Document:

Final Approved by HR Board Committee
                                                               November 30, 1999

                                                                    EXHIBIT 10.a

                   MANAGEMENT VARIABLE COMPENSATION (MVC) PLAN
                                   FISCAL 2000

1.       PURPOSE OF PLAN

         To focus efforts on achievement of near term financial objectives which
         are critical to the success of the Company; to reward accomplishment at
         a level above competition when performance is above that of comparable
         companies; to more closely couple total compensation (salary plus
         variable) to the financial results of the enterprise.

         The Plan's payout is primarily related to achievement of annual
         Corporate and Division/Niche profit, resource utilization, and growth
         objectives.

2.       PLAN CONSTRUCTION

         The attached chart provides an overview of the plan (See attachment A).
         Details follow regarding each of the components of the plan.

3.       ELIGIBILITY AND PARTICIPATION

         *    Corporate officers
         *    Unit vice presidents
         *    Market and functional unit managers
         *    Managers, technical supervisors and key marketing or technical
              employees who meet certain minimum responsibilities for
              profitability, financial/human resource acquisition and
              allocation, balance sheet control, and/or market/technical
              direction - positions defined as beginning at SAM 15 and TE 5, or
              equivalent and above.
         *    This plan does not apply to the employees of the Aeromet
              Corporation.

         An employee must be in such a position by the November Board of
         Directors meeting in order to be eligible for the fiscal year plan
         beginning the preceding 1 October, unless otherwise authorized by the
         CEO.

         An officer may recommend that an employee, who is otherwise eligible,
         not participate but such a recommendation must be authorized by the
         CEO.

         Participants are eligible for payout in proportion to the percentage of
         the fiscal year the participant is responsible for the qualifying
         position, unless otherwise authorized by the CEO.

         Employees who transfer to a different officer's unit during the year
         are paid according to the proportion of the year spent under each plan.

         Employees who work less than full time during a year (e.g., due to a
         personal leave, but not due to illness) would earn a proportionately
         reduced payout.

         Unless authorized by the CEO, no payout will be made to employees who
         work less than 1,000 hours in the fiscal year.

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         The participant must be on MTS' payroll at the end of the fiscal year
         to qualify for a payout. Employees resigning or terminated before the
         end, regardless of cause, are not eligible unless otherwise authorized
         by the CEO

         No employment contract is implied by participation in this Plan.

4.       ESTABLISHMENT OF OBJECTIVES

         a.       The Board of Directors sets the Corporate Earnings per Share
                  (EPS), Corporate Return on Average Net Assets (ROANA), and the
                  corporate Working Capital Rate to Revenue objectives at their
                  November meeting.

         b.       ROANA, Revenue, and Working Capital Rate to Revenue objectives
                  for Division heads will be approved by the Human Resource
                  Committee of the Board of Directors at the November meeting.
                  All other objectives must be finalized by December 15.

                  Other objectives for participants below the direct reports to
                  the CEO require one over one approval levels to:

                  *  Integrate objectives into Company operating plan
                  *  Guard against conflicting objectives
                  *  Help to assure consistency in degree of difficulty

                  The CEO has the final approval over all participants other
                  than himself.

5.       CRITERIA FOR OBJECTIVES

5.a      CORPORATE LONG RANGE PLANNING

         The Corporate Profit and Growth Objectives are set by the Board based
         on the current 3- year Long Range Plan (LRP) for the period FY1999
         through 2001. Growth rates are set against 1998 actual results as the
         baseline. These are:

                  EPS:        20% compounded annual growth
                  ROANA:      21% average across the three years of the plan
                  REVENUE:    15% compounded annual growth

         For annual MVC purposes, EPS and revenue objectives are adjusted
         annually as recommended by the CEO and approved by the Board of
         Directors. All objectives include all transactions, acquisitions,
         write-offs, sales of assets, etc. unless specifically excluded by the
         Board in writing.

5.b      CORPORATE '00 MVC

         FUNDAMENTAL PHILOSOPHY IS THAT ACHIEVING THE FY00 PLAN WILL RESULT IN
         100% MVC PAYOUT.

