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



Exhibit 10.p 



	
  

 	
  

 	
  

 
	
  

 	
 
	
 CHANGE IN CONTROL AGREEMENT

 
	
  

	
  

 	
  

 
	
  

	
 MTS
 Systems Corporation

 	
  

 
	
  

	
 14000 Technology Drive

 	
  

 
	
  

	
 Eden Prairie, MN 55344-2290

 	
  

 
	
  

	
 Telephone 952-937-4000

 	
  

 
	
  

	
 Fax 952-937-4515

 	
  

 
	
  

 	
  

 	
  

 
	
  


 	
  


 	
  


 


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


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


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


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


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


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


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


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





Change in Control Agreement


          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 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.

 


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


	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

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

 


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Change in Control Agreement


	
  

 	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
  

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

 


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Change in Control Agreement


	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 


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Change in Control 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
 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 that
 would constitute a breach of this Agreement. The Severance Payment shall be
 made in a single lump sum within 30 days after the Date of Termination;

 


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Change in Control Agreement


	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

 	
           (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.

 


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Change in Control Agreement


	
  

 	
  

 	
  

 
	
  

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

 
	
  

 	
  

 	
  

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

 
	
  

 	
  

 	
  

 
	
 5.

 	
 Non-Compete
 and Confidentiality.

 
	
  

 	
  

 	
  

 
	
  

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

 


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Change in Control Agreement


          6.          Limits
on Payments and Benefits. In the event that the vesting, acceleration and
payment of any equity awards or other compensation or benefits, together with
all other payments and the value of any benefit received or to be received by
the Executive would result in all or a portion of such payment being subject to
excise tax under Section 4999 of the Code, then the amounts due under Section 4
that the Company shall pay to the Executive shall be either (A) the full
payment or (B) such lesser amount determined by the Company in accordance with
this Section 6 that would result in no portion of the payment being subject to
excise tax under Section 4999 of the Code (the “Excise Tax”), whichever of the
foregoing amounts, taking into account the applicable Federal, state, and local
employment taxes, income taxes, and the Excise Tax, results in the receipt by
the Executive, on an after-tax basis, of the greatest amount of the payment
notwithstanding that all or some portion of the payment may be taxable under Section
4999 of the Code. In the event the amounts due under Section 4 are reduced, the
amounts shall be reduced in the following order of priority: first, with
respect to any amount that does not constitute the “deferral of compensation”
under Section 409A of the Code and regulations promulgated thereunder,
disregard the acceleration in the time of payment and then disregard the
acceleration of vesting as a result of a Change in Control and second, with
respect to any amount that constitutes the “deferral of compensation” under
Section 409A of the Code and regulations promulgated thereunder, disregard the
acceleration in the time of payment and then disregard the acceleration of
vesting as a result of a Change in Control first with respect to Company funded
amounts and then the Executive’s deferrals, in each case only to the extent
necessary to satisfy (B) above. All determinations required to be made under
this Section 14 shall be made by a nationally recognized accounting firm that
is the Company’s outside auditor immediately prior to the event triggering the
payments that are subject to the Excise Tax (the “Accounting Firm”). The
Company shall cause the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and Executive. Notice must be
given to the Accounting Firm within fifteen (15) business days after an event
entitling Executive to an amount due under this Agreement. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. The
Accounting Firm’s determinations must be made with substantial authority
(within the meaning of Section 6662 of the Code). For the purposes of all
calculations under Section 280G of the Code and the application of this Section
6, all determination as to present value shall use 120 percent of the
applicable Federal rate (determined under Section 1274(d) of the Code)
compounded based on the nature of the payment, as in effect on the date of this
Agreement, but if not otherwise specified, the Company and Executive agree to
compound such rate on a semiannual basis. The determination by the Accounting
Firm shall be final and binding on the Company and the Executive. 


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


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Change in Control Agreement


          8.          Successors;
Binding Agreement.


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


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


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


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


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


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Change in Control Agreement


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


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




	
  

 	
  

 	
  

 	
  

 
	
  

 	
 MTS SYSTEMS CORPORATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By

 	
      /s/
 LAURA B. HAMILTON

 
	
  

 	
  

 	
  


 	
  

 
	
  

 	
 Its

 	
      Chair
 and CEO

 
	
  

 	
  

 	
  


 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 EXECUTIVE:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
      /s/
 SUSAN E. KNIGHT

 
	
  

 	
  

 	

  

 	
  

 
	
  

 	
  

 	
  

 


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