**Exhibit 10.38**
**Therma-Wave, Inc.**
**JOSEPH PASSARELLO EMPLOYMENT AGREEMENT**
     This Agreement is entered into as of April l1, 2005, (the “Effective Date”) by and betweenTherma-Wave, Inc. (the “Company”), and Joseph Passarello (“Executive”).
     1. Duties and Scope of Employment.
          (a) Position and Duties. As of the Effective Date, Executive will serve as SeniorVice President and Chief Financial Officer of the Company. Executive will render such business andprofessional services in the performance of his duties, consistent with Executive’s position withinthe Company, as shall reasonably be assigned to him by the President and CEO and/or as arecontemplated by the Company’s bylaws. The period of Executive’s employment under this Agreement isreferred to herein as the “Employment Term.”
          (b) Obligations. During the Employment Term, Executive will perform his dutiesfaithfully and to the best of his ability and will devote his full business efforts and time to theCompany. For the duration of the Employment Term, Executive agrees not to actively engage in anyother employment, occupation or consulting activity for any direct or indirect remuneration withoutthe prior approval of the Board.
     2. At-Will Employment. The parties agree that Executive’s employment with the Companywill be “at-will” employment and may be terminated at any time with or without cause or notice,subject to the provisions of paragraph 9 of this Agreement below. Executive understands and agreesthat neither his job performance nor promotions, commendations, bonuses or the like from theCompany give rise to or in any way serve as the basis for modification, amendment, or extension, byimplication or otherwise, of his employment with the Company.
     3. Place of Employment. The Executive’s services shall be performed at the Company’sprincipal executive offices in Fremont, California. The parties acknowledge, however, that theExecutive may be required to travel in connection with the performance of his duties hereunder.
     4. Compensation.
          (a) Base Salary. For all services to be rendered by the Executive pursuant to thisAgreement, the Company agrees to pay the Executive during the Employment Period a base salary (the“Base Salary”) at a rate of $4,517.00 per week. The Base Salary shall be paid in periodicinstallments in accordance with the Company’s regular payroll practices. The Company agrees toreview the Executives job performance and Base Salary ninety (90) days after the effective date ofthis Agreement. Thereafter, the Company agrees to review the Executive’s job performance and BaseSalary at least annually as of the payroll payment date nearest each anniversary of the Effective
 

 

Date (beginning in 2006) and to make such changes therein as deemed appropriate by thePresident and CEO, and as the Board of Directors may approve.
          (b) Bonus. Beginning with the Company’s 2005 fiscal year and for each fiscal yearthereafter during the Employment Period, the Executive will be eligible to receive an annual bonus(the “Bonus”) of up to 35% of the Executive’s Base Salary for such fiscal year based upon certainfinancial and individual performance criteria to be determined by the President and CEO and theBoard of Directors including revenue and profitability targets and other organizational milestones.
     The Bonus payable hereunder shall be payable quarterly in accordance with the Company’s normalpractices and policies and shall be determined with respect to the first three quarters of eachfiscal year on the basis of unaudited quarterly financial statements and, with respect to thefourth quarter, on the basis of audited financial statements. The earned Bonus shall be paidwithin 30 days after such statements have been finally delivered to the Board of Directors or asotherwise agreed by the Board of Directors and the Executive.
          (c) Stock Option.
               (i) Initial Option. Effective as of the Effective Date, the Company shall grant theExecutive an option (the “Initial Option”) to purchase 150,000 shares of the Company’s common stock(the “Initial Option Shares”) at the closing price per share the day prior to the Board ofDirectors meeting. The Initial Option shall vest as described in paragraph 4(c)(ii) below.
               (ii) Vesting. Subject to the accelerated vesting provisions set forth herein, theOption Shares will vest as to 25% of the shares subject to the Option one year after the date ofgrant, and as to 1/48th of the shares subject to the Option monthly thereafter, so that the Optionwill be fully vested and exercisable four (4) years from the date of grant, subject to Executive’scontinued service to the Company on the relevant vesting dates. In addition, in the event thatExecutive’s employment is terminated by the Company without Cause (as defined below) or Employeeterminates his employment for Good Reason (as defined below), or Executive is assigned to aposition, without his consent, that is not equivalent to his current position as Vice President andChief Financial Officer, within six months after a Change in Control (as defined below), theunvested portion of the Initial Option and additional options if any, shall automaticallyaccelerate and the Executive shall have the right to exercise all or any portion of such Options,in addition to any portion of the Option(s) exercisable prior to such event.
