Due to Death.  Upon Executive’s
death, Executive’s estate or his legal representative, as the case may be, shall
be entitled to: (a) any Base Salary earned but unpaid as of the date of death;
(b) any other payments and/or benefits which Executive or Executive’s legal
representative is entitled to receive under any of the Benefit Plans; and
(c) the bonus earned under the Incentive Bonus Plan for the fiscal year in which
Executive’s death occurred, prorated for the portion of such fiscal year through
the date of death and payable at the same time as annual bonuses are paid to the
Company’s other executive officers, but no later than April 15 following the end
of year in which the bonus was earned.

 

6.2.                            Termination Due to Executive’s Disability.  If
Executive’s condition meets the definition of Disability above, the Company may
terminate Executive’s employment upon written notice. If terminated by the
Company as herein provided, the Company shall pay to Executive: (a) any Base
Salary earned but unpaid as of the date of  Executive’s termination due to
Disability; (b) Base Salary in effect at the time of the termination for a
period of twelve (12) months or the remaining term under this Agreement,
whichever is shorter, (c) any other payments and/or benefits which Executive or
Executive’s legal representative is entitled to receive under any of the Benefit
Plans; and (d) vesting of any unvested incentive grants granted under the
Company Equity Plans that are scheduled to vest within twelve (12) months
following the date of Disability.

 

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6.3.                            Termination by the Company Without Cause or by
Executive for Good Reason. The Company may terminate Executive’s employment
without Cause, or Executive may terminate his employment for Good Reason. In
either such event, Executive shall be entitled to the following compensation:

 

6.3.1.                  Executive shall be entitled to receive Base Salary
earned but unpaid as of the date of Executive’s termination, and any other
payments and/or benefits which Executive is entitled to receive under any of the
Benefit Plans. These payments will be made in compliance with Minnesota law or
in any event within fourteen (14) days after termination.

 

6.3.2.                  Upon execution of a general release of claims against
the Company in a form acceptable to the Company and after the expiration of any
applicable rescission or revocation period, all before the end of the sixty (60)
day period following Executive’s termination of employment, he will receive:
(i) Base Salary in effect at the time of the termination for the longer of
(a) the remainder of the Agreement Period following the termination of
Executive’s employment with the Company or (b) a period of twelve (12) months
(the “Without Cause Continuation Period”), in the manner and at such times as
the Base Salary otherwise would have been payable to Executive; (ii) a prorated
bonus earned by Executive under the Incentive Bonus Plan, calculated and due
only through the Executive’s last day worked with the Company, payable at the
same time as annual bonuses are paid to the Company’s other executive officers
after the end of the year in which the bonus was earned, but no later than 180
days following the end of that year; and (iii) continuation at the Company’s
then share of the expense for the lesser of (A) the Without Cause Continuation
Period, or (B) until Executive obtains comparable replacement coverage, of
medical and dental benefits in effect under COBRA as of the date of termination
of employment. Notwithstanding the foregoing, certain payments under this
paragraph (b) may be delayed pursuant to Section 7.2.

 

6.3.3.                  Notwithstanding anything stated in any other agreement
between the Company and Executive that may be construed to the contrary, if
Company terminates Executive’s employment without Cause, or Executive terminates
his employment for Good Reason after the first anniversary of the Effective
Date, then (i) the Company will cause any unvested portion of Executive’s stock
options to vest immediately in full to the extent not already vested, and any
such stock options will be exercisable for the full remaining portion of their
term, and (ii) Executive’s Equity Appreciation Right Units will vest and be
payable in full on the redemption date according to the terms thereof.

 

6.3.4.                  If the termination results in a loss of unvested
benefits for Executive under any pension or profit-sharing plan and/or the
Executive Life Insurance Plan, the Company will use its best efforts to provide
benefits of comparable value to Executive during the Without Cause Continuation
Period.”

