Document:

<PAGE>

                                                                   EXHIBIT 10.7

                             WJ COMMUNICATIONS, INC.
                              3333 HILLVIEW AVENUE
                               PALO ALTO, CA 94304

                                 June 26, 2000

Mr. William T. Freeman
4914 Lyford Cay Road
Tampa, FL 33629

         Re:      EMPLOYMENT AGREEMENT

Dear Mr. Freeman:

         This letter agreement (this "AGREEMENT") sets forth the terms and
conditions of your employment with WJ Communications, Inc. (the "COMPANY"),
effective as of the date set forth above (the "EFFECTIVE DATE").

     1.  EMPLOYMENT AND SERVICES. The Company shall employ you as Chief
Financial Officer of the Company, for the period beginning on the Effective
Date and ending upon termination pursuant to Section 6 (the "EMPLOYMENT
PERIOD"). During the Employment Period, you shall render such services to the
Company and its affiliates and subsidiaries as the Chief Executive Officer
and the Board of Directors of the Company shall reasonably designate from
time to time, and you shall devote your best efforts and full time and
attention to the business of the Company.

     2.  SIGN-ON BONUS. The Company shall pay to you on the Effective Date a
sign-on bonus in the amount of $100,000 (the "SIGN-ON BONUS") less all
federal, state, city or other taxes required by applicable law to be withheld
or deducted and any other amounts authorized for deduction by or required by
law. In the event the Employment Period is terminated for Cause (as defined
below) or upon your resignation without Good Reason (as defined below) prior
to the first anniversary of the Effective Date, you shall pay to the Company
immediately following such termination or registration an amount equal to the
Sign-On Bonus.

     3.  COMPENSATION. The Company shall pay you an annual base salary
("ANNUAL BASE SALARY") of $200,200 during the Employment Period, subject to
annual review in each year of the Employment Period thereafter (for any
partial year during the Employment Period, the Annual Base Salary shall be
prorated based on the number of days during such year on which you are
employed by the Company). The first such annual review will occur during or
about March 2001. Your Annual Base Salary may be increased in years following
the first year of employment but may not be decreased. As used herein, the
term "ANNUAL BASE SALARY" refers to the Annual Base Salary as so increased.
Such Annual Base Salary shall be payable in installments in accordance with
the Company's regular payroll practices.

         In addition, subject to the immediately subsequent paragraph, you will
be eligible to receive an annual bonus to be awarded ninety (90) days after the
end of each fiscal year, to be paid as soon as practicable but not later than
one hundred twenty (120) days after the end

<PAGE>

of such fiscal year. In order to determine the amount of such bonus, the
Company, acting in good faith, shall determine appropriate business targets
for each fiscal year; your annual bonus shall be based upon the extent to
which the Company attains such targets as indicated on EXHIBIT A attached
hereto. You acknowledge hereby the business targets with respect to fiscal
year 2000 have been previously agreed-upon by you and the Company and will
therefore be binding with respect to that fiscal year. The determination of
appropriate business targets with respect to each subsequent fiscal year
shall take place not later than thirty (30) days following the receipt by the
Board of Directors of the Company from the Company's senior management of the
Company's operating budget with respect to such fiscal year.

         Notwithstanding anything herein to the contrary, (i) there shall be
deducted or withheld from any amounts payable to you amounts for all federal,
state, city or other taxes required by applicable law to be so withheld or
deducted and any other amounts authorized for deduction by or required by law
and (ii) you shall not be entitled to receive any bonus otherwise payable with
respect to any fiscal year pursuant to the immediately preceding paragraph if
any default or event of default shall exist as of the end of such fiscal year
under the Company's senior bank credit facility as a result of the violation or
breach by the Company of any of the (x) minimum interest coverage, (y) maximum
leverage ratio or (z) minimum consolidated EBITDA covenants contained in such
facility; PROVIDED, HOWEVER, that with respect to determining whether or not the
Company shall have violated or breached such minimum consolidated EBITDA
covenant for the purposes of this Agreement, no consideration shall be given to
any non-recurring expenses incurred as a result of the Company's relocation from
its current facility in Building 6 in the Stanford Research Park.

     4.  BENEFITS. During the Employment Period, you shall be entitled to
participate in the Company's fringe benefit plans, subject to and in
accordance with applicable eligibility requirements, such as life and
disability insurance plans and all other benefit plans (other than severance
and equity-based plans or arrangements) generally available to the Company's
executive officers, including relocation of personal residence benefits to
the extent such relocation request would otherwise constitute Good Reason
within the meaning of Section 6, in accordance with the terms of any such
plans or policies as in effect from time to time during the Employment
Period. In addition, the Company will reimburse your reasonable out-of-pocket
expenses incurred in connection with the performance of your services
hereunder, consistent with Company policy. You shall be entitled to take time
off in accordance with the Company's top management vacation policy. In
addition, the Company shall reimburse your reasonable travel and moving
expenses incurred in connection with your relocation from Tampa, Florida to
the San Francisco Bay/Silicon Valley Area of California.

     5.  RELOCATION LOAN. The Company agrees to loan you an amount not in
excess of $250,000 to facilitate your purchase of a residence in proximity to
the Company's offices (the "RELOCATION LOAN"). The Company's obligation to
make the Relocation Loan is conditioned upon (x) the negotiation and
execution of definitive loan documentation satisfactory to the Company in its
reasonable discretion, (y) the inclusion in such documentation of and the
making of the Relocation Loan on those terms set forth on EXHIBIT B attached
hereto and (z) the funding of the Relocation Loan pursuant to such
documentation not later than the first anniversary of the Effective Date.

                                      -2-

<PAGE>

     6.  TERMINATION AND SEVERANCE. The Employment Period shall terminate on
the first to occur of (i) ninety (90) days following written notice by you to
the Company of your resignation without Good Reason, (it being understood
that you will continue to perform your services hereunder during such ninety
(90) day period), (ii) thirty (30) days following written notice by you to
the Company of your resignation with Good Reason (it being understood that
you will continue to perform your services hereunder during such thirty (30)
day period), (iii) your death or Disability, (iv) a vote of the Board of the
Company directing such termination for Cause, (v) a vote of the Board of the
Company directing such termination without Cause, or (vi) the third (3rd)
anniversary of the Effective Date (the "SCHEDULED EXPIRATION DATE");
provided, however, that the Scheduled Expiration Date shall be automatically
extended for successive one-year periods unless, at least ninety (90) days
prior to the then-current Scheduled Expiration Date, either the Company or
you shall give written notice to the other of an intention not to extend the
Employment Period. In the event of termination of the Employment Period
pursuant to clause (ii) or (v) above, or in the event that the Company elects
not to extend the Employment Period upon the expiration thereof, the Company
shall pay to you an amount equal to your Annual Base Salary as in effect
immediately prior to the termination of the Employment Period, such amount to
be paid periodically in accordance with the Company's regular payroll
practices over the twelve (12) month period immediately following such
termination (the "SEVERANCE BENEFIT"). Notwithstanding the preceding
sentence, the Severance Benefit shall be computed as an amount equal to one
hundred fifty percent (150%) of your Annual Base Salary as in effect
immediately prior to the termination of the Employment Period and shall be
paid periodically in accordance with the Company's regular payroll practices
over the twelve (12) month period immediately following such termination,
SOLELY in a circumstance in which there has occurred a Change of Control (as
defined in the Shareholders Agreement among the Company and its shareholders
dated as of even date herewith (the "SHAREHOLDERS AGREEMENT")) within three
(3) months prior to such termination. Notwithstanding anything in this
Agreement to the contrary, in the event that payment of the Severance
Benefit, either alone or together with other payments (or the value of other
benefits) which you have the right to receive from the Company in connection
with a change of control, would not be deductible (in whole or in part) by
the Company as a result of the Severance Benefit or other payments or
benefits constituting a "parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "CODE"), the
Severance Benefit (or, at your election, such other payments and/or benefits,
or a combination of such other payments and/or benefits and/or the Severance
Benefit) shall be reduced to the largest amount as will result in no portion
of the Severance Benefit (or such other payments and/or benefits) not being
fully deductible by the Company as a result of Section 280G of the Code. The
determination of the amount of any such required reduction pursuant to the
foregoing provision, and the valuation of any non-cash benefits for purposes
of such determination, shall be made exclusively by the firm that was acting
as the Company's auditors prior to the change in control (whose fees and
expenses shall be borne by the Company, and such determination shall be
conclusive and binding).