     For purposes of this Agreement, the term “Change of Control” shall mean the occurrence of anyof the following events:
                    (1) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”)) is or becomes the “beneficial owner” (as defined inRule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Companyrepresenting forty percent (40%) or more of the total voting power represented by the Company’sthen outstanding voting securities; provided, however, that a Change in Control shall be deemed tooccur in the event any one individual becomes the “beneficial owner” (as defined in Rule 13d-3under the Exchange Act), directly or indirectly, of securities of the
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Company representing thirty percent (30%) or more of the voting power represented by theCompany’s then outstanding voting securities; or
                    (2) A change in the composition of the Board of Directors of the Company occurring within atwo-year period, as a result of which fewer than a majority of the directors are IncumbentDirectors. “Incumbent Directors” shall mean directors who either (A) are directors of the Companyas of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors ofthe Company with the affirmative votes of at least a majority of the Incumbent Directors at thetime of such election or nomination (but shall not include an individual whose election ornomination is in connection with an actual or threatened proxy contest relating to the election ofdirectors to the Company); or
                    (3) A merger or consolidation of the Company with any other corporation, other than a mergeror consolidation which would result in the voting securities of the Company outstanding immediatelyprior thereto continuing to represent (either by remaining outstanding or by being converted intovoting securities of the surviving entity) at least seventy percent (70%) of the total voting powerrepresented by the voting securities of the Company or such surviving entity outstandingimmediately after such merger or consolidation, or the stockholders of the Company approve a planof complete liquidation of the Company or an agreement for the sale or disposition by the Companyof all or substantially all the Company’s assets.
               (iii) Option Provisions. The Initial Option and each additional option, if any, shallbe granted under the Company’s 2000 Equity Incentive Plan Stock Option Plan (the “Stock Plan”) and,except as expressly provided otherwise in this paragraph 4, shall be subject to the terms andconditions of the Stock Plan and form of option agreement; provided, however, that the Company’sBoard of Directors may, in its discretion, grant the Initial Option and/or the additionaloption(s), if any, outside of the Stock Plan, and any such Options shall include such other termsas the Board of Directors may specify that are not inconsistent with the terms hereof.
          (d) Car Allowance. During the Employment Period, the Executive shall receive a carallowance in the amount of $900.00 per month. This payment shall be made to employee on the firstpayroll check of each month.
     5. Employee Benefits. During the Employment Period, the Executive shall be entitled toparticipate in employee benefit plans or programs of the Company, if any, to the extent that hisposition, tenure, salary, age, health and other qualifications make him eligible to participate,subject to the rules and regulations applicable thereto. The Company reserves the right to cancelor change the benefit plans and programs it offers to its employees at any time.
     6. Vacation. Executive will be entitled to accrue PTO at the rate of 120 hours peryear in accordance with the Company’s vacation policy, with the timing and duration of specificvacations mutually and reasonably agreed to by the parties hereto.
     7. Expenses. The Executive shall be entitled to prompt reimbursement by the Companyfor all reasonable ordinary and necessary travel, entertainment, and other expenses incurred by theExecutive during the Employment Period (in accordance with the policies and procedures establishedby the Company for its senior executive officers) in the performance of his duties and
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responsibilities under this Agreement; provided, that the Executive shall properly account forsuch expenses in accordance with Company policies and procedures. The parties agree that forpurposes of this paragraph, the Executive’s air travel shall be coach class domestically andbusiness class internationally.
     8. Other Activities. The Executive shall devote substantially all of his working timeand efforts during the Company’s normal business hours to the business and affairs of the Companyand its subsidiaries and to the diligent and faithful performance of the duties andresponsibilities duly assigned to him pursuant to this Agreement, except for vacations, holidaysand sickness. However, the Executive may devote a reasonable amount of his time to civic,community, or charitable activities and, with the prior written approval of the Board of Directors,to serve as a director of other corporations and to other types of business or public activitiesnot expressly mentioned in this paragraph.
     9. Severance.
          (a) Involuntary Termination Not for Cause. If Executive’s employment with the Companyterminates other than voluntarily, without Good Reason (as defined herein) or for Cause (as definedherein), and Executive signs and does not revoke the Company’s severance and release agreement,then**,**subject to paragraph 11 of this Agreement, Executive shall be entitled to continuingpayments of severance pay (less applicable withholding taxes) at a rate equal to his Base Salaryrate, as then in effect, for a period of six (6) months from the date of such termination, to bepaid periodically in accordance with the Company’s normal payroll policies; and (ii) any unvestedportion of the Option shall immediately vest and become exercisable.
