Document:

Exhibit 10.1

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED
EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 11th
day of November, 2004 (the “Effective Date”), by and between WJ COMMUNICATIONS,
INC., a Delaware corporation, (the “Company”), and MICHAEL R. FARESE, an
individual (the “Executive”).

 

WHEREAS, the Executive has
in recent years served as President and Chief Executive Officer of the Company
pursuant to an employment agreement dated February 4, 2002 (the “Prior
Agreement”); and

 

WHEREAS, the Company and the
Executive now wish to amend and restate the Prior Agreement, effective as of
the Effective Date, to provide for additional years of service by the Executive
on the terms and conditions set forth herein.

 

NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Employment
and Services.  The Company shall
continue to employ you as President and Chief Executive Officer of the Company
for the period beginning on the Effective Date and ending upon termination
pursuant to paragraph 5 (the “Employment Period”).  During the Employment Period, you shall be
located at the Company’s principal headquarters and you shall render such
services to the Company and its affiliates and subsidiaries as 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.  During the Employment
Period, you agree not to sit on any Boards (or comparable bodies) without the
consent of the Board of Directors, provided you shall be allowed to continue to
sit on such Boards (or comparable bodies) you sit on as of the Effective Date.

 

2.                                       Compensation.

 

a.                                       Annual
Base Salary.  Beginning on the
Effective Date, the Company shall pay you an annual base salary (“Annual Base
Salary”) of $350,000 during the Employment Period, subject to annual review in
each year of the Employment Period thereafter by the Compensation Committee of
the Board of Directors (the “Compensation Committee”) (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).  Your Annual Base Salary may be
increased in years following the first anniversary of the Effective Date at the
sole discretion of the Compensation Committee 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.

 

 

b.                                      Annual
Bonus.  In addition, you will be
eligible to receive an annual bonus to be awarded no later than ninety (90)
days after the end of each fiscal year, to be paid as soon as practicable but
no later than one hundred twenty (120) days after the end of such fiscal
year.  In order to determine the amount
of such bonus, beginning with fiscal year 2005 the Compensation Committee shall
set your annual bonus target opportunity at one hundred percent (100%) of your
Annual Base Salary with fifty percent (50%) based on defined Company Financial
Performance Objectives (“FPO’s”) and fifty percent (50%) based on defined Major
Business Objectives (“MBO’s”).  The
Company shall determine appropriate FPO’s and MBO’s for each fiscal year and
your annual bonus shall be based upon the extent to which the Company attains
such objectives.  The determination of
the appropriate FPO’s and MBO’s with respect to each subsequent fiscal year
shall take place not later than thirty (30) days following the receipt by the
Board of Directors of the Company from the Company’s senior management of the
Company’s operating budget with respect to such fiscal year provided such
determination shall occur no later than ninety (90) days after the beginning of
such fiscal year.  The annual bonus for
the fiscal year ending December 31, 2004 shall be determined in accordance
with the applicable provisions of the Prior Agreement.

 

c.                                       Each
calendar year the Company shall reimburse you up to $7,500 for your documented
estate planning, supplemental life insurance, club dues and tax planning and
related financial matters.

 

d.                                      Notwithstanding
anything herein to the contrary, there shall be deducted or withheld from all
amounts payable to you amounts for all federal, state, city or other taxes
required by applicable law to be so withheld or deducted and any other amounts
authorized for deduction by or required by law.

 

3.                                       Equity
Arrangements.

 

a.                                       Time-Vested
Restricted Stock Units.  Subject to
the conditions set forth in Section 3(e), you will be granted the following
Time-Vested Restricted Stock Units (“Time RSUs”) subject to the terms and
conditions of the Company’s Stock Incentive Plan, as amended, or a newly
adopted plan allowing the issuance of restricted stock units (in either case,
the “Plan”), and the applicable Time RSU Award Agreement (the “Time RSU Award”):  (i) 312,500 Time RSUs to be one hundred
percent (100%) vested as of the date of grant (the “Grant Date”); and (ii)
60,000 Time RSUs to vest ratably on a monthly basis over a thirty-month period
following the Grant Date (e.g., 2,000 Time RSUs shall vest per month).  Each Vested RSU shall be convertible into one
share of the Company’s common stock, subject to the terms and conditions of the
Time RSU Award.