         Except as otherwise set forth in this Section 6 or pursuant to the
terms of employee benefit plans in which you participate pursuant to Section 4,
you shall not be entitled to any compensation or other payment from the Company
in connection with the termination of your employment hereunder. In addition to
the Severance Benefit, under circumstances in which the Severance Benefit is
payable, you shall also remain eligible to receive benefits

                                      -3-

<PAGE>

under the Company's benefit plans for one year (or, in the event that the
enhanced Severance Benefit is payable in connection with a Change of Control,
three years) following the termination of your employment with the Company.
In the case of benefit plans that do not permit such continued participation,
in lieu thereof you shall be entitled to receive a cash payment from the
Company sufficient to enable you to purchase comparable benefits for the
applicable period.

         For purposes of this Agreement, the following definitions will apply:
(a) "GOOD REASON" shall mean the occurrence of (X) a Change of Control, provided
that you elect to resign within three (3) months following such Change of
Control, or (Y) any of the following without your consent which shall remain
uncured for a period of not less than thirty (30) days following your delivery
of notice of such occurrence to the Company: (i) the assignment of you by the
Company to any duties materially inconsistent with, or a material diminution of,
your position, including duties, title, offices, or responsibilities; (ii) the
transfer of your principal place of employment to a geographic location more
than 50 miles from both your residence in the San Francisco / Silicon Valley
area of California and from the location of your current principal place of
employment; or (iii) any material breach of this Agreement by the Company which
is not cured within fifteen (15) days after the Company has received written
notice from you identifying the breach in reasonable detail; (b) "CAUSE" shall
mean any of the following acts or circumstances: (i) willful destruction by you
of Company property having a material value to the Company; (ii) fraud,
embezzlement, theft, or comparable dishonest activity committed by you against
the Company; (iii) your conviction of or entering a plea of guilty or NOLO
CONTENDERE to any crime constituting a felony or any misdemeanor involving
fraud, dishonesty or moral turpitude; (iv) your breach, neglect, refusal, or
failure to discharge, in each case in any material respect, your duties under
this Agreement (other than due to Disability) commensurate with your title and
function or your failure to comply with the lawful directions of the Board, in
any such case that is not cured within fifteen (15) days after you have received
written notice thereof from the Board of the Company; or (v) a willful and
knowing material misrepresentation to the Board of the Company; and (c)
"DISABILITY" shall mean that for a period of three (3) consecutive months or an
aggregate of four (4) months in any twelve (12) month period you are incapable
of substantially fulfilling the duties of your positions as set forth in
paragraph 1 because of physical, mental or emotional incapacity, injury,
sickness or disease. Any question as to the existence or extent of the
Disability upon which you and the Company cannot agree shall be determined by a
qualified, independent physician selected by the Company. The determination of
any such physician shall be final and conclusive for all purposes; provided,
however, that you or your legal representatives shall have the right to present
to such physician such information as to such Disability as you or they may deem
appropriate, including the opinion of your personal physician.

     7.  CONFIDENTIAL INFORMATION. You acknowledge that information obtained
by you while employed by the Company or any affiliate thereof (including as a
consultant to Fox Paine & Company, LLC) concerning the business or affairs of
(i) the Company, its affiliates and subsidiaries or (ii) any enterprise which
is the subject of an actual or potential transaction (a "POTENTIAL
TRANSACTION"), considered, evaluated, reviewed or otherwise made known to Fox
Paine & Company, LLC, the Company, its affiliates or subsidiaries, or you
("CONFIDENTIAL INFORMATION") is the property of the Company. You shall not,
without the prior written consent of the Board of the Company, disclose to
any person or use for your

                                      -4-

<PAGE>

own account any Confidential Information except (i) in the normal course of
performance of your duties hereunder, (ii) to the extent necessary to comply
with applicable laws (provided that you shall give the Company prompt notice
prior to any such disclosure), or (iii) to the extent that such information
becomes generally known to and available for use by the public other than as
a result of your acts or omissions to act. Upon termination of your
employment or at the request of the Board of the Company at any time, you
shall deliver to the Board all documents containing Confidential Information
or relating to the business or affairs of the Company, its affiliates and
subsidiaries that you may then possess or have under your control.

     8.  NON-SOLICITATION.

         a. NON-SOLICITATION. As a means reasonably designed to protect the
Company's Confidential Information, you agree that, for a period of twelve
(12) months from the conclusion of the Employment Period, you will not
directly, indirectly or as an agent on behalf of or in conjunction with any
person, firm, partnership, corporation or other entity, (i) hire, solicit,
encourage the resignation of, or in any other manner seek to engage or employ
any person who is then, or within the prior three (3) months had been, an
employee of the Company, whether or not for compensation and whether or not
as an officer, consultant, adviser, independent sales representative,
independent contractor or participant, or (ii) contact, solicit, service or
otherwise have any dealings related to the sale, manufacture, distribution,
marketing or provision of products, components, equipment, hardware, other
technology or services (of any sort) in the wireless communications industry
or any other industry or business or prospective industry or business in
which the Company participates or contemplates participating in as of such
conclusion, with any person or entity with whom the Company has a current or
known prospective business relationship or who is or was at any time during
his employment with the Company (including any predecessor or successor
entity) a customer, vendor or client of the Company, or a known prospective
customer, vendor or client of the Company, PROVIDED in each case described in
this clause (ii) that such activity by you does or could reasonably be
expected to have a material adverse effect on the relationship between the
Company and any such third party.

         b. SCOPE OF RESTRICTION. If, at the time of enforcement of this
Section 8, a court shall hold that the duration, scope or area restrictions
stated herein are unreasonable under circumstances then existing, the parties
hereto agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area.

