Document:

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                                                                    EXHIBIT 10.1

                              VARI-L COMPANY, INC.
                             TANDEM STOCK OPTION AND
                         STOCK APPRECIATION RIGHTS PLAN
                                TABLE OF CONTENTS

<TABLE>
<S>      <C>                                                          <C>
1.       Purpose......................................................1

2.       General Provisions...........................................1

3.       Eligibility..................................................2

4.       Number of Shares Subject to Plan.............................2

5.       Stock Option.................................................3

6.       Stock Appreciation Rights....................................6

7.       Capital Adjustments..........................................7

8.       Nontransferability...........................................8

9.       Amendment, Suspension, or Termination of Plan................8

10.      Effective Date...............................................8

11.      Termination Date.............................................9

12.      Resale of Shares Purchased...................................9

13.      Acceleration of Options......................................9

14.      Written Notice Required; Tax Withholding.....................10

15.      Compliance with Securities Laws..............................10

16.      Waiver of Vesting Restrictions by Committee..................10

17.      Reports to Participants......................................10

18.      No Employee Contract.........................................11
</TABLE>

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                             TANDEM STOCK OPTION AND
                         STOCK APPRECIATION RIGHTS PLAN
                               AS OF JUNE 18, 1999

         1.       PURPOSE. Vari-L Company, Inc. (the "Company") hereby
establishes the Tandem Stock Option and Stock Appreciation Rights Plan (the
"Plan"). The purpose of the Plan is to advance the interests of the Company and
its stockholders by providing a means by which the Company shall be able to
attract and retain competent officers, directors, key employees, advisors and
consultants by providing them with an opportunity to participate in the
increased value of the Company which their effort, initiative, and skill have
helped produce.

         2.       GENERAL PROVISIONS.

                  (a) The Plan will be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall be comprised of two or more directors designated by the Board of
Directors. If and to the extent that Securities Exchange Act Rule 16b-3 or
Internal Revenue Code Section 162 are applicable to the Plan, Committee members
shall qualify as "Non-Employee Directors" within the meaning of Securities
Exchange Act Rule 16b-3 and as "outside directors" within the meaning of
Treasury Regulation Section 1.162-27(e)(3). (In the event Rule 16b-3 or Treasury
Regulation 1.162.27(3)(3) is amended, modified or repealed, the requirements for
being a member of the Committee shall reflect the then current requirements of
the successor rule or regulation, if any.) Options granted under the Plan are
intended to qualify for the "qualified performance based compensation" exception
to Internal Revenue Code Section 162(m). The Committee shall have full power to
construe and interpret the Plan and to establish and amend rules and regulations
for its administration. Notwithstanding the foregoing, if it would be consistent
with all applicable law including without limitation Rule 16b-3 and Treasury
Regulation 1.162-27(e)(3), then the Plan may be administered by the Board of
Directors, and if so administered all subsequent references to the Committee
shall be read as referring to the Board of Directors. Any action of the
Committee with respect to the Plan shall be taken by majority vote or by the
unanimous written consent of the Committee members.

                  (b) The Committee shall determine, in its sole discretion,
which participants under the Plan shall be granted stock options or stock
appreciation rights, the time or times at which options and rights are granted,
as well as the number of shares and the duration of the options or rights which
are granted to participants, provided, however, that no participant may be
granted more than 300,000 options during any three year period under the Plan.

                  (c) The Committee shall also determine any other terms and
conditions relating to options and rights granted under the Plan as the
Committee may prescribe, in its sole discretion.

                  (d) The Committee may, in its discretion, delegate its
administrative duties with respect to the Plan to an officer or employees, or to
a committee composed of officers or employees, of the Company.

                  (e) The Committee shall make all other determinations and take
all other actions which it deems necessary or advisable for the administration
of the Plan.

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                  (f) All decisions, determinations and interpretations made by
the Committee shall be binding and conclusive on all participants in the Plan
and on their legal representatives, heirs and beneficiaries.

                  (g) Notwithstanding anything to the contrary herein, the
Committee shall have no authority to determine the amount, price or timing of
grants hereunder to members of the Committee, unless, and only to the extent
that, its exercise of such authority is consistent with all applicable laws,
including, without limitation, Rule 16b-3.

         3.       ELIGIBILITY. Officers, directors and employees of the Company
and advisors and consultants to the Company shall be eligible to participate in
the Plan and to receive options and rights hereunder, provided, however, that:
(i) Incentive Stock Options may only be granted to employees (including officers
and directors who are employees) of the Company or its subsidiaries; and (ii)
advisors and consultants shall be eligible for grants only if they provide bona
fide services that are not rendered in connection with the offer or sale of
securities or in a capital- raising transaction.

         4.       NUMBER OF SHARES SUBJECT TO PLAN. The aggregate number of
shares of the Company's $.01 par value Common Stock which may be granted to
participants shall be 3,624,000 shares, subject to adjustment only as provided
in Sections 5(h) and 7 hereof. These shares may consist of shares of the
Company's authorized but unissued Common Stock or shares of the Company's
authorized and issued Common Stock reacquired by the Company and held in its
treasury or any combination thereof. If an option or right granted under this
Plan is surrendered, or for any other reason ceases to be exercisable in whole
or in part, the shares as to which the option or right ceases to be exercisable
shall be available for options or rights to be granted to the same or other
participants under the Plan, except to the extent that an option or right is
deemed surrendered by the exercise of a tandem stock appreciation right and that
right is paid by the Company in stock, in which event the shares issued in
satisfaction of the right shall not be available for new options or rights under
the Plan.

         5.       STOCK OPTION.

                  (a) TYPE OF OPTIONS. Options granted on or after January 28,
1994 may be either Nonqualified Stock Options or Incentive Stock Options as
determined by the Committee in its sole discretion and as reflected in the
Notice of Grant issued by the Committee. All Options granted under the Plan
prior to January 28, 1994 were nonqualified stock options. "Incentive Stock
Option" means an option intended to qualify as an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). "Nonqualified Stock Option" means an option not intended to qualify as
an Incentive Stock Option or an Incentive Stock Option which is converted to a
Nonqualified Stock Option under Section 5(f) hereof.

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                  (b) OPTION PRICE. The price at which options may be granted
under the Plan shall be determined as follows:

                      (i) For Incentive Stock Options the option price shall be
equal to 100% of the Fair Market Value of the stock on the date the option is
granted provided, however, that Incentive Stock Options granted to any person
who, at the time such option is granted owns (as defined in Section 422 of the
Code) shares possessing more than 10% of the total combined voting power of all
classes of shares of the Company or its parent or subsidiary corporation, the
Option Price shall be 110% of the Fair Market Value.