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         For FY00 this translates to MVC corporate level objectives of:

                  EPS:                      $0.95
                  ROANA:                    16.2%
                  REVENUE:                  $391.1M
                  WORKING CAP
                  RATE TO REV:              41%
                  (Mpls-based ops)

5.c      MVC IMPLEMENTATION

         EPS:
                  EPS                    Payout
                  ---                    ------
                  $0.90                    0%
                  $0.95                  100%
                  $1.05                  200%

         ROANA:
                ROANA                    Payout
                -----                    ------
                 0.8x Base                 0%
                 Base = 16.2%            100%
                 1.2x Base               200%
                 1.4x Base               300%

         WCRR (Mpls-based operations):
                WCRR                     Payout
                ----                     ------
                42%                        0%
                41%                       100%
                39%                       200%

5.d      UNIT

         Unit financial goals (ROANA & Working Capital Rate to Revenue) are
         expressed as Corp/Division/Niche goals. Such goals are set as part of
         an integrated plan for the overall corporation.

         Approved Unit levels for FY00 are:
         Type
         ----
         CORP              Corporate
         DIV               AESD/Entertainment
         DIV               Automation
         DIV               DSPT
         DIV               MTD/Aero
         DIV               NVD
         DIV               Sensors
         DIV               Service
         DIV               Vehicles Dynamics

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5.d      UNIT(CONT.)
         Additional NICHES as approved by CEO

         Other "Non-Financial" objectives are locally established, must be
         stated in measurable terms and must not be activities (i.e. number of
         sales calls or technical society presentations).

6.       COMPETITIVE PAYOUT POTENTIAL

         The competitive payout potential, expressed as a % of the midpoint of
         the salary structure, is shown below:

<TABLE>
<CAPTION>
                     POSITION                       COMPETITIVE PAYOUT POTENTIAL %
                     --------                       ------------------------------
<S>                              <C>                <C>
         CEO                     E5                                    70%
         Exec VP, MT&S           E4                                    50%
         Vice President          E3                 25-50, depending on revenue level (profit potential)
         Vice President          E2                 25-50, depending on revenue level (profit potential)
         Vice President (Unit)   E1                 15-45, depending on revenue level (profit potential)
         Mkt Div P&L Mgrs        SAM 17-21          15-35, depending on revenue level (profit potential)
         All Other Mgmt          SAM 18-21          10-25, depending on profit impact
                                 SAM 15-17          6-20, depending on profit impact
                                 T/E 5/5S - 9/9S    6-15, depending on profit impact
</TABLE>

7.       OVERRANGING/MAXIMUM POTENTIAL PAYOUT

         The objectives are set at challenging but realistic levels that are
         used in the overall process of planning and resource allocation. This
         is not meant to be a limit to our aspirations, and performance above of
         those objectives should be rewarded as it is to the benefit of all
         stakeholders in the enterprise. Payout above the competitive payout
         potential is termed overranging.

         Two MVC mixes are possible for participants based on position and
         salary level. Exceptions must be approved by the CEO.

                  FOR THE MTS EXECUTIVE MANAGEMENT TEAM
                  Corporate Earnings per share (EPS) at 30% with 200%
                  overranging.
                  Corporate or Division ROANA at 50% with 300% overranging.
                  Mpls-based Operations Working Capital Rate to Revenue or
                  Approved Revenue for the Business Unit at 20% with 200%
                  overranging.

                  Base payout potential:  30 + 50 + 20 = 100
                  Max payout potential: (30x2) + (50x3) + (20x2) = 250

                  FOR ALL OTHER POSITIONS
                  Corporate earnings per share (EPS) at 20% with 200%
                  overranging.
                  Corporate, Division, or Niche(as applicable) ROANA at 50% with
                  300% overranging.
                  Corporate, Division, or Niche Working Capital Rate to Revenue
                  at 20% with 200% overranging.
                  Other objectives at 10% with no overranging.

