NSYS Nortech Systems Inc

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 9, 2018

TO THE SHAREHOLDERS OF NORTECH SYSTEMS INCORPORATED:

The Annual Meeting of Shareholders of Nortech Systems Incorporated (the “Company”) will be held at the Company’s office at 7550 Meridian Circle N., Suite 150, Maple Grove, Minnesota 55369, on May 9, 2018, at 3:00 p.m., for the following purposes:

1. To elect eight members of the Board of Directors to serve for a one-year term and until their successors are elected and qualify;

2.  To approve, on an advisory basis, the compensation of our named executive officers (referred to as the “Say-on-Pay” proposal);

3. To ratify the appointment of Baker Tilly Virchow Krause, LLP as the independent registered public accounting firm of the Company for fiscal 2018; and

4. To transact such other business as may properly come before the meeting or any adjournment thereof.

Only shareholders of record at the close of business on March 16, 2018, will be entitled to notice of and to vote at the meeting or any adjournment thereof.

Important Notice regarding the availability of proxy materials for the Annual Meeting of Shareholders to be held on May 9, 2018 : The Notice and Proxy Statement and Annual Report on Form 10-K are available online at www.proxyvote.com .

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.

Your attention is called to the accompanying Proxy Statement.

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Nortech Systems Incorporated

Appointment of Independent Auditor .  The ratification of the appointment of Baker Tilly Virchow Krause, LLP as the Company’s independent registered public accounting firm for fiscal 2018 requires the affirmative vote of a majority of the votes cast at the meeting by shareholders who are present and entitled to vote on the matter. An abstention by a shareholder with respect to this proposal will have the same effect as a vote “Against” the proposal.

Routine Versus Non-Routine Matters.   Brokers can vote on their customers’ behalf on “routine” proposals such as PROPOSAL 3, the ratification of appointment of Baker Tilly Virchow Krause, LLP as the Company’s independent registered public accounting firm.  Brokers cannot vote on their customers’ behalf on “non-routine” proposals such as PROPOSAL 1, the election of directors, and PROPOSAL 2, the advisory vote on executive compensation. Because brokers require their customers’ direction to vote on such non-routine matters, it is critical that shareholders provide their brokers with voting instructions.

Effect of Broker Non-Votes.   If you hold your shares in street name and do not provide voting instructions to your bank, broker or other custodian, your shares will not be voted on PROPOSAL 1 or PROPOSAL 2 which are proposals on which your broker does not have or does not exercise discretionary authority to vote (a “broker non-vote”), such as may be the case with other non-routine matters for which you do not provide voting instructions. A broker non-vote on any of the proposals presented at the annual meeting will have no effect on the outcome of the proposal.

director from May 1998 through January 2014, and she was Chairman of the Board from August 2009 through January 2014. Ms. Iverson brings to our Board her experience and knowledge from her executive and board positions and strong experience in the electronics manufacturing industry.

Michael J. Kennedy.   Mr. Kennedy is currently the Vice President of Strategic Supply Chain Chemicals & Electronics of Wesco Aircraft Holdings, Inc., a provider of supply chain management solutions to the global aerospace and defense industries, since October 2017. His prior roles at Wesco Aircraft include Vice President of Americas Sales & Global Marketing from October 2016 to September 2017, Vice President of Global Business Development and Marketing from October 2015 to September 2016 and Vice President Sales, Electronic Products, from November 2014 to September 2015.  Prior to joining Wesco, Mr. Kennedy served as Vice President of Asset and Supplier Marketing of WPG Americas, Inc., a leading global distributor of electronic components, from May 2013 to November 2014. From May 1994 to February 2013, Mr. Kennedy held increasingly senior positions at Arrow Electronics, Inc. and was most recently the Vice President EMEA PEMCO Engineering and Marketing. Mr. Kennedy brings to our Board his experience and knowledge from twenty-four years in the electronics products distribution and supply chain management industries.

David B. Kunin.   Mr. Kunin is currently the chief executive officer of Beautopia LLC, a beauty products manufacturing business, since 1998.  From 1997 until October 2011 he served as a director of Regis Corporation, the world’s largest owner and franchisor of hair salons.  He spent ten years in sales and senior management positions for computer companies, contract manufacturing and printed circuit board fabrication.  He serves as president of a family holding company, Curtis Squire, Inc., the owner of 49% of the Company’s outstanding common stock. Mr. Kunin has been a director of the Company since May 2014 and has been the Company’s Chairman of the Board since May 2015.  Mr. Kunin brings to our Board his experience in the contract manufacturing and printed circuit board businesses as well as his twenty years’ business perspective, including as a director of large publicly traded businesses.