                      (ii) For Nonqualified Stock Options the option price may
be less than the Fair Market Value of the stock on the date of grant, but in no
event shall the option price be less than fifty percent 50% of the Fair Market
Value of the stock on the date the option is granted, provided, however that any
grant of a Nonqualified Stock Option at a price less than Fair Market Value
shall not qualify for the "qualified performance based compensation" exception
to Internal Revenue Code Section 162(m).

                      (iii) For purposes of this Plan, and except as otherwise
set forth herein, "Fair Market Value" shall mean (a) if there is an established
market for the Company's Common Stock on a stock exchange, in an
over-the-counter market or otherwise, the closing price on the date of grant, or
(b) as otherwise specified by the Committee. In the case of automatic grants to
Committee members, the Fair Market Value shall be the closing price on the date
of grant.

                  (c) EXERCISE OF OPTION. The right to purchase shares covered
by any option or options under this Plan shall be exercisable only in accordance
with the terms and conditions of the grant to the participant. Such terms and
conditions may include a time period or schedule whereby some of the options
granted may become exercisable, or "vested", over time and certain conditions,
such as continuous service or specified performance criteria or goals, must be
satisfied for such vesting. The determination as to whether to impose any such
vesting schedule or requirements, and the terms of such schedule or
requirements, shall be within the sole discretion of the Committee. These terms
and conditions may be different for different participants so long as all
options satisfy the requirements of the Plan.

         Options shall be paid for in cash or in shares of the Company's Common
Stock, which shares shall be valued at the Fair Market Value of the shares on
the date of exercise, or any combination thereof. The Committee may, in its
discretion and subject to ratification by the entire Board of Directors, loan
one or more participants all or a portion of the exercise price, together with
the amount of any tax liability incurred by the participant as a result of the
exercise of the option, for up to three (3) years with interest payable at the
prime rate quoted in the Wall Street Journal on the date of exercise. Members of
the Committee may receive such loans for the exercise of their options without
Committee approval or Board ratification.

<PAGE>   5

         The Committee may also permit a participant to effect a net exercise of
an option without tendering any shares of the Company's stock as payment for the
option. In such an event, the participant will be deemed to have paid for the
exercise of the option with shares of the Company's stock and shall receive from
the Company a number of shares equal to the difference between the shares that
would have been tendered and the number of options exercised.

         The Committee may also cause the Company to enter into arrangements
with one or more licensed stock brokerage firms whereby participants may
exercise options without payment therefor but with irrevocable orders to such
brokerage firm to immediately sell the number of shares necessary to pay the
exercise price for the option and the withholding taxes, if any, and then to
transmit the proceeds from such sales directly to the Company in satisfaction of
such obligations.

                  (d) DURATION OF OPTIONS. Unless otherwise prescribed by the
Committee or this Plan, options granted hereunder shall expire ten (10) years
from the date of grant, subject to early termination as provided in Section 5(f)
hereof.

                  (e) INCENTIVE STOCK OPTIONS LIMITATIONS. In no event shall an
Incentive Stock Option be granted to any person who, at the time such option is
granted, owns (as defined in Section 422 of the Code) shares possessing more
than 10% of the total combined voting power of all classes of shares of the
Company or of its parent or subsidiary corporation, unless the option price is
at least 110% of the Fair Market Value of the stock subject to the Option, and
such Option is by its terms not exercisable after the expiration of five (5)
years from the date such Option is granted. Moreover, the aggregate Fair Market
Value (determined as of the time that option is granted) of the shares with
respect to which Incentive Stock Options are exercisable for the first time by
any individual employee during any single calendar year under the Plan shall not
exceed $100,000. In addition, in order to receive the full tax benefits of an
Incentive Stock Option, the employee must not resell or otherwise dispose of the
stock acquired upon exercise of the Incentive Stock Option until two (2) years
after the date the option was granted and one (1) year after it was exercised.

                  (f) EARLY TERMINATION OF OPTIONS. In the event a participant's
employment with or service to the Company shall terminate as the result of total
disability or the result of retirement at 65 years of age or later, then any
options granted to such participant shall terminate and may no longer be
exercised three (3) months after the time such participant is no longer an
employee, officer or director of, or advisor or consultant to, the Company. If
the participant dies while employed or engaged by the Company, to the extent
that the option was exercisable at the time of the participant's death, such
option may, within one year after the participant's death, be exercised by the
person or persons to whom the participant's rights under the option shall pass
by will or by the applicable laws of descent and distribution; provided,
however, that an option may not be exercised to any extent after the expiration
of the option as originally granted. In the event a participant's employment or
engagement by the Company shall terminate as the result of any circumstances
other than those referred to above,

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whether terminated by the participant or the Company, with or without cause,
then all options granted to such participant under this Plan shall terminate and
no longer be exercisable as of the date of such termination, provided, however,
that if an employee with an Incentive Stock Option terminates employment prior
to its exercise, but after such termination becomes or remains a non-employee
officer, director, advisor or consultant eligible for Nonqualified Stock Options
hereunder, then the Incentive Stock Option shall be converted to a Nonqualified
Stock Option on the date the Incentive Stock Option would otherwise have
terminated.

         An employee who is absent from work with the Company because of total
disability, as defined below, shall not by virtue of such absence alone be
deemed to have terminated such participant's employment with the Company. All
rights which such participant would have had to exercise options granted
hereunder will be suspended during the period of such absence and may be
exercised cumulatively by such participant upon his return to the Company so
long as such rights are exercised prior to the expiration of the option as
originally granted. For purposes of this Plan, "total disability" shall mean
disability, as a result of sickness or injury, to the extent that the
participant is prevented from engaging in any substantial gainful activity and
is eligible for and receives a disability benefit under Title II of the Federal
Social Security Act.

                  (g) AUTOMATIC GRANTS TO COMMITTEE MEMBERS. Except as provided
in Section 2(g) hereof, no action may be taken by the Committee to grant any
options to members of the Committee. Notwithstanding the foregoing and
irrespective of any action by the Committee, on the date of each meeting of the
Board of Directors or a committee thereof, each member of the Committee and of
the Audit Committee (other than members who are officers or employees of the
Company) of such committee that attends such meeting in person shall receive a
grant of ten year fully vested Nonqualified Stock Options to purchase 500 shares
of the Company's Common Stock at an exercise price equal to the Fair Market
Value calculated in accordance with Section 5(b).

