EXHIBIT 10.35

 

March 18, 2004

 

Mr. Malcolm Thompson

c/o Photon Dynamics, Inc.

5970 Optical Court

San Jose, CA 95138

 

Dear Malcolm:

 

Photon Dynamics, Inc. (the “Company”) is pleased to offer to continue your
consulting engagement with the Company in the position of Executive Chairman of
the Company’s board of directors (the “Board”) in this agreement (the
“Agreement”) on the following terms.

 

1. Consulting Period. You began consulting with the Company on February 1, 2004
and the Company will continue to engage you as a consultant from the date of
this Agreement until December 31, 2004 (the “Consulting Period”), unless the
Consulting Period is extended by you and the Company, or terminated earlier
pursuant to paragraph 9 below. During the Consulting Period, you will make
yourself available to perform consulting services for up to six (6) days per
month as arranged and agreed between you and the Company’s President and CEO.

 

2. Consulting Services. During the Consulting Period, you will provide advice
and services to the Company’s senior management staff with respect to Company
business matters (the “Consulting Services”). The manner and means by which you
choose to perform your work are in your sole discretion and control, although
you agree to exercise the highest degree of professionalism and utilize your
expertise in performing these consulting services.

 

3. Consulting Fees. The Company will pay you as consulting fees a lump sum
amount of $54,000, which will be paid to you within five (5) business days after
you sign and return this Agreement to the Company (the “Initial Payment”). The
Company will pay you as additional consulting fees the amount of $12,000 per
month for consulting services rendered on and after February 1, 2004 (the
“Consulting Payments,” collectively with the Initial Payment, the “Consulting
Fees”) through the end of the Consulting Period. The Company will pay you the
Consulting Payments on a monthly basis. In addition, the Company will reimburse
you for all reasonable, documented business expenses incurred in performing
services under this Agreement. You will invoice the Company for any expenses you
incur in connection with the Consulting Services, and any expense of more than
$1,000 dollars will require prior written approval from the Company’s Chief
Financial Officer.

 

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Mr. Malcolm Thompson

March 18, 2004

Page 2

 

4. Stock Option. Subject to approval of the Board, the Company shall grant you a
nonstatutory stock option to purchase 27,000 shares of the Company’s Common
Stock (the “Option”) pursuant to the Company’s Amended and Restated 1995 Stock
Option Plan (the “1995 Plan”). The exercise price of the Option shall be equal
to the fair market value of the Company’s common stock as of the date of grant,
as determined by the Board. As of the date the Option is granted 4,500 of the
Option shares shall be immediately vested and exercisable. On March 31, 2004,
and on the last day of each month thereafter during the Consulting Period, 2,250
of the Option shares will vest and become exercisable, so that the Option will
be fully vested and exercisable on December 31, 2004 if the Consulting Period
extends through and including such date. You hereby agree that if the Consulting
Period terminates before December 31, 2004, your Option will cease vesting as of
such termination date (the “Termination Date”) and that all unvested shares of
the Option will terminate as of the Termination Date. You further agree that you
may exercise the vested shares of the Option only during the 90-day period
following the Termination Date and you agree that the Option will terminate at
the end of such period. The Option will otherwise be governed by the terms and
conditions of the 1995 Plan and the applicable stock option agreement and grant
notice. In addition, you acknowledge and agree that as Executive Chairman of the
Board, you are an “officer” of the Company as defined in the 1995 Plan and, as
of the date you were elected as an officer, you ceased to be a “Non-Employee
Director” as defined in the 1995 Plan. Further, you acknowledge and agree that
following the Consulting Period, if you resume the status of a “Non-Employee
Director” as defined in the 1995 Plan, you will again be entitled to receive
“Subsequent Grants,” but not an “Initial Grant,” under the 1995 Plan.

 

5. Independent Contractor Relationship. Your relationship with the Company is
that of an independent contractor, and nothing in this Agreement is intended to,
or should be construed to, create a partnership, agency, joint venture or
employment relationship. You will not be entitled to any of the benefits that
the Company may make available to its employees, including, but not limited to,
group health or life insurance, paid time off, paid holidays, or participation
in other employee benefit plans, You are not authorized to make any
representation, contract or commitment on behalf of the Company unless
specifically requested or authorized in writing to do so by the Board. You are
solely responsible for, and will file, on a timely basis, all tax returns and
payments required to be filed with, or made to, any federal, state or local tax
authority with respect to the performance of services and receipt of Consulting
Fees and Termination Payments (if any) under this Agreement. No part of your
compensation will be subject to withholding by the Company for the payment of
any social security, federal, state or any other employee payroll taxes. The
Company will regularly report amounts paid to you by filing Form(s) 1099-MISC
with the Internal Revenue Service as required by law.