Ryan P. McManus.   Mr. McManus is a recognized as a global leader in the field of digital business strategy.  He is currently the Senior Vice President of Partnerships at EVRYTHNG, a Smart Products IoT Platform company. McManus was with Accenture Strategy from 2010 to 2015 and during that time he founded Accenture’s Digital Business Strategy practice and also served as Accenture Strategy’s chief operating officer and a leader in the firm’s Corporate Strategy, M&A and International Expansion practices.  After starting out in 1995 in Chicago with Andersen, in 2002 he joined PriceWaterhouseCoopers as Director of Strategy and Operations and then in 2009 formed RPM Global Advisors delivering strategy, product development and international growth services before joining Accenture.  He has worked with large and small companies on digital business, new venture, and global strategies across industrial, technology, financial services, pharma, health, professional services, retail, and government sectors.  He is the author of several publications and a frequent presenter at summits, forums and institutions in the field of digital and business strategy.  Mr. McManus brings to our Board his experience and knowledge as a global leader in business strategy.  He has been a director since 2016.

Jay Dean Miller.   Mr. Miller, a director nominee, is currently the acting chairman of the board for NXC Imaging, a medical imaging distribution company, a position he has held since 2016.  Mr. Miller also is chairman of the board of NerveVision, which develops medical software products, and is a director of MR Instruments, Inc., which develops magnetic resonance imaging products. From August 2013 to February 2016, he was president, chief executive officer and member of the board of IMRIS, Inc., which designs image-guided surgical solutions, and was previously chief operating officer since 2012.  Prior to 2012, Mr. Miller was the CEO of Zonare, Inc and Vital Images, Inc. in the medical imaging and visualization industry. Early in his career Mr. Miller worked for Siemens Medical Systems (now Siemens Healthineers) and GE Medical Systems (now GE Healthcare). He has also advised and served on the boards of directors of numerous companies in the healthcare industry. Mr. Miller brings to our Board broad experience in the healthcare industry and knowledge of governance and public company compliance.  Mr. Miller was recommended by the Chair of the Nominating and Governance Committee.

William V. Murray. Mr. Murray is currently the president and chief executive officer of CrossCourt Group, LLC, Washington D.C., a life science innovation advisory company. From August 2013 to March 2018, Mr. Murray was president and chief executive officer of the Medical Device Innovation Consortium, a public-private partnership between industry, non-profits and government focused on re-engineering the regulated medical device

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innovation process.  Mr. Murray currently serves on the boards of MDICand Sonex Health.  From June 2012 to June 2013, he was the chief executive officer of Envoy Medical, a commercial-stage medical technology company that manufactures a fully implantable hearing device.  Mr. Murray served on the board of directors of MTS Systems, Inc., a publicly traded company, from April 2010 to February 2014 and was interim president and chief executive officer of MTS Systems, Inc. from August 2011 to May 2012.  Mr. Murray served as president and chief executive officer and as a member of the board of directors of ReShape Medical, Inc. from 2008 to 2010.  Mr. Murray spent 18 years (1985-2003) with Medtronic Inc. holding various positions of increasing responsibilities from engineer to senior global executive, Mr. Murray also held executive leadership positions with Envoy Medical, VIASYS and Applied Biosystems.  Mr. Murray brings to our Board his experience and knowledge from both his executive positions in the medical device industry and as a director of a publicly owned company.

Steven J. Rosenstone.   Professor Rosenstone, a director nominee, was the Chancellor of the Minnesota State Colleges and Universities from 2011 until his retirement in 2017.  Previously he was Vice President of Scholarly and Cultural Affairs at the University of Minnesota from 2007 to 2011 and Dean of the College of Liberal Arts of the University of Minnesota from 1996 to 2007. He was previously on the faculty at Yale University and the University of Michigan. He has served on numerous boards and commissions including the Minnesota Business Partnership and the Governor’s Workforce Development Board, and he is a member of the American Academy of Arts and Sciences. He twice traveled to the People’s Republic of China on behalf of the University of Minnesota and in 2016 was a member of Governor Mark Dayton’s trade mission to Mexico.  Professor Rosenstone brings to our Board his broad academic background, leadership skills and deep knowledge of the culture and markets of China and Mexico.  Mr. Rosenstone was recommended by the Chairman.