         c. WORKS MADE FOR HIRE. You agree that all intellectual property
rights, developments, designs, computer software, inventions, applications
and improvements, including but not limited to trade names, assumed names,
service names, service marks, trademarks, logos, patents, copyrights,
licenses, formulas, trade secrets and technology, whether in design, methods,
processes, formulae, machines or devices and all other applications
(collectively, "INVENTIONS"), whether made, created, invented, devised,
acquired, succeeded to (whether by devise, estate, testamentary disposition
or otherwise), or developed prior to the date of this Agreement for the
Company by you, other than Inventions made, created, invented, devised or
developed by you (i) on your own personal time, (ii) without the use of the
Company's equipment, supplies, facilities and resources and

                                      -5-

<PAGE>

(iii) which are not related to the sale, manufacture, distribution, marketing
development or provision of products, components, equipment, hardware, other
technology or services (of any sort) in the wireless communications industry
(collectively, "UNRELATED INVENTIONS"), are works made for hire and shall be
the exclusive property of the Company without separate compensation to you.
You will, at the request and expense of the Company made at any time, execute
and deliver to the Company or its nominee such applications and instruments
as may be desirable and appropriate for obtaining for the Company or its
nominee, patents, copyrights, trademarks, know-how and other intellectual
property protection of the United States and all other countries for vesting
in the Company or its nominee, all of your claim, right, title and interest
in said Inventions and for maintaining, enforcing and defending the same, and
to otherwise vest in or evidence the Company's or its nominee's exclusive
ownership of all of the rights referred to herein. In the event that for
whatever reason the results of your past or future work for the Company
should not be deemed to be works made for hire, you agree to assign, and you
hereby do assign, to the Company or its nominee all claim, right, title and
interest, in any country, to each and every of the Inventions that is the
result of work done in the course of your past or future employment by the
Company, or that you create or develop, or that you acquire by whatever means
that was created or developed, in whole or in part by using the Company's
equipment, supplies, resources or facilities. Each and every such assignment
is and shall be in consideration of this Agreement with the Company, and no
further consideration therefor is or shall be provided to you by the Company.
You hereby waive enforcement of any moral or legal rights which might limit
the Company's rights to exploit any of the foregoing materials in any manner.

         d. EQUITABLE RELIEF. You acknowledge that the provisions contained
in Sections 8 and 9 hereof are reasonable and necessary to protect the
legitimate interests of the Company, that any breach or threatened breach of
such provisions will result in irreparable injury to the Company and that the
remedy at law for such breach or threatened breach would be inadequate.
Accordingly, in the event of the breach by you of any of the provisions of
Sections 8 and 9 hereof, the Company, in addition and as a supplement to such
other rights and remedies as may exist in its favor, may apply to any court
of law or equity having jurisdiction to enforce this Agreement, and/or may
apply for injunctive relief against any act that would violate any of the
provisions of this Agreement (without being required to post a bond). You
further agree that injunctive relief may be sought for any breach or
threatened breach of Section 8 or Section 9 without a showing of irreparable
injury, in order to prevent any such breach or threatened breach. Such right
to obtain injunctive relief may be exercised, at the option of the Company,
concurrently with, prior to, after, or in lieu of, the exercise of any other
rights or remedies that the Company may have as a result of any such breach
or threatened breach.

     9.  SURVIVAL. Any termination of your employment or of this Agreement
shall have no effect on the continuing operation of paragraph 6, 7 or 8 for
the periods specified therein.

     10. WAIVER OF CLAIMS. You agree as a condition to your receipt of any
termination or severance benefits pursuant to paragraph 4 hereof, you will
agree, as of the date of such termination, to waive, discharge and release any
and all claims, demands and causes of action, whether known or unknown, against
the Company, its affiliates and subsidiaries,

                                      -6-

<PAGE>

and their respective current and former directors, officers, employees,
attorneys and agents arising out of, connected with or incidental to your
employment or other dealings with the Company, its affiliates or
subsidiaries, which you or anyone acting on your behalf might otherwise have
had or asserted and any claim to any compensation or benefits from your
employment with the Company or its affiliates (other than employee benefits
to be provided pursuant to the terms of Section 4 hereof). Notwithstanding
anything contained herein to the contrary, no termination or severance
payments shall be made under this Agreement or otherwise until such time as
you have delivered an executed release of claims and any applicable
revocation periods under state or federal law have expired. The Company
agrees, as further consideration for your waiver, to concurrently execute a
waiver of unknown claims against you on terms and conditions substantially
identical to the waiver provided by you (it being understood that the Company
may specifically reserve claims identified in writing by the Company at the
time that such waiver is provided).

     11. GOVERNING LAW. This Agreement and all questions concerning the
construction, validity and interpretation of this Agreement shall be governed
by and determined in accordance with the internal law, and not the law of
conflicts, of the State of California.

     12. NOTICES. All demands, notices and communications hereunder shall be
in writing and shall be deemed to have been duly given, if mailed, by
registered or certified mail, return receipt requested, or, if by other
means, when received by the other party at the address set forth herein, or
such other address as may hereafter be furnished to the other party by like
notice. Notice or communication hereunder shall be deemed to have been
received on the date delivered to or received at the premises of the
addressee if delivered other than by mail, and in the case of mail, three
days after the depositing of the same in the United States mail as above
stated (or, in the case of registered or certified mail, by the date noted on
the return receipt). Notices shall be addressed as follows:

                  If to the Executive:      Mr. William T. Freeman
                                            [Local Address]
                                            [Local Address]

                  If to the Company:        WJ Communications, Inc.
                                            3333 Hillview Avenue
                                            Palo Alto, CA 94304
                                            Attention: Chief Executive Officer

                  with a copy to:           Fox Paine & Company, LLC
                                            950 Tower Lane
                                            Suite 1150
                                            Foster City, CA 94404
                                            Attention: W. Dexter Paine, III

     13. SEPARABILITY CLAUSE. Any part, provision, representation or warranty
of this Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

                                      -7-

<PAGE>

     14. SUCCESSORS AND ASSIGNS; ASSIGNMENT OF AGREEMENT. This Agreement
shall bind and inure to the benefit of and be enforceable by the parties
hereto and the respective successors and assigns of the parties hereto. As
used in this Agreement, "COMPANY" shall mean the Company as hereinbefore
defined and any successors to its businesses and/or assets as aforesaid which
assume and agree to perform this Agreement by operation of law, or otherwise.
This Agreement is personal to you and without the prior written consent of
the Company shall not be assignable by you otherwise than by will or the laws
of descent and distribution.

     15. WAIVER. The failure of any party to insist upon strict performance
of a covenant hereunder or of any obligation hereunder, irrespective of the
length of time for which such failure continues, shall not be a waiver of
such party's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance
of any obligation hereunder, shall constitute a consent or waiver to or of
any other breach or default in the performance of the same or any other
obligation hereunder. No term or provision of the Agreement may be waived
unless such waiver is in writing and signed by the party against whom such
waiver is sought to be enforced.

     16. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto with respect to the subject matter contemplated
herein and supersedes all prior agreements, whether written or oral, between
the parties, relating to the subject matter hereof. This Agreement shall not
be modified except in writing executed by all parties hereto.

     17. CAPTIONS. Titles or captions of paragraphs contained in this
Agreement are inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.

     18. COUNTERPARTS. For the purpose of facilitating proving this
Agreement, and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts. Each counterpart shall be
deemed to be an original, and all such counterparts shall constitute one and
the same instrument.

