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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

 

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Nortech Systems Incorporated

        

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 12, 2010

        

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TO THE SHAREHOLDERS OF NORTECH SYSTEMS INCORPORATED:

        The Annual Meeting of Shareholders of Nortech Systems Incorporated (the "Company") will be held at the Wayzata Country Club, 200 West Wayzata Boulevard, Wayzata, Minnesota, on May 12, 2010, at 3:00 p.m., for the following purposes:

1.

To consider and act upon the board of directors' recommendation to fix the number of directors of the Company at five;



2.

To elect a board of directors to serve for a one-year term and until their successors are elected and qualify;



3.

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 18, 2010, will be entitled to notice of and to vote at the meeting or any adjournment thereof.

        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

        

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PROXY STATEMENT

        

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ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 2010

        This Proxy Statement is furnished to shareholders of NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (the "Company"), in connection with the solicitation on behalf of the Company's board of directors of proxies for use at the annual meeting of shareholders to be held on May 12, 2010, and at any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

        The address of the principal executive office of the Company is 1120 Wayzata Boulevard East, Suite 201, Wayzata, Minnesota 55391. This Proxy Statement and form of Proxy are being mailed to shareholders of the Company on or about April 2, 2010.

SOLICITATION AND REVOCATION OF PROXIES

        The Company will pay the costs and expenses of solicitation of proxies. In addition to the use of the mails, directors, officers and regular employees of the Company may solicit proxies personally or by telegraph, telephone or letter with extra compensation. The Company will reimburse brokers and other custodians, nominees or fiduciaries for their expenses in forwarding proxy material to principals and obtaining their proxies.

        Proxies in the form enclosed are solicited on behalf of the board of directors. Any shareholder giving a proxy in this form may revoke it at any time before it is exercised. Such proxies, if received in time for voting and not revoked, will be voted at the annual meeting in accordance with the specifications indicated on the proxy.

VOTING RIGHTS

        Only shareholders of record of the Company's 2,742,992 shares of common stock outstanding as of the close of business on March 18, 2010, will be entitled to execute proxies or to vote. Each share of common stock is entitled to one vote. A majority of the outstanding shares must be represented at the meeting, in person or by proxy, to transact business.

ELECTION OF DIRECTORS

        The bylaws of the Company provide for a board of directors consisting of one or more members, and further provide that the shareholders at each annual meeting shall determine the number of directors. The Company's board of directors recommends that the number of directors be set at five and it is intended that the proxies accompanying this statement will be voted at the 2010 meeting to establish a board of directors consisting of five members. All of the nominees are presently directors of the Company. Proxies solicited by the board of directors will, unless otherwise directed, be voted for the election of the following five nominees:

MICHAEL J. DEGEN
MYRON KUNIN
KENNETH LARSON
RICHARD W. PERKINS
C. TRENT RILEY

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        Following is information regarding the nominees:

        Mr. Kunin has served from 1983 to 2004 as chairman of the board of directors of Regis Corporation, the world's largest owner, operator and franchisor of hair care salons. At certain times during the past five years, he served as a director of Regis Corporation. He has been a director of the Company since 1990. Mr. Kunin's extensive business experience as the founder, long time chief executive officer and director of Regis Corporation has given him a deep insight into the issues faced by publicly owned corporations. He holds more than 50% of the outstanding shares of the Company and therefore is in a unique position to represent the interests of the Company's shareholders.

        Mr. Degen has served as president and CEO of Nortech Systems Inc. since May, 2002. Mr. Degen's experience includes 17 years with the Toro Company, a leader in the lawn & garden industry, from 1983 to 2000. As managing director of Toro's Worldwide Parts and Operations, Mr. Degen gained first-hand knowledge and experience in complex multi-plant operations, customer service and organization management. Mr. Degen has been a director of the Company since May 1998. Mr. Degen brings to our board his experience and knowledge of our business derived from his current position as president and CEO.

