Document:

Exhibit 10.1

 

LIVESTOCK
PRODUCTS AGREEMENT

 

This Agreement effective as
of January 1, 2006 is made by and between Pfizer Inc.,
812 Springdale Drive, Exton, PA 19341 (“Pfizer”) and MWI
Veterinary Supply Co., 2201 North 20th Street, Nampa, ID
83687 (“MWI”).

 

WHEREAS, MWI is in the business of buying and selling
animal health products and servicing customers for those products, and

 

WHEREAS MWI and Pfizer wish to set forth the terms of
their relationship related to the purchase and supply of such products,

 

NOW, THEREFORE, in consideration of the promises and
covenants contained herein, the parties hereby agree as follows:

 

1.            (a)
Pfizer will continue to promote its products to certain select customers in the
livestock field.  The parties agree that
each time a customer from the list of customers approved by Pfizer enters into
an annual volume agreement with Pfizer (such customers referred to as “PARTICIPATING
CUSTOMERS”) and selects MWI as their supplier and to service that customers
account, Pfizer shall send to MWI Pfizer Suggested Price List which shall
specify the Pfizer cattle, dairy and multi-species products (listed on Schedule
A hereto) and suggested resale prices which are the subject of an agreement
between Pfizer and such PARTICIPATING CUSTOMERS (hereafter a “SUGGESTED PRICE
LIST”).  Each such SUGGESTED PRICE LIST
shall be incorporated into and become part of this Agreement.

 

(b) Certain SELECT SWINE
PRODUCERS (as listed on Schedule B), who are not PARTICIPATING CUSTOMERS may
purchase any of the Pfizer SWINE PRODUCTS (as listed on Schedule C hereto) from
MWI.  MWI will not be eligible for
payment of the RSA under paragraph 5 (a) hereof for such sales.  Pfizer will pay MWI, on a monthly basis, five
percent (5%) of MWI’s sales out of SWINE PRODUCTS to SELECT SWINE PRODUCERS as
a logistics fee. Final pricing to such SELECT SWINE PRODUCERS of SWINE PRODUCTS
and any other fees, charges, rebates or credits between MWI and a SELECT SWINE
PRODUCER shall be agreed between MWI and the producer.  In the event MWI’s negotiated price to the
SELECT SWINE PRODUCER is less than MWI’s cost from Pfizer for the SWINE
PRODUCTS involved, Pfizer will reimburse MWI for the difference in price up to
a maximum amount equal to the difference between MWI’s cost from Pfizer for
such products and the Pfizer Suggested Resale Price for such products for the
specific account.  No sales by MWI to
SELECT SWINE PRODUCERS of SWINE PRODUCTS shall count towards MWI’s achievement
of any quarterly or year end rebates or incentives provided for in Schedule D
hereto.  Pfizer shall not be obligated to
pay MWI either an RSA payment or the 5% logistics fee provided for in this
paragraph for sales of any Pfizer product, including SWINE PRODUCTS made
directly by Pfizer to SELECT SWINE PRODUCERS and such sales shall not count
towards MWI’s achievement of any quarterly or year end rebates or incentives
provided for in Schedule D hereto.

 

(c) Certain SELECT SWINE
VETERINARIANS (as listed on Schedule E), who are not PARTICIPATING CUSTOMERS
may purchase any of the Pfizer SWINE PRODUCTS (as listed on Schedule C hereto)
from MWI.  MWI will not be eligible for
payment of the RSA under paragraph 5 (a) hereof for such sales.  Pfizer will pay MWI, on a monthly basis, (i)
five percent (5%) of MWI’s sales out of all SWINE PRODUCTS which are listed on
Schedule C that are swine only products and, (ii) nine percent (9%) of MWI’s
sales out of ExcedeTM and those SWINE PRODUCTS listed on Schedule C that are
multi-species products to SELECT SWINE VETERINARIANS as a logistics fee.  Final pricing to such SELECT SWINE
VETERINARIANS of SWINE PRODUCTS and any other fees, charges, rebates or credits
between MWI and a SELECT SWINE VETERINARIAN shall be agreed between MWI and the
producer.  In the event MWI’s negotiated
price to the SELECT SWINE VETERINARIAN is less than MWI’s cost from Pfizer for
the SWINE PRODUCTS involved, Pfizer will reimburse MWI for the difference in
price up to a maximum amount equal to the difference between MWI’s cost from
Pfizer for such products and the Pfizer Suggested Resale Price for such
products for the specific account.  No
sales by MWI to SELECT SWINE VETERINARIANS of SWINE PRODUCTS shall count
towards MWI’s achievement of any quarterly or year end rebates or incentives
provided for in Schedule D hereto.  Pfizer
shall not be obligated