                  Base payout potential: 20 + 50 + 20 + 10 = 100
                  Max payout potential: (20x2) + (50x3) + (20x2) + (10x1) = 240

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8.       RELATIONSHIP TO OTHER COMPENSATION PLANS

8.a      "NON MANAGEMENT" VARIABLE COMPENSATION PLAN (VC)

         Certain units may have a variable compensation plan for employees who
         are not eligible for the MVC, sales commissions, or other variable
         compensation plans. Payout in these VC Plans is linked directly to
         payout on the unit's MVC profit objectives. These non-management plans
         are subject to the approval of the unit vice president, corporate Human
         Resources manager and CEO.

         The following is an outline summary to which these VC plans must
         adhere. They are included in this MVC Plan for reference only.

8.a(1)   VC Competitive payout potential is 3% of the midpoint of the salary
         range in which the employee is placed at the beginning of the fiscal
         year.

8.a(2)   VC payout will normally be based on the combination of the results of
         the Corporation's earnings per share (EPS) and employee's unit vice
         president's (in some cases the unit manager's) ROANA objective(s) for
         the year. If the unit's vice president (manager)has more than one such
         objective, the payout will be based on the weighted average of the
         officer's objectives.

8.a(3)   The entire 3% VC payout potential is eligible for overranging for
         participating employees.

8.a(4)   Eligibility and participation rules for VC will be the same as those
         for MVC, where appropriate.

8.b      RETIREMENT PLAN

         The calculations for the Management Variable Compensation Plan (and VC)
         are made after deductions for retirement plans.

         Payout to a U.S. based participant in the Management Variable
         Compensation Plan (and VC) is included in the calculation of the
         Company's contribution to that employee's retirement plan.

9.       PAYOUT

         Payouts under this Plan along with VC are considered costs for the
         calculation of actual performance against objectives.

         Payouts are audited by the manager of internal audit and approved by
         the CFO. Payouts for the Executive Management Team must be approved by
         the CEO.

         Payout will be made in cash within 90 days of the end of the fiscal
         year, expected to be on or before December 31, 2000.

                                                                          Page 5EXHIBIT 10.x

                               SEVERANCE AGREEMENT

         AGREEMENT made as of this 3rd day of January, 2000 by and between MTS
Systems Corporation, a Minnesota corporation ("MTS") and Kathleen M. Staby (the
"Executive").

         WHEREAS, MTS desires to employ Executive as its Vice President and
Executive is willing to become employed by MTS in such capacity; and

         WHEREAS, Executive is expected to make a significant contribution to
the profitability, growth and financial strength of MTS; and

         WHEREAS, MTS considers the establishment and maintenance of a sound and
vital management and an orderly succession plan to be essential to protecting
and enhancing the best interests of MTS and its shareholders; and

         WHEREAS, this Agreement is consistent with the requirements of the
executive/high policymaking exception to the Age Discrimination in Employment
Act, 29 U.S.C. Section 631(c)(1) (the "Executive Exemption"), benefits in
connection therewith are pursuant to pension, profit sharing and deferred
compensation plans as defined therein, and Executive, by virtue of his or her
duties and responsibilities on behalf of MTS, qualifies under said exception for
mandatory retirement on or after his or her 65th birthday; and

         WHEREAS, MTS is providing Executive, simultaneously with this
Agreement, in addition to Executive's employment with MTS and the special
benefits associated therewith, additional consideration in the form of a Change
in Control Agreement, to provide additional benefits to Executive in the event
of a change in control;

         NOW 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 commence on the date hereof
and shall continue in effect until the earlier of (a) the date on which the
Executive and MTS agree in writing to terminate this Agreement, or (b) the Date
of Termination indicated in paragraph 2, 3, or 4 hereunder. If a change in
control occurs, as defined in that certain agreement between the Executive and
MTS of even date herewith (the "Change in Control Agreement", attached as
Exhibit 1), this Agreement shall be superseded by the provisions of the Change
in Control Agreement except as provided in the following sentence. MTS's right
under this Agreement to terminate the Executive's employment pursuant to the
Executive Exemption shall not be superceded by the Change in Control Agreement
and the Executive

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shall be entitled to receive the benefits to which he is entitled under
subparagraph 4(d) hereunder if such termination occurs.