 

6.4.                            Termination in Connection with Change of
Control.  If Executive is an active and full-time employee at the time of a
Change of Control and within twelve (12) months after the Change of Control,
(i) Executive’s employment is involuntarily terminated by the Company or

 

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any successor employer resulting from the Change of Control for any reason other
than death, Disability or Cause, or (ii) Executive resigns from the Company or
any such successor for Good Reason, then Executive shall be entitled to the
following compensation:

 

6.4.1.                  Executive shall be entitled to receive Base Salary
earned but unpaid as of the date of Executive’s termination, and any other
payments and/or benefits which Executive is entitled to receive under any of the
Benefit Plans. These payments will be made in compliance with Minnesota law or
in any event within fourteen (14) days after termination.

 

6.4.2.                  Upon execution of a general release of claims against
the Company in a form acceptable to the Company and after the expiration of any
applicable rescission or revocation period, all before the end of the sixty (60)
day period following Executive’s termination of employment, he will receive:
(i) Base Salary in effect at the time of the termination for the longer of
(a) the remainder of the Agreement Period or (b) a period of twelve (12) months
following the termination of Executive’s employment (the “COC Continuation
Period”), in the manner and at such times as the Base Salary otherwise would
have been payable to Executive; (ii) the maximum bonus payable under the
Incentive Bonus Plan for the fiscal year in which the termination occurred,
prorated for the portion of such fiscal year through the date of termination and
payable within thirty (30) days after the date of termination of employment; and
(iii) continuation at the Company’s then share of the expense for the lesser of
(A) the COC Continuation Period, or (B) until Executive obtains comparable
replacement coverage, of medical and dental benefits in effect under COBRA as of
the date of termination of employment.  In addition, upon a Change of Control:
(x) any incentive grants under the Company Equity Plans will vest immediately,
and (y) any stock options held by Executive under the Company Equity Plans will
be exercisable for the remainder of their term. Notwithstanding the foregoing,
certain payments under this paragraph (b) may be delayed pursuant to
Section 7.2.

 

6.4.3.                  If the termination results in a loss of unvested
benefits for Executive under any pension or profit sharing plan and/or the
Executive Life Insurance Plan, the Company will use its best efforts to provide
benefits of comparable value to Executive during the COC Continuation Period.

 

6.5.                            Termination by the Company for Cause.  The
Company may terminate Executive’s employment hereunder for Cause. In such event,
Executive shall be entitled only to: (a) any Base Salary earned but unpaid
through the date of such termination and (b) any other earned and vested
payments and/or benefits that Executive is entitled to receive under any of the
Benefit Plans.

 

6.6.                            Voluntary Resignation Without Good Reason.  If
Executive voluntarily resigns during the Agreement Term without Good Reason,
then Executive shall be entitled to: (a) Base Salary earned but unpaid as of the
date of Executive’s termination; and (b) any other payments and/or benefits
which Executive is entitled to receive under any of the Benefit Plans.

 

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7.                                      Severance Payment Limitations or
Possible Delay Under Code Section 409A.

 

7.1.                            Notwithstanding any other provision of this
Agreement, the Company and Executive intend that any payments, benefits or other
provisions applicable to this Agreement comply with the payout and other
limitations and restrictions imposed under Section 409A of the Code
(“Section 409A”), as clarified or modified by guidance from the U.S. Department
of Treasury or the Internal Revenue Service—in each case if and to the extent
Section 409A is otherwise applicable to this Agreement and such compliance is
necessary to avoid the penalties otherwise imposed under Section 409A.  In this
regard, the Company and Executive agree that the payments, benefits and other
provisions applicable to this Agreement, and the terms of any deferral and other
rights regarding this Agreement, shall be interpreted and deemed modified if and
to the extent necessary to comply with the payout and other limitations and
restrictions imposed under Section 409A, as clarified or supplemented by
guidance from the U.S. Department of Treasury or the Internal Revenue Service—in
each case if and to the extent Section 409A is otherwise applicable to this
Agreement and such compliance is necessary to avoid the penalties otherwise
imposed under Section 409A.