                  (h) RELOAD BY PAYMENT IN SHARES. To the extent that a
participant pays for the exercise of an option with shares of the Company's
stock rather than cash, the tendered shares shall be deemed to be added back to
the Plan, increasing the

total number of shares subject to and reserved for the Plan by that amount.

         6.       STOCK APPRECIATION RIGHTS.

                  (a) GRANT. Stock appreciation rights may be granted by the
Committee under this Plan upon such terms and conditions as it may prescribe. A
stock appreciation right may be granted only in connection with an option
previously granted to or to be granted under this Plan. Each stock appreciation
right shall become nonexercisable and be forfeited if the related option is
exercised. "Stock appreciation right" as used in this Plan means a right to
receive the excess of Fair Market Value, on the date of exercise, of a share of
the Company's Common Stock on which an appreciation right is exercised over the
option price provided for in the related option and is issued in consideration
of services performed for the Company or for its benefit by the participant.
Such excess is hereafter called "the differential."

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                  (b) EXERCISE OF STOCK APPRECIATION RIGHTS. Stock appreciation
rights shall be exercisable and be payable in the following manner:

                      (i) A stock appreciation right shall be exercisable by the
participant at the same time or times that the option to which it relates could
be exercised. A participant wishing to exercise a stock appreciation right shall
give written notice of such exercise to the Company. Upon receipt of such
notice, the Company shall determine, in its sole discretion, whether the
participant's stock appreciation rights shall be paid in cash or in shares of
the Company's Common Stock or any combination of cash and shares and thereupon
shall, without deducting any transfer or issue tax, deliver to the person
exercising such right an amount of cash or shares of the Company's Common Stock
or a combination thereof with a value equal to the differential minus
withholding taxes, if any. The date the Company receives the written notice of
exercise hereunder is the exercise date. The shares issued upon the exercise of
a stock appreciation right may consist of shares of the Company's authorized but
unissued Common Stock or of its authorized and issued Common Stock reacquired by
the Company and held in its treasury or any combination thereof. No fractional
share of Common Stock shall be issued; rather, the Committee shall determine
whether cash shall be given in lieu of such fractional share or whether such
fractional share shall be eliminated.

                      (ii) The exercise of a stock appreciation right shall
automatically result in the surrender of the related stock option by the
participant on a share for share basis. Likewise, the exercise of a stock option
shall automatically result in the surrender of the related stock appreciation
right. Shares covered by surrendered options shall be available for granting
further options under this Plan except to the extent and in the amount that such
rights are paid by the Company with shares of stock, as more fully discussed in
Section 4 hereof.

                      (iii) The Committee may impose any other terms and
conditions it prescribes upon the exercise of a stock appreciation right, which
conditions may include a condition that the stock appreciation right may only be
exercised in accordance with rules and regulations adopted by the Committee from
time to time.

                  (c) LIMITATION ON PAYMENTS. Notwithstanding any other
provision of this Plan, the Committee may from time to time determine, including
at the time of exercise, the maximum amount of cash or stock which may be given
upon exercise of any stock appreciation right in any year, provided, however,
that all such amounts shall be paid in full no later than the end of the year
immediately following the year in which the participant exercised such stock
appreciation rights. Any determination under this paragraph may be changed by
the Committee from time to time provided that no such change shall require the
participant to return to the Company any amount theretofore received or to
extend the period within which the Company is required to make full payment of
the amount due as the result of the exercise of the participant's stock
appreciation rights.

<PAGE>   8

                  (d) EXPIRATION OR TERMINATION OF STOCK APPRECIATION RIGHTS.

                      (i) Each stock appreciation right and all rights and
obligations thereunder shall expire on the date on which the related option
expires or terminates.

                      (ii) A stock appreciation right shall terminate and may no
longer be exercised upon the expiration or termination of the related option.

         7.       CAPITAL ADJUSTMENTS. The aggregate number of shares of the
Company's Common Stock subject to this Plan, the maximum number of shares as to
which options may be granted to any one participant hereunder, and the number of
shares and the price per share subject to outstanding options, shall be
appropriately adjusted by the Committee for any increase or decrease in the
number of shares of Common Stock which the Company has issued resulting from any
stock split, reverse stock split, stock dividend, combination of shares or any
other change, or any exchange for other securities or any reclassification,
merger, reorganization, consolidation, redesignation, recapitalization, or
otherwise. Similar adjustments shall be made to the terms of stock appreciation
rights.

         8.       NONTRANSFERABILITY. During a participant's lifetime, an option
may be exercisable only by the participant and options granted under the Plan
and the rights and privileges conferred thereby shall not be subject to
execution, attachment or similar process and may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by applicable law and
Rule 16b-3, the Committee may (i) permit a recipient of a Nonqualified Stock
Option to designate in writing during the participant's lifetime a beneficiary
to receive and exercise the participant's Nonqualified Stock Options in the
event of such participant's death (as provided in Section 5(f)), (ii) grant
Nonqualified Stock Options that are transferable to the immediate family or a
family trust of the recipient, and (iii) modify existing Nonqualified Stock
Options to be transferable to the immediate family or a family trust of the
recipient. Any other attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or of any right or privilege
conferred thereby, contrary to the provisions of the Plan shall be null and
void.

         9.       AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Board of
Directors or the Committee may at any time suspend or terminate the Plan and may
amend it from time to time in such respects as the Board of Directors or the
Committee may deem advisable in order that options and rights granted hereunder
shall conform to any change in the law, or in any other respect which the Board
of Directors or the Committee may deem to be in the best interests of the
Company; provided, however, that no such amendment shall, without the
participant's consent, alter or impair any of the rights or obligations under
any option or stock appreciation rights theretofore granted to him under the
plan; and provided further

<PAGE>   9

that no such amendment shall, without shareholder approval: increase the total
number of shares available for grants of options or rights under the Plan
(except as provided by Section 7 hereof); or effect any change to the Plan which
is required to be approved by shareholder by law, including, without limitation,
the regulations promulgated under Section 422 and Section 162(m) of the Code. In
addition, the provisions of Section 5(g) relating to the amount, price and
timing of grants to members of the Committee shall not be amended more than once
every six (6) months other than to comport with applicable changes to the Code,
the Employee Retirement Income Security Act or rules thereunder.

