EXHIBIT 10.1

FARO TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT

ARTICLE I
EFFECTIVE DATE AND PURPOSE
 
This Employment Agreement (the “Agreement”) is made and entered into effective
as of December 5, 2006 by and between FARO Technologies, Inc. (the “Company”)
and KEITH S. BAIR (the “Executive”). The Company believes that an effective and
stable management team is essential to promoting the best interests of the
Company and its shareholders. Given the Executive’s strong performance and
diligent work efforts, the Company wishes to assure Executive’s continued
services in the event of a change of control. As a change in control of the
Company may adversely affect Executive’s employment security the Company desires
to provide an incentive for the Executive to remain employed with the Company
during the period leading up to any such change of control, and to encourage the
Executive to devote full and continued attention to the business of the Company
and use best efforts to consummate any such change of control.

ARTICLE II
DEFINITIONS
 
Section 2.1  Act means the Securities Exchange Act of 1934, as amended.
 
Section 2.2  Affiliate and Associate shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations of the Act.
 
Section 2.3  Beneficial Owner. For purposes of this Agreement, a Person shall be
deemed to be the “Beneficial Owner” of any securities:
 
(a)  which such Person or any of such Person’s Affiliates or Associates has the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such
Person’s Affiliates or Associates until such tendered securities are accepted
for purchase;
 
(b)  which such Person or any of such Person’s Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has “beneficial
ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Act), including pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security under this Subsection
(b) as a result of an agreement, arrangement or understanding to vote such
security if the agreement, arrangement or understanding: (i) arises solely from
a revocable proxy or consent given to such Person in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Act and (ii) is not also then reportable on a
Schedule 13D under the Act (or any comparable or successor report); or
 
 
 

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(c)  which are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person’s Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in Subsection (b)(i)
above) or disposing of any voting securities of the Company.
 
Section 2.4  Board (or Board of Directors) means the Board of Directors of the
Company.
 
Section 2.5  Change of Control means the occurrence of any of the following:
 
(a)  any Person (other than (i) an Affiliate of the Company, (ii) any employee
benefit plan of the Company or any Affiliate thereof, or (iii) any Person
organized, appointed or established pursuant to the terms of any such benefit
plan) is or becomes the Beneficial Owner of securities of the Company
representing at least thirty percent (30%) of either (i) the combined voting
power of the Company’s then outstanding securities; or (ii) the outstanding
shares of the then outstanding shares of common stock of the Company; or
 
(b)  a change in the composition of the Company’s Board of Directors such that
the individuals who, as of the effective date of this Agreement, constitute the
Board (such Board hereinafter referred to as the “Incumbent Board”) cease for
any reason to constitute at least a majority of the Board; provided however, for
purposes of this definition, that any individual who becomes a member of the
Board subsequent to the effective date hereof, whose election or nomination for
election was approved by a vote of at least a majority of those individuals who
are members of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but provided further, that any
such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board shall not be so considered as a member of the Incumbent Board; or
 
(c)  the approval by the shareholders of the Company of any one of the following
transactions:
 
 
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(i)  
a reorganization, merger or consolidation of the Company with any other Person,
other than one which results in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity or any parent there) at least 50% of the combined voting
power of the voting securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or consolidation; or

 

(ii)  
an agreement for the sale of disposition by the Company of all or substantially
all of the Company’s assets, other than a sale or disposition by the Company of
all or substantially all of the Company’s assets to an entity, at least 75% of
the combined voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.

 
(d)  Notwithstanding the foregoing, no “Change in Control” shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
 
Section 2.6  Cause shall be determined by the Board of the Company means (a) an
act of fraud or embezzlement against the Company or acceptance of a bribe or
kickback; (b) the conviction or a plea of nolo contendere by the Executive of a
felony or of a crime involving fraud, dishonesty, violence or moral turpitude;
(c) willful and continued refusal to substantially perform assigned duties
(other than any refusal resulting from incapacity due to physical or mental
illness or Disability); and (d) willful engagement in gross misconduct
materially and demonstrably injurious to the Company.
 
