**Exhibit10.1**

 

EMPLOYMENT AGREEMENT

 

THISAGREEMENT, made and entered into as of April 27, 2006, by and between Communications& Power Industries Canada Inc., an Ontario corporation (hereinafter calledthe “Corporation”), and O. Joe Caldarelli (hereinafter called the “Executive”).

 

WITNESSETH THAT:

 

WHEREAS,the Corporation desires to continue to employ the Executive, and the Executivedesires to continue in such employment;

 

NOW,THEREFORE, the Corporation and the Executive, each intending to be legally bound,hereby mutually covenant and agree as follows (certain defined terms are setforth in Section 8(d) hereof):

 

# 1.             Employmentand Term.

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## (a)           Employment.The Corporation shall employ the Executive as the President of the Corporation,and the Executive shall so serve, for the term set forth in Section 1(b).

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## (b)           Term.The term of the Executive’s employment under this Agreement shall commence on thedate hereof and end on the third anniversary of the date hereof, subject to theextension of such term as hereinafter provided and subject to earliertermination as provided in Section 8. The term of this Agreementshall be extended automatically for one (1) additional year as of the thirdanniversary hereof, and each anniversary date thereafter unless, no later than six(6) months prior to any such renewal date, either the Board or the Executivegives written notice to the other, in accordance with Section 14,that the term of this Agreement shall not be so extended; provided, however, noautomatic extension of the term shall occur with respect to an anniversary dateif Executive has attained the age of 65.

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# 2.             Duties.During the period of employment as provided in Section 1(b) hereof,the Executive shall serve as President of the Corporation and Chief ExecutiveOfficer of Communications & Power, Industries, Inc. (“CPI”) and the Parent andhave all powers and duties consistent with such positions, subject to thereasonable direction of the Board. The Executive shall also continue to serveas a member of the Board if elected as such. The Executive shall devotesubstantially his entire time during reasonable business hours (reasonable sickleave and vacations excepted) and reasonable best efforts to fulfillfaithfully, responsibly and to the best of his ability his duties hereunder.

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# 3.             Salary.

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## (a)           BaseSalary. For services performed by the Executive for the Corporationpursuant to this Agreement during the period of employment as provided in Section1(b) hereof, the Corporation shall pay the Executive a base salary at therate of Five

 

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## Hundred FiftyThousand Canadian dollars ($550,000 Canadian) per year, payable insubstantially equal installments in accordance with the Corporation’s regularpayroll practices. The Executive’s base salary (with any increases under Section3(b), below) shall not be subject to reduction; provided, however, inconnection with an across-the-board salary reduction that applies tosubstantially all of the management executives of Parent and its subsidiaries,Executive’s base salary may be reduced by a percentage amount equal to theaverage amount of the percentage decrease affecting such other managementexecutives, but in no event more than 10%. Any compensation which may be paidto the Executive under any additional compensation or incentive plan of theCorporation, Parent, or any affiliate thereof****orwhich may be otherwise authorized from time to time by the Board (or anappropriate committee thereof) shall be in addition to the base salary to whichthe Executive shall be entitled under this Agreement.

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## (b)           SalaryIncreases. During the period of employment as provided in Section 1(b)hereof, the base salary of the Executive shall be reviewed no less frequentlythan annually by the Board to determine whether or not the same should beincreased in light of the duties and responsibilities of the Executive and theperformance thereof, and if it is determined that an increase is merited, suchincrease shall be promptly put into effect and the base salary of the Executiveas so increased shall constitute the base salary of the Executive for purposesof Section 3(a).

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# 4.             AnnualBonuses. For each fiscal year during the term of employment, the Executiveshall be eligible to receive a bonus payable in cash and/or in Parent’s commonstock. The amount of the bonus shall be based on the achievement of certainoperating and/or financial goals, in accordance with the terms of a bonus planadopted and administered by the Board for senior executives of the Parent andits subsidiaries, which plan may be amended from time to time by the Board inits discretion. Executive’s target annual bonus for fiscal year 2006 will beequal to 1.0 times his current annual salary.

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# 5.             EquityIncentive Compensation. During the term of employment hereunder theExecutive shall be eligible to participate, in an appropriate manner relativeto other senior executives of the Parent and its subsidiaries, in anyequity-based incentive compensation plan or program approved by the Board fromtime to time, including (but not by way of limitation) any plan providing forthe granting of (a) options to purchase stock of the Parent, (b) restrictedstock of the Parent or (c) similar equity-based units or interests.

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# 6.             OtherBenefits. In addition to the compensation described in Sections 3, 4and 5, above, the Executive shall also be entitled to the following:

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## (a)           Participationin Benefit Plans. The Executive shall be entitled to participate in all ofthe various retirement, welfare, disability, fringe benefit, executiveperquisite and expense reimbursement plans, and any other programs andarrangements of the Corporation, Parent and its affiliates to the extent theExecutive is eligible for participation under the terms of such plans, programsand arrangements, with the participation levels to be determined by Executive’ssalary, position and tenure, and such other factors as apply in such plans andprograms. Except as otherwise specifically provided in this Agreement, theExecutive shall also be entitled to all benefits provided to him under the practicesof the Corporation as in effect immediately prior to the effective date of this

 

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## Agreement,including without limitation Executive’s individual automobile expensereimbursement plan, as in effect on the date hereof. In addition, withoutlimiting the foregoing, the Corporation will provide Executive with the maximumshort-term disability coverage available through the Corporation’s (and its subsidiaries’)insurance carriers; if such coverage does not amount to 66 2/3% of Executive’sbase salary, then any shortfall shall be funded by the Corporation throughself-insurance.

