exv10w03





Exhibit 10.03







PDF Solutions, Inc.


333 West San Carlos Street, Suite 700 • San Jose, California 95110 USA


Telephone: 408 280 7900 • Fax: 408 280 7915


Website: http://www.pdf.com




Ms. Joy Leo



Dear Joy,


On behalf of PDF Solutions, Inc., (“PDF” or the “Company”), I am pleased to extend to you this
offer of a new position. Your new position will be Executive Vice President and Chief
Administration Officer, effective July 9th, 2008, reporting to me. You will be based
in PDF’s San Jose office at 333 West San Carlos Street, Suite 700, San Jose, CA 95110. This
offer of a new position with PDF is conditioned upon your acceptance, in writing, of the terms
and conditions as enumerated below.




	 	1.	 	Compensation. Commencing on your Start Date, you shall be paid a base
salary of $270,000, paid to you semi-monthly at a rate of $11,250.00. Your salary shall
be paid in accordance with the Company’s standard payroll policies (subject to
applicable withholding taxes as required by law).
	 
	 	2.	 	Stock Options. Upon commencement of your employment, and subject to the
approval of the Company’s Board of Directors, you will be granted an option to purchase
300,000 shares (the “Total Option Shares”) of the Company’s Common Stock with an
exercise price equal to the fair market value of the Common Stock on the date of grant.
Such option shall vest over a four year period commencing on your Start Date, according
to the following vesting schedule: 1/4 of the Total Option Shares shall be exercisable
on the twelve (12) month anniversary of your Start Date and 1/48th of the Total Option
Shares shall be exercisable on a monthly basis thereafter. Vesting of the options shall
be contingent upon your continued employment with the Company. The options will be
non-qualified to the maximum extent permitted by the tax code and will be subject to the
terms of the Company’s 2001 Stock Plan and execution of an applicable Stock Option
Agreement to be entered into between you and the Company.
	 
	 	3.	 	Change of Control. In the event that during your employment with the
Company, the Company is subject to a Change of Control event, defined as a change in
ownership or control of the Company effected through a merger, consolidation or
acquisition by any person or related group of persons (other than an acquisition by the
Company or by a Company-sponsored employee benefit plan or by a person or persons that
directly or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the
total combined voting power of the outstanding securities of the Company, you will be
entitled to accelerated vesting as to 100% of your outstanding and unvested stock





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	 		 	options and/or restricted stock such that all such stock options and/or restricted stock
shall be fully vested as of the date of such Change of Control event. In addition, the
terms set forth herein will be binding upon and inure to the benefit of any successor
person, firm, corporation or other business entity of the Company in the event of any
Change of Control, and any such successor will be deemed automatically substituted for
the Company under the terms of this offer letter for all purposes.
	 
	 	4.	 	Termination without Cause: Notwithstanding any other provision of this
letter agreement or anything to the contrary in the event (a) the Company terminates
your employment at any time without Cause or Disability or (b) you resign for Good
Reason and (c) a Separation occurs, with each capitalized term as defined in this
Section 4 below, you will be entitled to all of the following: (i) vesting acceleration
with respect to your outstanding and unvested stock options and/or restricted stock, as
if you provided service to the Company for an additional twelve (12) months after the
effective date of the Separation; (ii) twelve (12) months of your then-current annual
base salary, paid in accordance with the Company’s standard payroll procedures over a
twelve-month period, commencing on the Company’s first regular payroll date following
the effective date of the Separation and your execution of the mutual release described
below, and subject to all applicable withholdings; (iii) a percentage of your Target
Bonus (as defined below), which is determined by pro rating the percentage of the Target
Bonus that the Company, in its reasonable discretion, has determined that you have
earned as of the effective date of the Separation, had such Target Bonus been payable at
such time, (for purposes of clarification, if the Separation occurs during the first
year of your employment, you will be paid the Guaranteed Bonus prorated from your Start
Date through the effective date of the Separation), which will be paid on the Company’s
first regular payroll date following the effective date of the Separation and your
execution of the mutual release described below; and (iv) the Company’s payment of the
premiums for your COBRA coverage from the last date on which you receive health care
coverage as a Company employee until the earlier of: (1) the date that is twelve (12)
months following the effective date of the Separation; or (2) the date you become
covered under another employer’s health coverage plan, , with the first of such premium
payments made when due immediately following the date on which you’ve made your COBRA
election, which you will elect within sixty (60) days following the effective date of
the Separation.
	 