Section 2.7  Change of Control Date means the first date on which a Change of
Control has occurred.
 
Section 2.8  Code means the Internal Revenue Code of 1986, including any
amendments or successor tax codes. Any reference to a specific provision of the
Code shall mean any successor provision thereto.
 
Section 2.9  Disability means a disability that would entitle the Executive to
payment of monthly disability payments under any Company long-term disability
plan.
 
 
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Section 2.10  Good Reason means any of the following to which the Executive has
not consented in writing: (a) a material breach by the Company of the Company’s
obligations to the Executive under this Agreement, which breach is not cured to
the Executive’s reasonable satisfaction within ten (10) days after written
notification to the Company describing in reasonable detail such breach and
stating that such notice is being delivered pursuant to this Agreement; (b) a
reduction in the Executive’s base salary to an amount below the base annual
salary in effect as of the date of this Agreement; (c) a material reduction in
the Executive’s benefits, including retirement, Company-paid insurance, sick
leave, expense reimbursement and vacation time, as provided by the Company
(except consistent with a general reduction of such benefits to executives of
the Company as a whole); (d) an ongoing material and substantial diminution in
the duties of the Executive not consistent with that of an executive with his
position and duties; or (e) relocation of the Executive’s principal office to a
location more than 25 miles from the Company’s headquarters on the date of this
Agreement.
 
Section 2.11  Person means any individual, firm, partnership, corporation or
other entity, including any successor (by merger or otherwise) of such entity,
or a group of any of the foregoing acting in concert.
 
ARTICLE III 
EVENTS UPON CHANGE OF CONTROL
 
Section 3.1  Change of Control Payment. If the Executive is actively employed by
the Company or any of its Affiliates on the day immediately preceding the Change
of Control Date, the Executive shall receive a Change of Control payment equal
to one (1) times the greater of (A) Executive’s base annual salary as of the
date of this Agreement; and (B) Executive’s then-current base annual salary. The
payment described herein shall be paid to the Executive in a cash lump sum on,
or as soon as practicable after, the Change of Control Date.
 
Section 3.2  Accelerated Vesting of Options. Upon a Change of Control, all
unvested options with respect to the Company’s stock held by the Executive shall
vest and become immediately exercisable and shall be exercisable for a period
ending on the later of (A) the fifth anniversary of the Change of Control Date
or (B) the last date that such option would otherwise be exercisable under the
terms of the option agreement or the plan pursuant to which such option was
granted; provided, that in no event shall any option be exercisable after the
expiration of the original term of the option.
 
ARTICLE IV
SEVERANCE PAYMENTS
 
Section 4.1  Severance Payments Upon Certain Terminations of Employment. Upon
the termination of the Executive’s employment by the Executive for Good Reason
or by the Company without Cause, the Executive shall be entitled to the
following severance:
 
 
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(a)  The Company shall make payments to the Executive of continued salary for
one year at a rate equal to the Executive’s base salary in effect at the time of
such termination, payable pursuant to normal payroll procedures of the Company;
 
(b)  The Company shall pay to Executive, in a lump sum and as promptly as
practicable after such termination, Executive’s earned but unpaid compensation
accrued through the date of such termination;
 
(c)  All of the Executive’s unvested options for shares of the Company’s stock
and all of the Executive’s unvested shares of restricted shares of the Company’s
stock shall automatically vest in full as of the date of such termination;
 
(d)  Until the earlier of (i) twelve (12) months following termination; or (ii)
the Executive’s securing coverage, through another employer, of benefits similar
to those provided by the Company, the Company shall provide the same coverage to
the Executive under the Company’s “employee welfare benefit plans” (as defined
in Section 3(1) of the Employee Retirement Income Security Act of 1974) as is
provided by the Company to comparable employees, or, in lieu of such coverage,
the Company may reimburse the Executive on a net after-tax basis, for the cost
of individual insurance coverage for the Executive and his dependents under a
policy or policies that provide benefits not less favorable than the benefits
provided under such employee welfare benefit plans; and
 