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## (b)           Vacationand Holidays. The Executive shall be entitled to the number of weeks ofvacation during each year of this Agreement per the formula determined by the existingpolicies of the Corporation, or such greater period as the Board may approve,and to the paid holidays given by the Corporation to its employees generally,without reduction in salary or other benefits.

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# 7.             Covenantsof the Executive. In order to induce the Corporation to enter into thisAgreement, the Executive hereby agrees as follows:

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## (a)           Confidentiality.Except for and on behalf of the Corporation with the consent of or as directedby the Board, the Executive shall keep confidential and shall not divulge toany other person or entity, during the term of employment or thereafter, any ofthe business secrets or other confidential information regarding the Parent andits subsidiaries which has not otherwise become public knowledge; provided,however, that nothing in this Agreement shall preclude the Executive fromdisclosing information (i) to an appropriate extent to parties retained toperform services for the Parent or its subsidiaries or (ii) under anyother circumstances to the extent such disclosure is, in the reasonablejudgment of the Executive, appropriate or necessary to further the bestinterests of the Corporation or its affiliates or (iii) as may be requiredby law, legal process or subpoena.

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## (b)           Records.All papers, books and records of every kind and description relating to thebusiness and affairs of the Parent and its subsidiaries, whether or notprepared by the Executive, other than personal notes prepared by or at thedirection of the Executive, shall be the sole and exclusive property of theCorporation, and the Executive shall surrender them to the Corporation at anytime upon request by the Board.

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## (c)           Non-Competition.The Executive hereby agrees with the Corporation that during the term of hisemployment hereunder, and in certain instances, as provided below, for a periodfollowing termination of his employment hereunder, he shall not, directly orindirectly, engage in, or be employed by, or act as a consultant to, or be adirector, officer, owner or partner of, or acquire a substantial interest in,any business activity or entity which competes significantly with the Parent orany of its subsidiaries, provided, however, that as to the period aftertermination of the Executive’s employment hereunder, the restrictive covenantsset forth in this Section 7(c) shall apply only in the case ofterminations without Cause or resignations for Good Reason and then only for a periodbeginning on the Date of Termination and ending, as applicable, twenty-four (24)months or thirty (30) months later (which period will be based the applicablemultiplier pursuant to subsection (ii) of Section 9(b) of thisAgreement);

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## (d)           Non-Solicitation.During the time period after termination (if any) during which the Executive issubject to the noncompetition covenants of Section 7(c) of

 

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## this Agreement, heshall not induce or attempt to induce any customer, supplier, licensee or otherindividual, corporation or other business organization having a businessrelation with the Parent or its subsidiaries to cease doing business with the Parentor its subsidiaries or in any way interfere with the relationship between anysuch customer, supplier, licensee or other person and the Parent or itssubsidiaries. In addition, during the two-year period following termination ofemployment for any reason (or, if longer, the period during which the Executiveis subject to the non-competition covenants of Section 7(c) of thisAgreement), Executive shall not solicit any employee of the Parent or any ofits subsidiaries to leave the employment thereof or in any way interfere withthe relationship of such employee with the Parent or its subsidiaries.

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## (e)           Enforcement.The Executive recognizes that the provisions of this Section 7 arevitally important to the continuing welfare of the Corporation and itssubsidiaries and that money damages would constitute an inadequate remedy forany violation thereof. Accordingly, in the event of any such violation by theExecutive, the Corporation and its subsidiaries, in addition to any otherremedies they may have, shall have the right to institute and maintain aproceeding to compel specific performance thereof or to seek an injunctionrestraining any action by the Executive in violation of this Section 7.

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# 8.             Termination.Unless earlier terminated in accordance with the following provisions of this Section8, the Corporation shall continue to employ the Executive and the Executiveshall remain employed by the Corporation during the entire term of thisAgreement as set forth in Section 1(b). Section 9 hereof setsforth certain obligations of the Corporation in the event that the Executive’semployment is terminated.

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## (a)           Deathor Disability. Except to the extent otherwise provided in Section 9with respect to certain post-Date of Termination payment obligations of theCorporation, this Agreement shall terminate immediately as of the Date ofTermination in the event of the Executive’s death or in the event that theExecutive becomes disabled. The Executive will be deemed to be disabled uponthe earlier of (i) the end of a twelve (12) consecutive month periodduring which, by reason of any medically determinable physical or mentalimpairment, the Executive has been unable to perform substantially all of hisusual and customary duties under this Agreement or (ii) the date that areputable physician selected by the Board, and as to whom the Executive has noreasonable objection, determines in writing that the Executive will, by reasonof any medical determinable physical or mental impairment, be unable to performsubstantially all of his usual and customary duties under this Agreement for aperiod of at least twelve (12) consecutive months. If any question arises as towhether the Executive is disabled, upon reasonable request therefor by theBoard, the Executive shall submit to reasonable medical examination for thepurpose of determining the existence, nature and extent of any such disability.In accordance with Section 14, the Board shall promptly give theExecutive written notice of any such determination of the Executive’sdisability and of any decision of the Board to terminate the Executive’semployment by reason thereof. In the event of disability, until the Date ofTermination, the base salary payable to the Executive under Section 3hereof shall be reduced dollar-for-dollar by the amount of disability benefits,if any, paid to the Executive in accordance with any disability policy orprogram of the Corporation or its affiliates.