 

b.                                      Performance-Vested
Restricted Stock Units.  Subject to
the conditions set forth in Section 3(e), you will be granted 500,000
Performance-Vested Restricted Stock Units (“Performance RSUs” and, together
with the Time RSUs, the “RSUs”) subject to the terms and conditions of the Plan
and the applicable Performance-

 

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Vested RSU Award Agreement (the “Performance RSU Award”).  Each Performance RSU shall be convertible
into one share of the Company’s common stock, subject to the terms and
conditions of the Performance RSU Award. 
The Performance RSUs will vest as follows:

 

	
  Number of Cumulative

  Performance RSUs Vested

  	
   

  	
  When Average

  Trading Price Equals

  	
   

  
	
  250,000

  	
   

  	
  $

  	
  4.00

  	
   

  
	
  375,000

  	
   

  	
  $

  	
  5.00

  	
   

  
	
  500,000

  	
   

  	
  $

  	
  6.00

  	
   

  

 

“Average Trading Price” shall be defined in the Performance
RSU Award as the minimum Company closing price of its common stock achieved
over any preceding ten (10) consecutive business day period following the Grant
Date, provided that you must be employed as of any vesting date and, except as
otherwise expressly provided herein, if you are terminated for any reason all
unvested RSUs will be forfeited and cancelled.

 

c.                                       Accelerated
Vesting of RSUs.  Notwithstanding
anything herein to the contrary, upon a termination of your employment by the
Company other than for Cause (as defined below) within six (6) months following
a Change in Control (as defined below), any then unvested RSUs shall become
fully vested as of such termination date.

 

d.                                      Conversion
of RSUs.  All vested RSUs shall be
converted into the Company’s common stock upon the occurrence of the first to
occur of the following:  (i) your
retirement in accordance with Company policy; (ii) a termination of your
employment with the Company without Cause or on account of your death or “disability”
(as defined in Section 409A of the 
Internal Revenue Code of 1986, as amended (the “Code”)); (iii) a
termination of your employment other than by the Company for Cause following
the occurrence of a Change in Control; or (iv) the third anniversary of the
Effective Date (each of (i), (ii), (iii) and (iv), a “Conversion Date”); provided
that vested RSUs shall convert following the third anniversary of the Effective
Date only to the extent the income to be included by the Executive on account
of such conversion of RSUs during each tax year, when aggregated with all other
employee remuneration for such tax year, does not constitute non-deductible
employee remuneration under Section 162(m) of the Code; and provided
further that in the event of your separation of service from the Company
within the meaning of Section 409A of the Code, no RSUs shall convert
before the date which is six (6) months after the date of your separation of
service with the Company (or, if earlier, the date of your death) as provided
in Section 409A(a)(2)(B)(i) of the Code. 
In connection with your acquisition of the Company’s common stock upon a
conversion of the RSUs, you represent and

 

3

 

warrant as provided for in Annex 1 hereto.  Upon the occurrence of a Conversion Date, all
then unvested RSUs shall be forfeited and cancelled, subject to the provisions
of Section 3(c) above.

 

e.                                       Conditions
to RSU Grant.  Notwithstanding
anything herein to the contrary, the grant of RSUs and the actual occurrence of
the Grant Date shall be subject to and conditioned upon the satisfaction of the
following:

 

(i)                                     the
timely amendment or adoption of the Plan to allow for the issuance of RSUs in
compliance with the applicable provisions of Section 409A of the Code, and
any regulations issued thereunder;

 

(ii)                                  the
approval of any Plan amendment or adoption by the Company’s shareholders, as
required under the Nasdaq exchange rules applicable to the adoption or
expansion of equity compensation arrangements; and

 

(iii)                               your
consent to the cancellation by the Company of the grant of options to acquire
1.4 million shares of the Company’s common stock made to you in March 2004,
which grant shall be cancelled and terminated effective as of the Grant Date.