 

 

to pay MWI either an RSA payment or the 5% logistics
fee provided for in this paragraph for sales of any Pfizer product, including
SWINE PRODUCTS made directly by Pfizer to SELECT SWINE VETERINARIANS and such
sales shall not count towards MWI’s achievement of any quarterly or year end
rebates or incentives provided for in Schedule D hereto.

 

(d)  MWI shall not be entitled to receive the 5% logistics fee
payment provided for in paragraphs 1 (b) and (c) above for sales of any Pfizer
product to PARTICIPATING CUSTOMERS.

 

(e)  Other than as provided for specifically in paragraphs 1
(b) and (c), sales by MWI of any SWINE BIOLOGICAL PRODUCTS to any customer or
PARTICIPATING CUSTOMER are not eligible for any payment from Pfizer to MWI
under any circumstances.  All sales by
MWI of SWINE BIOLOGICAL PRODUCTS shall be on a buy/sell basis and all terms and
conditions are to be negotiated between MWI and its customers.  MWI shall not be entitled to payment of any
RSA payments under paragraph 5 (a) for any sales of SWINE BIOLOGICAL PRODUCTS.

 

(f)  Pfizer
reserves the right to add or delete producers and/or veterinarians from Schedules
B and E at any time in Pfizer’s sole discretion.  Pfizer will provide notice to MWI of any changes.

 

2.             (a)
MWI agrees to purchase from Pfizer, at credit terms agreed to between the
parties and as may be further set forth on Pfizer’s invoices, products
sufficient to fulfill demand from all customers to whom MWI will sell products
in the quantities desired by the customers.  MWI agrees to make purchases from Pfizer in
accordance with the timing set forth in Appendix I hereto.

 

(b)  MWI agrees to maintain inventory equal to thirty (30)
days Demand. For purposes of this Agreement “Demand” shall mean 12 running
months of sales out by MWI divided by 365 times 30.

 

(c)  MWI agrees that all sales of Pfizer cattle, dairy and
multi-species products from MWI to a PARTICIPATING CUSTOMER shall reflect the
specific prices for each product provided for in that PARTICIPATING CUSTOMERS
most recent SUGGESTED PRICE LIST. In the event that the price listed on a
PARTICIPATING CUSTOMERS most recent SUGGESTED PRICE LIST for any particular
product is lower (at the time of consummation of a sale of such particular
products between MWI and that PARTICIPATING CUSTOMER) than the price paid by
MWI to Pfizer for such product, Pfizer agrees to credit MWI’s account for the
amount of such difference. MWI agrees to pay Pfizer for its products on a
timely basis.

 

3.             Nothing herein contained shall
create or be deemed to create any relationship between the parties other than
as specifically provided for herein. No employment, partnership, specific or
general agency relationship shall exist unless specifically provided for in
writing between the parties. MWI shall not represent, directly or indirectly,
expressly or by implication, that any such relationships exist and/or that MWI
has any authority except as set forth in this Agreement.