        Mr. Larson is currently the chairman of the board of directors for Restaurant Technologies, Inc., an installer of automated cooking oil systems for the fast food restaurant industry, serving in this capacity since 1999. Mr. Larson was president and chief operating officer of Polaris Industries, a leader in sales and service to the ATV and snowmobile industries, from 1988 to 1998. Mr. Larson has gained first-hand experience on corporate financial performance and all aspects of manufacturing within multidivisional operations. He has been a director of the Company since 2002 and is chairman of the Compensation Committee. He served on the board of Featherlite, Inc., a publicly held company until it was acquired in 2006. Mr. Larson brings to our board his experience and knowledge from both his current and past executive positions and strong manufacturing background.

        Mr. Perkins has served since 1985 as president, chief executive officer and director of Perkins Capital Management, Inc., a registered investment advisor. He has been a director of the Company since 1993 and is currently the chairman of the Audit Committee. Mr. Perkins is also a member of the board of directors for three other public companies: China Nuvo Solar Energy, Inc., Synovis Life Technologies, Inc., and Vital Images, Inc. At certain times during the past five years he served as a director for CNS, Inc., PW Eagle, Inc., Lifecore Biomedical, Inc., Teledigital, Inc., and Two Way TV (US), Inc. With his varied experiences as a director and investment manager working in the financial markets, Mr. Perkins has gained first-hand knowledge and experience in audit and financial control on related matters dealing with shareholders and governance issues.

        Mr. Riley was president of Riley Dettman & Kelsey LLC, management consultants from 1996 until 2009. Mr. Riley has gained insight in all compensation matters through his wide variety of consulting engagements with public, private and non-profit organizations. Mr. Riley has been a director of the Company since 2001 and is chairman of the Nominating and Corporate Governance Committee and his background adds valuable assistance to Compensation Committee issues. Mr. Riley brings to our board his past leadership, project management experience and his overall knowledge of our Company.

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DIRECTORS MEETINGS

        There were five meetings of the board of directors during the last fiscal year. All directors except Mr. Kunin attended all meetings of the board and committees of the board on which such director served. Mr. Kunin attended three of the five board meetings.

        The board of directors has established a Nominating and Corporate Governance Committee, a Compensation Committee, and an Audit Committee. The members of each committee are Messrs. Larson, Perkins and Riley. The board of directors has determined that Messrs. Larson, Perkins and Riley are independent directors under the rules established by the Securities and Exchange Commission and the Marketplace Rules of The NASDAQ Stock Market ("NASDAQ"). Further, the board has determined that Mr. Perkins is an "audit committee financial expert" as defined by applicable regulations of the Securities and Exchange Commission. 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 twice. The charters of all committees are posted on the Company's website at www.nortechsys.com.

        We encourage board members to attend the annual meeting of shareholders. All members of the board attended the 2009 annual meeting.

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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 general counsel and secretary 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 committees. Coordination of management's review of these risks is performed by the Company's general counsel and secretary, who reports to the CEO and who is a member of the Company's leadership team.

EXECUTIVE OFFICERS

        The Executive Officers of the Company are as follows:

        Mr. Degen has been president and chief executive officer since May 2002.

        Mr. Wasielewski has been chief financial officer of the Company since April 15, 2004. From 2000 until his employment by the Company, he was controller/senior director, planning, wholesale and operations of Select Comfort Corporation, a manufacturer and retailer of premium air mattresses.

        Mr. Pieper has been the senior vice president, Aerospace, since November 1, 2008. From November 1, 2004 until October 31, 2008, he was the principal operating officer of the Company. From September 2003 until October 31, 2004, he was director of manufacturing of the Landoll Corporation, a manufacturer of material handling and transportation equipment.

        Mr. Anderly has been senior vice president, corporate finance and treasurer of the Company since May 1996.