 

6. Confidential Information. You agree to hold the Company’s Confidential
Information in strict confidence and not to use, disclose, lecture on, or
publish any of the Confidential Information, except in the performance of the
Consulting Services or with the

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Mr. Malcolm Thompson

March 18, 2004

Page 3

 

written authorization of the Company. “Confidential Information” as used in this
Agreement shall include, without limitation: (a) concepts and ideas relating to
the development and distribution of content in any medium or to the current,
future and proposed products or services of the Company or its subsidiaries or
affiliates; (b) trade secrets, drawings, inventions, other works of authorship,
know-how, ideas, processes, formulas, designs, techniques, software programs and
software source documents; (c) information regarding plans for research,
development, new service offerings or products, marketing and selling, business
plans, business forecasts, budgets and unpublished financial statements,
licenses and distribution arrangements, prices and costs, suppliers and
customers; (d) the existence or content of any business discussions,
negotiations or agreements between the Company and any third party; and (e) any
information regarding the skills and compensation of employees, contractors or
other agents of the Company or its subsidiaries or affiliates. Confidential
Information also includes proprietary or confidential information of any third
party that may disclose such information to the Company or you in the course of
the Company’s business. All Confidential Information furnished to you by the
Company is the sole and exclusive property of the Company or its suppliers or
customers. Notwithstanding the other provisions of this Agreement, nothing
received by you will be considered to be Proprietary Information if (i) it has
been published or is otherwise readily available to the public other than by a
breach of this Agreement; (2) it has been rightfully received by you from a
third party without confidential limitations; (3) it has been independently
developed for you by personnel or agents having no access to the Proprietary
Information; or (4) it was known to you prior to your first receipt from the
Company. Upon request by the Company, you agree to promptly deliver to the
Company the original and any copies of such Confidential Information.

 

7. Confidential Information of Third Parties. In performing the Consulting
Services for the Company, you may not use or disclose any confidential
information, including trade secrets, of any former or current employer or other
person to whom you have an obligation of confidentiality. Rather, you are
expected to use only information that is generally known and used by persons
with training and experience comparable to your own, which is common knowledge
in the industry or otherwise legally in the public domain, or which is otherwise
provided or developed by the Company. You hereby acknowledge that in performing
the Consulting Services, you have performed and will continue to perform those
services within the guidelines just described.

 

8. No Conflict of Interest. During the Consulting Period you will not accept
work, enter into any contract, or accept any obligation from any third party
that is inconsistent or incompatible with your obligations or duties to the
Company under this Agreement, unless you have received express written consent
from the Board before engaging in such activity, which consent may be withheld
by the Board in its sole discretion. You warrant that there is no other contract
or duty on your part inconsistent with this Agreement.

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Mr. Malcolm Thompson

March 18, 2004

Page 4

 

9. Termination.

 

(a) By Consultant. You may unilaterally terminate the Consulting Period at any
time upon written notice to the Company.

 

(b) By the Company. The Company may unilaterally terminate the Consulting Period
only for Cause. If the Company terminates the Consulting Period before December
31, 2004, you will be entitled to receive a termination payment in an amount
equivalent to the lesser of: (a) three (3) months of the Consulting Payments or
(b) the remainder of the Consulting Payments that would otherwise have been
earned by you through December 31, 2004 (the “Termination Payments”). As a
pre-condition of receiving the Termination Payments, you must first sign and
return to the Company a general release of claims in favor of the Company
substantially in the form attached hereto as Exhibit A (the “Release”). The
Termination Payments will be paid in equal installments on a monthly basis, with
the first payment to be made on the last day of the month in which you return
the signed Release to the Company.

 

For purposes of this Agreement, “Cause” shall mean the occurrence of one or more
of the following: (a) your indictment or conviction of any felony, or of any
other crime involving moral turpitude or dishonesty; (b) your participation in
any fraud against the Company or its successor; (c) breach of your consulting
responsibilities to the Company or its successor, including, without limitation,
persistent unsatisfactory performance of the Consulting Services; (d)
intentional damage to any property of the Company or its successor; (e) willful
conduct that is demonstrably injurious to the Company or its successor,
monetarily or otherwise; (f) breach of any agreement with the Company or its
successor; (g) conduct by you that in the good faith and reasonable
determination of the Board demonstrates gross unfitness to serve; or (h) your
physical or mental disability or death. Prior to a termination for Cause under
subsection (c), the Company shall provide you with written notice of the breach
constituting Cause and thirty (30) days to cure such breach.