         2. Termination by Reason of Death or Disability. In the event of the
Executive's death or disability during the Term of this Agreement, Executive
shall be entitled to such benefits provided under any policy, plan or program
governing death or disability maintained by MTS and covering such Executive and
this Agreement shall not apply. The determination of disability and the amount
and entitlement of benefits shall be governed by the terms of such policy, plan
or program. In the event of the Executive's disability, the Executive's Date of
Termination shall be the date on which Executive has been unable, by reason of
physical or mental disability, to perform the services required of him or her
for his or her position, even with reasonable accommodation, for the period of
time indicated in MTS's group long term disability plan (in which the Executive
is a participant) during which a participant must be disabled before benefits
become payable. In connection with Executive's termination due to disability, a
qualified physician must certify the disability and MTS shall at all times
comply with the Americans With Disabilities Act and any other applicable
disability discrimination law.

         3. Resignation or Termination for Cause.

                  (a) The Executive may resign his or her employment or MTS may
         terminate the Executive's employment for Cause, effective as of the
         Date of Termination set forth in the Notice of Termination. If
         Executive resigns or his or her employment is terminated by MTS for
         Cause, MTS shall pay to Executive his or her full base salary through
         the Date of Termination at the rate in effect at the time of Notice of
         Termination is given and MTS shall have no further obligation to
         Executive under this Agreement.

                  (b) Termination by MTS of Executive's employment for "Cause"
         shall mean termination as a result of:

                           (i) the conviction of the Executive by a court of
                  competent jurisdiction for felony criminal conduct; or

                           (ii) willful misconduct by the Executive; or

                           (iii) violation by the Executive of any employment
                  agreement applicable to the Executive.

         4. Termination Other Than for Cause. MTS may terminate Executive's
employment for a reason other than Cause, including pursuant to the Executive
Exemption on or after Executive's 65th birthday, effective as of the Date of
Termination set forth in the Notice of Termination. If Executive's employment is
terminated by MTS other than for Cause, death or disability, Executive shall be
entitled, subject to subparagraph 4(d)(v) and paragraph 9 of this Agreement, to
the benefits described in subparagraphs (a), (b) and (c) below and, if
applicable, subparagraph (d) below.

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                  (a) Executive shall be paid a monthly Severance Payment equal
         to the Executive's Monthly Gross Income, as defined in subparagraph (i)
         below for 6 months. If Executive's employment is terminated pursuant to
         the Executive Exemption as described in subparagraph 4(d) hereunder,
         "12" shall be substituted for "15" in the preceding sentence.

                           (i) For purposes of this Agreement, Monthly Gross
                  Income shall mean the sum of the following amounts, subject to
                  applicable federal and state withholding.

                                    (A) 1/12 of the highest average base salary
                           for any 12-consecutive month period during the 36
                           calendar month period ending immediately prior to the
                           Date of Termination; plus

                                    (B) the monthly average of the total
                           Management Variable Compensation (MVC) earned during
                           the lesser of the 3 most recent or the actual number
                           of fiscal years participating in the MVC plan ending
                           immediately prior to the Date of Termination; plus

                                    (C) the product of the average percentage of
                           MTS profit sharing contributions to the MTS Systems
                           Corporation Profit Sharing Retirement Plan and Trust
                           (as a percent of Compensation as defined in the Plan
                           up to the federal limit) for the lesser of the 3 most
                           recent or the actual number of participating Plan
                           Years ending immediately prior to the Date of
                           Termination multiplied by the sum of (A) and (B)
                           above.

                  (b) Executive shall be entitled to continue any of said
         benefits which qualify as group health and life insurance benefits for
         continuation coverage under the Comprehensive Omnibus Budget
         Reconciliation Act ("COBRA") or applicable state law and pursuant to
         the terms of the plan. Following the Executive's Date of Termination
         and while severance payments are being paid to the Executive or, if
         earlier, until Executive is covered under other group plans, MTS shall
         continue to pay the employer share of the Executive's MTS group life
         and health insurance premiums. All premium payments made on Executive's
         behalf following his or her Date of Termination and Executive's
         continued participation in the plans are contingent upon Executive
         making the appropriate timely written elections to continue his or her
         group benefits following his or her Date of Termination, said group
         benefits continuing in effect for active MTS employees, Executive
         continuing to be eligible under the terms of the plans and applicable
         laws, and Executive's payment of the employee portion of the premiums
         for such benefits. Benefits otherwise receivable by Executive pursuant
         to this subparagraph (b) shall be reduced or eliminated to the extent
         comparable benefits are actually received by Executive during such
         period from a source outside MTS, and any such benefits actually
         received by Executive shall be reported to MTS.