Richard G. Wasielewski.   Mr. Wasielewski has been Chief Executive Officer and a director of the Company since January 1, 2014, and has been President since February 13, 2013. Previously, he was senior vice president and chief financial officer of the Company since April 2004, when he joined the Company.

DIRECTORS MEETINGS

There were five meetings of the Board of Directors during the last fiscal year.  All directors acting that year attended all the meetings of the Board and committees of the Board on which such director served, either in person or telephonically.

We encourage Board members to attend the annual meeting of shareholders.  All the Company directors serving on the Board of Directors at the time of the Company’s 2017 annual meeting were in attendance.

COMMITTEES

The Board of Directors has established a Nominating and Corporate Governance Committee, a Compensation Committee, and an Audit Committee.  The members of the Nominating and Corporate Governance Committee are Messrs. Kennedy, Larson, McManus and Richard Perkins, who is retiring from the Board and whose term expires on the date of the annual meeting. The members of the Compensation Committee are Ms. Iverson and Messrs. Kennedy, McManus and Kenneth Larson, who is retiring from the Board and whose term expires on the date of the annual meeting. The members of the Audit Committee are Ms. Iverson and Messrs. Kennedy and Perkins.

In the last fiscal year the Audit Committee met four times, the Compensation Committee met four times, and the Nominating and Corporate Governance Committee met four times.  The charters of all committees are posted on the Company’s website at www.nortechsys.com.

DIRECTOR INDEPENDENCE

The Board of Directors has determined that Ms. Iverson and Messrs. Kennedy, Larson, McManus, Murray and Perkins are independent directors under the rules established by the Securities and Exchange Commission and the Marketplace Rules of The NASDAQ Stock Market (“NASDAQ”).  In evaluating Mr. Murray’s independence, the Board has considered his consulting agreement with the Company, described under “Certain Relationships and

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Related-Party Transactions” and has determined that he continues to be independent. However, Mr. Murray does not meet the heightened independence requirements for a member of the Audit Committee because of the consulting agreement, and therefore he withdrew from the Company’s Audit Committee in February 2018 when he entered into the agreement.

Further, the Board has determined that Ms. Iverson is an “audit committee financial expert” as defined by applicable regulations of the Securities and Exchange Commission.

BOARD LEADERSHIP STRUCTURE

The Board has determined that the positions of Chairman of the Board and Chief Executive Officer should be held by different persons.  The Board believes that this leadership structure has enhanced the Board’s oversight of, and independence from, the Company’s management and the Board’s ability to carry out its roles and responsibilities on behalf of the shareholders.

RISK OVERSIGHT

Management and the Company’s outside counsel discuss risks, both during Board meetings and in direct discussions with Board members.  These discussions identify Company risks which are prioritized and assigned to the appropriate Board committee or the full Board for oversight.  Internal control and financial risks are overseen by the Audit Committee; compensation risks are overseen by the Compensation Committee; CEO succession planning is overseen by the Governance and Nominating Committee; and compliance risks are typically overseen by the full Board.  Management regularly reports on each such risk to the relevant committee or the Board, and material risks identified by a relevant committee are then presented to the full Board.  The Company’s risk management program as a whole is reviewed annually at a meeting of the Board.  Additional review or reporting on Company risks is conducted as needed or as requested by the Board or committee.

Mr. Wasielewski joined the Company in April 2004 as Vice President and Chief Financial Officer.  He was appointed President and Chief Operating Officer in February 2013 and Chief Executive Officer on January 1, 2014.

Mr. Steichen has been Chief Marketing and Sales Officer since January 2012.  He has held senior marketing and operational positions with the Company since May 2005.

Ms. Beck joined the Company on January 8, 2018, and has held the position of Vice President and Chief Financial Officer since her hiring.  Ms. Beck was formerly vice present of finance and controller for MOCON, Inc., a publicly traded provider of measurement instruments and services, from 2013 to 2017.  Prior to MOCON, Ms. Beck held director-level financial reporting positions with Navarre Corporation and Lakes Entertainment, Inc.  She also has over 10 years of public accounting experience with Grant Thornton, McGladrey & Pullen and Protiviti.  Ms. Beck is a CPA and earned a bachelor of science degree in accounting from Northern Illinois University.