 

4.             MWI shall use its best efforts to
provide appropriate service to the customers to whom MWI will sell hereunder.
MWI shall:

 

(a)  Store its inventory of Pfizer products under conditions
(including refrigeration where appropriate) that will ensure that such products
retain their potency, purity, quality, and identity;

 

(b)  Provide to Pfizer your Health Industry Number, Customer
Health Industry Number, Pfizer product number, transaction date, number of
units and price with respect to each sale of product on a monthly basis, in
such amounts and format as Pfizer may require, by means of EDI. This
information should be sent to Pfizer at 812 Springdale Drive, Exton, PA 19341,
Attn. Sales Support Department. At year end all available data should be
reported to Covansys by December 22, 2006;

 

(c)  Establish any service fee or other charge or discount to
any customer including PARTICIPATING CUSTOMERS for Pfizer products
independently and at its sole discretion;

 

(d)  Provide regularly scheduled delivery service to its
customers, use its best efforts to anticipate its customers’ requirements for
Pfizer products, and maintain adequate stocks of Pfizer products to meet its
customers’ demands. In the event Pfizer delivers any product order to a

 

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PARTICIPATING CUSTOMERS (drop ships) no consideration
shall be payable to MWI for that order under paragraph 5 below;

 

(e)  MWI agrees that credit limits established by Pfizer shall
be subject to change by Pfizer in its sole discretion and that no shipments
will be made to MWI in excess of the established credit limits;

 

(f)  Invoice
customers in an accurate and timely manner;

 

(g)  Refer to that PARTICIPATING CUSTOMERS SUGGESTED PRICE
LIST on each invoice for Pfizer cattle, dairy and multi-species products;

 

(h)  Take no
action, whether or not identified above, that would harm the goodwill or name
of Pfizer, or damage the interests of Pfizer or the Pfizer products.

 

(I)  Make payment to Pfizer for all
products purchased from Pfizer net 60 days.

 

(j)  Provide to
Pfizer by the close of business on the last business day of each Pfizer
Accounting Period (as set forth in Schedule F hereto) an inventory report
covering all inventory purchased from Pfizer and setting forth in dollars at
MWI’s acquisition cost from Pfizer the amount of inventory by species. MWI
agrees that Pfizer shall have the right to audit inventory in the possession of
MWI to confirm compliance with this paragraph 4 (j) and to confirm the accuracy
of the data contained in the report;

 

(k)  MWI and PFIZER
agree that MWI shall not be entitled to any payment or rebates under Schedule D
for sales to customers at the close of any fiscal or calendar quarter or at the
end of any fiscal or calendar year that do not comply with Pfizer’s Revenue
Recognition Guidelines for reporting of sales and income in appropriate fiscal
periods. All determinations of the appropriateness of sales by MWI shall be in
Pfizer’s discretion.

 

In
addition to the obligations set forth above related to PARTICIPATING CUSTOMERS,
MWI agrees as to all customers to undertake with Pfizer those efforts set forth
in Appendix II hereto.

 

5.             In consideration of MWI undertaking the
obligations set forth herein related to PARTICIPATING CUSTOMERS, Pfizer agrees
to pay to MWI the following service fees on sales to PARTICIPATING CUSTOMERS;

 

(a)  a Revenue Sharing Allowance (RSA) paid at a rate of (i)
9% on sales out for cattle, dairy and multi-species products to identified
PARTICIPATING CUSTOMERS who are producers, (ii) a Revenue Sharing Allowance
(RSA) paid at a rate of 9% on sales out for cattle, dairy and multi-species
products to identified PARTICIPATING CUSTOMERS who are veterinarians or dealers
and who take possession of the Products which are the subject of the sale for
which the RSA is to be paid, (iii) a Revenue Sharing Allowance (RSA) paid at a
rate of 5% on sales out for cattle, dairy and multi-species products to
identified PARTICIPATING CUSTOMERS who are veterinarians or dealers and who DO
NOT take possession of the Products which are the subject of the sale for which
the RSA is to be paid. The RSA is calculated on a product by product basis and
based on the product price contained in the SUGGESTED PRICE LIST. The RSA is contingent
on MWI fulfilling all conditions outlined in paragraph 4 of this Agreement.  The payments made pursuant to this paragraph 5
(a) are not payable for sales to anyone other than PARTICIPATING CUSTOMERS. The
RSA is net of any difference between MWI’s purchase price and the SUGGESTED
PRICE LIST price. Pfizer shall pay MWI a 4% RSA on MWI’s sales out to 2nd
tier distributors (which are listed on Schedule G) of (i) cattle, dairy and
multi-species products (which are listed on Schedule A) and (ii) the
non-biological products listed on Schedule C. MWI shall not receive any payment
RSA payment on sales of biological products listed on Schedule C. MWI shall not
be entitled to any payment of any RSA under this paragraph 5 for sales of SWINE
PRODUCTS to any SELECT SWINE PRODUCER or SELECT SWINE VETERINARIAN.