(e)  The Company also shall pay to the Executive all reasonable attorney’s fees
and expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of Executive’s employment, in seeking in
good faith to obtain or enforce any benefit or right provided by this Agreement
or in connection with any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive’s written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
 
The Executive shall not be required to mitigate the amount of any payment or
benefit contemplated by this Agreement (whether by seeking new employment or in
any other manner). No such payment shall be reduced by earnings that the
Executive may receive from any other source.

ARTICLE V
NONQUALIFIED DEFERRED COMPENSATION OMNIBUS PROVISION
 
Section 5.1  General. It is intended that any payment or benefit which is
provided pursuant to or in connection with this Agreement which is considered to
be nonqualified deferred compensation subject to Section 409A of the Code shall
be paid and provided in a manner, and at such time and in such form, as complies
with the applicable requirements of Section 409A of the Code to avoid the
unfavorable tax consequences provided therein for noncompliance. In connection
with effecting such compliance with Section 409A of the Code, the following
shall apply:
 
 
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(a)  Notwithstanding any other provision of this Agreement, the Company is
authorized to amend this Agreement, to delay the payment of any monies and/or
provision of any benefits in such manner as may be determined by it to be
necessary or appropriate to comply, or to evidence or further evidence required
compliance, with Section 409A of the Code (including any transition or
grandfather rules thereunder);
 
(b)  If the Executive is a “key employee” of a publicly traded corporation
within the meaning of Section 416(i) and any payment or provision of any benefit
hereunder is subject to Section 409A in connection with a “separation from
service” within the meaning of the U.S. Treasury Regulations promulgated under
Section 409A, no payment or benefit shall be made or provided until the earlier
of (i) the expiration of the six (6) month period measured from the date of the
Executive’s “separation from service”; or (ii) the date of the Executive’s death
(the “409A Payment Date”). In the event such payments are otherwise due to be
made installments or periodically during the period from “separation of service”
to the 409A Payment Date (the “Deferral Period”), the payments which would
otherwise have been made during the Deferral Period shall be accumulated and
paid in a lump sum upon the 409A Payment Date, and the balance of the payments
shall be made as otherwise scheduled. In the event benefits are required to be
deferred, any such benefit may be provided during the Deferral Period at the
Executive’s expense, with the Executive having a right to reimbursement from the
Company once the Deferral Period ends, and the balance of the benefits shall be
provided as otherwise scheduled.

ARTICLE VI
SUCCESSORS AND ASSIGNS
 
Section 6.1  Successors and Assigns of Company. If the Company sells, assigns or
transfers all or substantially all of its business and assets to any Person or
if the Company merges into or consolidates or otherwise combines (where the
Company does not survive such combination) with any Person (any such event, a
"Sale of Business"), then the Company shall assign this Agreement to such Person
and cause such Person to expressly assume and agree to perform from and after
the date of such assignment all of the terms, conditions and provisions imposed
by this Agreement upon the Company. In case of such assignment by the Company
and the assumption and agreement by such Person, "Company" as used in this
Agreement shall thereafter mean the Person that assumes and agrees to perform
this Agreement as provided for in this Section or that otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law, and this
Agreement shall inure to the benefit of, and be enforceable by, such Person. The
Executive shall, in his or her discretion, be entitled to proceed against any or
all of such Persons, any Person which theretofore was such a successor to the
Company and the Company (as so defined) in any action to enforce any rights of
the Executive. Except as provided in this Section, this Agreement shall not be
assignable by the Company.
 