Mr. Mahmood joined the Company on May 15, 2017, and has held the position of Chief Operating Officer since his hiring.  Mr. Mahmood has over 20 years of management experience in manufacturing, technology and finance. He joined Nortech from Marabek, LLC (“Marabek”) in Edina, Minn., an acquisitions and holding company with a global reach; he was managing director. From 2002 to 2015, he was COO at Thermotech Inc. / Pioneer Plastics Inc., of Hopkins and Eagan, Minn., a manufacturing and injection-molding company that supplies global

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Fortune 1000 companies in the U.S., Mexico, Asia and Europe. Pioneer and its subsidiaries also provide contract manufacturing, assembly and logistics services. Prior to that, Mahmood was founder and COO for Circata Corporation in Eagan, Minn., a wireless infrastructure developer. Earlier he worked as a senior management and business development advisor with American Express in Minneapolis. He earned a master’s degree in business administration from the Carlson School of Management at the University of Minnesota. Mr. Mahmood is currently active on boards of two Minnesota universities and three non-profits.

COMPENSATION COMMITTEE

The Compensation Committee is composed of the independent outside directors whose names appear below.  The Committee has a charter which is available on the Company’s website (www.nortechsys.com). The Committee determines the compensation of executive officers of the Company. Compensation for executive officers includes four elements: base salaries, bonuses, share-based compensation and equity appreciation rights.  Salaries are based on factors such as the individual’s level of responsibility and the amount of salary paid to executives with similar responsibilities in comparable companies.  Bonuses are awarded based on a combination of the executive’s success in meeting certain pre-established individual goals and the Company’s performance in meeting certain financial goals.  All share-based compensation and equity appreciation rights plans are designed to increase the incentive for an executive’s interest in the Company’s success as measured by the market value of its stock or other financial-related measures and to align the interests of the executives with those of the Company’s shareholders.

The Chief Executive Officer’s base compensation for 2017 was established under an amended and restated  employment agreement executed on May 15, 2017.  It was determined that the total compensation of the Chief Executive Officer was comparable to compensation of chief executive officers of comparable companies.  The base compensation of the other executive officers was set at the level necessary to attract and retain executives performing the functions being performed by such executives.

(2)             Represents amounts earned on redeemed units under the Equity Appreciation Rights Plan.  Under this Plan, the Company may award equity appreciation rights units to employees or directors that give the holder the right to receive a cash payment equal to the appreciation in book value per share of common stock from the designated base date to the redemption date.  The units are subject to redemption by the Company 36 months after the designated base date.  Additional information regarding the grants of equity appreciation rights to the named executive officers is included below these footnotes.  This column would also include cash bonus amounts accrued under the Company’s Annual Incentive Compensation Plan; however, there were no such amounts accrued in 2017 or 2016.

(3)             Represents, for Messrs. Wasielewski and Steichen, amounts accrued under the Executive Life Insurance Plan for executive officers. Pursuant to this Plan, the Company has paid a bonus to each officer equal to 15% of the officer’s base annual salary, as well as an additional bonus to cover federal and state income taxes incurred by the officer with respect to the 15% bonus. The officers are required to purchase life insurance and retain ownership of the life insurance policy once it is purchased. The Plan provides a five-year vesting schedule in which the officers vest in their bonus at a rate of 20% each year. Should an officer terminate employment prior to the fifth year of vesting, that officer must reimburse the Company for any unvested amounts. This plan has been terminated as of December 31, 2017.

(4)             Represents the grant date fair value of stock options granted to Messrs. Wasielewski and Mahmood on May 15, 2017.

(5)             Represents amounts paid by the Company to a consulting company majority owned and managed by Mr. Mahmood for consulting services.

The following table sets forth as of December 31, 2017, the outstanding grants of equity appreciation rights, including the grant dates, base dates, redemption dates and number of units granted to each of the named executive officers (“NEOs”).

The value of the aggregate outstanding equity appreciation awards to these individuals as of December 31, 2017, was as follows: Messrs. Wasielewski and Steichen each $0, Mr. Mahmood $1,751.

(1) Stock options granted on May 15, 2017, which will vest in annually in three equal installments.