	 	 	 	For all purposes under this letter agreement, “Cause” means: (a) your unauthorized use
or disclosure of the Company’s confidential information or trade secrets, which use or
disclosure causes material harm to the Company, (b) your material breach of any agreement
between you and the Company, which remains uncured by you more than thirty (30) days from
the date of your receipt of written notice of such material breach from the Company, (c)
your material failure to comply with the Company’s written policies or rules, (d) your
conviction of, or your plea of “guilty” or “no contest” to, a felony under the laws of
the United States or any State, (e) your gross negligence or willful misconduct, (f) your
continuing failure to perform or initiating performance of assigned duties for which
there is no reasonable basis for you disputing and/or failing to so perform for ten (10)
days after receiving written notification of the failure from the Company’s Board of
Directors or (g) your failure to cooperate in good faith with a
governmental or internal investigation of the Company or its directors, officers or
employees, if the Company has requested your cooperation.





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	 	 	 	For all purposes under this letter agreement, “Good Reason” means that you resign within
120 days after one of the following conditions has come into existence without your
written consent: (i) any material adverse change or material reduction of your position,
duties, authority or responsibilities as an employee, or your removal from your position
or responsibilities, (ii) a material reduction in your annual base salary and/or your
Target Bonus in effect immediately prior to such reduction except in the case where there
is a general reduction in compensation across all employees or a broad class of employees
(e.g., senior executives) due to financial hardship of the business; or (iii) your
relocation to a facility or a location more than fifty (50) miles from the Company’s
offices immediately prior to such a relocation. A condition will not be considered “Good
Reason” unless you give the Company written notice of the condition within thirty (30)
days after the condition comes into existence and the Company fails to remedy (as such
failure or remedy is determined in your reasonable discretion) the condition within
thirty (30) days after receiving your written notice.
	 
	 	 	 	You agree that prior to commencement of your severance payments described in subsections
(ii) and (iii) of the first paragraph of this Section 4, you will meet the following
conditions: you (i) will have promptly, upon the Separation returned all Company property in
your possession, and (ii) will have executed and not revoked the Company’s standard general
mutual release of all claims that you may have against the Company or persons affiliated
with the Company and that the Company may have against you (collectively, the “Conditions”).
The Company will deliver the form of release to you within two (2) days after your
Separation (defined below), and the parties agree to negotiate such release in good faith
and execute such release within sixty (60) days after the effective date of the Separation
(the “Deadline”). “Separation” means a “separation from service,” as defined in the
regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”). “Disability” means your inability to perform the essential functions of your
position with or without reasonable accommodation for a period of one hundred and twenty
(120) consecutive days because of your physical or mental impairment. For the avoidance of
doubt, the vesting acceleration described in Section 3 of this Agreement is not affected by
any of the requirements in Section 4 of this Agreement.
	 
	 	 	 	For purposes of Code Section 409A, each salary continuation payment under this Section 4
is hereby designated as a separate payment. Notwithstanding anything stated herein to
the contrary, the severance pay provided in connection with your termination under this
severance section is intended to be exempt from Code Section 409A pursuant to Treasury
Regulation Section 1.409A-1(b)(9)(iii); provided that, to the extent that such severance
and any other payments paid to you in connection with your involuntary separation from
service does not qualify or otherwise exceeds the limit set forth in Treasury Regulation
Section 1.409A-1(b)(9)(iii)(A) or any similar limit promulgated by Treasury or the IRS,
the portion of the severance that does not qualify or otherwise exceeds such limit, as
determined by the Company in its sole discretion, shall be paid by no later than the
fifteenth (15th) day of the third (3rd) month following the end of your first tax year in
which your termination date occurs, or, if later,
the fifteenth (15th) day of the third (3rd) month following the end of the Company’s
first tax year in which your termination date occurs, as provided in Treasury Regulation
Section 1.409A-1(b)(4).