        Mr. Kucera has been vice president, corporate quality of the Company since 1991. He assumed the additional responsibility of directing the Company's FOCUS lean management program on December 1, 2006.

        Mr. Steichen has been the senior vice president, Commercial since November 1, 2008. From May 18, 2005 until October 31, 2008, he was the vice president, sales and marketing. From

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February 2002 to May 2005, Mr. Steichen held sales and marketing positions with Graco, Inc., a manufacturer of fluid-handling systems and components, and was director of sales and marketing in the Protective Coatings Division of that company from July 2003 to May 2005.

        Mr. Horne has been vice president, global supply chain management of the Company since February 2003.

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 Web site (www.nortechsys.com). The Committee determines the compensation of executive officers of the Company. Compensation for executive officers includes three elements: base salaries, bonuses, and options to acquire Common Stock. 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. Stock options 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 and to align the interests of the executives with those of the Company's shareholders.

        The chief executive officer's base compensation for 2009 was established under an employment agreement executed in 2005, which was renewed in 2008 for an additional three years. Further, 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.

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2009 SUMMARY COMPENSATION TABLE

        The table below shows the compensation of the Company's Chief Executive Officer and each of the other two most highly compensated executive officers for services to the Company in 2009.

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OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END

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(1)

Stock options granted on 11/1/06 vest and became exercisable in one-third increments on 1/1/08, 1/1/09, and 1/1/10.

(2)

Stock options granted on 3/7/06 vested and became 100% exercisable on 12/31/08.

(3)

Stock options granted on 2/11/03 vested and became 100% exercisable on 11/15/05.

(4)

Stock options granted on 3/1/00 vested and became 100% exercisable on 3/1/05.

(5)

Stock options granted on 5/3/04 vested and became 100% exercisable on 11/15/05.

(6)

Stock options granted 7/10/07. Vesting is conditioned upon the Company's achievement of established performance measurements. At December 31, 2009, the performance measures were not met and the measurement period expired. None of these options will vest.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

        In the event of an involuntary termination of any of the Named Executive Officers 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 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. Assuming that the triggering event took place on December 31, 2009, the amounts payable to the Named Executive Officers would be as follows:

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(1)

Audit fees include fees for the annual audit, SAS 100 reviews of the quarters and regulatory filings.

(2)

Audit-related fees are principally for professional services relating to technical accounting consulting and research and meetings with management.

 

NORTECH SYSTEMS INCORPORATED

 

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS

 

May 12, 2010

 

NORTECH SYSTEMS INCORPORATED

proxy

 

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and will be voted as directed herein. If no direction is given, this proxy will be voted FOR the proposal to fix the number of directors at five and FOR all the nominees listed in paragraph 2.

 

The undersigned hereby appoints Michael J. Degen and Garry Anderly and either of them, proxies for the undersigned, with full power of substitution, to represent the undersigned and to vote all of the shares of the Common Stock of Nortech Systems Incorporated (the Company) which the undersigned is entitled to vote at the annual meeting of shareholders of the Company to be held on May 12, 2010, and at any and all adjournments thereof.

 

(Continued, and TO BE COMPLETED AND SIGNED on the reverse side)

 

 

Please detach here

 

1. To fix the number of directors of the Company at five.				o    For		o    Against			o    Abstain
2. Election of directors:		01 Michael J. Degen   02 Kenneth Larson   03 Myron Kunin   04 Richard W. Perkins   05 Trent Riley		o    FOR all nominees above, except vote withheld from individual nominees				o    WITHHELD AUTHORITY to vote for all nominees listed above
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)
3. In their discretion, on such other matters as may properly come before the meeting.				o    For		o    Against			o    Abstain
				Date	, 2010
				Signature(s) in Box
				Where stock is registered jointly in the names of two or more persons ALL should sign. Signature(s) should correspond exactly with the name(s) as shown above. Please sign and date and return promptly in the enclosed envelope. No postage need be affixed if mailed in the United States.