          (b) Voluntary Termination; Termination for Cause. If Executive’s employment with theCompany terminates voluntarily by Executive, without Good Reason or for Cause by the Company, then(i) all vesting of the Option will terminate immediately and all payments of compensation by theCompany to Executive hereunder will terminate immediately (except as to amounts already earned),and (ii) Executive will only be eligible for severance benefits in accordance with the Company’sestablished policies as then in effect.
          (c) Involuntary Termination Not for Cause within Six (6) Months after Change ofControl. If, within six (6) months following a Change of Control, Executive’s employment withthe Company terminates other than voluntarily, without Good Reason (as defined herein) or for Cause(as defined herein), or because there is no position available in the new company equivalent toExecutive’s current position of Vice President and Chief Financial Officer, and Executive signs anddoes not revoke the Company’s severance and release agreement, then**,**subject to paragraph 11,Executive shall be entitled to continuing payments of severance pay (less applicable withholdingtaxes) at a rate equal to his Base Salary rate, as then in effect, for a period of twelve (12)months from the date of such termination, to be paid periodically in accordance with the Company’snormal payroll policies; and (ii) any unvested portion of the Option shall immediately vest andbecome exercisable.
          (d) Cause. For all purposes under this Agreement, “Cause” shall mean (i) willfulfailure by the Executive to substantially perform his duties hereunder, other than a failureresulting from the Executive’s complete or partial incapacity due to physical or mental illness orimpairment,
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(ii) a willful act by the Executive which constitutes gross misconduct and which is injuriousto the Company, (iii) a willful breach by the Executive of a material provision of this Agreement,or (iv) a material and willful violation of a federal or state law or regulation applicable to thebusiness of the Company. No act, or failure to act, by the Executive shall be considered “willful”unless committed without good faith without a reasonable belief that the act or omission was in theCompany’s best interest. No compensation or benefits will be paid or provided to the Executiveunder this Agreement on account of a termination for Cause, or for periods following the date whensuch a termination of employment is effective. The Executive’s rights under the benefit plans ofthe Company shall be determined under the provisions of those plans.
          (e) Good Reason. For purposes of this Agreement “Good Reason” shall mean theoccurrence (without Executive’s consent) of any one of the following acts by the Company, orfailure by the Company to act: (i) the assignment to Executive of duties that represent asubstantial and material adverse alteration in the nature or status of his responsibilities as asenior executive officer of the Company, except in the event Executive is unable to or fails toperform his normal full-time duties and responsibilities with the Company as a result of incapacitydue to physical or mental illness or incapacity; (ii) a reduction in the Base Salary as in effecton the date hereof; (iii) the relocation of the Company’s principal executive offices to a locationoutside of the San Francisco Bay Area (which includes the counties of San Francisco, Alameda, SantaClara, Contra Costa, San Mateo and Marin) or the Company’s requiring Executive to be based anywhereother than the Company’s principal executive offices (but not including required travel on Companybusiness); or (iv) the wrongful failure by the Company to pay Executive any portion of the BaseSalary, Bonus or Benefits, or to pay to deferred compensation or benefits program of the Company,within 45 days of the date such Base Salary, Bonus, compensation or Benefit is due.
     10. Proprietary Information. During the Employment Period and thereafter, theExecutive shall not, without the prior written consent of the Board of Directors, disclose or usefor any purpose (except in the course of his employment under this Agreement and in furtherance ofthe business of the Company or any of its affiliates or subsidiaries) any confidential informationor proprietary data of the Company. As an express condition of the Executive’s employment with theCompany, the Executive agrees to execute confidentiality agreements as requested by the Company,including but not limited to the Company’s standard Proprietary Information and Employee InventionsAgreement (the “Confidentiality Agreement”), which is attached hereto as Exhibit A and incorporatedherein by reference.
     11. Non-Solicitation.
          (a) Non-Solicitation. During the twelve (12) months after the termination ofExecutive’s employment with the Company for any reason, Executive agrees and acknowledges thatExecutive will not either directly or indirectly solicit, induce, attempt to hire, recruit,encourage, take away, hire any employee of the Company or cause an employee to leave his or heremployment either for Executive or for any other entity or person.