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	 	 	 	In the event that the severance payments and benefits under this Section 4 do not qualify
for one of the exemptions under Code Section 409A, as described in the previous paragraph
and as reasonably determined by the Company, and the Company determines that you are a
“specified employee” under Section 409A(a)(2)(B)(i) of the Code at the time of the
Separation, then (i) the salary continuation payments under the first paragraph of this
Section 4, to the extent that they are subject to Section 409A of the Code, will commence
on the earliest practicable date that occurs more than six (6) months after the effective
date of the Separation and (ii) the installments that otherwise would have been paid
during the first six (6) months after the effective date of the Separation will be paid
in a lump sum on the first day of the seventh month after the Separation.
	 
	 	 	 	You are encouraged to obtain your own tax advice regarding your compensation from the
Company. You agree that the Company does not have a duty to design its compensation
policies in a manner that minimizes your tax liabilities, and you will not make any claim
against the Company or its Board of Directors related to tax liabilities arising from
your compensation.
	 
	 	5.	 	Start Date. Subject to fulfillment of any conditions imposed by this letter
agreement, you will commence your new position with the Company on a date to be
determined and agreed upon with the Company within one week of acceptance of this offer.
The date you actually start working at the Company is referred to as the “Start Date”.
	 
	 	6.	 	Benefits. Effective on your Start Date, the Company will make available to
you the regular health insurance program, disability, life insurance, and
other benefits as established by the Company for its executives from time to time, as
well as executive indemnification agreement. A summary of those benefits, including
Paid Time Off and Sabbatical is attached. The Company will also reimburse you for
reasonable travel, or other expenses incurred by you in the furtherance of or in
connection with the performance of your employment duties, in accordance with the
Company’s expense reimbursement policy in effect from time to time.
	 
	 	7.	 	General Duties. During the term of your employment, you agree that at all
times and to the best of your ability you will loyally and conscientiously perform all
of the duties and obligations required of you in your job and by the Company. You
further agree that you will not render commercial or professional services of any nature
to any person or organization, whether or not for compensation, without the prior
written consent of the Company, and that you will not directly or indirectly engage in
or participate in any business that is competitive in any manner with the business of
the Company. You also agree to comply with any and all policies of the Company as in
effect from time to time.
	 
	 	8.	 	Proof of Right to Work. In compliance with federal immigration laws, you
will be required to provide to the Company documentary evidence of your identity and
eligibility for employment
in the United States. Such documentation must be provided within three (3) business days
of your date of hire. Your failure to meet this condition could result in termination of
your employment with the Company.