 

f.                                         2002
Option Award.  The terms and
conditions of the Executive Time Vesting Stock Option Agreement dated March 4,
2002 shall remain unchanged for the purposes of this Agreement except that the
time period during which vested options can be exercised following a
termination of your employment by the Company without Cause, by you for Good
Reason (as defined below) or because of your death or Disability shall in each
case be eighteen (18) months.

 

4.                                       Benefits.  During the Employment Period, you shall be
entitled to participate in the Company’s fringe benefit plans for its senior
executives, subject to and in accordance with applicable eligibility
requirements, such as 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 senior 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.

 

5.                                       Termination
and Severance.  The Employment Period
shall terminate on the first to occur of (i) ninety (90) days following written
notice by you to the Company of your resignation without Good Reason (it being
understood that you will continue to perform your services hereunder during
such ninety (90) day period if requested, but the Company may terminate your
services sooner if it so elects, without any severance obligations hereunder),
(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

 

4

 

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 one hundred fifty percent (150%) of your Annual
Base Salary as in effect immediately prior to the termination of the Employment
Period, such amount to be paid within sixty (60) days of the date of such
termination (the “Severance Benefit”). 
Notwithstanding the preceding sentence, the Severance Benefit shall be
computed as an amount equal to two hundred ninety-nine percent (299%) of your
Annual Base Salary as in effect immediately prior to the termination of the
Employment Period and shall be paid within sixty (60) days of the date of such
termination solely in a circumstance in which there has occurred a Change in
Control (as defined in the Executive Time Vesting Stock 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 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 reduced 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 paragraph 5 or pursuant to the
terms of employee benefit plans in which you participate pursuant to paragraph
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).

 

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

 

5

 

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 Board, in
any such case that is not cured within fifteen (15) days after you have
received written notice thereof from the Board of the Company, or (v) a willful
and knowing misrepresentation to the Board of the Company that will have a
material adverse effect on the business, prospects or affairs of the Company or
your performance under this Agreement; and (c) “Disability” shall mean that for
a period of three (3) consecutive months or an aggregate of four (4) months in
any twelve (12) month period you are incapable of substantially fulfilling the
duties of your positions as set forth in paragraph 1 because of physical,
mental or emotional incapacity, injury, sickness or disease.  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.

 

6.                                       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 of 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 prior to any such
disclosure), or (iii) to the extent that such information becomes generally
known to and available for use by the public other than as a result of your
acts or omissions to act.  Upon
termination of your employment or at the request of the Board of the Company at
any time, you shall deliver to the Board all documents containing Confidential
Information or relating to the business or affairs of the Company, its
affiliates and subsidiaries that you may then possess or have under your
control.

 

7.                                       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

 

6

 

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

 

b.                                      Scope
of Restriction.  If, at the time of
enforcement of this paragraph 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 prior to the date of this Agreement for
the Company by you, other than Inventions made, created, invented, devised or
developed by you (i) on your own personal time, (ii) without the use of the
Company’s equipment, supplies, facilities and resources and (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

 

7

 

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 hereof are reasonable and necessary to
protect the legitimate interests of the Company, that any breach or threatened
breach of such provisions will result in irreparable injury to the Company and
that the remedy at law for such breach or threatened breach would be
inadequate. Accordingly, in the event of the breach by you of any of the
provisions of Sections 6 and 7 hereof, the Company, in addition and as a
supplement to such other rights and remedies as may exist in its favor, may
apply to any court of law or equity having jurisdiction to enforce this
Agreement, and/or may apply for injunctive relief against any act than would
violate any of the provisions of this Agreement (without being required to post
a bond).  You further agree that
injunctive relief may be sought for any breach or threatened breach of Section 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.

 

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

 

9.                                       Waiver
of Claims.  You agree as a condition
to your receipt of any termination or severance benefits 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 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

 

8

 

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 or severance payments shall be made under this Agreement or
otherwise until such time as you have delivered an executed release of claims
and any applicable revocation periods under state or federal law have
expired.  The Company agrees, as further
consideration for your waiver, to concurrently execute a waiver of unknown
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).