 

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## (b)           Dischargefor Cause. In accordance with the procedures hereinafter set forth, theBoard may discharge the Executive from his employment hereunder for Cause.Except to the extent otherwise provided in Section 9 with respect tocertain post-Date of Termination obligations of the Corporation, this Agreementshall terminate immediately as of the Date of Termination in the event theExecutive is discharged for Cause. Any discharge of the Executive for Causeshall be communicated by a Notice of Termination to the Executive given inaccordance with Section 14 of this Agreement. For purposes of thisAgreement, a “Notice of Termination” means a written notice which (i)indicates the specific termination provision in this Agreement relied upon,(ii) sets forth in reasonable detail the facts and circumstances claimed toprovide a basis for termination of the Executive’s employment under theprovision so indicated and (iii) if the Date of Termination is to be other thanthe date of receipt of such notice, specifies the Date of Termination (whichdate shall in all events be within thirty (30) days after the giving of suchnotice). In the case of a discharge of the Executive for Cause, the Notice of Terminationshall include a copy of a resolution duly adopted by the Board at a meetingcalled and held for such purpose (after reasonable notice to the Executive andreasonable opportunity for the Executive to be heard before the Board prior tosuch vote), finding that, in the reasonable and good faith opinion of theBoard, the Executive was guilty of conduct constituting Cause. No purportedtermination of the Executive’s employment for Cause shall be effective withouta Notice of Termination.

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## (c)           Terminationfor Other Reasons. The Corporation may discharge the Executive withoutCause by giving written notice to the Executive in accordance with Section 14at least thirty (30) days prior to the Date of Termination. The Executive mayresign from his employment by giving written notice to the Corporation inaccordance with Section 14 at least thirty (30) days prior to the Dateof Termination. Except to the extent otherwise provided in Section 9with respect to certain post-Date of Termination obligations of theCorporation, this Agreement shall terminate immediately as of the Date ofTermination in the event the Executive is discharged without Cause or resigns.

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## (d)           Definitions.For purposes of this Agreement, the following capitalized terms shall have themeanings set forth below:

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### (i)            “AccruedObligations” shall mean, as of the Date of Termination, the sum of (A) theExecutive’s base salary hereunder through the Date of Termination to the extentnot theretofore paid, (B) the amount of any incentive compensation, deferredcompensation and other cash compensation accrued by the Executive as of theDate of Termination to the extent not theretofore paid, (C) any vacation pay,expense reimbursements and other cash entitlements accrued by the Executive asof the Date of Termination to the extent not theretofore paid, and (D) withrespect to any bonus plans for the fiscal year of termination, if Executive hasbeen employed for at least six (6) months during such fiscal year and has notbeen terminated for Cause or resigned without Good Reason, a partial bonus forthe fiscal year of termination equal to the bonus payable for the full fiscalyear in accordance with the applicable plan, program or policy, multiplied by afraction equal to the fraction of the fiscal year preceding Executive’stermination.

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### (ii)           “BaseSalary” shall mean the annual base salary paid to Executive immediatelyprior to the termination of employment, provided that such amount

 

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### shall in no eventbe less than the annual base salary payable to Executive during the one (1)year period immediately prior to the termination.

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### (iii)          “Board”means the board of directors of Parent.

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### (iv)          “Cause”shall mean (i) acts or omissions by the Executive which constituteintentional material misconduct or a knowing violation of a material policy ofthe Parent or any of its subsidiaries, (ii) the Executive personallyreceiving a benefit in money, property or services from the Parent or any ofits subsidiaries or from another person dealing with the Parent or any of itssubsidiaries, in material violation of applicable law or policy of Parent orany of its subsidiaries, (iii) an act of fraud, conversion,misappropriation, or embezzlement by the Executive or his conviction of, orentering a guilty plea or plea of no contest with respect to, a felony, or theequivalent thereof (other than DUI), or (iv) any deliberate and material misuseor deliberate and material improper disclosure of confidential or proprietaryinformation of Parent or any of its subsidiaries. Notwithstanding theforegoing, no act or omission by the Executive shall constitute Cause hereunderunless the Corporation has given detailed written notice thereof to theExecutive, and the Executive has failed to remedy such act or omission within areasonable time after receiving such notice.