 
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Section 6.2  Successors and Assigns of Executive. The Executive shall not have
the right to assign, transfer, alienate, anticipate, pledge or encumber any
portion of a payment due hereunder, nor shall such amounts be subject to seizure
by legal process by any creditor of such Executive. All rights of the Executive
under this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators, heirs
and beneficiaries. In the event of the Executive's death, all amounts payable to
the Executive under the Agreement if the Executive had lived, shall be paid to
the Executive's estate, heirs or representatives.
 
ARTICLE VII
MISCELLANEOUS
 
Section 7.1  Notices. Notices given pursuant to this Agreement shall be in
writing and shall be deemed given when personally delivered or sent by telecopy
transmission or three (3) days after being sent by United States mail, postage
prepaid to the parties at their respective address set forth below:
 
To the Company:

FARO Technologies, Inc.
Attention: Chief Executive Officer
125 Technology Park
Lake Mary, FL 32746

To the Executive:

To Executive’s address contained in the Company’s records.

Section 7.2  Severability. The provisions of this Agreement shall be regarded as
divisible, and if any of such provisions or any part are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts and the
applicability thereof shall not be affected thereby.
 
Section 7.3  Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive any federal, state or local withholding or other
taxes or charges which it is from time to time required to withhold. The Company
shall be entitled to rely on an opinion of nationally recognized tax counsel if
any question as to the amount or requirement of any such withholding shall
arise.
 
Section 7.4  Entire Agreement. This Agreement embodies the entire Agreement and
understanding between the Company and Executive relating to the subject matter
hereof.
 
 
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Section 7.5  Governing Law; Resolution of Disputes. The laws of the State of
Florida and the federal laws of the United States of America, excluding the laws
of those jurisdictions pertaining to resolution of conflicts with laws of other
jurisdictions, govern the validity, enforcement, construction, and
interpretation of this Agreement. In the event that there is any litigation
under this Agreement, Executive and the Company (a) consent to the personal
jurisdiction of the state and federal courts having jurisdiction in Orange
County, Florida, (b) stipulate that the proper, convenient, and exclusive venue
for any legal proceeding arising out of this Agreement is Orange County,
Florida, for a state court proceeding, or the Middle District of Florida,
Orlando Division, for a federal court proceeding, and (c) waive any defense,
whether asserted by motion or pleading, that Orange County, Florida, or the
Middle District of Florida, Orlando Division, is an improper or inconvenient
venue.
 
Section 7.6  No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing and signed by the person against whom it is sought to be
enforced. The failure by either party to insist upon strict performance of any
provision will not be construed as a waiver or relinquishment of the right to
insist upon strict performance of the same provision at any other time, or any
other provision of this Agreement.
 
Section 7.7  Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
 
Section 7.8  Headings. The headings contained are for reference only and shall
not affect the meaning or interpretation of any provision of this Agreement
 
Section 7.9  Further Assurances. Each party hereto shall cooperate and shall
take such further action and shall execute and deliver such further documents as
may be reasonably necessary in order to carry out the provisions and purposes of
this Agreement.
 
Section 7.10  No Strict Construction. The parties have jointly participated in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
 
EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, WAS AFFORDED
SUFFICIENT OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF HIS CHOICE, AND TO ASK
QUESTIONS AND RECEIVE SATISFACTORY ANSWERS REGARDING THIS AGREEMENT, UNDERSTANDS
HIS RIGHTS AND OBLIGATIONS UNDER IT, AND SIGNED IT OF HIS OWN FREE WILL AND
VOLITION.
 
 
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IN WITNESS WHEREOF, the Executive and Company have executed this Agreement as of
the date first written above.
 
 

       
COMPANY:
      FARO TECHNOLOGIES, INC.  
   
   
      /S/ Jay W. Freeland  

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Name: Jay W. Freeland   Title: President and Chief Executive Officer

       
EXECUTIVE:
 
   
   
      /S/ Keith S. Bair  

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Name: Keith S. Bair    

 
 
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