 

7.2.                            In the event any portion of any payments due
under Section 6.3.2 (in the event of termination by the Company without Cause or
by Executive for Good Reason) or Section 6.4.2 (in the event of certain
terminations after a Change of Control) would exceed the sum of the applicable
limited separation pay exclusions as determined pursuant to Code Section 409A,
then payment of the excess amount shall be delayed until the first regular
payroll date of the Company following the six (6) month anniversary of the
Executive’s date of termination (or the date of his death, if earlier), and
shall include a lump sum equal to the aggregate amounts that Executive would
have received had payment of this excess amount commenced as provided above
following the date of termination. If Executive continues to perform any
services for the Company (as an employee or otherwise) after the date of
termination, such six month period shall be measured from the date of
Executive’s “separation from service” as defined pursuant to Code Section 409A.

 

7.3.                            Executive does not have any right to make any
election regarding the time or form of any payment due under Sections 6.3 or 6.4
or any other provision of this Agreement.

 

7.4.                            The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes, and other
amounts required by applicable law to be withheld by the Company.

 

8.                                      Limitation on Parachute Payments.

 

8.1.                            Limitation.  Notwithstanding anything stated in
this Agreement, or any other plan, arrangement or agreement to the contrary
(including without limitation the Company’s 2017 Stock Incentive Plan), if any
of the Covered Payments constitute Parachute Payments and would, but for this
Section 8 be subject to the Excise Tax, then the Covered Payments shall be
payable either (i) in full or (ii) reduced to the minimum extent necessary to
ensure that no portion of the Covered Payments is subject to the Excise Tax,
whichever of the foregoing (i) or (ii) results in Executive’s receipt on an
after-tax basis of the greatest amount of benefits after taking into account the
applicable federal, state, local and foreign income, employment and excise taxes
(including the Excise Tax).

 

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8.2.                            Possible Reduction.  If necessary, the Covered
Payments shall be reduced in a manner that maximizes Executive’s economic
position.  In applying this principle, the reduction shall be made in a manner
consistent with the requirements of Section 409A of the Code, and where two
economically equivalent amounts are subject to reduction but are payable at
different times, such amounts shall be reduced on a pro rata basis but not below
zero.

 

8.3.                            Accountants.  Any determination required under
this Section 8 shall be made in writing in good faith by the Accountants, which
shall provide detailed supporting calculations to the Company and Executive as
required by the Company or Executive.  The Company and Executive shall provide
the Accountants with such information and documents as the Accountants may
reasonably request in order to make a determination under this Section 8.  The
Company shall be responsible for all fees and expenses of the Accountants.

 

8.4.                            Overpayment or Underpayment.  It is possible
that after the determinations and selections made pursuant to this Section 8
Executive will receive Covered Payments that are in the aggregate more than the
amount provided under this Section 8 (“Overpayment”) or less than the amount
provided under this Section 8.4 (“Underpayment”).

 

8.4.1.                  In the event that: (A) the Accountants determine, based
upon the assertion of a deficiency by the Internal Revenue Service against
either the Company or Executive which the Accountants believe has a high
probability of success, that an Overpayment has been made or (B) it is
established pursuant to a final determination of a court or an Internal Revenue
Service proceeding that has been finally and conclusively resolved that an
Overpayment has been made, then Executive shall pay any such Overpayment to the
Company.

 

8.4.2.                  In the event that: (A) the Accountants, based upon
controlling precedent or substantial authority, determine that an Underpayment
has occurred or (B) a court of competent jurisdiction determines that an
Underpayment has occurred, any such Underpayment will be paid promptly by the
Company to or for the benefit of Executive.

 

9.                                      Successors.

 

9.1.                            The Executive.  This Agreement is personal to
Executive and, without the prior express written consent of the Company, shall
not be assignable by Executive, except that Executive’s rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or pursuant to a
domestic relations order. This Agreement shall inure to the benefit of and be
enforceable by Executive’s heirs, beneficiaries and/or legal representatives.