 

(b)  the rebates provided for on Schedule D, provided,
however, that sales to other distributors do not count towards the calculation
of sales to determine appropriate rebate level. In the event that one Agreement
holder acquires or combines with another Agreement holder, the purchase
objectives will be adjusted accordingly for the purpose of determining
incentives earned. Any sales out by MWI during calendar year 2006 reported
after that will count towards 2007 incentives, in addition, MWI can earn the
CMP provided for in Schedule H.

 

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(c)  Pfizer shall have the right to audit shipping records of
MWI to confirm delivery to products to veterinarians, dealers or producers in
order to assure proper logistics fee payments under paragraph 1 and proper RSA
payments under paragraph 5 (a) above. Any material misrepresentations by MWI
related to paragraphs 1, 5 (a) (ii) or (iii) above and the party actually taking
possession of the products shall void any payments due under paragraphs 1 and 5
(b) above. In addition, MWI recognizes that the AVA program is designed as an
effective go to market approach to selling for the benefit of veterinarians who
add value in the transaction and for producers. Blatant abuse of the intended
structure of AVA (including, but not limited to, falsification of EDI data or
establishing false business entities or inserting other business entities that
add no commercial value to end users purely to obtain additional RSA payments)
will subject MWI to potential forfeiture of all or a portion of the year end
rebate provided for in Schedule D at the sole discretion of PFIZER.

 

(d)  The parties agree that MWI will provide to Pfizer on
request and within 48 hours proof of delivery on any suspicious (as determined
by Pfizer) EDI transaction. MWI agrees that Pfizer shall be entitled to audit,
either directly or through external auditors hired by Pfizer and upon reasonable
notice by Pfizer, MWI’s books and records for the purpose of determining the
accuracy of EDI data for Pfizer Product sales only communicated to Pfizer
through Covansys.

 

(e)  The parties agree that Pfizer will no longer
automatically credit MWI for returns of Products not sold in the calendar year
in which they are returned. Prior to issuing any appropriate credit Pfizer
shall be entitled to conduct a detailed manual review of sales data.

 

(f)  The parties
agree that Pfizer shall not be obligated to issue credits for any returns that exceed
the current average of select distributors as calculated by Pfizer unless such
returns are the subject of a recall or made at the request of Pfizer.

 

6.             Sales of Pfizer products to any
party other than a SELECT SWINE PRODUCER, SELECT SWINE VETERINARIAN or a
PARTICIPATING CUSTOMER for whom a SUGGESTED PRICE LIST has been incorporated
into this Agreement are not covered by this Agreement. Any transaction
involving cattle, dairy or multi-species products with any customer including a
PARTICIPATING CUSTOMER for which MWI has not been selected by that
PARTICIPATING CUSTOMER as the distributor are not covered by this Agreement

 

7.             MWI shall not be provided with any
rebate, discount or other compensation for products handled under this Agreement,
including any rebate, discount or compensation which would otherwise be due
under Pfizer’s spring, fall or other similar program. All sales by Pfizer to
MWI shall be at the then current Pfizer list price but subject to appropriate
credits in accordance with paragraph 2 (c). Pfizer shall have the right to
raise or change the price of any or all Products to MWI on 15 days notice.
Pfizer shall be free to limit sales of any or all Products to MWI in advance of
any price increase.

 

8.             The RSA payable hereunder on sales
from the SUGGESTED PRICE LIST, to PARTICIPATING CUSTOMERS and the logistics fee
shall be net of returns and constitute full and complete compensation for MWI
providing the EDI data and upholding the reputation of Pfizer in carrying out
the service of PARTICIPATING CUSTOMERS.