         10.      EFFECTIVE DATE. The effective date of the Plan shall be
December 31, 1987, provided, however, that the effective date of the Plan as it
relates to Incentive Stock Options shall be January 28, 1994 and no Incentive
Stock Option may be granted hereunder before January 28, 1994. If the January
28, 1994 amendment to and restatement of the Plan is not approved by the
affirmative vote of a majority of the Company's shareholders on or before
January 28, 1995, then the Plan shall remain in effect as it was last amended on
June 14, 1990. The failure of the shareholders to approve such amendment and
restatement of the Plan shall not, however, affect the validity, duration or any
other terms and conditions of options or rights granted prior to January 28,
1994, and shall affect the terms and conditions of options or rights granted
after that date only to the extent required by law.

         11.      TERMINATION DATE. Unless this Plan shall have been previously
terminated by the Committee, this Plan shall terminate on January 28, 2004,
except as to options and rights theretofore granted and outstanding under the
Plan at that date, and no stock option or stock appreciation rights shall be
granted after that date.

         12.      RESALE OF SHARES PURCHASED. All shares of stock purchased
under this Plan may be freely resold, subject to applicable state and federal
securities laws restricting their transfer. As a condition to exercise of an
option, the Company may impose various conditions, including a requirement that
the person exercising such option represent and warrant that, at the time of
such exercise, the shares of Common Stock being purchased are being purchased
for investment and not with a view to resale or distribution thereof. The resale
of shares purchased upon the exercise of Incentive Stock Options may, however,
cause the employee to lose certain tax benefits if the employee fails to comply
with the holding period requirements described in Section 5(e) hereof.

         13.      ACCELERATION OF OPTIONS. If the Company or its shareholders
enter into an agreement to dispose of all or substantially all of the assets or
stock of the Company by means of a sale, merger or other reorganization,
liquidation, or otherwise, any option granted pursuant to the Plan shall become
immediately exercisable with respect to the full number of shares subject to
that option during the period commencing as of the date of the agreement to
dispose of all or substantially all of the assets or stock of the Company and
ending when the disposition of assets or stock contemplated by that agreement is
consummated or the option is otherwise terminated in accordance with its
provisions or the provisions of the Plan, whichever occurs first; provided that

<PAGE>   10

no option shall be immediately exercisable under this Section on account of any
agreement of merger or other reorganization where the shareholders of the
Company immediately before the consummation of the transaction will own 50% or
more of the total combined voting power of all classes of stock entitled to vote
of the surviving entity (whether the Company or some other entity) immediately
after the consummation of the transaction. In the event the transaction
contemplated by the agreement referred to in this section is not consummated,
but rather is terminated, canceled or expires, the options granted pursuant to
the Plan shall thereafter be treated as if that agreement had never been entered
into.

         14.      WRITTEN NOTICE REQUIRED; TAX WITHHOLDING. Any option or right
granted pursuant to the Plan shall be exercised when written notice of that
exercise by the participant has been received by the Company at its principal
office and, with respect to options, when such notice is received and full
payment for the shares with respect to which the option is exercised has been
received by the Company. Participant agrees that, to the extent required by law,
the Company shall withhold or require the payment by participant of any state,
federal or local taxes resulting from the exercise of an option or right,
provided however that to the extent permitted by law, the Committee may in its
discretion, permit some or all of such withholding obligation to be satisfied by
the delivery by the participant of, or the retention by the Company of, shares
of its Common Stock.

         15.      COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued
with respect to any option or right granted under the Plan unless the exercise
of that option and the issuance and delivery of the shares pursuant thereto
shall comply with all relevant provisions of state and federal law, including
without limitation the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder and the requirements of any stock exchange or
automated quotation system upon which the shares may then be listed or traded,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance. Further, each participant must consent to the
imposition of a legend on the certificate representing the shares of Common
Stock issued upon the exercise of the option or right restricting their
transferability as may be required by law, the option, or the Plan.

         16.      WAIVER OF VESTING RESTRICTIONS BY COMMITTEE. Notwithstanding
any provision of the Plan, in the event a participant dies, becomes disabled,
retires as an employee, officer or director of, or as an advisor or consultant
to, the Company, the Committee shall have the discretion to waive any vesting
restrictions on the retiree's options, or the early termination of any
Nonqualified Stock Options held by the retiree.

         17.      REPORTS TO PARTICIPANTS. The Company shall furnish to each
participant a copy of the annual report sent to the Company's shareholders. Upon
written request, the Company shall furnish to each participant a copy of its
most recent annual report and each quarterly report to shareholders issued since
the end of the Company's most recent fiscal year.

<PAGE>   11

         18.      NO EMPLOYEE CONTRACT. The grant of an option or right under
the Plan shall not confer upon any participant any right with respect to
continuation of employment by, or the rendition of advisory or consulting
services to, the Company, nor shall it interfere in any way with the Company's
right to terminate the participant's employment or services at any time.

DAVID G. SHERMAN,                                     JOSEPH H. KISER,
    President                                            Chairman of the Board
                                                         and Secretary<PAGE>   1
                                                                    EXHIBIT 10.2

                              VARI-L COMPANY, INC.
                         EXECUTIVE EMPLOYMENT AGREEMENT

         THIS AGREEMENT, effective October 1, 2000, is made and entered into by
and between VARI-L COMPANY, INC. (the "Company") and DEREK L. BAILEY
("Employee").

         WHEREAS, Employee's diligent efforts on behalf of the Company have
greatly contributed to the tremendous growth of the Company, in terms of
revenues, profitability, technological developments, customer base and
shareholder value; and

         WHEREAS, the Compensation Committee of the Board of Directors,
comprised solely of disinterested directors, has determined to provide Employee
with this employment agreement, including the severance package and other
benefits provided hereby, for the purpose of rewarding Employee for the success
of the Company resulting from his efforts and as a method of encouraging
Employee to remain with the Company and to continue to provide such diligent and
efficacious services to the Company during that employment.

         NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:

         I.   EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set forth.

         II.  TERM. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement is for a period commencing October 1, 2000,
and expiring October 1, 2001 (the "Initial Term"). On October 1 of each year,
beginning in 2001, the term of this Agreement shall be automatically extended
for an additional year without any further action on the part of the Company or
Employee unless terminated under the provisions of Section VIII of this
Agreement.

         III. DUTIES. Employee is engaged as Executive Vice President of the
Company, to have complete responsibility for and authority over the management
and direction of all sales and marketing activities of the Company, including
the commercial, military, aerospace and other markets served by the Company,
subject only to the direction of the Company's Chief Executive Officer or
President and the Board of Directors, for administering those operations of the
Company in all respects.