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                  (c) The Executive's rights under any existing Employee Stock
         Option Agreement and any future such agreements, including particularly
         his or her vesting rights and his or her right to exercise his or her
         options following his or her termination of employment, shall continue
         to be fully effective hereunder. In addition, if the Executive's
         termination of employment occurs pursuant to the Executive Exemption on
         or after he has reached his or her 65th birthday, the Executive shall
         continue to vest in any stock options in which he is not fully vested,
         as though he were continuing his or her employment with MTS as an
         active employee, subject at all times to the exercise times and other
         terms and conditions set forth in said Stock Option Agreements and to
         Executive's signing the release agreement described in paragraph 9
         herein.

                  (d) If Executive's termination of employment occurs pursuant
         to the Executive Exemption on or after he has reached his or her 65th
         birthday, Executive shall be entitled to receive the lump sum
         equivalent of the amount necessary to purchase a $44,000 pre-tax
         straight life annuity, said lump sum to be taken from MTS contributions
         and earnings thereon to Executive's accounts in MTS sponsored pension,
         profit sharing, and deferred compensation plans, as applicable. If
         Executive is entitled to less than that amount from the applicable MTS
         plans in which he is a participant as of his or her Date of
         Termination, then MTS shall make an additional contribution on
         Executive's behalf to Executive's Deferral Account in the MTS Systems
         Corporation Executive Deferred Compensation Plan, pursuant to Section
         3.4 of said Plan. The amount to which Executive is entitled under
         subparagraph 4(a) of this Agreement shall be reduced by MTS's Section
         3.4 contribution to the MTS Systems Corporation Executive Deferred
         Compensation Plan, as described in subparagraph (v) below. Calculation
         of the Executive's benefit shall be as follows:

                           (i) The benefits to which Executive is entitled, as
                  of his or her Date of Termination, under all MTS sponsored
                  pension, profit sharing and deferred compensation plans shall
                  be added together.

                            (ii) Amounts in said plans, as determined in
                  accordance with 29 Code of Federal Regulations ss. 1627.17,
                  attributable to Social Security, employee contributions,
                  contributions of prior employers, and rollover contributions,
                  shall be subtracted from the subparagraph (i) amount and the
                  resulting figure shall be the "Qualified Retirement Benefit".

                           (iii) MTS shall determine the lump sum equivalent of
                  the amount necessary to purchase a straight life annuity for
                  Executive, effective as of his or her Date of Termination,
                  which would provide Executive with $44,000 a year for life
                  (the "ADEA Benefit"). MTS shall retain a certified actuary to
                  determine said lump sum equivalent amount, using the
                  applicable mortality table and applicable interest rate under
                  Section 417(e) of the Internal Revenue Code and Regulations
                  issued thereunder.

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                           (iv) If the Qualified Retirement Benefit exceeds the
                  ADEA Benefit, the Executive shall have the option (but is not
                  required) to receive the Qualified Retirement Benefit in a
                  lump sum, as provided under the applicable plans, within 60
                  days following his or her Date of Termination. The Executive
                  may elect to receive the Qualified Retirement Benefit in
                  either a lump sum or a series of periodic payments pursuant to
                  the terms of the applicable plans. The Executive may also
                  receive the payments and benefits set forth in subparagraphs
                  4(a) and (b) of this Agreement provided he executes the
                  release agreement required in paragraph 9 of this Agreement.
                  The benefits set forth in subparagraph 4(c) shall at all times
                  be available to the Executive.