     19. NO OBLIGATION TO MITIGATE. You shall not be required to mitigate
damages or the amount of any payment provided for hereunder by seeking other
employment or otherwise, nor shall the amount of any payment provided for
under this Agreement be reduced by any compensation earned by you as a result
of employment by another employer, or by earnings as a consultant, or by
retirement or other benefits paid after the date of termination.

     20. ARBITRATION. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the alleged breach hereof, shall be
settled exclusively by the American Arbitration Association in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Any
arbitration held hereunder shall take place in Palo Alto, California. In
addition, any dispute, controversy or claim arising under or in connection
with your rights or obligations under the Shareholders Agreement or pursuant
to any stock option or other equity arrangements

                                      -8-

<PAGE>

between you and the Company, shall be settled exclusively by arbitration as
described in this Section 20.

     21. LEGAL FEES. In the event of any dispute hereunder or the enforcement
of any right hereunder that requires recourse to arbitration or litigation,
the prevailing party therein shall be entitled, in addition to other
remedies, to recover legal fees and costs from the non-prevailing party, as
determined by the arbitrator(s) or the court.

     22. CERTAIN CONDITIONS TO EMPLOYMENT. Notwithstanding anything herein to
the contrary, your employment and the Company's obligations hereunder are
conditioned upon your successful passage of a drug and alcohol screening
test, the Company's verification of your past employment and educational
experience and the Company's satisfaction in its sole discretion as to the
results of any criminal background investigation or reference inquiry
performed by it.

                                     [signatures page follows]

                                      -9-

<PAGE>

         Please execute a copy of this letter Agreement in the space below and
return it to the undersigned at the address set forth above to confirm your
understanding and acceptance of the agreements contained herein.

                                            Very truly yours,

                                            WJ COMMUNICATIONS, INC.

                                            By: /s/  Malcolm J. Caraballo
                                               ----------------------------
                                            Name:    Malcolm J. Caraballo
                                            Title:   Chief Executive Officer

Accepted and agreed to

/s/ William T. Freeman
----------------------
William T. Freeman

                                      -10-

<PAGE>

<TABLE>
<CAPTION>

                                    EXHIBIT A

               <S>        <C>       <C>      <C>      <C>      <C>      <C>     <C>    <C>     <C>     <C>
-------------------------------------------------------------------------------------------------------------
 NOMINAL BONUS (% OF BASE SALARY)             35%
-------------------------------------------------------------------------------------------------------------
                         REVENUE
-------------------------------------------------------------------------------------------------------------
                        < 80%        80%      90%     100%     110%     120%    140%   160%    180%    200%
-------------------------------------------------------------------------------------------------------------
               200%        0%        33%      42%     50%       52%      54%    56%     57%     59%    61%
-------------------------------------------------------------------------------------------------------------
               180%        0%        31%      40%     48%       50%      52%    54%     55%     57%    59%
-------------------------------------------------------------------------------------------------------------
               160%        0%        28%      37%     46%       48%      49%    51%     53%     55%    56%
-------------------------------------------------------------------------------------------------------------
               140%        0%        26%      35%     44%       46%      47%    49%     51%     53%    54%
-------------------------------------------------------------------------------------------------------------
               130%        0%        24%      33%     42%       43%      45%    47%     49%     50%    52%
-------------------------------------------------------------------------------------------------------------
               120%        0%        22%      31%     40%       41%      43%    45%     47%     48%    50%
-------------------------------------------------------------------------------------------------------------
   EBITDA      110%        0%        20%      28%     37%       39%      41%    42%     44%     46%    48%
-------------------------------------------------------------------------------------------------------------
               100%        0%        18%      26%     35%       37%      39%    40%     42%     44%    46%
-------------------------------------------------------------------------------------------------------------
                90%        0%        15%      24%     33%       35%      36%    38%     40%     42%    43%
-------------------------------------------------------------------------------------------------------------
                80%        0%        13%      22%     31%       33%      34%    36%     38%     40%    41%
-------------------------------------------------------------------------------------------------------------
                70%        0%        11%      20%     28%       30%      32%    34%     35%     37%    39%
-------------------------------------------------------------------------------------------------------------
                60%        0%         9%      18%     26%       28%      30%    32%     33%     35%    37%
-------------------------------------------------------------------------------------------------------------
              < 60%        0%         0%      0%       0%       0%       0%      0%     0%      0%      0%
-------------------------------------------------------------------------------------------------------------

</TABLE>

                                      -11-

<PAGE>

                                              EXHIBIT B

                                 Certain Terms of the Relocation Loan

              TERM               Five Years

            SECURITY             Second deed of trust on the acquired residence

            INTEREST             None

           FORGIVENESS           On each of the first five (5) anniversaries
                                 of the making of the Relocation Loan, twenty
                                 percent (20%) of the principal amount of the
                                 Relocation Loan will be forgiven.

      REPAYMENT OBLIGATION       In the event the Employment Period
                                 is terminated for any reason prior to the
                                 fifth (5th) anniversary of the making of the
                                 Relocation Loan, the outstanding principal
                                 balance of the Relocation Loan as of the date
                                 of such termination shall be due and payable
                                 ninety (90) days following such termination.

                                      -12-<PAGE>

                                                                    Exhibit 10.8

                             WJ COMMUNICATIONS, INC.
                            2000 STOCK INCENTIVE PLAN

                  SECTION 1. PURPOSE; DEFINITIONS

                  The purpose of the Plan is to give WJ Communications, Inc.
(the "COMPANY") and its Affiliates (as defined below) a competitive advantage in
attracting, retaining and motivating officers, employees, non-employee directors
and consultants, and to provide the Company and its subsidiaries or Affiliates
with a stock plan providing incentives linked to the financial results of the
Company's businesses and increases in shareholder value.

                  For purposes of the Plan, the following terms are defined as
set forth below:

                  "AFFILIATE" of a Person means a Person directly or indirectly
controlled by, controlling or under common control with such Person.

                  "AWARD" means a Stock Appreciation Right, Stock Option or
Restricted Stock.

                  "AWARD AGREEMENT" means a Restricted Stock Agreement or Option
Agreement. An Award Agreement may consist of provisions of an employment
agreement.

                  "BOARD" means the Board of Directors of the Company.

                  "CAUSE" shall have the meaning given in any written employment
or services agreement between the Company and the Participant, if any, or, in
the absence of such an agreement, shall mean any of the following acts or
circumstances: (i) willful destruction by the Participant of Company property
having a material value to the Company; (ii) fraud, embezzlement, theft, or
comparable dishonest activity committed by the Participant against the Company;
(iii) the Participant's conviction of or entering a plea of guilty or NOLO
CONTENDERE to any crime constituting a felony or any misdemeanor involving
fraud, dishonesty or moral turpitude; (iv) the Participant's breach, neglect,
refusal or failure to discharge, in each case in any material respect, his or
her duties (other than due to Disability) commensurate with his or her title and
function or failure to comply with the lawful directions of the Board; or (v) a
willful and knowing material misrepresentation by the Participant to the Board.

                  "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.