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### (v)           A “Changeof Control” shall be deemed to have occurred if:

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#### (A)          Any individualor group constituting a “person”, as such term is used in Sections l3(d) andl4(d)(2) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)(other than (A) the Parent or any of its subsidiaries, (B) any trustee or otherfiduciary holding securities under an Executive benefit plan of the Parent orof any of its subsidiaries or (C) any Cypress Fund(s)), is or becomes thebeneficial owner, directly or indirectly, of securities of the Parent representingfifty percent (50%) or more of the combined voting power of the Parent’s outstandingsecurities then entitled ordinarily (and apart from rights accruing underspecial circumstances) to vote for the election of directors; or

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#### (B)           ContinuingDirectors cease to constitute at least a majority of the Board; or

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#### (C)           thereoccurs a reorganization, merger, consolidation or other corporate transactioninvolving the Parent (a “Transaction”), in each case with respect towhich the stockholders of the Parent immediately prior to such Transaction donot, immediately after the Transaction, own more than 50% of the combinedvoting power of the Parent or other corporation resulting from suchTransaction; or

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#### (D)          all orsubstantially all of the assets of the Parent or CPI are sold, liquidated ordistributed.

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### (vi)          “ContinuingDirectors” shall mean (A) the directors of the Parent in office on the datehereof and (B) any successor to any such director who (x) was nominated orselected by a majority of the Continuing Directors in office at the time of thedirector’s nomination or selection, and (y) who is not an “affiliate” or “associate”(as defined in rule 12b-2 under the Exchange Act) of any Ten Percent Owner.

 

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### (vii)         “CypressFund” shall mean any investment fund which is an “affiliate” of CypressAssociates II LLC.

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### (viii)        “Dateof Termination” shall mean (A) in the event of a discharge of theExecutive by the Board for Cause, the date the Executive receives a Notice ofTermination, or any later date specified in such Notice of Termination, as thecase may be, (B) in the event of a discharge of the Executive withoutCause or a resignation by the Executive, the date specified in the writtennotice to the Executive (in the case of discharge) or the Corporation (in thecase of resignation), which date shall be no less than thirty (30) days fromthe date of such written notice, (C) in the event of the Executive’sdeath, the date of the Executive’s death, and (D) in the event oftermination of the Executive’s employment by reason of disability pursuant to Section8(a), the date the Executive receives written notice of such termination(or, if earlier, twelve (12) months from the date the Executive’s disabilitybegan).

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### (ix)           “GoodReason” shall mean any of the following (A) the assignment to the Executiveof any duties inconsistent in any respect with the Executive’s positions withthe Corporation, CPI and Parent as set forth in this Agreement (includingstatus, offices, titles and reporting requirements), authority, duties orresponsibilities as contemplated by Section 2, or any action by theCorporation or Parent which results in diminution in such positions, authority,duties or responsibilities, excluding for this purpose any action not taken inbad faith and which is remedied by the Corporation or Parent promptly afterreceipt of written notice thereof given by the Executive in accordance with Section14; or (B) the failure by the shareholders of Parent to re-elect theExecutive as a member of the Board with full voting rights; or (C) any failureby the Corporation to comply with any of the provisions of this Agreement,other than any failure not occurring in bad faith and which is remedied by theCorporation promptly after receipt of written notice thereof given by theExecutive in accordance with Section 14; or (D) the relocation of theoffices where Executive is required to report to a location that is 50 miles ormore distant from the Corporation’s existing location in Georgetown, Ontario, Canada;or (E) the failure to appoint Executive as Chief Executive Officer of thecombined or acquiring entity in connection with a Change of Control, reportingto its board of directors; or (F) the Corporation giving notice to theExecutive in accordance with Section 1(b) that the term of thisAgreement shall not be extended upon the expiration of the then-current term.

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### (x)            “Parent”shall mean CPI International, Inc.

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### (xi)           “PotentialChange of Control” shall mean the earliest to occur of (a) the execution ofan agreement or letter of intent, the consummation of the transactionsdescribed in which would result in a Change of Control, (b) the approval by theBoard of a transaction or series of transactions, the consummation of whichwould result in a Change of Control, or (c) the public announcement of a tenderoffer for the Parent’s voting stock, the completion of which would result in aChange of Control; provided, that no such event shall be a “Potential Change ofControl” unless (i) in the case of any agreement or letter of intent describedin clause (a), the transaction described therein is subsequently consummated bythe Parent and the other party or parties to such agreement or letter of intentand thereupon constitutes a “Change of Control”, (ii) in the case of anyBoard-approved transaction described in clause (b), the transaction so approvedis subsequently consummated and

 

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### thereuponconstitutes a “Change of Control” or (iii) in the case of any tender offerdescribed in clause (c), such tender offer is subsequently completed and suchcompletion thereupon constitutes a “Change of Control.”

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### (xii)          “TenPercent Owner” shall mean any person who is the beneficial owner, directlyor indirectly, of securities representing ten percent (10%) or more of thecombined voting power of Parent’s outstanding securities then entitledordinarily to vote for the election of directors; provided, however, sharesheld as of the date hereof by any Cypress Fund shall not be counted forpurposes of determining whether any such fund is a “Ten Percent Owner.”

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# 9.             Obligationsof the Corporation Upon Termination. The following provisions describe theobligations of the Corporation to the Executive under this Agreement upontermination of his employment. However, except as explicitly provided in thisAgreement, nothing in this Agreement shall limit or otherwise adversely affectany rights which the Executive may have under applicable law, under any otheragreement with the Parent or any of its subsidiaries, or under any compensationor benefit plan, program, policy or practice of the Parent or any of its subsidiaries.