 

10.                                 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.

 

11.                                 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. Michael R. Farese

  
	
   

  	
  5313 Arezzo Way

  
	
   

  	
  San Jose, CA 95138

  
	
   

  	
   

  
	
  If to the Company:

  	
  WJ Communications, Inc.

  
	
   

  	
  401 River Oaks Parkway

  
	
   

  	
  San Jose, CA 95134

  
	
   

  	
  Attention: Chairman

  
	
   

  	
   

  
	
  with a copy to:

  	
  Fox Paine & Company, LLC

  
	
   

  	
  950 Tower Lane

  
	
   

  	
  Suite 1150

  
	
   

  	
  Foster City, CA 94404

  
	
   

  	
  Attention: W. Dexter Paine, III

  

 

12.                                 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.

 

13.                                 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

 

9

 

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 other than by will or the laws of descent and distribution

 

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

 

15.                                 Entire
Agreement.  This Agreement
constitutes the entire Agreement between the parties hereto with respect to the
subject matter contemplated herein and supersedes all prior agreements, whether
written or oral, between the parties, relating to the subject matter hereof,
including the Prior Agreement which shall terminate and end effective as of the
Effective Date.  This Agreement shall not
be modified except in writing executed by all parties hereto.

 

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

 

17.                                 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.

 

18.                                 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.

 

[signatures page:  follows]

 

10

 

IN WITNESS
WHEREOF, the undersigned have duly executed this Agreement, or have caused this
Agreement to be duly executed on their behalf, as of the day and year first
hereinabove set forth.

 

 

	
  WJ COMMUNICATIONS, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ W. DEXTER PAINE, III

  	
   

  
	
   

  
	
  Name:

  	
  W. Dexter Paine, III

  
	
  Title:

  	
  Chairman of the Board

  
	
   

  
	
  /s/ MICHAEL R. FARESE

  	
   

  
	
  MICHAEL R. FARESE

  
	
   

  
	
   

  	
   

  
					

 

11

 

Annex 1

 

REPRESENTATIONS AND WARRANTIES

 

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.EXHIBIT
10.1

 

THIS
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.  THIS PROMISSORY NOTE MAY NOT BE SOLD,
DISTRIBUTED, PLEDGED, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS: (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAW COVERING ANY SUCH TRANSACTION INVOLVING
THIS PROMISSORY NOTE; (B) THE COMPANY (DEFINED BELOW) RECEIVES AN OPINION OF
LEGAL COUNSEL FOR THE HOLDER OF THIS PROMISSORY NOTE STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH OPINION IS IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY; OR (C) PURSUANT TO RULE 144
UNDER SUCH ACT.

 

VENDINGDATA CORPORATION

9% NOTE DUE AUGUST 15, 2007

 

	
  $                           

  	
   

  	
  August    , 2004

  

 

For Value Received, the undersigned VendingData Corporation, a
Nevada corporation (“Obligor”), hereby promises to pay to the order of                   
or (his/her/its) registered assigns (“Holder”) on August 15, 2007 (the “Payment
Date”), the principal sum of                   
Dollars ($           )
and to pay interest on the unpaid principal balance hereof from the date hereof
at a rate of 9% per annum, payable
semi-annually, in arrears, on June 1 and December 1, until this Note
is paid off and satisfied in full. 
Interest shall be calculated on the basis of a 365/366-day year and
actual days elapsed.  Accrued but unpaid
interest shall not be compounded.

 

The outstanding principal balance under this
Note and all accrued and unpaid interest shall be due and payable in a single
balloon payment on the Payment Date.  At
its discretion, Obligor may, at any time, redeem the Note prior to the Payment
Date (“Pre-Payment”).  If a Pre-Payment
occurs on or prior to August 15, 2005, the unpaid principal balance will be
multiplied by one hundred and three percent (103%).  If a Pre-Payment occurs after August 15, 2005
and prior to August 15, 2006, the unpaid principal balance will be multiplied
by one hundred one and five/tenths percent (101.5%).  If a Pre-Payment occurs on or after August
15, 2006, the unpaid principal shall remain at par.