                  "COMMITTEE" means (a) before an IPO, the Executive Committee
of the Board, or such other committee of the Board as the Board may designate
for such purpose under the Plan, and (b) after an IPO, such committee of the
Board as the Board may designate, which shall be composed of not less than two
Non-Employee Directors, each of whom shall be appointed by and serve at the
pleasure of the Board.

                  "COMMON STOCK" means the Common Stock, without par value, of
the Company.

                  "COMPANY" means WJ Communications, Inc., a Delaware
corporation.

<PAGE>

                  "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

                  "EFFECTIVE DATE" has the meaning set forth in Section 13
hereof.

                  "EMPLOYMENT" means, unless otherwise defined in an applicable
Restricted Stock Agreement, Option Agreement or employment agreement, employment
with, or service as a director of, or as a consultant to, the Company or any of
its Affiliates.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.

                  "FAIR MARKET VALUE" of the Common Stock means, as of any given
date, the mean between the highest and lowest reported sales prices of the
Common Stock on the New York Stock Exchange or, if not listed on such exchange,
on any other national securities exchange on which the Common Stock is listed
or, if not so listed, on the Nasdaq National Market. If such sales prices are
not so available, the Fair Market Value of the Common Stock shall be determined
by the Committee in good faith in light of all circumstances (including, without
limitation, historical and projected earnings and revenues of the Company and
the Company's future prospects).

                  "IPO" means the consummation of a registered underwritten
public offering or offerings of Common Stock with gross proceeds to the Company
in the aggregate of at least $50 million.

                  "INCENTIVE STOCK OPTION" means any Stock Option designated as,
and qualified as, an "incentive stock option" within the meaning of Section 422
of the Code.

                  "NASDAQ" means the Nasdaq Stock Market, Inc.

                  "NON-EMPLOYEE DIRECTOR" means a member of the Board who
qualifies as a Non-Employee Director as defined in Rule 16b-3(b)(3), as
promulgated by the SEC under the Exchange Act, or any successor definition
adopted by the SEC.

                  "NONQUALIFIED STOCK OPTION" means any Stock Option that is not
an Incentive Stock Option.

                  "OPTION AGREEMENT" means an agreement setting forth the terms
and conditions of an Award of Stock Options and, if applicable, Stock
Appreciation Rights.

                  "PARENT" means a "parent corporation" with respect to the
Company, whether now or later existing, as defined in Section 424 of the Code.

                  "PARTICIPANT" has the meaning set forth in Section 4.

                  "PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
government (or any department or agency thereof) or other entity.

                                     - 2 -
<PAGE>

                  "PLAN" means the Watkins-Johnson Company 2000 Stock Incentive
Plan, as set forth herein and as hereinafter amended from time to time.

                  "PLAN SHARES" has the meaning set forth in Section 12(b).

                  "RESTRICTED STOCK" means an Award granted under Section 7.

                  "RESTRICTED STOCK AGREEMENT" means an agreement setting forth
the terms and conditions of an Award of Restricted Stock.

                  "RULE 13d-3" means Rule 13d-3, as promulgated by the SEC under
the Exchange Act, as amended from time to time.

                  "SEC" means the Securities and Exchange Commission or any
successor agency.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and any successor thereto.

                  "SHAREHOLDERS AGREEMENT" has the meaning as set forth in
Section 12(a).

                  "STOCK APPRECIATION RIGHT" means a right granted under Section
6.

                  "STOCK OPTION" means an option granted under Section 5.

                  "SUBSIDIARY" means a "subsidiary corporation" with respect to
the Company, whether now or later existing, as defined in Section 424(f) of the
Code.

                  In addition, certain other terms used herein have definitions
otherwise ascribed to them herein.

                  SECTION 2. ADMINISTRATION

                  The Plan shall be administered by the Committee, or, if no
Committee has been designated or appointed, by the Board (in which case all
references herein to the Committee shall include the Board).

                  Among other things, the Committee shall have the authority,
subject to the terms of the Plan, to:

                  (a) select the Participants to whom Awards may from time to
time be granted;

                  (b) determine whether and to what extent Incentive Stock
Options, Nonqualified Stock Options, Stock Appreciation Rights and Restricted
Stock or any combination thereof are to be granted hereunder;

                  (c) determine the number of shares of Common Stock to be
covered by each Award granted hereunder;

                                     - 3 -
<PAGE>

                  (d) determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price, any vesting
conditions, restrictions or limitations (which may be related to the performance
of the Participant, the Company or any of its Affiliates)) and any acceleration
of vesting or waiver or forfeiture regarding any Award and the shares of Common
Stock relating thereto, based on such factors as the Committee shall determine;

                  (e) modify, amend or adjust the terms and conditions of any
Award, at any time or from time to time;

                  (f) determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall be
deferred;

                  (g) determine under what circumstances an Award may be settled
in cash or Common Stock under Sections 5(g) and 6(b)(ii);

                  (h) adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall from time to time deem
advisable;

                  (i) interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreement relating thereto); and

                  (j) otherwise supervise the administration of the Plan.

                  The Committee may act only by a majority of its members then
in office, except that the members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Committee.

                  Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation, construction or
application of the Plan or an Award (or related Award Agreement) granted
hereunder shall be determined by the Committee. Any determination made by the
Committee pursuant to the provisions of the Plan with respect to the Plan, any
Award or Award Agreement shall be made in the sole discretion of the Committee
and, with respect to an Award, at the time of the grant of the Award or, unless
in contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Committee shall be final and binding on all persons,
including the Company and the Participants.

                  SECTION 3. COMMON STOCK SUBJECT TO PLAN

                  The total number of shares of Common Stock reserved and
available for grant under the Plan shall be 11,000,000; PROVIDED, HOWEVER, that
at no time prior to an IPO will the total number of shares of Common Stock
issuable upon the exercise of all outstanding Awards and the total number of
shares provided for under any stock bonus or similar plan of the Company exceed
the applicable percentage permitted pursuant to Rule 260.140.45 promulgated
under the California Corporations Code. Shares subject to an Award under the
Plan may be authorized and unissued shares or may be treasury shares. In the
event of any significant acquisition of another business or line of business by
the Company, whether by merger, asset purchase or otherwise, financed (in whole
or in part) with shares of Common Stock, or in the

                                     - 4 -
<PAGE>

event of any other significant issuance of Common Stock in a capital-raising
transaction (other than in connection with any investment opportunity made
available to any employee or employees of the Company), the Company acknowledges
that its intention will be to increase the aggregate number of shares reserved
for issuance under the Plan to the extent necessary to enable the Company to
issue additional time and performance vesting Stock Options in order to maintain
the ratio of the number of such issued and outstanding Stock Options to the (on
a fully-diluted basis) issued and outstanding shares of Common Stock as the same
exists prior to such transaction. The preceding sentence is not intended,
however, to evidence an intention to grant to any Participant any additional
Stock Options.

                  If any shares of Restricted Stock are forfeited or if any
Stock Option (and related Stock Appreciation Right, if any) terminates without
being exercised, or if any Stock Appreciation Right is exercised or settled for
cash, the shares subject to such Awards shall again be available for
distribution in connection with Awards under the Plan.