          (b) Conditional Nature of Severance Payments. Executive agrees and acknowledges thatExecutive’s right to receive the severance payments set forth in paragraph 9 (to the extentExecutive is otherwise entitled to such payments) shall be conditioned upon compliance with therestriction in this paragraph 11.
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     12. Right to Advice of Counsel. The Executive acknowledges that he has consulted withcounsel and is fully aware of his rights and obligations under this Agreement.
     13. Successors. The Company will require any successor (whether direct or indirect,by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/orassets of the Company to expressly assume and agree to perform this Agreement in the same mannerand to the same extent that the Company would be required to perform it if no such succession hadtaken place. Failure of the Company to obtain such assumption agreement prior to the effectivenessof any such succession shall entitle the Executive to the benefits described in paragraph 9 of thisAgreement, subject to the terms and conditions therein.
     14. Assignment. This Agreement and all rights under this Agreement shall be bindingupon and inure to the benefit of and be enforceable by the parties hereto and their respectivepersonal or legal representatives, executors, administrators, heirs, distributees, devisees,legatees, successors and assigns. This Agreement is personal in nature, and neither of the partiesto this Agreement shall, without the written consent of the other, assign or transfer thisAgreement or any right or obligation under this Agreement to any other person or entity; exceptthat the Company may assign this Agreement to any of its affiliates or wholly-owned subsidiaries,provided, that such assignment will not relieve the Company of its obligations hereunder.If the Executive should die while any amounts are still payable to the Executive hereunder, allsuch amounts, unless otherwise provided herein, shall be paid in accordance with the terms of thisAgreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee,to the Executive’s estate.
     15. Absence of Conflict. The Executive represents and warrants that his employment bythe Company as described herein shall not conflict with and will not be constrained by any prioremployment or consulting agreement or relationship.
     16. Notices. All notices, requests, demands and other communications called forhereunder shall be in writing and shall be deemed given (i) on the date of delivery, or, ifearlier, (ii) one (1) day after being sent by a well established commercial overnight service, or(iii) three (3) days after being mailed by registered or certified mail, return receipt requested,prepaid and addressed to the parties or their successors at the following addresses, or at suchother addresses as the parties may later designate in writing:       If to the Executive: Joseph J. Passarello    63 Morton Street    Palo Alto, CA 94303       If to the Company: Boris Lipkin    c/o Therma-Wave    1250 Reliance Way    Fremont, CA 94539-6100
or to such other address or the attention of such other person as the recipient party haspreviously furnished to the other party in writing in accordance with this paragraph.
     17. Waiver. Failure or delay on the part of either party hereto to enforce any right,power, or privilege hereunder shall not be deemed to constitute a waiver thereof. Additionally, a
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waiver by either party or a breach of any promise hereof by the other party shall not operateas or be construed to constitute a waiver of any subsequent waiver by such other party.
     18. Severability. Whenever possible, each provision of this Agreement will beinterpreted in such manner as to be effective and valid under applicable law, but if any provisionof this Agreement is held to be invalid, illegal or unenforceable in any respect under anyapplicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability willnot affect any other provision or any other jurisdiction, but this Agreement will be reformed,construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisionhad never been contained herein.
     19. Arbitration.
          (a) Arbitration. In consideration of Executive’s employment with the “Company”, itspromise to arbitrate all employment-related disputes and Executive’s receipt of the compensation,pay raises and other benefits paid to Executive by the Company, at present and in the future,Executive agrees that any and all controversies, claims, or disputes with anyone (including theCompany and any employee, officer, director, shareholder or benefit plan of the Company in theircapacity as such or otherwise) arising out of, relating to, or resulting from Executive’semployment with the Company or the termination of Executive’s employment with the Company,including any breach of this agreement, shall be subject to binding arbitration under thearbitration rules set forth in California Code of Civil Procedure Section 1280 through 1294.2,including Section 1283.05 (the “Rules”) and pursuant to California law. Disputes which Executiveagrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include anystatutory claims under State or Federal law, including, but not limited to, claims under Title VIIof the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the AgeDiscrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the CaliforniaFair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination orwrongful termination and any statutory claims. Executive further understands that this agreementto arbitrate also applies to any disputes that the Company may have with employee.