 

This Note is being issued as part of a Unit consisting of a Common
Stock Purchase Warrant (the “Warrant”) to purchase One Thousand Five Hundred (1,500)
shares of the Obligor’s common stock (“Common Stock”) with an exercise price of
Five Dollars ($5.00) per share for each Twenty-Five Thousand Dollars ($25,000)
of original principal amount of this Note.

 

This Note and the Warrant are not detachable unless and until this Note
is satisfied and paid in full in accordance herewith.  Exercise of certain rights under the Warrant
are expressly subject to certain conditions contained therein and herein.

 

This Note is secured pursuant to the terms of that certain Security
Agreement of even date herewith.  Holder
agrees that all notices, demands, consents and other rights of Holder are to be
exercised pursuant to that certain Security Agreement of even date herewith.

 

This Note and the Warrant are issued as part of a private placement of
up to Ten Million Dollars ($10,000,000) in senior notes and warrants (the “Private
Placement”).  This Note shall be pari passu to all of the Notes issued as
part of the Private Placement.  As long as
at least fifteen percent (15%) of the

 

 

original outstanding principal on the notes issued
under the Private Placement is outstanding, Obligor hereby agrees to not issue
other indebtedness that is senior in rank to this Note, or any note issued
pursuant to the Private Placement, and hereby agrees to not issue more than
Fifteen Million Dollars ($15,000,000) in indebtedness (including that total
resulting from the Private Placement) unless:

 

1.                                       Obligor obtains the prior written consent
from holders of at least two-thirds (2/3rds) of the then outstanding and unpaid
principal on the notes issued under the Private Placement; or

 

2.                                       Obligor agrees to use the proceeds from
any such issuance of indebtedness to repay the then outstanding and unpaid
principal on the notes issued under the Private Placement.

 

In the event any action is taken to collect or enforce this Note,
Obligor agrees to pay, in addition to the principal and interest due and
payable hereon, all reasonable costs of collecting this Note, including
reasonable attorneys’ fees and expenses. These costs shall include any expenses
incurred by Holder in any bankruptcy, reorganization, or other insolvency
proceeding.

 

No delay or omission of Holder in exercising any right or rights, shall
operate as a waiver of such right or any other rights. A waiver on one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.

 

The liability of Obligor under this Note (and the liability of any
endorsers of this Note) shall not be discharged, diminished or in any way
impaired by:  (1) any waiver by Holder or
failure to enforce or exercise rights under any of the terms, covenants or
conditions of this Note; (2) the granting of any renewal, indulgence, extension
of time to Obligor, or any other obligors of the Indebtedness; or (3) the
addition or release of any person or entity primarily or secondarily liable for
the Indebtedness.

 

In no event shall the interest rate charged or received hereunder at any time exceed
the maximum interest rate permitted under applicable law. Payments of interest
received by Holder hereunder which would otherwise cause the interest rate
hereunder to exceed such maximum interest rate shall, to the extent of such
excess, be deemed to be (and be deemed to have been contracted as being)
prepayments of principal and applied as such.

 

Holder may not assign this Note without the
prior written consent of Obligor, which consent may be granted or withheld in
Obligor’s sole discretion.  Any purported
assignment in violation of this provision shall be void.  This Note shall be binding upon the Obligor and its
successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. Every person and entity at any time liable for the
payment of this Note hereby waives demand, presentment, protest, notice of
protest, notice of nonpayment due and all other requirements otherwise
necessary to hold them immediately liable for payment hereunder.

 

This Note is governed by and shall be construed and enforced in
accordance with the laws of the State of Nevada.  Any dispute arising under this Note shall be
brought in any state of federal court of competent jurisdiction sitting in
Clark County, Nevada.

 

Time is of the
essence with respect to all of the terms and provisions of this Note.

 

	
   

  	
  VENDINGDATA CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Steven J. Blad

  President and Chief Executive Officer

  

 

2

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