 

9.2.                            The Company.  This Agreement shall inure to the
benefit of and be binding upon the Company and its respective successors and
assigns.

 

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10.                               Confidential Information.

 

10.1.                     Non-Disclosure. Executive acknowledges that the
Company continually develops Confidential Information (as defined below), that
Executive will obtain Confidential Information during employment with the
Company, that Executive may develop Confidential Information for the Company,
and that Executive may learn of Confidential Information during the course of
employment. Executive will comply with the policies and procedures of the
Company for protecting Confidential Information obtained from the Company and
shall not use or disclose to any person, corporation or other entity (except as
required by applicable law or for the proper performance of the regular duties
and responsibilities of Executive for the Company) any Confidential Information
obtained by Executive during employment with the Company, or other association
with the Company. Executive understands that this restriction shall continue to
apply to Confidential Information following termination of Executive’s
employment, regardless of the reason for such termination.

 

The Company hereby advises Executive as follows under the federal Defend Trade
Secrets Act:  An individual shall not be held criminally or civilly liable under
any Federal or State trade secret law for the disclosure of a trade secret that
— (A) is made — (i) in confidence to a Federal, State, or local government
official, either directly or indirectly, or to an attorney; and (ii) solely for
the purpose of reporting or investigating a suspected violation of law; or
(B) is made in a complaint or other document filed in a lawsuit or other
proceeding, if such filing is made under seal.  In addition, an individual who
files a lawsuit for retaliation by an employer for reporting a suspected
violation of law may disclose the trade secret to the attorney of the individual
and use the trade secret information in the court proceeding, if the individual
— (A) files any document containing the trade secret under seal; and (B) does
not disclose the trade secret, except pursuant to court order.  Nothing in this
Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability
for disclosures of trade secrets that are expressly allowed by 18 U.S.C. §
1833(b).

 

10.2.                     “Confidential Information.”  For purposes of this
Agreement, “Confidential Information” means any and all information of the
Company or concerning the business or affairs of the Company that is not
generally known by others with whom any of them compete or do business, or with
whom any of them plan to compete or do business. Confidential Information
includes, without limitation, such information relating to: (i) the development,
research, testing, marketing, strategies, and financial activities of the
Company, (ii) the products and services, present and in contemplation, of the
Company, (iii) inventions, processes, operations, administrative procedures,
databases, programs, systems, flow charts, software, firmware and equipment used
in the business of the Company, (iv) the costs, financial performance and
strategic plans of the Company, (v) the people and organizations with whom the
Company has or had business relationships and the substance of those
relationships. Confidential Information also includes all information that the
Company received belonging to others with any understanding, express or implied,
that it would not be disclosed.  Failure to mark any of the Confidential
Information as confidential or proprietary will not affect its status as
Confidential Information.

 

10.3.                     Documents.  All documents, records, tapes and other
media of every kind and description relating to the business, present or
otherwise, of the Company and any copies, in whole or in part, thereof
(“Documents”), whether or not prepared by Executive, shall be the sole and
exclusive property of the Company. Executive shall safeguard all Documents and
shall surrender to the Company at the time Executive’s employment terminates, or
at such earlier time or times as

 

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the President, Chief Executive Officer, or Board or their designees may specify,
all Documents, Confidential Information, and Company property in good working
condition then in Executive’s possession or control.

 

10.4.                     Former Employer Information. Executive agrees that
Executive will not, during Executive’s employment with the Company, improperly
use or disclose any proprietary information or trade secrets or any other
property of any former or concurrent employer or other person or entity and that
Executive will not bring onto the premises of the Company any proprietary
information belong to any such employer, person or entity.

 

11.                               Restrictive Covenants.  In return for the
Company’s (i) promise to grant Executive access to certain of the Company’s
Confidential Information, and (ii) the Company’s actual grant to Executive of
access to certain of its Confidential Information, (iii) the opportunity for
employment as the Company’s President and Chief Executive Officer, and (iv) the
valuable pay and benefits in this Agreement that are intended, in part, to
reward Executive for developing and protecting the Company’s Confidential
Information, Executive makes the following commitments and Executive
acknowledges these benefits constitute adequate and sufficient consideration for
the restrictions in this Agreement.