                           (v) If the Qualified Retirement Benefit is less than
                  the ADEA Benefit, MTS shall make a contribution to Executive's
                  Deferral Account in the MTS Systems Corporation Executive
                  Deferred Compensation Plan, pursuant to Section 3.4 of said
                  Plan, in an amount equal to the difference between the
                  Qualified Retirement Benefit and the ADEA Benefit (the
                  "Qualified Retirement Benefit Supplement"). The Executive
                  shall have the option (but is not required) to receive the
                  Qualified Retirement Benefit and, if applicable, the Qualified
                  Retirement Benefit Supplement from said Plan within 60 days
                  following his or her Date of Termination. The Executive may
                  elect to receive the Qualified Retirement Benefit and, if
                  applicable, the Qualified Retirement Benefit Supplement, in
                  either a lump sum or a series of periodic payments pursuant to
                  the terms of the applicable plans. The payments to Executive
                  described in subparagraph 4(a) of this Agreement shall be
                  reduced by the amount of MTS's contribution to Executive's
                  Deferral Account in the MTS Systems Corporation Executive
                  Deferred Compensation Plan, pursuant to Section 3.4 of said
                  Plan, to create the Qualified Retirement Benefit Supplement.
                  All payments remaining in subparagraph 4(a) after this
                  reduction and the subparagraph 4(b) and (c) benefits shall be
                  paid to Executive in accordance with the terms of those
                  subparagraphs, provided Executive executes the release
                  agreement required in paragraph 9 of this Agreement.

                           (vi) Executive's Qualified Retirement Benefit and, if
                  applicable, the Qualified Retirement Benefit Supplement, shall
                  be nonforfeitable and not subject to reduction or elimination
                  by MTS for any reason.

         5. No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise; nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by Executive as the result
of employment by another employer or by retirement benefits after the Date of
Termination or otherwise except as specifically provided herein.

         6. Non-Competition and Confidentiality.

                  (a) Executive agrees that, as a condition of receiving
         benefits under this Agreement, he will not render services directly or
         indirectly to any competing

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         organization located in any market in which MTS is doing business as of
         Executive's Date of Termination for the period of time during which
         Executive is receiving benefits under this Agreement or the Change in
         Control Agreement, 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 MTS, 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 MTS.

                  (b) Executive further agrees and acknowledges his or her
         existing obligation that, at all times during and subsequent to his or
         her employment with MTS, he will not divulge or appropriate to his or
         her own use or the uses of others any secret or confidential
         information 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) If Executive violates his or her obligations under
         subparagraphs (a) and (b) above, any remaining payments or benefits
         otherwise due Executive pursuant to subparagraphs 4(a) and (b) of this
         Agreement shall not be paid. This subparagraph (c) specifically does
         not apply to the subparagraph 4(a) reduction amount equal to the
         Qualified Retirement Benefit Supplement, as described in subparagraph
         4(d)(v).

         7. Binding Agreement. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal or legal representatives, heirs, and
designated beneficiaries. If Executive should die while any amount would still
be payable to 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.

         8. Notice of Termination.

                  (a) Any purported termination of Executive's employment by
         either Executive or MTS under this Agreement, except as otherwise
         provided in paragraph 2 of this Agreement, shall be communicated by
         written notice to the other party.

                  (b) For purposes of this Agreement, "Date of Termination"
         shall mean the date specified in the written Notice of Termination
         which shall not be less than 10 nor more than 60 days from the date
         such Notice of Termination is given.

                  (c) Notice of Termination and all other communications
         provided for in the Agreement shall be deemed to have been duly given
         when delivered or mailed by United States registered or certified mail,
         return receipt requested, postage pre-paid, addressed to the last known
         residence address of the Executive or in the case of MTS, to its
         principal office to the attention of each of the then directors of MTS
         with a copy to its Secretary, or to such other address as either party
         may have furnished to the

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         other in writing in accordance herewith, except that notice of change
         of address shall be effective only upon receipt.