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Employment Agreements

Richard Wasielewski.  The Company entered into an Amended and Restated Employment Agreement with Richard Wasielewski, the Company’s Chief Executive Officer, on May 15, 2017 (the “CEO Agreement”).  The CEO Agreement supersedes Mr. Wasielewski’s previous employment agreement and change of control agreement. The term of the CEO Agreement continues until December 31, 2018, but may be extended for an additional one year period by mutual consent of the parties.  Under the CEO Agreement, Mr. Wasielewski is entitled to receive an annual salary of $300,000, subject to increase by the Board of Directors.  Mr. Wasielewski is eligible for bonus compensation (the “Wasielewski Bonus Payment”), based upon his satisfaction of specific criteria to be determined for each calendar year by the Company’s Compensation Committee, with a stated payout percentage of up to 50% of base salary under the bonus plan.  He may participate in the Company’s benefit plans that are currently and hereafter maintained by the Company and for which he is eligible, and he also receives certain perquisites.

Upon entering into the CEO Agreement, and pursuant thereto, the Company granted Mr. Wasielewski a 75,000 share non-qualified stock option under the Company’s 2017 Stock Incentive Plan that will vest annually in three equal installments. The stock option has an exercise price of $3.43 per share, equal to the fair market value of the Company’s common stock on the grant date and expires on May 15, 2027.

The CEO Agreement has customary non-competition, non-solicitation and confidentiality provisions.

Under the CEO Agreement, if Mr. Wasielewski’s employment is terminated by the Company without Cause (as defined in the CEO Agreement) or by Mr. Wasielewski for Good Reason (as defined in the CEO Agreement), so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of (i) his base salary in effect at time of termination for the longer of (a) the remainder of the term of the CEO Agreement or (b) twelve months, (ii) the earned Wasielewski Bonus Payment for the full year in which he is terminated, (iii) the vesting of his stock options and equity appreciation rights units, and (iv) certain retirement benefits set forth in the CEO Agreement.

If Mr.  Wasielewski’s employment is terminated within 12 months after a Change of Control (as defined in the CEO Agreement) by the Company without Cause or by Mr. Wasielewski for Good Reason, so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of (i) his base salary in effect at time of termination for the longer of (a) the remainder of the term of the CEO Agreement or (b) eighteen months, (ii) the maximum payable Wasielewski Bonus Payment for the year in which he is terminated, for the portion of such fiscal year through the date of termination, (iii) the vesting of his stock options and equity appreciation rights units, and (iv) certain retirement benefits set forth in the CEO Agreement.

Matt Mahmood. The Company entered into an Employment Agreement with Matt Mahmood, the Company’s Chief Operating Officer, on May 15, 2017 (the “COO Agreement”).  The initial term of the COO Agreement is two years but it may be extended for an additional one year period by mutual consent of the parties.  Under the COO Agreement, Mr. Mahmood is entitled to receive an annual salary of $250,000 during the first year of the COO Agreement’s term and $275,000 thereafter.  Mr. Mahmood is eligible for bonus compensation (the “Mahmood Bonus Payment”) based upon his satisfaction of specific criteria to be determined for each calendar year by the Company’s Compensation Committee, with a stated payout percentage of up to 50% of base salary under the bonus plan. Mr. Mahmood may participate in the Company’s benefit plans that are currently and hereafter maintained by the Company and for which he is eligible, including, without limitation, 401(k), life insurance and other benefit plans.

Upon entering into the COO Agreement, and pursuant thereto, the Company granted Mr. Mahmood (i) 100,000 equity appreciation right units under the Company’s Restated Equity Appreciation Rights Plan and (ii) a 75,000 share non-qualified stock option under the Company’s 2017 Stock Incentive Plan that will vest annually in three equal installments. Mr. Mahmood’s stock option has an exercise price of $3.43 per share, equal to the fair market value of the Company’s common stock on the grant date and expires on May 15, 2027.

The COO Agreement has customary non-competition, non-solicitation and confidentiality provisions.

Under the COO Agreement, if Mr. Mahmood’s employment is terminated by the Company without Cause (as defined in the COO Agreement) or by Mr. Mahmood for Good Reason (as defined in the COO Agreement), so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of

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(i) his base salary in effect at time of termination for the longer of (a) the remainder of the term of the COO Agreement or (b) twelve months, (ii) the earned Mahmood Bonus Payment for the full year in which he is terminated, and (iii) the vesting of his stock options and equity appreciation rights units as well as the continuation of certain benefits.