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## (a)           Death,Disability, Discharge for Cause, or Resignation Without Good Reason. In theevent this Agreement terminates pursuant to Section 8(a) by reason ofthe death or disability of the Executive, or pursuant to Section 8(b) byreason of the discharge of the Executive by the Corporation for Cause, orpursuant to Section 8(c) by reason of the resignation of the Executiveother than for Good Reason, the Corporation shall pay to the Executive, or hisheirs or estate, in the event of the Executive’s death, all Accrued Obligationsin a lump sum in cash within fifteen (15) days after the Date of Termination;provided, however, that any portion of the Accrued Obligations which consistsof bonus, deferred compensation, or incentive compensation, shall be determinedand paid in accordance with the terms of the relevant plan as applicable to theExecutive, subject to the partial bonus provisions of clause (D) of thedefinition of “Accrued Obligations.”

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## (b)           DischargeWithout Cause or Resignation with Good Reason. In the event that thisAgreement terminates pursuant to Section 8(c) by reason of the dischargeof the Executive by the Corporation other than for Cause or disability or byreason of the resignation of the Executive for Good Reason:

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### (i)            TheCorporation shall pay all Accrued Obligations to the Executive in a lump sum incash within fifteen (15) days after the Date of Termination; provided, however,that any portion of the Accrued Obligations which consists of bonus, deferredcompensation, or incentive compensation shall be determined and paid inaccordance with the terms of the relevant plan as applicable to the Executive,subject to the partial bonus provisions of clause (D) of the definition of “AccruedObligations;”

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### (ii)           TheCorporation shall pay to the Executive, in accordance with the schedule setforth in the next sentence, an amount equal to 2.0 times the sum of (A) theExecutive’s Base Salary and (B) the average value of the management incentiveplan and other performance bonuses (excluding the discretionary bonus announcedby the Board in December, 2005) earned by the Executive with respect to the precedingthree (3) full

 

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### fiscal years;provided, however, notwithstanding the foregoing, if the discharge orresignation occurs within two (2) years following the date of a Change ofControl or a Potential Change of Control, then the applicable multiple shall be2.5, and the amount in clause (B) shall be based upon the highest managementincentive plan and other performance bonus earned by Executive (excluding thediscretionary bonus announced by the Board in December, 2005) with respect toany fiscal year during the preceding three full fiscal years (rather than theaverage amount). The total amount set forth in the preceding sentence shall bepaid to the Executive in three equal installments, with the first paymentoccurring one month after the Date of Termination, the second payment occurringsix (6) months after the Date of Termination, and the third payment occurringone year after the Date of Termination.

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### (iii)          Fora period of twenty-four (24) months after the Date of Termination, theCorporation shall continue to provide benefits to the Executive and/or theExecutive’s family at least equal to those which would have been provided tothem in accordance with the plans, programs and arrangements referred to in Section6(a) of this Agreement; provided, however, notwithstanding the foregoing,if the discharge or resignation occurs within two (2) years following the dateof a Change of Control or a Potential Change of Control, then the applicabletime period shall be thirty (30) months; provided, however, any benefits (suchas ongoing contributions and participation in a 401(k) plan) which may not beprovided pursuant to applicable law or regulations shall not be provided duringthe foregoing period; provided, further, the Corporation agrees to reasonablynegotiate with Executive if Executive requests that any of the foregoingbenefits be provided in the form of pension or deferred compensation.

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### (iv)          Alllong-term incentive compensation awards to the Executive, including (but not byway of limitation) all equity-based incentive compensation awards (such as (A)options to purchase stock of Parent, (B) restricted stock of Parent, or (C)similar equity-based units or interests) shall, if not otherwise vested, vestin full upon such termination of this Agreement.

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As a condition to receiving the benefits and paymentsin this Section 9(b), the Executive shall be required to execute arelease of any claims and potential claims against he Corporation and itsaffiliates and directors that the Executive might have related to hisemployment. In addition, in connection with any such release, Executive and theCorporation shall enter into reasonable mutual non-disparagement covenants.

 

# 10.           CertainAdditional Payments by the Corporation. The Corporation agrees that:

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## (a)           Anythingin this Agreement to the contrary notwithstanding, in the event it shall bedetermined that any payment or distribution by the Corporation, CPI or Parent toor for the benefit of the Executive (whether paid or payable or distributed ordistributable pursuant to the terms of this Agreement or otherwise, butdetermined without regard to any additional payments required under this Section10) (a “Payment”) would be subject to the excise tax imposed bySection 4999 of the Internal Revenue Code of 1986, as amended, (the “Code”)or if any interest or penalties are incurred by the Executive with respect tosuch excise tax (such excise tax, together with any such interest andpenalties,

 

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## being hereinaftercollectively referred to as the “Excise Tax”), then the Executive shallbe entitled to receive an additional payment (a “Gross-Up Payment”) inan amount such that, after payment by the Executive of all taxes (including anyinterest or penalties imposed with respect to such taxes), including, withoutlimitation, any income taxes (and any interest and penalties imposed withrespect thereto) and Excise Tax imposed upon the Gross-Up Payment, theExecutive retains an amount of the Gross-Up Payment equal to the Excise Taximposed upon the Payment; provided, however, if a 10% or smaller reduction inthe amounts payable to Executive pursuant to Section 9(b)(ii) abovewould result in no amounts owing by Executive in respect of such Excise Tax,then the payments in Section 9(b)(ii) above shall be reduced (butin no event by more than 10%), by an amount sufficient to eliminate the ExciseTax.