 

(c) By Mutual Agreement. The Company and you may agree to terminate the
Consulting Period at any time. If the Consulting Period is terminated by mutual
agreement before December 31, 2004, you will be entitled to receive the
Termination Payments described above, provided that you first sign and return
the Release to the Company.

 

(d) Expiration. If the Consulting Period is not extended by written agreement of
the Parties, it will terminate on December 31, 2004.

 

10. Survival. The rights and obligations contained in paragraphs 6
(“Confidential Information”) and 7 (“Confidential Information of Third Parties”)
will survive the termination or expiration of your consulting relationship with
the Company.

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Mr. Malcolm Thompson

March 18, 2004

Page 5

 

11. Successors and Assigns. You may not subcontract or otherwise delegate your
obligations under this Agreement without the Company’s prior written consent.
Subject to the foregoing, this Agreement will be for the benefit of the
Company’s successors and assigns, and will be binding on your assignees.

 

12. Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be delivered as follows with notice deemed given as indicated:
(i) by personal delivery when delivered personally; (ii) by overnight courier
upon written verification of receipt; (iii) by telecopy or facsimile
transmission upon acknowledgment of receipt of electronic transmission; or (iv)
by certified or registered mail, return receipt requested, upon verification of
receipt.

 

13. Governing Law. This Agreement shall be governed in all respects by the laws
of the United States of America and by the laws of the State of California, as
such laws are applied to agreements entered into and to be performed entirely
within California.

 

14. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and such invalid, illegal or
unenforceable provision will be reformed, construed and enforced in such
jurisdiction so as to render it valid, legal, and enforceable consistent with
the intent of the parties insofar as possible.

 

15. Entire Agreement. This Agreement, including Exhibit A, constitutes the
entire agreement between the parties relating to the subject matters herein and
supersedes all prior or contemporaneous communications, representations,
promises or agreements concerning such subject matters. This Agreement may only
be changed by a written agreement between you and an authorized representative
of the Company.

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Mr. Malcolm Thompson

March 18, 2004

Page 6

 

If the terms set forth above are acceptable to you, please sign and return to me
the original of this Agreement and retain a copy for your files.

 

We look forward to continuing to work with you pursuant to this Agreement.

 

Sincerely,

 

PHOTON DYNAMICS, INC.     By:  

/s/ Richard Okumoto

  3/24/04    

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Richard Okumoto

Chief Financial Officer

   

 

EXHIBIT A – RELEASE AGREEMENT

 

ACCEPTED AND AGREED:

 

/s/ Malcolm Thompson

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MALCOLM THOMPSON

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EXHIBIT A

 

RELEASE AGREEMENT

 

(To be signed and returned to the Company on or after the Termination Date)

 

I understand that my consulting relationship with Photon Dynamics, Inc. (the
“Company”) terminated effective                              (the “Termination
Date”). The Company has agreed that if I choose to sign this Release Agreement,
the Company will pay me certain termination benefits pursuant to the terms of
the letter agreement dated March 18, 2004 between myself and the Company (the
“Agreement”). I understand that I am not entitled to such benefits unless I sign
this Release Agreement and it becomes fully effective.

 

In consideration for the Termination Payments and other consideration provided
to me under the Agreement to which I would not otherwise be entitled, I hereby
completely release the Company, and its affiliated, related, parent and
subsidiary corporations, and its and their present and former directors,
officers, employees, attorneys and agents (collectively, the “Released Parties”)
from any and all claims of any kind, known and unknown, which I may now have or
have ever had against any of them, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring prior to my signing this
Agreement (the “Released Claims”). The Released Claims include, but are not
limited to: (1) all claims arising out of or in any way related to my consulting
relationship with the Company or the termination of that relationship; (2) all
claims related to my compensation from the Company for the consulting services,
including Consulting Fees, expense reimbursements, and stock options; (3) all
claims for breach of contract, wrongful termination, and breach of the implied
covenant of good faith and fair dealing; (4) all tort claims, including claims
for fraud, defamation and emotional distress; and (5) all federal, state, and
local statutory claims.

 

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS. In giving this release, which includes claims which may be unknown to me
at present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: “A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor.” I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any other
jurisdiction of similar effect with respect to my release of any unknown or
unsuspected claims I may have against the Released Parties.

 

          By:           Date:        

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    Malcolm Thompson