         IV.  Employee shall faithfully, industriously, and to the best of his
ability, experience, and talents, perform all of the duties that may be required
of and from him pursuant to this Agreement. Nothing herein shall be construed as
preventing Employee from (a) investing his assets in such form or manner as will
not require any services on the part of Employee in the operations or the
affairs of the companies in which such investments are made or (b) serving as a
director, advisor, or consultant; PROVIDED, HOWEVER, that such investments or
services may not be in connection with a business which is in competition with
the Company (excluding (i) indirect investments through mutual funds or other
broad based investment vehicles, (ii) investments in debt instruments, and (iii)
investments in less than

<PAGE>   2

5% of the stock of any publicly held business). For purposes hereof, "in
competition with the Company" shall be construed consistently with Section VII
hereof.

         V.   COMPENSATION AND EMPLOYEE BENEFITS.

              A. For all services rendered by Employee under this Agreement, the
Company shall pay Employee an annual base salary of at least $130,000, payable
in equal bi-weekly installments. The amount of such base salary shall be
determined at the beginning of each fiscal year by the Compensation Committee of
the Company's Board of Directors in its sole discretion on the basis of merit
and the Company's financial success and progress but in no event shall such base
salary be less than the annual base salary indicated in this paragraph.

              B. Bonus Compensation. The Employee and the Company have entered
into a separate Stay Bonus Agreement dated September 20, 2000, a copy of which
is attached hereto and incorporated by reference herein. In addition to the
bonuses payable to Employee pursuant to said Stay Bonus Agreement and the
Severance Amount provided for in Section VIII hereof, the Employee may receive
such additional bonuses, payable in cash or shares of the Company's stock, as
determined at the beginning of each fiscal year of the Company by the Board of
Directors or the Compensation Committee of the Board of Directors, in its sole
discretion, on the basis of merit and the Company's financial success and
progress in the prior fiscal year.

              C. Employee shall be entitled to accrue four (4) weeks of paid
vacation for each year of service provided. Employee's vacation balance as of
September 20, 2000 was 313.32 hours and will accrue at a rate of 3.077 hours for
each week of service provided thereafter. Any vacation time taken will be
deducted from Employee's vacation balance. Employee shall be entitled to utilize
all accrued and unused vacation time. Any accrued but unused vacation time shall
be paid to Employee at or before the termination of his employment, in
accordance with Company policy, in addition to any amounts due and payable to
Employee under the Stay Bonus Agreement or under Section VIII hereof.

              D. Employee shall be entitled to receive all of the rights,
benefits, and privileges of an employee and an executive officer under any
retirement, pension, profit-sharing, insurance, health and hospital, and other
employee benefit plans which may be now in effect or hereafter adopted by the
Company.

              E. Employee shall be furnished with a private office, business
tools, and such other facilities and services suitable to Employee's position
and adequate for the performance of the duties required by this Agreement.

              F. Subject to limits which may be imposed by the Chief Executive
Officer, President or the Board of Directors, Employee is authorized to incur
reasonable expenses in connection with his responsibilities in conducting the
business of the Company, including expenses for entertainment, travel, and
similar items. The Company will reimburse Employee for all such expenses upon
the presentation by Employee, from time to time, of an itemized account of such
expenditures,

                                       2
<PAGE>   3

including receipts or other adequate documentation, or Employee may pay such
expenses with a Company credit card, if a Company credit card is issued to
Employee, and Employee may appropriately document the business purpose of such
expenditures.

              G. Employer shall provide Employee with an automobile, and shall
directly provide or reimburse Employee for insurance, maintenance, fuel and
repairs associated with such automobile. The Company will reimburse Employee for
all such expenses upon the presentation by Employee, from time to time, of an
itemized account of such expenditures or Employee may pay such expenses with a
Company credit card, if a Company credit card is issued to Employee. Employee
shall be given an opportunity to provide documentation to the Company indicating
the extent to which the automobile was used for business purposes. If and to the
extent that the automobile is not considered by the Company to have been used
for business purposes based upon such documentation, the Company will include
the value of the non-business use of the automobile and other reimbursements
made in connection therewith Employee's Form W-2 or 1099 as income for each year
such personal benefit is received. Upon termination of this Agreement, at the
Company's discretion, Employee may purchase such automobile from the Company at
its then current fair market value based upon the average of the stated retail
prices and wholesale prices derived from at least two industry sources such as
NADA, Kelly Bluebook, etc.

         VI.  PROPRIETARY INTERESTS OF COMPANY.

              Employee and the Company recognize that the Company is in a highly
competitive business in a highly technical industry. The parties acknowledge
that the success or failure of the Company depends largely on the development
and use of certain proprietary and confidential information and trade secrets,
including without limitation, information concerning any of the Company's
patented components, research and development projects and in patent process
components, and personal relationships with present and potential customers,
suppliers, contractors, and governmental agencies as well as technology,
procedures, systems, and techniques relating to the products developed or
distributed by the Company (hereinafter collectively referred to as
"Confidential Information"). Confidential Information is a substantial asset of
the Company. Confidential Information will be disclosed to Employee in the
normal course of operation. Employee acknowledges that Confidential Information
is extremely valuable to the Company and must be protected from unauthorized use
by the Company's competitors or other persons. Therefore, Employee agrees not to
disclose or use, whether for the benefit of Employee or any other person or
entity, at any time during or after his employment, any Confidential Information
to any person or entity other than the Company or persons authorized by the
Company to receive such Confidential Information.

              Employee recognizes that, during the term of his employment with
the Company, he may develop new products, technology, processes, devices,
inventions, or methods of production, including but not limited to computer
hardware, software or "firmware," and may enhance, improve or perfect existing
products, technology, processes, devices, inventions or methods of production
(hereinafter collectively referred to as "Inventions"). As partial consideration
for the salary and other benefits provided by the Company to the Employee,
Employee hereby agrees that his

                                       3
<PAGE>   4

entire work product while in the employ of the Company, including any
Inventions, is the exclusive property of the Company. Employee also agrees to
cooperate fully with the Company and to do whatever acts are reasonably
necessary in order to obtain United States or foreign letters patent or
copyrights, or both, and to vest the entire right and title thereto in the
Company. Employee further agrees that the Company shall have the royalty-free
right to use in its business, and to make, use, and sell such Inventions whether
or not patentable, regardless of whether they are conceived or made by the
Employee during the hours which he is employed by the Company or with the use of
or assistance of the Company's facilities, materials or personnel.

              Except as required in his duties to the Company, Employee will
not, directly or indirectly, use, disseminate, disclose, lecture upon, or
publish articles concerning any Confidential Information without the prior
written consent of the Company.

              Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.

              It is agreed that any breach of this section of the Agreement will
cause immediate irreparable harm to the Company and monetary damages would be
difficult if not impossible to ascertain. Therefore, the parties agree that,
upon any breach of any covenant in this Section VI, that the Company may obtain
from the district court for the City and County of Denver, Colorado, or any
other court of competent jurisdiction, an appropriate restraining order,
preliminary injunction or other form of equitable relief with respect thereto.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other available remedies for such breach, including the recovery of
damages, costs, and attorney fees.

         VII. NONCOMPETE AND NONSOLICITATION. During the term of this Agreement
and for a period of the greater of (a) one year after termination or expiration
of this Agreement or (b) the period during which a Severance Amount or
consulting arrangement is being paid to Employee by the Company (the "Noncompete
Period"), the Employee will not, directly or indirectly, own, manage, operate,
control, provide services to, be employed by, participate in, or be connected in
any manner with the ownership, management, operation, or control of any business
which develops, manufactures, distributes or sells the same type of products as
the Company, or products which are the functional equivalent of the Company's
products or currently planned products, within and to the same market as the
Company's market at the time of Employee's activity or, after the termination of
this Agreement, at the time of such termination. Employee certifies that his
employment with the Company will not breach a previous employment agreement.
Employee agrees not to engage in the unauthorized use of the proprietary assets
of others during the term of his employment by the Company. Employee agrees not
to enter into any other employment agreement, oral or written, which will run
concurrently, in whole or in part, with Employee's employment by the Company. It
is agreed that any breach of this section of the Agreement will cause immediate
irreparable harm to the Company and that monetary damages for

                                       4
<PAGE>   5

such breach would be difficult if not impossible to ascertain. Therefore, the
parties agree that upon any breach of the covenants of this section the Company
may obtain from the district court for the City and County of Denver, Colorado,
or any other court of competent jurisdiction, an appropriate restraining order,
preliminary injunction or other form of equitable relief with respect thereto.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other available remedies for such breach, including the recovery of
damages, costs, and attorney fees.

               The foregoing agreement not to compete shall not be held invalid
because of the scope of the territory or the actions restricted thereby, or the
period of time within which such agreement is operative; but any judgment by a
court of competent jurisdiction may define the maximum territory and actions
subject to, and restricted by, this paragraph and the period of time during
which such agreement is enforceable.

               Notwithstanding the foregoing, in the event of a Change of
Control, as hereinafter defined, not recommended by a majority of the Board of
Directors of the Company as constituted prior to the date of such Change of
Control, this non-compete agreement shall terminate upon the date of such Change
of Control.

         VIII. TERMINATION OF EMPLOYMENT.

               A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may
agree to terminate this Agreement on terms and conditions mutually acceptable to
them as of the date of termination.

               B. DEATH. In the event of Employee's death during the term of
this Agreement, including the Consulting Period, if any, or so long as any
Severance Amount is being paid to Employee, the Company shall pay to any
beneficiary designated by Employee or, if no such beneficiary has been
designated, to his estate, an amount equal to the then annual base salary for
one (1) year, together with any bonuses which the Company's Board of Directors
may determine, in its sole discretion, to be due and payable to Employee. If
Employee's beneficiary or estate receives any proceeds from any life insurance
policies paid for by the Company, the payments of annual base salary and bonuses
shall be reduced by the amount of such proceeds from such life insurance
policies.

               C. DISABILITY. If Employee becomes Disabled during the term of
employment or during the Consulting Period, the Company, at its option, may
thereafter, upon written notice to Employee or Employee's personal
representative, terminate the employment or Consulting Agreement. Employee shall
thereafter be eligible to receive disability benefits under the Company's
standard employee disability insurance policy like any other employee.

               D. VOLUNTARY OR INVOLUNTARY TERMINATION. Upon a Voluntary or
Involuntary Termination as defined herein, Employee shall continue to render his
services to the Company, if and to the extent required by the Company, up to the
date of such Voluntary or Involuntary Termination as referenced in the written
notice of termination submitted to Employee by the Company, or vice versa, and
shall be paid (i) the unpaid amount of the

                                       5
<PAGE>   6

then applicable annual base salary up to the date of such Voluntary or
Involuntary Termination, (ii) any bonuses which the Company's Board of Directors
may determine, in its sole discretion, to be due and payable to Employee, (iii)
any unpaid Stay Bonuses which are due and payable under the terms of the Stay
Bonus Agreement, and (iv) the Severance Amount as defined herein. In the event
of a Voluntary Termination, as a condition to Employee's receipt of the
foregoing payments to Employee, during the time between the submission of a
notice of termination by Employee and the effective date of termination set
forth in such notice, Employee shall continue to diligently provide the Company
with such services as the Company may request. In the event of an Involuntary
Termination, all unvested stock options and stock appreciation rights that have
previously been granted to Employee will fully vest and remain exercisable for a
period of time equal to the later of one (1) year after such termination or the
end of the Consulting Period.

               E. DEFINITIONS. All the terms defined in this Section shall have
the meanings given below throughout this Agreement.

                  1. "CHANGE IN DUTIES, COMPENSATION, OR BENEFITS" shall mean
any one or more of the following:

                     a. a significant and detrimental change in the nature or
scope of Employee's authority, responsibilities or duties from those currently
applicable to him;

                     b. a reduction in Employee's annual base salary from that
currently provided to him;

                     c. a diminution in Employee's eligibility to participate in
bonus, stock option, incentive award or any other compensation plan which
provides opportunities to receive compensation from those currently applicable
to him, except for: (i) changes in the eligibility requirements for plans that
are applicable to employees generally; (ii) changes in plans that are applicable
to all executives and result in a diminution of Employee's benefits under such
plan that is fair and proportional as compared to the diminution of benefits for
all executives; and (iii) changes that are required by applicable law;

                     d. a material diminution in employee benefits (including
but not limited to medical, dental or life insurance and long-term disability
plans) and perquisites currently applicable to Employee, except for: (i) changes
in the eligibility requirements for benefits that are applicable to employees
generally; (ii) changes in benefits and perquisites that are applicable to all
executives and result in a diminution of Employee's benefits that is fair and
proportional as compared to the diminution for all executives; and (iii) changes
that are required by applicable law;

                     e. a change in the location of Employee's principal place
of employment by the Company (including its subsidiaries) by more than
twenty-five (25) miles from the location where he was principally employed
immediately prior to the date on which a Change of Control occurs; or

                                       6
<PAGE>   7

                     f. a reasonable determination by a majority of those
persons comprising the Board of Directors of the Company prior to a Change of
Control (even if such determination is made after such Change of Control) that,
as a result of a Change of Control and a change in circumstances thereafter
significantly affecting his position, Employee is unable to exercise the
functions or duties attached to his position immediately prior to the date on
which a Change of Control occurs.