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## (b)           Subject tothe provisions of Section 10(c), below, all determinations requiredto be made under this Section 10, including whether and when aGross-Up Payment is required and the amount of such Gross-Up Payment and theassumptions to be utilized in arriving at such determination, shall be made by Ernst& Young (the “Accounting Firm”), which shall provide detailedsupporting calculations both to the Corporation and the Executive withinfifteen (15) business days of the receipt of notice from the Executive thatthere has been a Payment, or such earlier time as is requested by theCorporation. In the event that the Accounting Firm is serving as accountant orauditor for the individual, entity or group effecting the Change of Control inquestion, the Executive shall appoint another nationally recognized accountingfirm to make the determinations required hereunder (which accounting firm shallthen be referred to as the Accounting Firm hereunder). All fees and expenses ofthe Accounting Firm shall be borne solely by the Corporation. Any Gross-UpPayment, as determined pursuant to this Section 10, shall be paid by theCorporation to the Executive within five (5) days of the receipt of theAccounting Firm’s determination. If the Accounting Firm determines that noExcise Tax is payable by the Executive, it shall furnish the Executive with awritten opinion that failure to report the Excise Tax on the Executive’sapplicable federal income tax return would not result in the imposition of a negligenceor similar penalty. Any good faith determination by the Accounting Firm shallbe binding upon the Corporation and the Executive. As a result of theuncertainty in the application of Section 4999 of the Code at the time of theinitial determination by the Accounting Firm hereunder, it is possible thatGross-Up Payments which will not have been made by the Corporation should havebeen made (“Underpayment”), consistent with the calculations required tobe made hereunder. In the event that the Corporation exhausts its remediespursuant to Section 10(c), below, and the Executive thereafter isrequired to make a payment of any Excise Tax, the Accounting Firm shalldetermine the amount of the Underpayment that has occurred and any suchUnderpayment shall be promptly paid by the Corporation to or for the benefit ofthe Executive.

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## (c)           TheExecutive shall notify the Corporation in writing of any claim by the InternalRevenue Service that, if successful, would require the payment by theCorporation of a Gross-Up Payment. Such notification shall be given as soon aspracticable but no later than fifteen (15) business days after the Executive isinformed in writing of such claim and shall apprise the Corporation of thenature of such claim and the date on which such claim is requested to be paid. TheExecutive shall not pay such claim prior to the expiration of the thirty(30)-day period following the date on which Executive gives such

 

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## notice to theCorporation (or such shorter period ending on the date that any payment oftaxes with respect to such claim is due). If the Corporation notifies theExecutive in writing prior to the expiration of such period that it desires tocontest such claim, the Executive shall:

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### (i)            Give theCorporation any information reasonably requested by the Corporation relating tosuch claim,

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### (ii)           Take suchaction in connection with contesting such claim as the Corporation shallreasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such claim by an attorneyreasonably selected by the Corporation,

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### (iii)          Cooperatewith the Corporation in good faith in order effectively to contest such claim,and

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### (iv)          Permit theCorporation to participate in any proceedings relating to such claim;

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provided,however, that the Corporation shall bear and pay directly all costs andexpenses (including additional interest and penalties) incurred in connectionwith such contest and shall indemnify and hold the Executive harmless, on anafter-tax basis, for any Excise Tax or income tax (including interest andpenalties with respect thereto) imposed as a result of such representation andpayment of costs and expenses. Without limiting the foregoing provisions ofthis Section 10(c), the Corporation shall control all proceedings takenin connection with such contest and, at its sole option, may pursue or foregoany and all administrative appeals, proceedings, hearings and conferences withthe taxing authority in respect of such claim and may, at its sole option,either direct the Executive to pay the tax claimed and sue for a refund orcontest the claim in any permissible manner; and the Executive agrees toprosecute such contest to a determination before any administrative tribunal,in a court of initial jurisdiction and in one or more appellate courts, as theCorporation shall determine; provided, however, that if the Corporation directsthe Executive to pay such claim and sue for a refund, the Corporation shall (tothe extent permitted by law) advance the amount of such payment to theExecutive on an interest-free basis and shall indemnify and hold the Executiveharmless, on an after-tax basis, from any Excise Tax or income tax (includinginterest or penalties with respect thereto) imposed with respect to suchadvance or with respect to any imputed income with respect to such advance; andfurther provided that any extension of the statute of limitations relating topayment of taxes for the taxable year of the Executive with respect to whichsuch contested amount is claimed to be due is limited solely to such contestedamount. Furthermore, the Corporation’s control of the contest shall be limitedto issues with respect to which a Gross-Up Payment would be payable hereunderand the Executive shall be entitled to settle or contest, as the case may be,any other issue raised by the Internal Revenue Service or any other taxingauthority.

