exv10w43



 






EXHIBIT 10.43




Photon Dynamics, Inc.

2005 Equity Incentive Plan



Stock Option Agreement


(Incentive Stock Option Or Nonstatutory Stock Option)




     Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement,
Photon Dynamics, Inc. (the “Company”) has granted you an option under its 2005 Equity Incentive
Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as
in the Plan.



     The details of your option are as follows:



     1.     Vesting.     Subject to the limitations contained herein, your option will vest as provided in
your Grant Notice, provided that vesting will cease upon the termination of your Continuous
Service.



     2.     Number Of Shares And Exercise Price.     The number of shares of Common Stock subject to your
option and your exercise price per share referenced in your Grant Notice may be adjusted from time
to time for Capitalization Adjustments.



     3.     [Exercise Prior To Vesting (“Early Exercise”).     If permitted in your Grant Notice (i.e.,
the “Exercise Schedule” indicates that “Early Exercise” of your option is permitted) and subject to
the provisions of your option, you may elect at any time that is both (i) during the period of your
Continuous Service and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:



          (a)     a partial exercise of your option shall be deemed to cover first vested shares of Common
Stock and then the earliest vesting installment of unvested shares of Common Stock;




          (b)     any shares of Common Stock so purchased from installments that have not vested as of the
date of exercise shall be subject to the purchase option in favor of the Company as described in
the Company’s form of Early Exercise Stock Purchase Agreement;




          (c)     you shall enter into the Company’s form of Early Exercise Stock Purchase Agreement with a
vesting schedule that will result in the same vesting as if no early exercise had occurred; and




          (d)     if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair
Market Value (determined at the time of grant) of the shares of Common Stock with respect to which
your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its




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Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof
that exceed such limit (according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.]




     4.     Method Of Payment.     Payment of the exercise price is due in full upon exercise of all or
any part of your option. You may elect to make payment of the exercise price in cash or by check
or in any other manner permitted by your Grant Notice, which may include one or more of the
following:



          (a)     In the Company’s sole discretion at the time your option is exercised and provided that at
the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street
Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check)
by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds.




          (b)     Provided that at the time of exercise the Common Stock is publicly traded and quoted
regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either
that you have held for the period required to avoid a charge to the Company’s reported earnings
(generally six (6) months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security interests, and that
are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes, in the
sole discretion of the Company at the time you exercise your option, shall include delivery to the
Company of your attestation of ownership of such shares of Common Stock in a form approved by the
Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company
of Common Stock to the extent such tender would violate the provisions of any law, regulation or
agreement restricting the redemption of the Company’s stock.




     5.     Whole Shares.     You may exercise your option only for whole shares of Common Stock.



     6.     Securities Law Compliance.     Notwithstanding anything to the contrary contained herein, you
may not exercise your option unless the shares of Common Stock issuable upon such exercise are then
registered under the Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option also must comply with other
applicable laws and regulations governing your option, and you may not exercise your option if the
Company determines that such exercise would not be in material compliance with such laws and
regulations.



     7.     Term.     You may not exercise your option before the commencement or after the expiration of
its term. The term of your option commences on the Date of Grant and expires upon the earliest of
the following:



          (a)     immediately upon the termination of your Continuous Service for Cause;




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          (b)     three (3) months after the termination of your Continuous Service for any reason other
than Cause, Disability or death, provided that if during any part of such three (3) month period
you may not exercise your option solely because of the condition set forth in the preceding
paragraph relating to “Securities Law Compliance,” your option shall not expire until the earlier
of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3)
months after the termination of your Continuous Service;



          (c)     twelve (12) months after the termination of your Continuous Service due to your
Disability;




          (d)     eighteen (18) months after your death if you die either during your Continuous Service or
within three (3) months after your Continuous Service terminates for any reason other than Cause;




          (e)     the Expiration Date indicated in your Grant Notice; or




          (f)     the day before the tenth (10th) anniversary of the Date of Grant.




          If your option is an Incentive Stock Option, note that to obtain the federal income tax
advantages associated with an Incentive Stock Option, the Code requires that at all times beginning
on the date of grant of your option and ending on the day three (3) months before the date of your
option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of
your death or your permanent and total disability, as defined in Section 22(e) of the Code. (The
definition of disability in Section 22(e) of the Code is different from the definition of the
Disability under the Plan). The Company has provided for extended exercisability of your option
under certain circumstances for your benefit but cannot guarantee that your option will necessarily
be treated as an Incentive Stock Option if you continue to provide services to the Company or an
Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise
your option more than three (3) months after the date your employment with the Company or an
Affiliate terminates.




     8.     Exercise.



          (a)     You may exercise the vested portion of your option (and the unvested portion of your
option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a
form designated by the Company) together with the exercise price to the Secretary of the Company,
or to such other person as the Company may designate, during regular business hours, together with
such additional documents as the Company may then require.




          (b)     By exercising your option you agree that, as a condition to any exercise of your option,
the Company may require you to enter into an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common
Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock
acquired upon such exercise.




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          (c)     If your option is an Incentive Stock Option, by exercising your option you agree that you
will notify the Company in writing within fifteen (15) days after the date of any disposition of
any of the shares of the Common Stock issued upon exercise of your option that occurs within two
(2) years after the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.



     9.     Transferability.     Your option is not transferable, except by will or by the laws of descent
and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing,
by delivering written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be entitled to exercise
your option.



     10.     Option Not A Service Contract.     Your option is not an employment or service contract, and
nothing in your option shall be deemed to create in any way whatsoever any obligation on your part
to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue
any relationship that you might have as a Director or Consultant for the Company or an Affiliate.



     11.     Withholding Obligations.



          (a)     At the time you exercise your option, in whole or in part, or at any time thereafter as
requested by the Company, you hereby authorize withholding from payroll and any other amounts
payable to you, and otherwise agree to make adequate provision for (including by means of a
“cashless exercise” pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if
any, which arise in connection with the exercise of your option.




          (b)     Upon your request and subject to approval by the Company, in its sole discretion, and
compliance with any applicable legal conditions or restrictions, the Company may withhold from
fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a
number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of
the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or
such lower amount as may be necessary to avoid variable award accounting). If the date of
determination of any tax withholding obligation is deferred to a date later than the date of
exercise of your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of the Code, covering
the aggregate number of shares of Common Stock acquired upon such exercise with respect to which
such determination is otherwise deferred, to accelerate the determination of such tax withholding
obligation to the date of exercise of your option. Notwithstanding the filing of such election,
shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined
as of the date of exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share withholding procedure shall
be your sole responsibility.




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          (c)     You may not exercise your option unless the tax withholding obligations of the Company
and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when
desired even though your option is vested, and the Company shall have no obligation to issue a
certificate for such shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein unless such obligations are satisfied.




     12.     Notices.     Any notices provided for in your option or the Plan shall be given in writing
and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by
the Company to you, five (5) days after deposit in the United States mail, postage prepaid,
addressed to you at the last address you provided to the Company.



     13.     Governing Plan Document.     Your option is subject to all the provisions of the Plan, the
provisions of which are hereby made a part of your option, and is further subject to all
interpretations, amendments, rules and regulations, which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the provisions of your option
and those of the Plan, the provisions of the Plan shall control.




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