If Mr.  Mahmood’s employment is terminated within 12 months after a Change of Control (as defined in the COO Agreement) by the Company without Cause or by Mr. Mahmood for Good Reason, so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of (i) his base salary in effect at time of termination for the longer of (a) the remainder of the term of the COO Agreement or (b) eighteen months, (ii) the maximum payable Mahmood Bonus Payment for the full year in which he is terminated, and (iii) the vesting of his stock options and equity appreciation rights units as well as the continuation of certain benefits.

If the Company declines to extend the COO Agreement after its initial two year term, Mr. Mahmood, so long as he has signed and has not revoked a release agreement, will be entitled to receive severance comprised of (i) his base salary in effect at the end of the term for six months, (ii) the earned Mahmood Bonus Payment for 2019, and (iii) the vesting of his stock options and equity appreciation rights units as well as the continuation of certain benefits.

Connie Beck.  The Company entered into an Employment Agreement with Connie Beck on January 8, 2018 (the “Agreement”).  The initial term of the Agreement is 24 months, but it may be extended for an additional one year period by mutual consent of the parties.  Under the Agreement, Ms. Beck is entitled to receive an annual salary of $200,000 during the first year of the Agreement’s term, the annual salary may thereafter be increased in the Board of Director’s (the “Board”) sole discretion or decreased with Ms. Beck’s consent.  Ms. Beck is eligible for bonus compensation (the “Bonus Payment”) based upon her satisfaction of specific criteria to be determined for each calendar year by the Company’s Compensation Committee, with a stated payout percentage of up to 35% of base salary under the bonus plan. For the bonus plan year of 2018, Ms. Beck is guaranteed 50% of the bonus for which she is eligible ($35,000); provided, that Ms. Beck remains employed by the Company at the time payment is due.  Ms. Beck may participate in the Company’s benefit plans that are currently and hereafter maintained by the Company and for which she is eligible, including, without limitation, 401(k), pension and other benefit plans.

Upon entering into the Agreement, and pursuant thereto, the Company granted Ms. Beck a 20,000 share non-qualified stock option under the Company’s 2017 Stock Incentive Plan that will vest annually in three equal installments. Ms. Beck’s stock option has an exercise price of $3.77 per share, equal to the fair market value of the Company’s common stock on the grant date and expires on January 8, 2028.

The Agreement has customary non-competition, non-solicitation and confidentiality provisions.

Under the Agreement, if Ms. Beck’s employment is terminated by the Company without Cause (as defined in the Agreement) or by Ms. Beck for Good Reason (as defined in the Agreement), so long as she has signed and has not revoked a release agreement, she will be entitled to receive severance comprised of (i) her base salary in effect at time of termination for the longer of (a) the remainder of the term of the Agreement or (b) twelve months and (ii) the earned Bonus Payment, prorated for the year in which her employment is terminated through her employment termination date.

If Ms. Beck’s employment is terminated within 12 months after a Change of Control (as defined in the Agreement) by the Company without Cause or by Ms. Beck for Good Reason, so long as she has signed and has not revoked a release agreement, she will be entitled to receive severance comprised of (i) her base salary in effect at time of termination for the longer of (a) the remainder of the term of the Agreement or (b) eighteen months, (ii) the maximum payable Bonus Payment for the year in which she is terminated, prorated for the portion of such year through the date of termination and (iii) the vesting of her stock options and the continuation of certain benefits.

Potential Payments Upon Termination Or Change-In-Control

The terms of the employment agreements for Messrs. Wasielewski and Mahmood provide for severance payments in the event of termination of employment, including upon a change of control or retirement. Such

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agreements also provide for acceleration of vesting of stock options and equity appreciation awards in certain events. See “Employment Agreements” above.

Mr. Steichen has entered into a change of control agreement with the Company. Under the agreement, in the event of an involuntary termination of any of the NEOs after a change in control of the Company, each officer would receive for 36 months (or in a lump sum, at the officer’s option) his or her base salary, annual bonus at time of termination, and continued participation in the Company’s health, disability and life insurance plans, and additionally up to $10,000 for professional outplacement services.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

The Company has established a Nominating and Corporate Governance Committee of the Board of Directors.  The Nominating and Corporate Governance Committee advises the Board concerning appropriate composition of the Board and its committees, identifies and recommends qualified individuals, and oversees corporate governance guidelines applicable to the Company.  All the members of this Committee are independent as defined in the NASDAQ Marketplace Rules.