 

## (d)           If, afterthe receipt by the Executive of an amount advanced by the Corporation pursuantto Section 10(c), above, the Executive becomes entitled to receive anyrefund with respect to such claim, the Executive shall (subject to theCorporation’s

 

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## complying with therequirements of said Section 10(c)) promptly pay to the Corporation theamount of such refund (together with any interest paid or credited thereon,after taxes applicable thereto). If, after the receipt by the Executive of anamount advanced by the Corporation pursuant to said Section 10(c), adetermination is made that the Executive shall not be entitled to any refundwith respect to such claim and the Corporation does not notify the Executive inwriting of its intent to contest such denial of refund prior to the expirationof thirty (30) days after such determination, then such advance shall beforgiven and shall not be required to be repaid; and the amount of such advanceshall offset, to the extent thereof, the amount of the Gross-Up Paymentrequired to be paid.

##  

# 11.           NoSet-Off or Mitigation. The Corporation’s obligation to make the paymentsprovided for in this Agreement and otherwise to perform its obligationshereunder shall not be affected by any set-off, counterclaim, recoupment,defense or other claim, right or action which the Corporation may have againstthe Executive or others. In no event shall the Executive be obligated to seekother employment or take any other action by way of mitigation of the amountspayable to the Executive under any of the provisions of this Agreement and suchamounts shall not be reduced whether or not the Executive obtains otheremployment; provided, however, if Executive is employed during any portion ofthe period covered by Section 9(b)(iii) above and receives benefits inconnection with such employment, the Corporation shall not be required toprovide any benefits pursuant to Section 9(b)(iii) to the extentduplicative benefits are provided by such new employer.

#  

# 12.           Paymentof Certain Expenses. The prevailing party in any dispute under thisAgreement shall be entitled, to the extent permitted by law, to reimbursementfrom the other party for all of the prevailing party’s costs (including but notlimited to the arbitrator’s compensation), expenses, and attorneys’ fees.

#  

# 13.           BindingEffect. This Agreement shall be binding upon and inure to the benefit ofthe heirs and representatives of the Executive and the successors and assignsof the Corporation. The Corporation shall require any successor (whether director indirect, by purchase, merger, reorganization, consolidation, acquisition ofproperty or stock, liquidation, or otherwise) to all or a substantial portionof its assets, by agreement in form and substance reasonably satisfactory tothe Executive, expressly to assume and agree to perform this Agreement in thesame manner and to the same extent that the Corporation would be required toperform this Agreement if no such succession had taken place. Regardless ofwhether such an agreement is executed, this Agreement shall be binding upon anysuccessor of the Corporation in accordance with the operation of law, and suchsuccessor shall be deemed the “Corporation” for purposes of this Agreement.

#  

# 14.           Notices.All notices, requests, demands and other communications hereunder shall be inwriting and shall be deemed to have been duly given if delivered by hand,reputable overnight courier or mailed within the continental United States byfirst class certified mail, return receipt requested, postage prepaid,addressed as follows:

 

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## (a)           If to theBoard, to:

##  

CPIInternational, Inc.811 Hansen WayPalo Alto, California 94303-1110Attn: Board of Directors

 

## (b)           If to theExecutive, to:

##  

O. JoeCaldarelli c/o Communications & Power Industries Canada Inc. 45 River Drive

Georgetown,Ontario

 

CanadaL7G 2J4

 

Suchaddresses may be changed by written notice sent to the other party at the lastrecorded address of that party.

 

# 15.           TaxWithholding. The Corporation shall provide for the withholding of any taxesrequired to be withheld by federal, state, provincial or local law with respectto any payment in cash, shares of stock and/or other property made by or onbehalf of the Corporation to or for the benefit of the Executive under thisAgreement or otherwise. The Corporation may, at its option: (a) withhold suchtaxes from any cash payments owing from the Corporation to the Executive, (b)require the Executive to pay to the Corporation in cash such amount as may berequired to satisfy such withholding obligations and/or (c) make othersatisfactory arrangements with the Executive to satisfy such withholdingobligations.

#  

# 16.           Arbitration.

#  

## (a)           General.Except as to (a) actions described in Section 7(e), anycontroversy, dispute, or claim between the parties to this Agreement, includingany claim arising out of, in connection with, or in relation to the formation,interpretation, performance or breach of this Agreement shall be settledexclusively by arbitration, before a single arbitrator, in accordance with thisSection 16 and the then most applicable rules of the AmericanArbitration Association. Judgment upon any award rendered by the arbitrator maybe entered by any state or federal court having jurisdiction thereof. Sucharbitration shall be administered by the American Arbitration Association. Arbitrationshall be the exclusive remedy for determining any such dispute, regardless ofits nature. Notwithstanding the foregoing, either party may in an appropriatematter apply to a court for provisional relief, including a temporaryrestraining order or a preliminary injunction, on the ground that the award towhich the applicant may be entitled in arbitration may be rendered ineffectualwithout provisional relief. Unless mutually agreed by the parties otherwise,any arbitration shall take place in the City of Palo Alto, California;provided, however, the Corporation shall pay for reasonable travel expenses ofExecutive and his attorneys to travel to Palo Alto, California in connectionwith any such proceedings.