                  In the event of any merger, reorganization, consolidation,
recapitalization, spinoff, stock dividend, stock split, reverse stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock, the Committee or the Board may
make such substitution or adjustment in the aggregate number and kind of shares
or other property reserved for issuance under the Plan, in the number, kind and
exercise price of shares or other property subject to outstanding Stock Options
and Stock Appreciation Rights, in the number and kind of shares or other
property subject to Restricted Stock Awards, and/or such other equitable
substitution or adjustments as it may determine to be fair and appropriate in
its sole discretion; PROVIDED, HOWEVER, that the number of shares of common
stock subject to an Award shall always be a whole number. Any such adjusted
exercise price shall also be used to determine the amount payable by the Company
upon the exercise of any Stock Appreciation Right associated with any Stock
Option.

                  SECTION 4. PARTICIPANTS

                  Officers, employees, consultants and non-employee directors of
the Company and its Affiliates who are responsible for or contribute to the
management, growth and profitability of the business of the Company and its
Affiliates shall be "PARTICIPANTS" eligible to be granted Awards under the Plan.

                  SECTION 5. STOCK OPTIONS

                  The Committee shall have the authority to grant Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights) to any Participant.
Incentive Stock Options may be granted only to employees of the Company and its
Subsidiaries (within the meaning of Section 424(f) of the Code). To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Nonqualified Stock Option.

                  Stock Options shall be evidenced by Option Agreements, which
shall include such terms and provisions as the Committee may determine from time
to time. An Option

                                     - 5 -
<PAGE>

Agreement shall expressly indicate whether it is intended to be an agreement for
an Incentive Stock Option or a Nonqualified Stock Option. The grant of a Stock
Option shall occur on the date the Committee by resolution selects an individual
to be a Participant in any grant of a Stock Option, determines the number of
shares of Common Stock to be subject to such Stock Option to be granted to such
individual and specifies the terms and provisions of the Stock Option, or on
such other date as the Committee may determine. The Company shall notify a
Participant of any grant of a Stock Option, and a written Option Agreement shall
be duly executed and delivered by the Company to the Participant. Subject to
Section 12(a), such agreement shall become effective upon execution by the
Company and the Participant.

                  Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422.

                  Stock Options shall be subject to the following terms and
conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:

                  (a) EXERCISE PRICE FOR INCENTIVE STOCK OPTIONS. The exercise
price for shares of Common Stock to be issued pursuant to the exercise of an
Incentive Stock Option will be determined by the Committee provided that the per
share exercise price will be no less than 100% of the Fair Market Value per
share on the date of grant; provided, further, that in the case of an Incentive
Stock Option granted to a Participant who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of capital stock of the Company or any Subsidiary,
the per Share exercise price will be no less than 110% of the Fair Market Value
per share on the date of grant.

                  (b) EXERCISE PRICE FOR NONQUALIFIED STOCK OPTIONS. In the case
of a Nonqualified Stock Option granted prior to an IPO, the exercise price will
be determined by the Committee provided that the per Share exercise price will
be no less than 85% of the Fair Market Value per Share on the date of grant;
PROVIDED, FURTHER, that in the case of a Stock Option granted to a Participant
who, at the time the Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of capital stock of the
Company or any Parent or Subsidiary, the per Share exercise price will be no
less than 110% of the Fair Market Value per Share on the date of grant.

                  (c) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee and stated in the Option Agreement; PROVIDED, HOWEVER, that in
no event may the term be more than ten (10) years from the date of grant. In
addition, in the case of an Incentive Stock Option granted to a Participant who,
at the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of capital stock of
the Company or any Parent or Subsidiary, the term of the Incentive Stock Option
will be five (5) years from the date of grant or any shorter term specified in
the Option Agreement.

                  (c) EXERCISABILITY. Except as otherwise provided herein, Stock
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined

                                     - 6 -
<PAGE>

by the Committee. If the Committee provides that any Stock Option is exercisable
only in installments, the Committee may at any time waive such installment
exercise provisions, in whole or in part, based on such factors as the Committee
may determine. In addition, the Committee may at any time accelerate the
exercisability of any Stock Option.

                  (d) METHOD OF EXERCISE. Subject to the provisions of this
Section 5, vested Stock Options may be exercised, in whole or in part, at any
time during the option term by giving written notice of exercise to the Company
specifying the number of shares of Common Stock subject to the Stock Option to
be purchased.

                  Such notice shall be accompanied by payment in full of the
purchase price by certified or bank check or such other instrument as the
Company may accept. If approved by the Committee, payment, in full or in part,
may also be made in the form of unrestricted Common Stock already owned by the
Participant (for at least six (6) months) of the same class as the Common Stock
subject to the Stock Option (based on the Fair Market Value of the Common Stock
on the date the Stock Option is exercised); PROVIDED, HOWEVER, that, in the case
of an Incentive Stock Option the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock Option is granted.

                  In the discretion of the Committee, after an IPO, payment for
any shares subject to a Stock Option may also be made by delivering a properly
executed exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the purchase price, and, if requested by the Company,
the amount of any federal, state, local or foreign withholding taxes. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.

                  In addition, in the discretion of the Committee, payment for
any shares subject to a Stock Option may also be made by instructing the
Committee to withhold a number of such shares having a Fair Market Value on the
date of exercise equal to the aggregate exercise price of such Stock Option, or
in accordance with such other payment methods as may be permitted by the
Committee in its sole discretion.

                  No shares of Common Stock shall be issued until full payment
therefor has been made. Except as otherwise provided in the Shareholders
Agreement or the applicable Option Agreement, subject to a Participant's
compliance with Section 12(a) hereof, a Participant shall have all of the rights
of a shareholder of the Company holding the class or series of Common Stock that
is subject to such Stock Option (including, if applicable, the right to vote the
shares and the right to receive dividends and distributions), when the
Participant has given written notice of exercise, has paid in full for such
shares and, if requested, has given the representations referred to in Section
12(c).

                  (e) NONTRANSFERABILITY OF STOCK OPTIONS. A Stock Option may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, subject to the terms of this Plan, during the lifetime of the
Participant, only by the Participant or any Person to whom such Stock

                                     - 7 -
<PAGE>

Option is transferred pursuant to this Section 5(e), including such
Participant's guardian, lead representative or other transferee.

                  A Participant may file a written designation of a beneficiary
who is to receive any Stock Options that remain unexercised in the event of the
Participant's death. If a Participant is married and the designated beneficiary
is not the spouse, spousal consent will be required for the designation to be
effective. The Participant may change such designation of beneficiary at any
time by written notice to the Committee, subject to the above spousal consent
requirement. If a Participant dies and there is no beneficiary, validly
designated and living at the time of the Participant's death, the Company will
deliver such Participant's Stock Options to the executor or committee of his or
her estate, or if no such executor or committee has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
Stock Options to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

                  If a Participant designates his or her spouse as beneficiary,
that designation will be deemed automatically revoked if the Participant's
marriage is later dissolved. Similarly, any designation of a beneficiary will be
deemed automatically revoked upon the death of the beneficiary if the
beneficiary predeceases the Participant. Without limiting the generality of the
preceding sentence, the interest in Stock Options of a spouse of a Participant
who has predeceased the Participant or whose marriage has been dissolved will
automatically pass to the Participant, and will not be transferable by such
spouse in any manner, including but not limited to such spouse's will, nor will
any such interest pass under the laws of intestate succession.