 

4

 

9.             Pfizer may terminate this Agreement
at any time on fifteen (15) days notice in the event MWI takes any action that
harms the good will of Pfizer. All returns shall be approved by Pfizer and
subject to Pfizer’s Returned Goods Policy. MWI may not offset payment to Pfizer
of invoice amounts as credit for the fee payable hereunder. Pfizer shall make
monthly payment of appropriate fees to MWI.

 

10.           MWI and Pfizer agree that, under the
specific circumstances delineated herein, Pfizer, at Pfizer’s sole discretion,
may recoup the sums outstanding to it from MWI against those sums which may become
due from Pfizer to MWI, in that the obligations arise from mutual transactions.

 

A.           The
specific circumstances which will enable Pfizer to initiate recoupment are:

 

i.             MWI
becomes insolvent which shall be defined as:

 

(a)         the sum of MWI’s debts is greater than all of
MWI’s property (“Balance Sheet Test”); or

 

(b)        MWI is generally not paying its debts as they
come due; or

 

(c)         MWI has failed to act in good faith for a
period in excess of six months to resolve any outstanding invoice or purchase
order issues or reconciliations.

 

ii.            MWI
commences a liquidation of its operations by means of a sale of its assets in
their entirety or piecemeal.

 

iii.           MWI
ceases its business operations whether or not such cessation is voluntary or
involuntary.

 

iv.           MWI
files a proceeding pursuant to the U.S. Bankruptcy Code or any state court
proceeding, including an Assignment for the Benefit of Creditors.

 

11.           Nothing in this Agreement shall be
deemed to preclude MWI from negotiating a service fee or any other
consideration from any customer including PARTICIPATING CUSTOMERS for the
services (including those services specified hereunder or any other services
provided by MWI to any customer) provided by MWI.

 

12.           MWI shall distribute Pfizer products
only under the labeling provided by Pfizer; prescribe, recommend, suggest, and
advertise each product for use only under the conditions stated in the labeling
provided by Pfizer; and observe all federal, state, and local laws governing
the distribution of animal drugs.

 

13.           Nothing in this Agreement shall be
deemed to limit Pfizer’s ability to sell any product at any time to any
customer including PARTICIPATING CUSTOMERS or any other party. Transactions consummated
directly between Pfizer and any such customer or other party shall not qualify
for the fee payable under paragraph 5 above.

 

14.           MWI and Pfizer acknowledge that in
the performance of their duties hereunder each may obtain access to “Confidential
Information” (as defined below) of the other. MWI and Pfizer agree that during
the term of this Agreement and for a period of three (3) years after the
termination of this Agreement, unless specifically permitted in writing by the
other party, to (a) retain in confidence and not disclose to any third party
and (b) use only for the purpose of carrying out their duties hereunder, any
such Confidential Information. As used herein the term “Confidential
Information” means any information, or data, whether of a business or
scientific nature and whether in written, oral or tangible form, relating to
Pfizer’s and MWI’s business or potential business or its research and development
activities, not generally available to or known to the public, and not
otherwise known to the receiving party, that is disclosed to or learned by the other
party pursuant hereto. Upon completion of the work provided for hereunder or
other termination of this Agreement each party will return to the other party
any documents, or copies thereof, or any product samples, containing or
constituting Confidential Information disclosed to or generated by either party
in connection with this Agreement.

 

15.           This Agreement shall be effective as
of the date first written above and shall continue in force until December 31,
2006. This Agreement may be terminated by either party upon thirty (30) days prior
written notice. Such termination may be without cause. This Agreement may be
terminated immediately by either party upon written notice in the event of a
material breach by the other.

 

5

 

16.           This Agreement shall governed by the
laws of the State of New York applicable to contracts made and performed
therein. This Agreement is not assignable without the express written consent
of Pfizer, and may be modified or amended only in writing signed by the party
to be bound.

