without Cause (as defined below) or you resign for Good Reason (as defined below) (a Change inControl Termination), (a) the Company will provide you with severance in the amount of one (1)year of your then-existing base salary and on target bonus, less payroll deductions and allrequired withholdings, paid either (at the Company’s discretion) in a lump sum or in regularpayments at equal intervals over a period of time not longer than one (1) year, and (b) all stockoptions and RSU’s (“Equity Awards”) held by you shall have their vesting accelerated such that allEquity Awards are fully vested and exercisable as of the date of the Change in Control Termination(the “Acceleration”). As a precondition of receiving the Acceleration, you must first sign andallow to become effective a general release of claims in favor of the Company in a form acceptableto the Company.     1.3 Definition of “Cause.” For purposes of this Agreement, “Cause” shall mean theoccurrence of one Or more of the following: (a) your indictment or conviction of any felony orcrime involving moral turpitude or dishonesty; (b) your participation in any fraud against theCompany or its successor; (c) breach of your duties to the Company or its successor, including,without limitation, persistent unsatisfactory performance of job duties; (d) intentional damage toany property of the Company or its successor; (e) willful conduct that is demonstrably injurious tothe Company or its successor, monetarily or otherwise;(f) breach of any agreement within theCompany or its successor, including your Proprietary Information and Inventions Agreement; or (g)conduct by you that in the good faith and reasonable determination of the Company demonstratesgross unfitness to serve. Physical or mental disability or death shall not constitute Causehereunder.     1.4 Definition of “Good Reason.” For purposes of this Agreement, your voluntarytermination of employment with the Company will be considered a termination for “Good Reason” ifyou resign your employment because one of the following events occurs without your consent: (a) areduction of your then-existing annual base salary by more than ten percent (*10%), unless thethen-existing base salaries of other executive officers of the Company are accordingly reduced; (b)a material reduction in the package of benefits and incentives, taken as a whole, provided to you(not including raising of employee contributions to the extent of any cost increases imposed bythird parties), except to the extent that such benefits and incentives of other executive officersof the Company are similarly reduced; (c) assignment to you of any duties Or any limitation of yourresponsibilities substantially inconsistent with your position, duties, responsibilities and statuswith the Company immediately prior to the date of the Change in Control; or (d) relocation of theprincipal place of your employment to a location that is more than fifty (50) miles from yourprincipal place of employment immediately prior to the date of the Change in Control.     1.5 Limitation on Payments. If any payment or benefit you would receive pursuant to aChange in Control from the Company or otherwise (“Payment”) would (i) constitute a “parachutepayment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subjectto the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shallbe equal to the Reduced Amount, The “Reduced Amount” shall be either (x) the largest portion of thePayment that would result
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in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to andincluding the total, of the Payment, whichever amount, after taking into account all applicablefederal, state and local employment taxes, income taxes, and the Excise Tax (all computed at thehighest applicable marginal rate), results in your receipt, on anafter-tax basis, of the greateramount of the Payment notwithstanding that all or some portion of the Payment may be subject to theExcise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessaryso that the Payment equals the Reduced Amount, reduction shall occur in the following order unlessyou elect in writing a different order (provided, however, that such election shall be subject toBoard approval if made on or after the effective date of the event that triggers the Payment):reduction of cash payments; cancellation of Acceleration; reduction of employee benefits. In theevent that Acceleration is to be reduced, it shall be cancelled in the reverse order of the date ofgrant of your Equity Awards (i.e., earliest granted Equity Awards cancelled last) unless you electin writing a different order for cancellation.     The accounting firm engaged by the Company for general audit purposes as of the day prior tothe effective date of the Change in Control shall perform the foregoing calculations, If theaccounting firm so engaged by the Company is serving as accountant or auditor for the individual,entity or group effecting the Change in Control, the Company shall appoint a nationally recognizedaccounting firm to make the determinations required hereunder. The Company shall bear all expenseswith respect to the determinations by such accounting firm required to be made hereunder.     The accounting firm engaged to make the determinations hereunder shall provide itscalculations, together with detailed supporting documentation, to you and the Company withinfifteen (15) calendar days after the date on which your right to a Payment is triggered (ifrequested at that time by you or the Company) or such other time as requested by you or theCompany. If the accounting firm determines that no Excise Tax is payable with respect to a Payment,either before or after the application of the Reduced Amount, it shall furnish you and the Companywith an opinion reasonably acceptable to you that no Excise Tax will be imposed with respect tosuch Payment. Any good faith determinations of the accounting firm made hereunder shall be final,binding and conclusive upon you and the Company.     2. General Provisions.     2.1 Severability. Whenever possible, each provision of this Agreement will beinterpreted in such manner as to be effective and valid under applicable law, but if anyprovision of this Agreement is held to be invalid, illegal or unenforceable in any respectunder any applicable law or rule in any jurisdiction, such invalidity, illegality orunenforceability will not affect any other provision or any other jurisdiction, but suchinvalid, illegal or unenforceable provision will be reformed, construed and enforced insuch jurisdiction so as to render it valid, legal, and enforceable consistent with the intentof the parties insofar as Possible.     2.2 Entire Agreement. This Agreement, constitutes the entire and exclusiveagreement between you and the Company, and it supersedes any prior agreement,
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promise, representation, or statement, written or otherwise, between you and the Company withregard to this subject matter. It is entered into without reliance On any promise, representation,statement or agreement other than those expressly contained or incorporated herein, and it cannotbe modified or amended except in a writing signed by you and a duly authorized officer of theCompany.     2.3Successors and Assigns. This Agreement is intended to bind and inure tothe benefit of and be enforceable by you, the company and your and its respectivesuccessors, assigns, heirs, executors and administrators, except that you may not assignany of your duties hereunder and you may not assign any of your rights hereunderwithout the written consent of the Company, which shall not be withheld unreasonably.     2.4 Governing Law. All questions concerning the construction, validity andinterpretation of this Agreement will be governed by the law of the State of California asapplied to contracts made and to be performed entirely within California.     IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of the date firstabove written.       Photon Dynamics, Inc.           By: /s/ Carl C. Straub Jr. Carl C. Straub Jr.General Counsel and Secretary                Accepted and agreed:     /s/ Wendell Blonigan March 31, 2008  Wendell Blonigan Date  
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