         9. Release of Claims. Executive's right to the benefits and payments
described in subparagraphs 4(a), (b) and (c) of this Agreement, except as
otherwise provided in subparagraph 4(d)(v) hereof, is contingent upon
Executive's execution of a severance release agreement which shall be provided
to Executive by MTS with or following his or her Notice of Termination. The
severance release agreement shall require a full release of all claims which
Executive may have against MTS or any MTS affiliate or individual associated
with MTS, to the extent permitted by and consistent with applicable laws. Such
release agreement shall prohibit Executive from recovering any amount in
connection with a charge or lawsuit filed against MTS or any MTS affiliate,
employee, shareholder, officer, director or other agent by Executive, EEOC or
any other agency or entity on Executive's behalf based upon any act occurring
prior to execution of said release agreement. The release agreement will be
available for Executive's review, consideration and execution at least 45 days
prior to his or her Date of Termination.

         10. Injunctive Relief. Executive consents that, in the case of any
violation or threatened violation of paragraph 6 of this Agreement, MTS may
apply for and secure injunctive relief, temporary or provisional, in court,
without bond but upon due notice, pending final resolution on the merits
pursuant to arbitration as set forth in paragraph 11 hereof. No waiver of any
violation of this Agreement shall be implied from any failure by MTS to take
action under this paragraph.

         11. Arbitration. Any and all claims or disputes between Executive and
MTS (including the validity, scope, and enforceability of this paragraph),
except as otherwise provided under paragraph 10 or prohibited under applicable
law, shall be submitted for arbitration and resolution to an arbitrator. No
demand for arbitration may be made after the date when the institution of legal
or equitable proceedings based on such claim or dispute would be barred by the
applicable statute of limitation. The arbitrator shall be selected by mutual
agreement of the parties. Unless otherwise provided for in this Agreement, the
Expedited Labor Arbitration Rules of the American Arbitration Association shall
apply. If the parties are unable to agree upon an arbitrator, any such dispute
shall be solely and finally settled by arbitration in accordance with the
Expedited Labor Arbitration Rules of the American Arbitration Association
("AAA"). The parties agree that no punitive damages shall be awarded hereunder.
The parties also agree that all awards, decisions and remedies in favor of a
winning party hereunder with respect to any issue shall be proportional to the
violation caused by the losing party with respect to that issue. All costs in
conducting the arbitration, including but not limited to the arbitration filing
fee, the arbitrator's fees and expenses, and the reasonable attorney's fees and
expenses of the prevailing party (including the attorney's fees and costs
incurred by the prevailing party in seeking or resisting temporary or
provisional court relief as set out in paragraph 10 above), shall be the
responsibility of the losing party. In the event there is more than one issue in
dispute and there is no one prevailing party with respect to all issues in
dispute, costs and attorney's fees shall be prorated by the arbitrator according
to the relative dollar value of each issue. The arbitrator's Award shall be
final and binding. In the event either party must resort to the judicial process
to enforce the provisions of this Agreement, the award of an arbitrator or
equitable relief

<PAGE>

Sevarance Agreement
Page 8

granted by an arbitrator, the party seeking enforcement shall be entitled to
recover from the other party all costs of litigation including, but not limited
to, reasonable attorney's fees and court costs. The arbitration proceedings and
Award shall be maintained by both parties as strictly confidential, except as
otherwise required by court order and with respect to the parties' attorneys and
tax advisors, and, with respect to MTS, members of its management, and, with
respect to Executive, his or her family.

         12. Miscellaneous.

                  (a) 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 other party shall be deemed a waiver of similar or
         dissimilar provisions or conditions at the same or at any prior or
         similar time.

                  (b) 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.

                  (c) The validity, interpretation, construction and performance
         of this Agreement shall be governed by the laws of the State of
         Minnesota.

                  (d) Any provision of this Agreement which conflicts with
         applicable law shall be modified to the extent necessary to ensure its
         enforceability. 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.

         This Agreement supersedes any and all prior oral and written
understandings and agreements between the Executive and MTS.

         IN WITNESS WHEREOF, MTS, through its authorized officer, and the
Executive have executed this Agreement as of the day and date first above
written.

EXECUTIVE:                              MTS SYSTEMS CORPORATION

/s/ Kathleen M. Staby                   By /s/ Sidney W. Emery, Jr.
---------------------                      ------------------------
Kathleen M. Staby
                                        Its  Chairman and CEO
                                            -----------------------

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