                  2. "CHANGE OF CONTROL" shall be deemed to have occurred if:

                     a. any "person," including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities;

                     b. as a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company;

                     c. the Company is merged or consolidated with another
corporation or entity and, as a result of the merger or consolidation, less than
80% of the outstanding voting securities of the surviving corporation or entity
is then owned in the aggregate by the former stockholders of the Company;

                     d. a tender offer or exchange offer is made and consummated
for the ownership of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities; or

                     e. the Company transfers all or substantially all of its
assets to another corporation which is not a wholly-owned subsidiary of the
Company.

                  3. "DISABLED" OR "DISABILITY" shall mean mental or physical
illness or condition rendering Employee incapable of performing any portion of
Employee's normal duties with the Company even after the Company's reasonable
accommodation of any such disability in accordance with the Americans with
Disabilities Act and the Colorado Nondiscrimination statute.

                  4. "INVOLUNTARY TERMINATION" shall mean any termination
except:

                     a. VOLUNTARY TERMINATION;

                     b. termination by mutual agreement;

                     c. termination as a result of death; or

                     d. Employee's voluntary retirement from employment or
mandatory retirement from employment pursuant to a retirement plan to which
Employee was subject prior to any Change of Control. ("Retirement").

                                       7
<PAGE>   8

                  5. "SEVERANCE AMOUNT" is equal to:

                     a. in the case of an Involuntary or Voluntary Termination
or Retirement after March 31, 2001, one-half of Employee's annual base salary,
notwithstanding that the Employee may provide post-termination consulting
services to the Company pursuant to Section XI hereof; provided, however, the
Employee (i) has given proper notice as defined herein. In the case of a
Involuntary or Voluntary Termination prior to March 31, 2001, other than an
Involuntary Termination following a Change of Control, the Severance Amount is
payable only upon providing such notice in accordance with the following vesting
schedule:

<TABLE>
<CAPTION>
 Termination Date            Severance Amount
 ----------------            ----------------
<S>                          <C>
October 31, 2000             One-eighth of Employee's annual base salary (45.5
                             calendar days)

November 30, 2000            One-sixth of Employee's annual base salary (60.6
                             calendar days)

December 31, 2000            One-fourth of Employee's annual base salary (91
                             calendar days)

January 31, 2001             One-third of Employee's annual base salary (121.3
                             calendar days)

February 28, 2001            Five-twelfths of Employee's annual base salary
                             (151.6 calendar days)

March 31, 2001               One-half of Employee's annual base salary (182
                             calendar days)
</TABLE>

                     b. In the case of a Voluntary Termination or an Involuntary
Termination resulting from a Change in Duties, Compensation or Benefits,
Employee must give the Company proper notice of such Termination in order to
receive the Severance Amount. For purposes hereof, proper notice is defined as
written notice received by the Company not less than thirty (30) days prior to
the date of termination of employment.

                     c. In the case of an Involuntary Termination by the
Company, the Company must give Employee not less than sixty (60) days prior
written notice of such termination.

                     d. In the case of an Involuntary or Voluntary Termination
or Retirement, the Severance Amount as set forth in subparagraph (a) is payable
on regular bi-weekly payroll dates commencing immediately after Employee's last
regular pay period, at the bi-weekly rate and amount in which Employee was paid
on his last day of regular employment until fully paid.

                     e. notwithstanding the above, in the event an Involuntary
Termination follows a Change of Control, the Severance Amount shall be doubled
and shall be fully vested and payable in a lump sum no later than ten (10) days
following the date of termination.

                                       8
<PAGE>   9

                     f. Notwithstanding any other provision of this Agreement,
in the event that the Employee is found to have violated the non-compete
provisions of Section VII of this Agreement by a court of competent jurisdiction
("Breach"), all Severance Amounts due and owing under this Agreement shall be
terminated upon the effective date of the Breach and the Employee shall
reimburse the Company any portion of the Severance Amount previously paid to
Employee.

               6.    "VOLUNTARY TERMINATION" shall mean any termination which
results from a resignation by the Employee other than a resignation following a
Change in Duties, Compensation, or Benefits as defined herein.

               7.    "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without the
occurrence of any pre-condition or contingency other than the passage of time.

               8.    "BENEFICIALLY OWNED" shall mean beneficial ownership by the
Employee, the Employee's spouse, or a trust or similar arrangement established
by or for the benefit of the Employee, the Employee's spouse, or the Employee's
minor children as well as the meaning of such term under Section 13 or Section
16 of the Securities Exchange Act.

               9.    "FAIR MARKET VALUE" shall mean (a) if there is an
established market for the Company's common stock, the average of the mean of
the highest and lowest quoted selling prices on each trading day for the ninety
(90) day period preceding the day of the event triggering an obligation for the
Company to purchase the shares of stock Beneficially Owned by the Employee; or
(b) if there is no established market for the Company's stock during such ninety
(90) day period, then the average over that ninety (90) day period of the value
determined in accordance with Treasury Reg. Section 10.2031-2 or successor
regulations.

            F. SECTION 280G PAYMENT. In the event that the Severance Amount
payments under this Agreement are determined by an independent accounting firm
retained by Employee (but paid for by the Company) to constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, (the "Code") and any regulations thereunder, the
Company agrees to increase the Severance Amount by the amount necessary to put
the Employee in the position he would be in if Code Sections 280G and 4999 or
any successor provisions to the Code which are designed to limit or restrict
such "excess parachute payments" did not exist.

            G. MEDICAL AND DENTAL BENEFITS. If Employee's employment by the
Company or any subsidiary or successor of the Company is terminated because of
Disability, Retirement, Voluntary Termination, or Involuntary Termination, then
to the extent that Employee or any of Employee's dependents may be covered under
the terms of any medical and dental plans of the Company (or any subsidiary)
immediately prior to the termination, the Company will provide Employee and
those dependents with the same or equivalent coverages until one year after any
such termination of employment. The Company may, at its election, procure such
coverages

                                       9
<PAGE>   10

apart from, and outside of the terms of, the plans applicable to other
employees. The Company's obligation to provide such coverages will be limited by
the requirement that Employee and Employee's dependents comply with all of the
conditions of the medical or dental plans applicable to employees generally and
the Company is under no obligation to obtain special coverages for Employee
which would not be covered by the plans applicable to employees generally. In
consideration for these benefits, Employee must make contributions equal to
those required from time to time from other employees for equivalent coverages
under the medical or dental plans.

