Exhibit 10.r to MTS Systems Corporation Form 10-K for fiscal year ended October 3, 2009






	
  

 	
  

 
	


	
 Exhibit 10.r

SEVERANCE AGREEMENT

 



          THIS
SEVERANCE 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 Alfred Richter
(the “Executive”), and shall be effective as of his Employment Date as defined
below.


          WHEREAS,
it is in the best interests of the Company and its stockholders to reinforce
and encourage the attention and dedication of the Executive, to his assigned
duties without distraction and to ensure the continued availability to the
Company of the Executive for the period immediately following his initial
employment.


          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 of
hire of the Executive (the “Employment Date”), shall continue in effect through
the second anniversary of the Employment Date and immediately thereafter, shall
expire and all rights under it shall terminate and be of no further force and
effect. Provided, however, that if a Change in Control shall
occur during the term of this Agreement, the separate Change in Control
Agreement shall thereafter be effective and supersede this Agreement. 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 shall not end the
employment relationship between the Company and the Executive.


          2.          Termination.
During the term of this Agreement, the Executive shall be entitled to the
benefits provided in Section 3 unless such termination is (A) because of the
Executive’s death, (B) by the Company for Cause or Disability, or (C) by the
Executive other than for Good Reason. The Company and the Executive shall take
all steps necessary (including with regard to any post-termination services by
the Executive) to ensure that any termination described in this Section 2
constitutes a Separation from Service as defined in subsection 2(f).


	
  

 	
  

 
	
  

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

 













	
  

 	
  

 
	
  

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

 






	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 






	
  

 	
  

 	
  

 
	
  

 	
           (c)          Good
 Reason. The Executive shall be entitled to terminate his or her
 employment for Good Reason; provided, however, that no such termination under
 this Section 3(c) shall be effective unless: (A) the Executive provides
 written notice to the Chief Executive Officer of the Company of the existence
 of a condition specified in paragraphs (i) through (v) below within 90 days
 of the initial existence of the condition; (B) the Company does not remedy
 such condition within 30 days of the date of such notice; and (C) the
 Executive terminates employment within 90 days following the last day of the
 remedial period described above. For purposes of this Agreement, “Good
 Reason” shall mean, without the Executive’s express written consent, any of
 the following:

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                (ii)         a
 material reduction in the Executive’s base salary;

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
           (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 8. For
 purposes of this Agreement, a “Notice of Termination” shall mean a notice that
 shall indicate the specific termination provision in this Agreement relied
 upon and shall set forth the facts and circumstances claimed to provide a
 basis for termination of the Executive’s employment.

 


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           (e)          Date
 of Termination. For purposes of this Agreement, “Date of Termination”
 shall mean the date specified in the Notice of Termination which shall not be
 less than 10 nor more than 30 days, respectively, from the date such Notice
 of Termination is given and on which occurs a Separation from Service as
 defined in Section 2(f) below.

 
	
  

 	
  

 	
  

 
	
  

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

 



          3.       Compensation
Upon Termination. Upon termination of the Executive’s employment (A) by the
Company other than for Cause, Disability or the Executive’s death or (B) by the
Executive for Good Reason, the Executive shall be entitled to the following
benefits:


	
  

 	
  

 
	
  

 	
           (a)          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.

 
	
  

 	
  

 
	
  

 	
           (b)          Upon
 receipt of a release in a form acceptable to the Company (the “Release”)
 executed by the Executive, the Company shall pay a severance amount (the
 “Severance Benefit”) equal to the sum of: (i) the annual base salary as in
 effect immediately prior to the Date of Termination (without giving effect to
 any reduction that would constitute Good Reason), plus (ii) the average of
 the Executive Variable Compensation Plan bonuses actually paid in the three
 fiscal years (or if less, the period of the Executive’s employment) ending
 prior to the Date of Termination, which Severance Benefit shall be divided
 and paid in equal installments on each payroll pay date during the 12
 month period beginning after the Executive’s Date of Termination immediately
 following the rescission period set forth in the Release.

 
	
  

 	
  

 
	
  

 	
           (c)          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 3.

 
	
  

 	
  

 
	
  

 	
           (d)          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 3.

 


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The Executive
shall not be required to mitigate the amount of any payment provided for in
this Section 3 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this Section 3 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.


          4.       Forfeiture
and Recapture of Severance Benefit. Executive acknowledges and agrees that
the Company and its shareholders need to protect themselves from Conduct
Detrimental to the Company and the provisions of this Section are designed to
protect the Company and its shareholders from Conduct Detrimental to the
Company. 


	
  

 	
  

 	
  

 
	
  

 	
           (a)          The
 Company shall have no obligation to pay Executive the Severance Benefit
 pursuant to Section 3(b) and Executive agrees to repay any portion of such
 Severance Benefit previously paid, if the Company establishes, by a
 preponderance of the evidence, that Executive engaged in Conduct Detrimental
 to the Company during the Employment Period or during the two-year period
 following the termination of Executive’s employment. 

 
	
  

 	
  

 	
  

 
	
  

 	
           (b)          “Conduct
 Detrimental to the Company,” as used in this Section, means:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                (i)          conduct
 that results in the Executive’s termination for Cause as defined in
 Section 3(c) (or that would have resulted in termination for Cause if
 known by the Company prior to the termination of Executive’s employment); 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                (ii)         Executive
 engages in conduct in violation of the MTS Employee Agreements document
 between the Executive and the Company; 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                (iii)        Executive
 violates the provisions of Section 5 of this Agreement; or

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                (iv)         The
 Company’s financial statements are required to be restated resulting from
 errors, omissions or fraud by the Executive during his Term of Employment.

 
	
  

 	
  

 	
  

 
	
  

 	
           (c)          Notwithstanding
 the above, the Company shall offset against any Severance Benefit due and
 owing to the Executive any incentive compensation paid to the Executive by
 the Company that the Executive is required by law or the terms of any
 incentive compensation plan or agreement, to repay to the Company as a result
 of any material misstatement of the Company’s financial statement or for any
 other reason, regardless of the Executive’s culpability.

 



          5.       Noncompetition.
The Executive agrees that, as a condition of receiving any Severance 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. 


          6.       Binding
Agreement. 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 before all
Severance Benefit have been paid, any payments then remaining shall cease and
no further payments shall be due under this Agreement.


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          7.          Remedies.
In addition to any other remedies available at law or under the terms of this
Agreement, the Company will be entitled to obtain injunctive or other equitable
relief to restrain any breach or threatened breach or otherwise to specifically
enforce the provisions of this Agreement, in particular, Section 5, it being
agreed that money damages alone would be an inadequate remedy for such breach.
The rights and remedies of the Company under this Agreement are cumulative and
not alternative. If the Company Bank brings a claim against the Executive under
this Section, the non-prevailing party shall reimburse the prevailing party for
its reasonable attorney’s fees and costs


          8.          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 CEO, 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.


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


          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 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

 	
       /s/
 LAURA B. HAMILTON



 	
  

 	
  

 





	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Its

 	
       Chair
 and CEO



 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 EXECUTIVE:

 
	
  

 	
  

 
	
  

 	
  

 	
       /s/ ALFRED RICHTER



 	
  

 	
  

 


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