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	 	9.	 	Performance Bonus. You shall be eligible to receive an annual target
incentive bonus equal to eighty percent (80%) of your then-current annual base salary
(“Target Bonus”), based on your achievement of performance objectives determined by the
Company; provided, however, for the first twelve (12) months of your employment with the
Company, you will be entitled to a guaranteed minimum Target Bonus payout equal to
$165,000.00 (the “Guaranteed Bonus”). A pro rata portion of the Guaranteed Bonus, plus
any amount in excess of the pro rata portion of the Guaranteed Bonus that the Company
has determined that you have earned by the end of 2008, collectively up to the Target
Bonus amount, will be paid to you in accordance with the Company’s regular executive
incentive bonus program payout practices but no later than two and one-half (2.5) months
following the end of 2008, provided that you remain in employment with the Company
through the end of 2008. The remaining portion of the Guaranteed Bonus, plus any amount
in excess of the remaining portion of the Guaranteed Bonus that the Company has
determined that you have earned by the end of 2009, collectively up to the Target Bonus
amount, will be paid to you in accordance with the Company’s regular executive incentive
bonus program payout practices but no later than two and one-half (2.5) months following
the end of 2009, provided that you remain in employment with the Company through the end
of 2009. For each subsequent year of employment, the portion of the Target Bonus that
the Company has determined that you have earned by the end of each such year of
employment with the Company will be paid to you in accordance with the Company’s regular
executive incentive bonus program payout practices but no later than two and one-half
(2.5) months following the end of each such year of employment, provided that you remain
in employment with the Company through the end of each such year. For the avoidance of
doubt, in no event will the amount of the target incentive bonus in any calendar year
that may be payable to you exceed the Target Bonus amount. Any bonus payment made under
this Section 9 will be subject to applicable withholding and deductions. With respect to
the Target Bonus described in this Section 9 and notwithstanding anything to contrary,
in the event that your employment is terminated by the Company for Cause or you
voluntarily resign before the end of any calendar year during your employment, you will
not be eligible to receive any portion of the Target Bonus for that calendar year unless
you remain in employment with the Company through the end of such calendar year;
provided, however, in the event that your employment is terminated by the Company in any
calendar year without Cause or Disability, or you resign for Good Reason, you will
receive a portion of the Target Bonus for that calendar year from the Company as set
forth in Section 4 above. The Company, in its reasonable discretion, will determine the
amount of the bonus payable under this Section 9 and its determination will be final and
binding.
	 
	 	10.	 	Confidential Information and Invention Assignment Agreement. Your
acceptance of this offer and commencement of employment with the Company is contingent
upon your execution of the Company’s Confidential Information and Invention Assignment
Agreement (the “Confidentiality Agreement”), a copy of which is enclosed for your
review. An executed copy





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	 		 	of the Confidentiality Agreement must be delivered to the PDF Human Resources Department
on or before your Start Date. The Confidentiality Agreement relates to confidential
information received in regards to the Company’s business, technology, and intellectual
property, as well as information about the Company’s customers. The Confidentiality
Agreement also addresses the Company’s ownership of intellectual property generated
during your employment at the Company. You are required to the best of your ability, to
hold such information as confidential even after an event terminating your employment
with the Company.
	 
	 	11.	 	Confidentiality of Terms. You agree to follow the Company’s strict policy that
employees must not disclose, either directly or indirectly, any information, including any
of the terms if this agreement, regarding salary, bonuses, or stock purchase or option
allocations to any person, including other employees of the Company; provided, however that
you may discuss such terms with members of your immediate family and any legal, tax, or
accounting specialists who provide you with individual, legal, tax or accounting advice.




I am delighted to be able to extend you this offer and look forward to working with you.
To indicate your acceptance of this offer, please sign and date this letter in the space
provided below and return it to me.



	 	 	 	 	 
	Very truly yours,





PDF SOLUTIONS, INC.

 	 
	/s/ John K. Kibarian
 	 
	JOHN K. KIBARIAN 	 
	Chief Executive Officer and President 	 
	 




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ACKNOWLEDGMENTS & ACCEPTANCE



I accept this employment offer with the understanding that it is not a contract for a fixed term or
specified period of time. I understand that my employment is voluntary, (“At Will”), and can be
terminated either by me or by the company at any time, with or without notice and with or without
cause. The provisions stated above supersede all prior representations or agreements, whether
written or oral. This offer letter may not be modified or amended except by a written agreement,
signed by the company and me.


THE FOREGOING TERMS AND CONDITIONS ARE HEREBY AGREED TO AND ACCEPTED:



	 	 	 	 	 	 	 	 	 
	Signed:

	 	/s/ Joy Leo
	 	 
	 	Date:
	 	7/14/08
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Print Name:

	 	Joy Leo	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 






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