Shareholder Nominees

The Committee has adopted a policy of considering director candidates recommended by shareholders.  Any shareholder desiring to submit such a recommendation should transmit the candidate’s name and qualifications in a letter addressed to:

Nominating and Corporate Governance Committee
Nortech Systems Incorporated
7550 Meridian Circle N., Suite 150
Maple Grove, MN 55369

Director Qualifications

The Company’s directors play a critical role in overseeing the management of the Company and its strategic direction.  Qualifications for candidates are based on various criteria, such as broad business and professional skills and experiences as management or directors of other companies.  Director candidates are expected to have the necessary time available to perform their duties and responsibilities to the Company.

The Nominating and Corporate Governance Committee and the Board of Directors have established minimum requirements for attracting qualified director candidates as follows: at least 10 years of relevant business experience, ability to read and understand financial statements, no conflict of interest with the Company, and meet the Company’s Code of Business Conduct and Ethics.  The Nominating and Corporate Governance Committee and the Board of Directors retain the right to modify these minimum requirements from time to time.

The Nominating and Corporate Governance Committee and the Board of Directors seek directors with diversity of skills and experiences.  To determine whether the Board has the appropriate diversity or a new member could improve the diversity the following issues are considered:

·                   Skills and experiences that are currently represented on the Board

·                   Desired size of the Board

To determine whether the Board has the appropriate diversity or a new member could improve the diversity the following skills and experiences are considered:

·                   Mergers and acquisitions experience

·                   Financial and compliance expertise

·                   Management and operational experience in the medical device industry and other areas of growth for the Company’s business

For new candidates, the Nominating and Corporate Governance Committee and the Board of Directors also consider whether the person will provide gender or racial diversity.

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Identifying and Evaluating Nominees for Directors

The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating qualified nominees for directors. The Committee periodically assesses the appropriate size and needs of the Board and whether any vacancies are anticipated.  If vacancies are anticipated or if the Committee determines that the number of directors should be increased, the Committee considers possible director candidates and follows the director qualification guidelines.  Candidates may come to the Committee’s attention through present Board members, shareholders or other persons.  All candidates will be evaluated by the Committee and the Committee’s recommendations will then be transmitted to the entire Board.  Assessment of candidates will include a variety of issues, including diversity, skills and experience in the fields of finance and banking, accounting, sales and marketing, technology, international, manufacturing, and an understanding of contract manufacturing and the Company’s industry.

SECURITY HOLDERS COMMUNICATIONS WITH THE BOARD

Shareholders may send communications to the Company’s Board of Directors, or to any individual Board member, by means of a letter to such individual Board member or the entire Board addressed to:

Board of Directors (or named Board member)
Nortech Systems Incorporated
7550 Meridian Circle N., Suite 150
Maple Grove, Minnesota 55369

If a shareholder is unsure as to which category the concern relates, the security holder may communicate it to any one of the independent directors in care of Chief Financial Officer at the address of our principal executive offices listed above. All shareholder communications sent in care of our Chief Financial Officer will be forwarded promptly to the applicable director(s).

RSM served as our independent auditor from October 2004 to March 2017. The reports of RSM on the Company’s audited consolidated financial statements for the two most recent fiscal years ended December 31, 2016, and December 31, 2015, did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s two most recent fiscal years ended December 31, 2016, and December 31, 2015, and during the subsequent interim period preceding RSM’s dismissal, there were: (i) no disagreements with RSM on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of RSM would have caused RSM to make reference to the subject matter of the disagreements in connection with its reports, and (ii) no reportable events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.

During the Company’s two most recent fiscal years ended December 31, 2016, and December 31, 2015, and during the subsequent interim period preceding Baker Tilly’s appointment, neither the Company, nor anyone on its behalf, consulted Baker Tilly with respect to: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report was provided to the Company nor oral advice was provided to the Company that Baker Tilly concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

On March 20, 2017, we filed with the SEC a Current Report on Form 8-K disclosing the appointment of Baker Tilly as our new independent registered public accounting firm and the related dismissal of RSM from that role.