                  The term "PARTICIPANT" includes the estate of the Participant
or the legal representative of the Participant named in the Option Agreement and
any person to whom an Option is otherwise transferred in accordance with this
Section 5(e), by will or the laws of descent and distribution; PROVIDED,
HOWEVER, that references herein to Employment of a Participant or termination of
Employment of a Participant shall continue to refer to the Employment or
termination of Employment of the applicable grantee of an Award hereunder.

                  (f) TERMINATION OF EMPLOYMENT. If a Participant's Employment
is terminated for Cause, then all Stock Options held by such Participant shall
immediately be terminated and cancelled. Except as otherwise provided by the
Committee or in the applicable Option Agreement, upon the Participant's death or
when the Participant's Employment is terminated for any reason other than for
Cause, the Participant:

                  a. shall forfeit all Stock Options that have not previously
vested;

                  b. shall have ninety (90) days to exercise the Participant's
vested Stock Options that are vested on the date of the Participant's
termination of Employment if such termination is for any reason other than the
Participant's Disability or death; and

                  c. shall have one (1) year to exercise the Participant's
vested Stock Options that are vested on the date of Disability or death if the
Participant's termination of Employment is due to the Participant's Disability
or death.

                                     - 8 -
<PAGE>

                  Any vested Stock Options not exercised within the permissible
period of time shall be forfeited by the Participant. Notwithstanding any of the
foregoing, the Participant shall not be permitted to exercise any Stock Option
at a time beyond the initial option term.

                  (g) CASHING OUT OF STOCK OPTION. On receipt of written notice
of exercise, the Committee may elect to cash out all or any portion of the
shares of Common Stock for which a Stock Option is being exercised by paying the
Participant an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of one share of Common Stock over the Exercise Price per share
times the number of shares of Common Stock having such Exercise Price for which
the Option is being exercised on the effective date of such cash-out.

                  SECTION 6. STOCK APPRECIATION RIGHTS

                  (a) GRANT AND EXERCISE. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Nonqualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option. In
either case, the terms and conditions of a Stock Appreciation Right shall be set
forth in the Option Agreement for the related Stock Option or an amendment
thereto.

                  A Stock Appreciation Right may be exercised by a Participant
in accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the Participant shall be entitled to receive
an amount determined in the manner prescribed in Section 6(b). Stock Options
which have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.

                  (b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be
subject to such terms and conditions as shall be determined by the Committee,
including the following:

                  (i)      Stock Appreciation Rights shall be exercisable only
at such time or times and to the extent that the Stock Options to which they
relate are exercisable in accordance with the provisions of Section 5 and this
Section 6;

                  (ii)     upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount equal to the product of (a)
the excess of the Fair Market Value of one share of Common Stock over the
Exercise Price per share specified in the related Stock Option times (b) the
number of shares in respect of which the Stock Appreciation Right shall have
been exercised, in cash, shares of Common Stock or both, with the Committee
having the right to determine the form of payment;

                  (iii)    Stock Appreciation Rights shall be transferable only
with the related Stock Option in accordance with Section 5(e); and

                  (iv)     upon the exercise of a Stock Appreciation Right
(other than an exercise for cash), the Stock Option or part thereof to which
such Stock Appreciation Right is related shall be

                                     - 9 -
<PAGE>

deemed to have been exercised for the purpose of the limitation set forth in
Section 3 on the number of shares of Common Stock to be issued under the Plan,
but only to the extent of the number of shares covered by the Stock Appreciation
Right at the time of exercise.

                  SECTION 7. RESTRICTED STOCK

                  The Committee shall determine the Participants to whom and the
time or times at which grants of Restricted Stock will be awarded, the number of
shares to be awarded to any Participant, the conditions for vesting, the time or
times within which such Awards may be subject to forfeiture and restrictions on
transfer and any other terms and conditions of the Awards (including provisions
(i) relating to placing legends on certificates representing shares of
Restricted Stock, (ii) permitting the Company to require that shares of
Restricted Stock be held in custody by the Company with a stock power from the
owner thereof until restrictions lapse and (iii) relating to any rights to
purchase the Restricted Stock on the part of the Company and its Affiliates), in
addition to those contained in the Shareholders Agreement. The terms and
conditions of Restricted Stock Awards shall be set forth in a Restricted Stock
Agreement, which shall include such terms and provisions as the Committee may
determine from time to time. Except as provided in this Section 7, the
Restricted Stock Agreement, the Shareholders Agreement and any other relevant
agreements, the Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company holding the class or
series of Common Stock that is the subject of the Restricted Stock Award,
including, if applicable, the right to vote the shares and, subject to the
following sentence, the right to receive any cash dividends or distributions
(but, subject to the third paragraph of Section 3, not the right to receive
non-cash dividends or distributions). If so determined by the Committee in the
applicable Restricted Stock Agreement, cash dividends and distributions on the
class or series of Common Stock that is the subject of the Restricted Stock
Award shall be automatically deferred and reinvested in additional Restricted
Stock, held subject to the vesting of the underlying Restricted Stock, or held
subject to meeting conditions applicable only to dividends and distributions.

                  SECTION 8. TAX OFFSET BONUSES

                  At the time an Award is made hereunder or at any time
thereafter, the Committee may grant to the Participant receiving such Award the
right to receive a cash payment in an amount specified by the Committee, to be
paid at such time or times (if ever) as the Award results in compensation income
to the Participant, for the purpose of assisting the Participant to pay the
resulting taxes, all as determined by the Committee, and on such other terms and
conditions as the Committee shall determine.

                  SECTION 9. CERTAIN EVENTS

                  Upon the happening of a merger, reorganization or sale of
substantially all of the assets of the Company, the Committee, may, in its sole
discretion, do one or more of the following: (i) shorten the period during which
Stock Options are exercisable (provided they remain exercisable for at least 30
days after the date notice of such shortening is given to the Participants);
(ii) accelerate any vesting schedule to which an Stock Option or Restricted
Stock Award is subject; (iii) arrange to have the surviving or successor entity
or any parent entity

                                     - 10 -
<PAGE>

thereof assume the Restricted Stock Awards and the Stock Options or grant
replacement options with appropriate adjustments in the exercise prices and
adjustments in the number and kind of securities issuable upon exercise or
adjustments so that the Stock Options or their replacements represent the right
to purchase the shares of stock, securities or other property (including cash)
as may be issuable or payable as a result of such transaction with respect to or
in exchange for the number of shares of Common Stock purchasable and receivable
upon exercise of the Stock Options had such exercise occurred in full prior to
such transaction; or (iv) cancel Stock Options or unvested Stock Awards upon
payment to the Participants in cash, with respect to each Stock Option or
Restricted Stock Award to the extent then exercisable or vested (including, if
applicable, any Stock Options or Restricted Stock Awards as to which the vesting
schedule has been accelerated as contemplated in clause (ii) above), of an
amount that is the equivalent of the excess of the Fair Market Value of the
Common Stock (at the effective time of the merger, reorganization, sale or other
event) over (in the case of Stock Options) the exercise price of the Stock
Option. The Committee may also provide for one or more of the foregoing
alternatives in any particular Option Agreement or agreement governing a
Restricted Stock Award.