        IX. LIFE INSURANCE.

            A. GROUP LIFE INSURANCE. The Company shall provide Employee with
personal life insurance under the Company's group life insurance policy as in
effect from time to time. In addition, the Company will procure, or reimburse
Employee for the cost of, $200,000 in term life insurance on Employee's life
payable to a beneficiary chosen by Employee.

            B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase
by the Company, at the Company's option, of one or more Key Man life insurance
policies on Employee's life naming the Company or its designee as beneficiary
(the "Key Man Policies"); provided, however, that the Company shall not be
required to obtain such insurance. Employee agrees that he shall taken any
reasonable actions which may be requested by the Company, and otherwise fully
cooperate with the Company, in its efforts to purchase and maintain the Key Man
Policies. The Key Man Policies will be owned by the Company and the proceeds
made payable to the Company or its designee. If purchased by the Company, the
Key Man Policies shall be for the purpose of providing funds necessary to obtain
a replacement for Employee and for any other reasonable business purpose as may
be determined by the Company in amounts sufficient to accomplish their intended
purposes.

        X. DIRECTORS AND OFFICER INSURANCE. The Company shall maintain and keep
in force directors and officers liability insurance coverage on all directors
and officers in such an amount as the Company deems reasonable and necessary
under the circumstances but in no event less than $7.5 million of aggregate
coverage.

        XI. POST-TERMINATION CONSULTING. In the event of Employee's Involuntary
or Voluntary Termination or Retirement, the Company hereby agrees to engage
Employee as a consultant to the Company for a period of up to five years (the
"Consulting Period"), in exchange for an annual salary of $1.00 per year. While
the Consulting Period will only begin after termination of employment under this
Agreement, Employee shall nevertheless continue to be an "employee" of the
Company during the Consulting Period for purposes of the Company's Tandem Stock
Option and Stock Appreciation Rights Plan and Stock Bonus Plan, although the
scope of Employee's services and responsibilities shall be diminished in such
manner and amounts as may be agreed upon by the Company and Employee. Employee
shall have the right to decline to provide any consulting services after an
Involuntary Termination, Voluntary Termination or Retirement. If Employee does
elect to provide consulting services, Employee may determine to cease providing
such services to the Company at any time by giving at least fifteen (15) days
prior written notice of such

                                       10
<PAGE>   11

determination to the Company. The Company agrees to engage Employee to provide
the consulting services for a period of not less than two (2) years after a
Voluntary Termination or Retirement, but the Company may terminate such
engagement at any time thereafter for good cause. For purposes hereof, "good
cause" shall mean misappropriation of Company funds or property, conviction of a
crime involving dishonesty or moral turpitude, or willful disregard of any
directive of the Company's Board of Directors. Notwithstanding the above, in the
event that Employee violates any of the provisions of Section VII hereof during
the term of such engagement, the Company may consider such violation as grounds
for terminating the Consulting Agreement immediately without prior notice.

         XII. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and delivered in person or sent by
registered or certified mail to Employee's residence in the case of Employee or
to its principal office in the case of the Company.

         XIII. WAIVER. The waiver of any provision of this Agreement shall not
operate or be construed as a waiver of any other provision of this Agreement. No
waiver shall be valid unless in writing and executed by the party to be charged
therewith.

         XIV. SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the extent
necessary, and, as severed and/or modified, this Agreement shall remain in full
force and effect.

         XV. ASSIGNMENT. Except for a transfer by will or by the laws of descent
or distribution, Employee's right to receive payments or benefits under this
Agreement shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise. In the event of any attempted assignment or
transfer contrary to this paragraph, the Company shall have no liability to pay
any amount so attempted to be assigned or transferred. Employee acknowledges
that the services to be rendered under this Agreement are unique and personal.
Accordingly, Employee may not assign such duties or obligations under this
Agreement.

         XVI. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or other
disposition of all or substantially all of its assets unless either (i) the
person or entity acquiring the assets or a substantial portion of the assets
shall expressly assume by an instrument in writing all duties and obligations of
the Company under this Agreement or (ii) the Company shall provide, through the
establishment of a separate reserve or otherwise, for the payment in full of all
amounts which are or may reasonably be expected to become payable to Employee
under this Agreement.

         XVII. ENTIRE AGREEMENT. This Agreement incorporates by reference the
Stay Bonus Agreement dated September 20, 2000 and, together with such agreement,
constitutes the entire agreement concerning the employment arrangement between
the parties and shall, as of the effective date hereof, supersede all other such
agreements between the parties, including but not limited to the Executive
Employment Agreement dated January 1,

                                       11
<PAGE>   12

1997, and the Nondisclosure and Noncompete Agreement dated May 31, 1994,
provided, however, that nothing in this Agreement shall prevent the Company from
granting additional or special compensation or benefits to Employee after the
date of execution of this Agreement. This Agreement may not be amended except by
an agreement in writing signed by both parties.

         XVIII. GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of Colorado.
The courts of the State of Colorado shall have sole jurisdiction and venue over
all controversies which may arise with respect to this Agreement.

         XIX. TIME. In comparing any period of time prescribed or allowed by
this Agreement, the day of the act, event or default from which the designated
period of time begins to run shall not be included. Time accounting shall begin
upon midnight of the following calendar day. All periods of time shall be
assumed to be specified in calendar days unless otherwise noted. In the case of
fractional days of time, the appropriate equivalent hours can be calculated and
accounted for against midnight of the calendar day in which the period of time
started. For purposes of calculating the duration of the covenant not to compete
the time period of such covenant shall be extended by one day for each day that
Employee competes with Company in violation of such covenant.

         XX. COLORADO WAGE ACT. The Company and Employee agree that the
Severance Amount, if any, payable under this Agreement shall be considered
"wages" for purposes of the Colorado Wage Act, C.R.S. Section 8-4-101 et seq.

         IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year indicated below.

                                   THE COMPANY:

                                   VARI-L COMPANY, INC.

                                   By: /s/ G. Peter Pappas
                                       G. Peter Pappas, Chief Executive Officer

                                   EMPLOYEE:

                                   /s/ Derek L. Bailey
                                   Derek L. Bailey

                                       12

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