Fees Billed to Company by Its Independent Registered Public Accounting Firm

For the 2017 and 2016 fiscal years, Baker Tilly and RSM served as the Company’s independent auditor, respectively. The following table presents fees for professional audit services, tax services and other services rendered by Baker Tilly and RSM and affiliates during fiscal years 2017 and 2016, respectively:

(1)                                  Audit fees include fees for the annual audit, interim reviews of the quarterly and regulatory filings.

(2)                                  Audit-related fees are principally for professional services relating to the audit of the 401(k) plan for the year ended December 31, 2016.

(3)                                  Tax fees are for corporate tax return preparation for the year ended December 31, 2016 and related 2016 research and development services.

The Audit Committee of the Board of Directors has reviewed the services provided by Baker Tilly and RSM during fiscal years 2017 and 2016, respectively, and the fees billed for such services. After consideration, the Audit Committee has determined that the receipt of these fees by the auditors is compatible with the provision of independent audit services. The Audit Committee discussed these services and fees with the auditors and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

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Pre-Approval Policy

The Audit Committee has established a policy for pre-approving the services provided by the Company’s independent registered public accounting firm in accordance with the auditor independence rules of the Securities and Exchange Commission. This policy requires the review and pre-approval by the Audit Committee of all audit and permissible non-audit services provided by the independent registered public accounting firm and an annual review of the financial plan for audit fees.  All services performed by our independent registered public accounting firm during the fiscal years ended December 31, 2017, and 2016 were pre-approved in accordance with the written charter.

The Board unanimously recommends a vote FOR the ratification of Baker Tilly Virchow Krause, LLP as the independent registered public accounting firm of the Company for fiscal 2018.

(4)             Includes 26,474 shares currently outstanding and 25,000 not currently outstanding but deemed beneficially owned because of the right to acquire such shares pursuant to options exercisable within sixty (60) days

(5)             Consists of 25,000 shares not currently outstanding but deemed beneficially owned because of the right to acquire such shares pursuant to options exercisable within sixty (60) days

(6)             Does not include Mr. Kunin’s beneficial ownership of shares held by Curtis Squire, Inc., as described in note (7).

(7)             Curtis Squire, Inc. a corporation controlled by the family of the late Myron Kunin, owns 1,344,066 shares.  Anita Kunin owns 49,269 shares individually. Voting control in the Company’s shares held by Curtis Squire, Inc. is shared by Curtis Squire’s board of directors, whose members are Anita Kunin, David B. Kunin, James Timothy Kunin, Andrew Kunin and William Kunin. Anita Kunin is David B. Kunin’s mother, and David B. Kunin is a member of the Company’s Board of Directors.

(8)             Based on Amendment No. 5 to Schedule 13D filed on June 28, 2016. As of that date, reported beneficial ownership (sole voting and dispositive power) was as follows: Kyle S. Packer, 8,700 shares; Jason R. Herr, 35,000 shares; Paul B. Luber, 56,000 shares; Mutiny Fund I, LP, 35,000 shares; Neal B. Jannol, 57,500 shares; Garry Anderly, 28,855 shares; Keith Pieper, 515 shares; and Tony Burlingame, 50 shares. Messrs. Packer and Herr are also Managing Members of Mutiny Capital, LLC, a Delaware limited liability company (the “General Partner”), which is the General Partner of Mutiny Fund I, LP.  The group’s address is c/o Kyle S. Packer, 1482 Aqua Vista Drive, Lawrenceburg, Indiana 47025.

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Please direct such written requests to Mary Dorn, Corporate Controller, at 7550 Meridian Circle N., Suite 150, Maple Grove, Minnesota 55369.

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS

The Notice of Annual Meeting, Proxy Statement, and the Company’s Annual Report on Form 10-K are available at www.proxyvote.com .

QUORUM AND VOTE REQUIRED

The presence in person or by proxy of the holders of a majority of the voting power of the shares of Common Stock issued, outstanding and entitled to vote at a meeting for the transaction of business is required to constitute a quorum. The election of each director will be decided by plurality votes. As a result, any shares not voted for a director (whether by withholding authority, broker non-vote or otherwise) have no impact on the election of directors except to the extent the failure to vote for an individual, results in another individual receiving a larger number of votes. If your shares are held by a broker or nominee, you should contact such holder to determine if you may vote your shares electronically and, if so, the method and deadline for voting electronically. The deadline for voting electronically is 11:59 p.m. (ET) on May 8, 2018, for all holders — registered or beneficial.  If your shares are held directly and you decide to vote electronically, please follow the directions on your proxy card.