                  SECTION 10. TERM, AMENDMENT AND TERMINATION

                  The Plan will terminate ten (10) years after the Effective
Date of the Plan. Awards outstanding as of such date shall not be affected or
impaired by the termination of the Plan.

                  The Board may amend, alter, or discontinue the Plan,
prospectively or retroactively, but no amendment, alteration or discontinuation
shall be made which would impair the rights of any Participant under an Award
theretofore granted without the Participant's consent.

                  The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but no such amendment shall be made
which would impair the rights of any Participant thereunder without the
Participant's consent.

                  SECTION 11. UNFUNDED STATUS OF PLAN

                  It is presently intended that the Plan constitute an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or make payments; PROVIDED,
HOWEVER, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.

                  SECTION 12. GENERAL PROVISIONS

                  (a) SHAREHOLDERS AGREEMENT. Notwithstanding anything in this
Plan to the contrary, unless the Committee determines otherwise, it shall be a
condition to receiving any Award under the Plan or transferring any Stock Option
in accordance with Section 5(e) or any other transfer permitted under the terms
of an Award Agreement or otherwise, that a Participant (or transferee in the
case of such transfer) shall become a party to the Shareholders Agreement, dated
as of January __, 2000, among the Company and certain shareholders of the
Company, as amended from time to time (the "SHAREHOLDERS AGREEMENT"), and such
Participant (or

                                     - 11 -
<PAGE>

transferee in the case of such transfer) shall become a "Management Shareholder"
thereunder (or such transferee shall become a "Permitted Transferee" of a
"Management Shareholder" thereunder).

                  (b) AWARDS AND CERTIFICATES. Shares of Restricted Stock and
shares of Common Stock issuable upon the exercise of a Stock Option or Stock
Appreciation Right (together, "PLAN SHARES") shall be evidenced in such manner
as the Committee may deem appropriate, including book-entry registration or
issuance of one or more stock certificates. Any certificate issued in respect of
Plan Shares shall be registered in the name of such Participant and shall bear
appropriate legends referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:

                  "The transferability of this certificate and the shares of
                  stock represented hereby are subject to the terms, conditions
                  and restrictions (including forfeiture) of the Watkins-Johnson
                  Company 2000 Stock Incentive Plan and a Restricted Stock
                  Agreement and/or a Stock Option Agreement, as the case may be,
                  between the issuer and the registered holder hereof, and a
                  related Shareholders Agreement. Copies of such Plan and
                  Agreements are on file at the offices of Watkins-Johnson
                  Company, 3333 Hillview Avenue, Palo Alto, CA 94304-1223."

                  "The securities represented by this certificate have not been
                  registered under the Securities Act of 1933, as amended, or
                  under the securities laws of any state, and may not be sold or
                  otherwise disposed of except pursuant to an effective
                  registration statement under said Act and applicable state
                  securities laws or an applicable exemption to the registration
                  requirements of such Act and laws."

                  Such Plan Shares may bear other legends to the extent the
Committee or the Board determines it to be necessary or appropriate, including
any required by the Shareholders Agreement or pursuant to any applicable
Restricted Stock Agreement or Option Agreement. If and when all restrictions
expire without a prior forfeiture of the Plan Shares theretofore subject to such
restrictions, upon surrender of legended certificates representing such shares,
new certificates for such shares shall be delivered to the Participant without
the first legend listed above.

                  The Committee may require that any certificates evidencing
Plan Shares be held in custody by the Company until the restrictions thereon
shall have lapsed and that the Participant deliver a stock power, endorsed in
blank, relating to the Plan Shares.

                  (c) REPRESENTATIONS AND WARRANTIES. The Committee may require
each person purchasing or receiving Plan Shares to (i) represent to and agree
with the Company in writing that such person is acquiring the shares without a
view to the distribution thereof and (ii) make any other representations and
warranties that the Committee deems appropriate.

                  (d) ADDITIONAL COMPENSATION. Nothing contained in the Plan
shall prevent the Company or any of its Affiliates from adopting other or
additional compensation arrangements for its employees.

                                     - 12 -
<PAGE>

                  (e) NO RIGHT OF EMPLOYMENT. Adoption of the Plan or grant of
any Award shall not confer upon any employee any right to continued Employment,
nor shall it interfere in any way with the right of the Company or any of its
Affiliates thereof to terminate the Employment of any employee at any time.

                  (f) WITHHOLDING TAXES. No later than the date as of which an
amount first becomes includible in the gross income of a Participant for federal
income tax purposes with respect to any Award under the Plan, such Participant
shall pay to the Company or, if appropriate, any of its Affiliates, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. If approved by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that is
part of the Award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant. The Committee may establish such procedures as
it deems appropriate, including making irrevocable elections, for the settlement
of withholding obligations with Common Stock.

                  (g) BENEFICIARIES. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a beneficiary
to whom any amounts payable in the event of the Participant's death are to be
paid or by whom any rights of the Participant, after the Participant's death,
may be exercised.

                  (h) POOLING OF INTERESTS. Notwithstanding any other provision
of this Plan, if any right (or the exercise of such right) granted pursuant to
this Plan would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of such
grant or grants would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute for the cash payable pursuant to
such grant or grants Common Stock with a Fair Market Value equal to the cash
that would otherwise be payable hereunder, or make any other appropriate
adjustment, including elimination or suspension of such rights.

                  (i) GOVERNING LAW. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed and enforced in accordance
with the laws of the State of California without regard to the principles of
conflicts of law thereof.

                  (j) COMPLIANCE WITH LAWS. If any law or any regulation of any
commission or agency having jurisdiction shall require the Company or a
Participant seeking to exercise Stock Options or Stock Appreciation Rights to
take any action with respect to the Plan Shares to be issued upon the exercise
of Stock Options or Stock Appreciation Rights then the date upon which the
Company shall issue or cause to be issued the certificate or certificates for
the Plan Shares shall be postponed until full compliance has been made with all
such requirements of law or regulation; PROVIDED, that the Company shall use its
reasonable efforts to take all necessary action to comply with such requirements
of law or regulation. Moreover, in the event that the Company shall determine
that, in compliance with the Securities Act or other applicable statutes or
regulations, it is necessary to register any of the Plan Shares with respect to
which an exercise

                                     - 13 -
<PAGE>

of a Stock Option or Stock Appreciation Right has been made, or to qualify any
such Plan Shares for exemption from any of the requirements of the Securities
Act or any other applicable statute or regulation, no Stock Options or Stock
Appreciation Rights may be exercised and no Plan Shares shall be issued to the
exercising Participant until the required action has been completed; PROVIDED,
that the Company shall use its reasonable efforts to take all necessary action
to comply with such requirements of law or regulation. Notwithstanding anything
to the contrary contained herein, neither the Board nor the members of the
Committee owes a fiduciary duty to any Participant in his or her capacity as
such.

                  SECTION 13. EFFECTIVE DATE OF PLAN

                  The Plan shall be effective as of the date it is approved by
the holders of a majority of the outstanding shares of Common Stock, which
approval is evidenced by Section 5.4 under the Shareholders Agreement (such date
the "EFFECTIVE DATE").

                                     - 14 -

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