 

17.           This Agreement and documents referred
to herein embody the entire understanding between the parties hereto, will
supersede prior agreements relating to the Products, and may be modified only
in writing and signed by the parties to be bound. No activities conducted
pursuant to this Agreement or related thereto, including but not limited to the
future planning activities of the parties, shall be deemed to give rise to any
obligations on the part of either party other than as expressly provided for
herein.

 

IN WITNESS WHEREOF, intending
to be legally bound, the parties have executed this Agreement.

 

 

	
  MWI
  Veterinary Supply Co.

  	
  Pfizer
  Inc.

  
	
   

  	
   

  
	
  By

  	
     /s/ Mary Pat Thompson

  	
   

  	
  By

  	
     /s/ Robert DiMarzo

  	
   

  
	
   

  	
  Mary Pat Thompson

  	
   

  	
   

  	
  Robert DiMarzo

  
	
   

  	
   

  	
   

  	
   

  	
  President,
  U.S. Operations

  
	
  Title

  	
    VP and CFO

  	
   

  	
   

  	
  Pfizer
  Animal Health

  
	
   

  	
   

  	
   

  	
   

  
	
  Date

  	
    3-23-2006

  	
   

  	
  Date

  	
    3-30-2006

  	
   

  
								

 

6EXHIBIT 10.27

 

[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY
WJ COMMUNICATIONS, INC. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

 

 

WJ
COMMUNICATIONS, INC.

401
RIVER OAKS PARKWAY

SAN
JOSE, CALIFORNIA 95134

 

December 21, 2005

 

Mr. Mark Knoch

 

Re: Employment Agreement

 

Dear Mr. Knoch:

 

This
letter agreement (this “Agreement”) sets forth the terms and conditions of your
employment with WJ Communications, Inc. (the “Company”), effective as of August 8,
2005  (the “Effective Date”).

 

1.                                       Employment
and Services. The Company shall employ you as Vice President of Operations
of the Company, for the period beginning on the Effective Date and ending upon
termination pursuant to Section 4 below (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.                                       Compensation.

 

a.                                       Annual
Base Salary. The Company shall pay you an annual base salary (“Annual Base
Salary”) of Two Hundred Thousand Dollars ($200,000) 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 April 2006. 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.

 

1

 

b.                                      Bonus.
In addition, subject to the immediately subsequent Section, you will be
eligible to receive a bonus, calculated and paid based upon the current plan
(but not to exceed yearly), to be paid as soon as practicable after each plan
period, but not later than one hundred twenty (120) days after the end of each
such plan period. In order to determine the amount of such bonus, the Company
shall determine appropriate business targets and certain individual objectives
for you for each plan period, and your bonus for each such plan period shall be
based upon the extent to which the Company and you attain such targets and
objectives. Your plan period target bonus shall be 60% of your plan period Base
Salary. The determination of appropriate business targets with respect to each
plan period 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 period.
You will be guaranteed $20,000 bonus for the year ending 2005. You will also
received a sign-on bonus of $20,000, less application taxes, upon commencing
employment.

 

c.                                       Notwithstanding
anything herein to the contrary, there shall be deducted or withheld from all
amounts payable to you under this Agreement 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.

 

3.                                       Options.

 

a.                                       Performance-Vested
Restricted Stock. 75,000 Shares of the Restricted Stock shall vest based on
performance (“Performance Shares”) subject to the terms and conditions of the
Plan and the applicable Performance Restricted Stock Agreement (the “Performance
Award”). The Performance Shares shall vest upon ***.

 

b.                                      Options.
You will be granted as of the Effective Date a non-qualified stock option to
purchase 450,000  shares of Common Stock
of the Company, with a per share exercise price equal to the per share fair
market value of the Common Stock of the Company as of the Effective Date (the “Option
Grant”). The Option Grant will be in accordance with WJ Communications, Inc.
2000 Employee Stock Incentive Plan and shall be subject to the terms and
conditions set forth in the attached Executive Time Vesting Stock Option
Agreement (the “Option Agreement”) to be entered into between the Company and
you simultaneously with entering into this Agreement. Any of the foregoing and
the terms and conditions of the Option Agreement to the contrary notwithstanding,
upon the earlier to occur of (A) the termination of your employment within
six (6) months of the occurrence of a Change in Control (as defined in the
Executive Time Vesting Stock Option Agreement), which termination is (i) by
the Company other than for Cause (as defined below), or (ii) by you with
Good Reason (as defined below), you shall be fully vested in any then unvested
shares under the Option Grant (it being understood that there shall not be
accelerated vesting of the shares under the Option Grant upon any other
termination of your employment).