 

11.1.                     Non-Solicitation. During the Agreement Period and for
a period of two years after any termination of employment hereunder for any
reason, Executive will not, directly or indirectly, (i) induce or attempt to
induce any employee of the Company to leave the employ of the Company or to
breach that person’s contract (if any) with the Company, (ii) in any way
interfere with the relationships between the Company and any such employee of
the Company, (iii) employ or otherwise engage as an employee, independent
contractor or otherwise any such employee of the Company, or (iv) induce or
attempt to induce any customer, supplier, licensee or other person or entity
that has done business with the Company to cease doing business with the Company
or in any way interfere with the relationship between any such customer,
supplier, licensee or other business entity and the Company.

 

11.2.                     Non-Competition. During the Agreement Period and for a
period of two years after any termination of employment hereunder for any
reason, Executive will not engage in, manage, operate, or participate in the
management or operation of, be employed by or render services or advice, or
guarantee any obligation of, any person or entity operating in the United
States, China, or Mexico that engages in, or is actively planning to become
engaged in, researching, inventing, designing, manufacturing, developing,
producing, marketing, promoting, selling, soliciting the sales of, supporting,
or providing a product or service that competes with any product or service that
the Company researched, invented, designed, manufactured, developed, produced,
marketed, promoted, sold, supported, provided, or serviced in the course of its
business during the 24-month period prior to the termination of Executive’s
employment. Executive agrees that this covenant is reasonable with respect to
its duration, geographical area and scope.

 

11.3.                     Notification of Restrictive Covenants. Executive
acknowledges that the Company may serve notice upon any party in the electronic
manufacturing services, medical device manufacturing or engineering services
industries with whom Executive accepts employment, a consulting engagement,
engagement as an independent contractor, partnership,

 

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joint venture or other association if the Company reasonably believes that
Executive’s activities may constitute a violation of Executive’s obligations
under Section 11.1 or 11.2 above. Such notice may inform the recipient that
Executive is party to this Agreement and may include a copy of this Agreement or
relevant portions thereof.

 

11.4.                     Injunctive Relief.  Executive acknowledges and agrees
that the Company will have no adequate remedy at law, and would be irreparably
harmed, if Executive breaches or threatens to breach any of the provisions of
this Section 11.  Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach of
this Section 11, and to specific performance of each of the terms of such
Section in addition to any other legal or equitable remedies that the Company
may have. Executive further agrees that he shall not, in any equity proceeding
relating to the enforcement of the terms of this Section 11, raise the defense
that the Company has an adequate remedy at law.  The parties understand that
both damages and injunctions will be proper modes of relief and are not to be
considered as alternative remedies.

 

11.5.                     Special Severability.  The terms and provisions of
this Section 11 are intended to be separate and divisible provisions and if, for
any reason, any one or more of them is held to be invalid or unenforceable,
neither the validity nor the enforceability of any other provision of this
Agreement shall thereby be affected. It is the intention of the parties to this
Agreement that the potential restrictions on Executive’s future employment
imposed by this Section 11 be reasonable in both duration and geographic scope
and in all other respects. To the extent any provision of this Agreement is
judicially determined to be unenforceable, a court of competent jurisdiction may
reform any such provision to make it enforceable.  If for any reason any court
of competent jurisdiction shall find any provisions of this Section 11
unreasonable in duration or geographic scope or otherwise, Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.

 

11.6.                     Tolling. The duration of the above restrictions in
this Section 11.1 and Section 11.2 will be extended for a period equal to the
duration of any breach or default of such covenant by Executive.