##  

## (b)           Selectionof Arbitrator. In the event the parties are unable to agree upon anarbitrator, the parties shall select a single arbitrator from a list of ninearbitrators (which shall be retired judges or corporate or litigation attorneysexperienced in executive

 

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## employmentagreements) provided by the office of the American Arbitration Associationhaving jurisdiction over Palo Alto, California. If the parties are unable toagree upon an arbitrator from the list so drawn, then the parties shall eachstrike names alternately from the list, with the first to strike beingdetermined by lot. After each party has used four strikes, the remaining nameon the list shall be the arbitrator. If such person is unable to serve for anyreason, the parties shall repeat this process until an arbitrator is selected.

##  

## (c)           Applicabilityof Arbitration; Remedial Authority. This agreement to resolve any disputesby binding arbitration shall extend to claims against any parent, subsidiary oraffiliate of each party, and, when acting within such capacity, any officer,director, shareholder, employee or agent of each party, or of any of the above,and shall apply as well to claims arising out of state and federal statutes andlocal ordinances as well as to claims arising under the common law. In theevent of a dispute subject to this paragraph the parties shall be entitled toreasonable discovery subject to the discretion of the arbitrator. The remedialauthority of the arbitrator (which shall include the right to grant injunctiveor other equitable relief) shall be the same as, but no greater than, would bethe remedial power of a court having jurisdiction over the parties and theirdispute. The arbitrator shall, upon an appropriate motion, dismiss any claimwithout an evidentiary hearing if the party bringing the motion establishesthat he or it would be entitled to summary judgment if the matter had beenpursued in court litigation. In the event of a conflict between the applicablerules of the American Arbitration Association and these procedures, theprovisions of these procedures shall govern.

##  

## (d)           Feesand Costs. Any filing or administrative fees shall be borne initially bythe party requesting arbitration. The Corporation shall be responsible for thecosts and fees of the arbitration, unless the Executive wishes to contribute(up to 50%) of the costs and fees of the arbitration.

##  

## (e)           AwardFinal and Binding. The arbitrator shall render an award and writtenopinion, and the award shall be final and binding upon the parties. If any ofthe provisions of this paragraph, or of this Agreement, are determined to beunlawful or otherwise unenforceable, in whole or in part, such determinationshall not affect the validity of the remainder of this Agreement, and thisAgreement shall be reformed to the extent necessary to carry out its provisionsto the greatest extent possible and to insure that the resolution of allconflicts between the parties, including those arising out of statutory claims,shall be resolved by neutral, binding arbitration. If a court should find thatthe arbitration provisions of this Agreement are not absolutely binding, thenthe parties intend any arbitration decision and award to be fully admissible inevidence in any subsequent action, given great weight by any finder of fact,and treated as determinative to the maximum extent permitted by law.

##  

# 17.           NoAssignment. Except as otherwise expressly provided herein, this Agreementis not assignable by any party and no payment to be made hereunder shall besubject to anticipation, alienation, sale, transfer, assignment, pledge,encumbrance or other charge.

#  

# 18.           Executionin Counterparts. This Agreement may be executed by the parties hereto intwo (2) or more counterparts, each of which shall be deemed to be an original,but

 

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# all suchcounterparts shall constitute one and the same instrument, and all signaturesneed not appear on any one counterpart.

#  

# 19.           GoverningLaw. This Agreement shall be construed and interpreted in accordance withand governed by the laws of the State of California, other than the conflict oflaws provisions of such laws.

#  

# 20.           Severability.If any provision of this Agreement shall be adjudged by any court of competentjurisdiction to be invalid or unenforceable for any reason, such judgment shallnot affect, impair or invalidate the remainder of this Agreement.

#  

# 21.           PriorUnderstandings. This Agreement embodies the entire understanding of theparties hereto and supersedes all other oral or written agreements orunderstandings between them regarding the subject matter hereof. No change,alteration or modification hereof may be made except in a writing, signed byeach of the parties hereto. The headings in this Agreement are for convenienceand reference only and shall not be construed as part of this Agreement or tolimit or otherwise affect the meaning hereof.

#  

INWITNESS WHEREOF, the parties hereto have executed and delivered this Agreement asof the day and year first above written.

 
|   | CORPORATION                                                           |
|--------|-----------------------------------------------------------------------|
|   | Communications  & Power Industries Canada Inc.                    |
|   |                                                                  |
|   | By:                                                                   | /s/  Renu Bhargava |   |
|   |                                                                  |   |   |
|   | Title:                                                                | Renu  Bhargava, Secretary |   |
|   |                                                                  |
|   |                                                                  |
|   | EXECUTIVE                                                             |
|   |                                                                  |
|   |                                                                  |
|   |                                                                  | /s/  O. Joe Caldarelli |   |
|   | O.  Joe Caldarelli                                                    |
|   |                                                                  |
|   |                                                                  |
|   | APPROVED  AND ACKNOWLEDGED                                            |
|   |                                                                  |
|   |                                                                  |
|   |                                                                  | /s/  Joel A. Littman |   |
|   |                                                                  |
|   | Joel  A. Littman, Chief Financial Officer of CPI  International, Inc. |

 

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