 

8.                                       Benefits.
During the Employment Period, you shall be entitled to participate in the
Company’s fringe benefit plans for its executives, subject to and in accordance
with applicable eligibility requirements, such as group medical, dental and
vision care insurance, executive medical reimbursement, tax preparation,
401(k), employee stock purchase program, 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. In
addition, the Company will reimburse your reasonable out-of-pocket expenses
incurred in connection with the performance of your duties hereunder,
consistent with Company policy. You shall be entitled to take time off in
accordance with the Company’s top management vacation policy.

 

***                           CONFIDENTIAL MATERIAL REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

2

 

9.                                       Termination
and Severance. The Employment Period shall terminate on the first to occur
of (i) thirty (30) 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 thirty (30) day
period if requested, but the Company may terminate your services sooner if
it so elects), (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 provided that the Company does not elect to terminate your
employment sooner if it so elects), (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, 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”).

 

Not withstanding 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 in Control (as defined in the
Option Agreement) within three (3) months prior to any termination by you
for Good Reason or by the Company without Cause. 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 in 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 benefit 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 5 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 group health insurance
benefits under the Company’s benefit plans for one year following the
termination of your employment with the Company so long as such benefit plans
permit such continued participation (or for three years following the
termination of your employment with the Company in the event that the enhanced
Severance Benefits are payable in connection with a Change in Control pursuant
to the third sentence of the first paragraph of this Section 5) (the “Termination
Benefit”).

 

3

 

For
purposes of this Agreement, the following definitions will apply:  (a) “Good Reason” shall mean the
occurrence of 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 (it being understood that your
failure to deliver such notice in a timely manner shall waive your rights to
allege Good Reason):  (i) the
transfer of your principal place of employment to a geographic location more
than 50 miles from the current location of the Company’s principal
headquarters, or (ii) any material breach of this Agreement by the Company
which is not cured or which the Company is not undertaking to cure within
thirty (30) 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 your duties under this Agreement (other than due to Disability)
or any Company policy or your failure to comply with the lawful directions of
the President, CEO or the Board of the Company, in any such case that is not
cured within fifteen (15) days after you have received written notice thereof
from the President, CEO or the Board of the Company, or (v) a willful and
knowing misrepresentation to the President, CEO or 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 Section 1 because of physical, mental or emotional
incapacity, injury, sickness or disease. With regard to the definition of “Disability”
in clause (c) above, 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.

 

10.                                 Confidential
Information. You acknowledge that information obtained by you while
employed by the Company or any affiliate thereof 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 (“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 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 [providing a reasonable time for the Company to seek
a protective order] 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 President, CEO or the
Board of the Company at any time, you shall deliver to the President, CEO or
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.

 

11.                                 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 (other than your personal assistant)
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 materially
participates or has taken material steps toward participating in as of such
conclusion and actually enters such business within twelve (12) months
thereafter, with any person or entity with whom the Company has a current
business relationship or with whom the Company develops such a relationship
during the Employment Period (including without limitation any customers,
vendors or suppliers); provided in each case described

 

4

 

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 7, 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 for the
Company by you during the Employment Period or prior to the date of this
Agreement, 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 (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 funding 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 therefore 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 6 and 7
of this Agreement 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 6 and 7
of this Agreement, 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 and have the right to 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 and obtained for
any breach or threatened breach of Section 6 or Section 7 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.

 

12.                                 Survival.
Any termination of your employment or of this Agreement shall have no effect on
the continuing operation of Sections 5, 6, or 7 for the periods specified
therein.