 

12.                               Miscellaneous.

 

12.1.                     Applicable Law & Venue.  This Agreement shall be
governed by and construed in accordance with the laws of the state of Minnesota,
applied without reference to principles of conflict of laws. The venue for any
dispute relating to this Agreement shall be in the state and/or federal courts
in Hennepin County, Minnesota.  Executive hereby (a) waives any objection that
Executive might have now or hereafter to the foregoing jurisdiction and venue of
any such litigation, action or proceeding, (b) irrevocably submits to the
exclusive jurisdiction of any such court set forth above in any such litigation,
action or proceeding, and (c) waives any claim or defense of inconvenient forum.

 

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12.2.                     Amendments.  This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.

 

12.3.                     Indemnification.  The Company agrees that if Executive
is made a party or is threatened to be made a party, or is required to appear as
a witness to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a “Proceeding”), by reason of the fact that he
is or was an officer of the Company, whether or not the basis of such Proceeding
is alleged action in an official capacity as an officer, employee or agent while
serving as an officer, employee or agent, he shall be indemnified and held
harmless by the Company (unless Executive’s actions or omissions constitute
gross negligence or willful misconduct) to the fullest extent authorized by law,
as the same exists or may hereafter be amended, against all costs and expenses
incurred or suffered by Executive in connection therewith, and such
indemnification shall continue as to Executive even if Executive has ceased to
be an officer or agent, or is no longer employed by the Company and shall inure
to the benefit of his heirs, executors and administrators. Executive agrees to
fully cooperate with the Company should any Proceeding commence and for the
duration of such Proceeding. On the Effective Date, the Company will cause
Executive to be covered and named as an insured on its Director and Officer
Liability Insurance policy, which the Company represents to be in force and in
good standing at the time this Agreement is executed.

 

12.4.                     Notices.  All notices and other communications
hereunder shall be in writing and shall be given by hand-delivery to the other
parties or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

 

To the Company:

 

Nortech Systems Incorporated

7550 Meridian Circle N.

Suite # 150, Maple Grove, MN 55369

Attn: Chief Financial Officer

 

If to Executive:

 

Jay D. Miller

 

or to such other address as (a) indicated in the Company’s employment records,
or (b) any party shall have furnished to the others in writing in accordance
herewith. Notices and communications shall be effective when actually received
by the addressee.

 

12.5.                     Severability.  The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.

 

12.6.                     Captions.  The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.

 

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

 

12.8.                     Entire Agreement; Previous Agreements Superseded. 
This Agreement contains the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior agreements, understandings,
discussions, negotiations and undertakings, whether written or oral, between the
parties with respect thereto. There are no representations, understandings, or
agreements by or between the parties which are not contained within the four
corners of this Agreement.

 

12.9.                     Survivorship.  The respective rights and obligations
of the parties hereunder shall survive any termination of Executive’s employment
under this Agreement for any reason to the extent necessary to the intended
provision of such rights and the intended performance of such obligations.

 

12.10.              Attorneys’ Fees and Costs.  In the event of any claim,
controversy, or dispute arising out of or relating to this Agreement, or breach
hereof, the prevailing party shall be entitled to recover reasonable attorneys’
fees and costs in connection with any court proceeding.

 

12.11.              No Waiver.  No term or condition of this Agreement will be
deemed to have been waived nor shall there be any estoppel to enforce any
provision hereof, except by a written instrument executed by the party charged
with waiver or estoppel.  The Company’s delay, waiver or failure to enforce any
of the terms of this Agreement or any similar agreement in one instance shall
not constitute a waiver of its rights hereunder with respect to other violations
of this or any other agreement.

 

12.12.              Termination of Existing Employment Agreement.  The Company
and the Executive hereby agree that the Existing Employment Agreement shall
terminate and be of no further force or effect as of the Effective Date of this
Agreement.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement to be
effective as of the date first set forth above.

 

 

NORTECH SYSTEMS INCORPORATED

 

 

 

 

 

 

 

 

By:

/s/ David Kunin

 

 

Title:

Chairman of the Board of Directors

 

 

 

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

By:

/s/ Jay D. Miller

 

 

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