          (b) Procedure. Executive agrees that any arbitration will be administered by theAmerican Arbitration Association (“AAA”) and that a neutral arbitrator will be selected in a mannerconsistent with its national rules for the resolution of employment disputes. The arbitrationproceedings will allow for discovery according to the rules set forth in the *National Rules for theResolution of Employment Disputes*. Executive agrees that the arbitrator shall have the power todecide any motions brought by any party to the arbitration, including motions for summary judgmentand/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing.Executive agrees that the arbitrator shall issue a written decision on the merits. Executive alsoagrees that the arbitrator shall have the power to award any remedies, including attorneys’ feesand costs, available under applicable law. Executive understands the Company will pay for anyadministrative or hearing fees charged by the arbitrator or AAA except that Executive shall pay thefirst $200.00 of any filing fees associated with any arbitration Executive initiates. Executiveagrees that the arbitrator shall administer and conduct any arbitration in a manner consistent withthe rules and that to the extent that the AAA’s National Rules for the Resolution of EmploymentDisputes conflict with the rules, the rules shall take precedence.
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          (c) Remedy. Except as provided by the rules, arbitration shall be the sole, exclusiveand final remedy for any dispute between Executive and the Company. Accordingly, except asprovided for by the rules, neither Executive nor the Company will be permitted to pursue courtaction regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will nothave the authority to disregard or refuse to enforce any lawful Company policy, and the arbitratorshall not order or require the Company to adopt a policy not otherwise required by law which theCompany has not adopted.
          (d) Availability of injunctive relief. In accordance with Rule 1281.8 of theCalifornia Code of Civil Procedure, Executive agrees that any party may also petition the court forinjunctive relief where either party alleges or claims a violation of the employment, confidentialinformation, invention assignment agreement between Executive and the Company or any otheragreement regarding trade secrets, confidential information, nonsolicitation or Labor Code §2870.In the event either party seeks injunctive relief, the prevailing party shall be entitled torecover reasonable costs and attorneys fees.
          (e) Administrative relief. Executive understands that this agreement does notprohibit Executive from pursuing an administrative claim with a local, state or federaladministrative body such as the department of fair employment and housing, the equal employmentopportunity commission or the workers’ compensation board. This agreement does, however, precludeExecutive from pursuing court action regarding any such claim.
          (f) Voluntary Nature of Agreement. Executive acknowledges and agrees that Executiveis executing this agreement voluntarily and without any duress or undue influence by the Company oranyone else. Executive further acknowledges and agrees that Executive has carefully read thisagreement and that Executive has asked any questions needed for Executive to understand the terms,consequences and binding effect of this agreement and fully understand it, including that Executiveis waiving Executive’s right to a jury trial. Finally, Executive agrees that he/she has beenprovided an opportunity to seek the advice of an attorney before signing this agreement.
     20. Integration. This Agreement, together with the Option Plan, Option Agreement andthe Proprietary Information and Employee Inventions Agreement represents the entire agreement andunderstanding between the parties as to the subject matter herein and supersedes all prior orcontemporaneous agreements whether written or oral. No waiver, alteration, or modification of anyof the provisions of this Agreement will be binding unless in writing and signed by the Company.
     21. Headings. The headings of the paragraphs contained in this Agreement are forreference purposes only and shall not in any way affect the meaning or interpretation of anyprovision of this Agreement.
     22. Applicable Law. This Agreement shall be governed by and construed in accordancewith the internal substantive laws, and not the choice of law rules, of the State of California.Executive hereby consents to the exclusive personal jurisdiction and venue of the courts of thefederal and state courts in the State of California.
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     23. Counterparts. This Agreement may be executed in one or more counterparts, none ofwhich need contain the signature of more than one party hereto, and each of which shall be deemedto be an original, and all of which together shall constitute a single agreement.
     24. Tax Withholding. All payments made pursuant to this Agreement will be subject towithholding of applicable taxes.
     25. Acknowledgment. Executive acknowledges that he has had the opportunity to discussthis matter with and obtain advice from his private attorney, has had sufficient time to, and hascarefully read and fully understands all the provisions of this Agreement, and is knowingly andvoluntarily entering into this Agreement.
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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of theCompany by their duly authorized officers, as of the day and year first above written.       Therma-Wave, Inc.:    Boris Lipkin           By: /s/ Boris Lipkin   Date: 6/21/05        Title: President & CEO           EXECUTIVE:                /s/ Joseph J. Passarello   Date: 6/20/05     Joseph J. Passarello    
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