 

13.                                 Waiver
of Claims. You agree as a condition to your receipt of any Termination
Benefit or Severance Benefit pursuant to paragraph 5 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, and their respective current and
former directors, officers, employers, 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

 

5

 

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 paragraph 5 hereof or of any employee benefit plans as
set forth in paragraph 4 hereof). Notwithstanding anything contained herein to
the contrary, no Termination Benefit or Severance Benefit 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 clams 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).

 

14.                                 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.

 

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. Mark Knoch
 

If to the
Company:                                             WJ
Communications, Inc.

401 River Oaks Parkway

San Jose, CA 95134

Attention: 
Chief Executive Officer

 

Either party may change
the address to which said notices are to be sent or given by written notice of
such change to the other parties in the manner set forth above.

 

15.                                 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.

 

16.                                 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

 

17.                                 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 this Agreement may be waived unless such waiver is in
writing and signed by the party against whom such waiver is sought to be
enforced.

 

18.                                 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,

 

6

 

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.

 

19.                                 Captions.
Titles or captions of Sections and 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.

 

20.                                 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.

 

21.                                 Arbitration.
Any dispute, controversy or claim arising under or in connection with this
Agreement, or the alleged breach hereof, shall be settled exclusively by
private and confidential arbitration conducted by the American Arbitration
Association in accordance with the Rules of the Commercial Panel of the
American Arbitration Association then in effect (and not the Employment Dispute
Resolution Rules). 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 pursuant to any stock option or other equity arrangements between
you and the Company, shall be settled exclusively as provided for by the terms
of the applicable Company plans.

 

22.                                 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.

 

23.                                 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.

 

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/ BRUCE W.
  DIAMOND

  	
   

  
	
   

  	
  Name:

  	
  Bruce W. Diamond

  
	
   

  	
  Title:

  	
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted and agreed to:

  	
   

  	
  /s/ MARK S.
  KNOCH

  	
   

  
	
   

  	
  Name: Mr. Mark Knoch

  

 

7

 

Annex 1

 

REPRESENTATIONS AND WARRANTIES

(In
the event that you receive WJ Communications stock)

 

In
connection with the purchase and sale of WJ Communications Stock hereunder, you
represent and warrant to the Company that:

 

(a)                                  The
WJ Communications Stock to be acquired by you pursuant to this Agreement shall
be acquired for your own account and not with a view to, or intention of,
distribution thereof in violation of the Securities Act, or any applicable
state securities laws, and the WJ Communications Stock shall not be disposed of
in contravention of the Securities Act or any applicable state securities laws.

 

(b)                                 You
are an officer of the Company, are sophisticated in financial matters and are
able to evaluate the risks and benefits of the investment in the WJ
Communications Stock. You are an “accredited investor”, as defined in
Regulation D promulgated under the Securities Act.

 

(c)                                  To
the extent that any of the securities being purchased by you are not subject to
an effective registration statement, you are able to bear the economic risk of
your investment in such WJ Communications Stock for an indefinite period of
time and you understand that such securities cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.

 

(d)                                 You
have had an opportunity to ask questions and receive answers concerning the
terms and conditions of the offering of WJ Communications Stock and have had
full access to such other information concerning the Company as you have
requested. You have reviewed, or have had an opportunity to review, a copy of
the Stockholders’ Agreement.

 

(e)                                  This
Agreement constitutes a legal, valid and binding obligation of yours,
enforceable in accordance with its terms, and the execution, delivery and
performance of this Agreement by you does not and shall not conflict with,
violate or cause a breach of any agreement, contract or instrument to which you
are a party or any judgment, order or decree to which you are subject.

 

(f)                                    You
are not a party to or bound by any employment agreement, noncompete agreement
or confidentiality agreement with any person or entity other than the Company.

 

(g)                                 You
have consulted with independent legal counsel regarding your rights and
obligations under this Agreement and you fully understand the terms and
conditions contained herein. You have obtained advice from persons other than
the Company and its counsel regarding the tax effects of the transaction
contemplated hereby.

 

8

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