-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9aIn+jab4tBUwuLwb9cT8iz7Sc1DJnzU483IDR5mpn0RX2P0M3fjFws7kl4R3fO 3kW2q+0BZ811V2im5lsMjg== 0001104659-05-003323.txt : 20050131 0001104659-05-003323.hdr.sgml : 20050131 20050131165952 ACCESSION NUMBER: 0001104659-05-003323 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050125 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050131 DATE AS OF CHANGE: 20050131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12853 FILM NUMBER: 05562503 BUSINESS ADDRESS: STREET 1: 13900 NW SCIENCE PARK DR CITY: PORTLAND STATE: OR ZIP: 97229 BUSINESS PHONE: 5036414141 MAIL ADDRESS: STREET 1: 13900 NW SCIENCE PARK DRIVE CITY: PORTLAND STATE: OR ZIP: 97229-5497 8-K 1 a05-2536_18k.htm 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 25, 2005

ELECTRO SCIENTIFIC INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

OREGON	0-12853		93-0370304
(State or other jurisdiction	(Commission		(IRS Employer
of incorporation)	File Number)		Identification No.)

13900 NW Science Park Drive, Portland, Oregon		97229
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (503) 641-4141

No Change
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On January 25, 2005, the Compensation Committee of the Board of Directors of Electro Scientific Industries, Inc. (the “Company”) accelerated the vesting, effective immediately, of all the Company’s unvested stock options awarded to officers and employees, other than those awarded to the President and Chief Executive Officer at his time of hire (which are discussed in the next paragraph), having an exercise price greater than $20.24. These options were granted under the Company’s 2000 Stock Incentive Plan and 2000 Stock Option Plan and include an inducement grant made outside of these plans. The closing price of the Company’s common stock on the Nasdaq National Market on January 25, 2005 was $17.14. As a result of the acceleration, options to acquire approximately 220,000 shares of the Company’s common stock, which otherwise would have vested from time to time over the next 42 months, became immediately exercisable. For book reporting purposes, no compensation expense will be recognized related to this modification as the options modified had exercise prices higher than the fair value of the underlying common stock on the date of the modification.

On January 25, 2005 the Compensation Committee accelerated the vesting of 315,000 shares of the Company’s common stock subject to an option granted on January 7, 2004, to Nicholas Konidaris, the Company’s President and Chief Executive Officer, so that the option will be fully exercisable on August 26, 2005. The option has an exercise price of $25.71. Under the terms of the original option agreement, 105,000 shares would have vested on each of January 7, 2006, January 7, 2007 and January 7, 2008. In connection with this acceleration, Mr. Konidaris has agreed that the shares underlying the accelerated options may not be sold by him until the date those shares would otherwise have been vested under the terms of the original option agreement. The amendments to Mr. Konidaris’ Employment Agreement and Stock Option Agreement implementing this restriction are filed herewith as Exhibits 10.1 and 10.2, respectively. For book reporting purposes, the Company will be required to accelerate approximately $1.5 million of unamortized expense related to this award ratably over the remaining vesting period, which ends August 26, 2005. This expense would otherwise have been expensed ratably through December 2007.

Mr. Konidaris was also granted options to purchase 40,000 shares of the Company’s common stock on July 13, 2004, the vesting of which was accelerated effective January 25, 2005 as described in the first paragraph above. The option has an exercise price of $25.50. Under the terms of the original option agreements, 10,000 shares would have vested on each of July 13, 2005, July 13, 2006, July 13, 2007 and July 13, 2008. In connection with this acceleration, Mr. Konidaris has agreed that the shares underlying the accelerated options may not be sold by him until the date those shares would otherwise have been vested under the terms of the original option agreements. The amendments to Mr. Konidaris’ Stock Option Agreements implementing this restriction are filed herewith as Exhibits 10.3 and 10.4.

Options held by executive officers of the Company that were amended include:

Officer	Number of Shares	Price Range

Nicholas Konidaris	355,000	$25.50 - $25.71

J. Michael Dodson	16,176	$25.50

Robert C. Chamberlain	31,716	$21.12 - $25.50

Additionally, the Compensation Committee has decided to reduce grants of stock options in the future. It believes that the amended vesting provisions will partially mitigate the resulting reduction in future stock option grants. The Company has decided to follow the “modified prospective method” in implementing recent amendments by the Financial Accounting Standard Board in Accounting for Stock-Based Compensation. The Company believes the acceleration of the vesting will reduce the amortization of the Company’s stock option compensation expense for fiscal year 2006 and beyond and will enhance comparability of its financial statements with those of prior and future fiscal periods.

On January 25, 2005, the Compensation Committee approved the performance goals for the performance-based restricted stock unit awards granted by the committee on July 13, 2004 to certain officers of the Company. The form of Performance Based Restricted Stock Units Award Agreement is filed herewith as Exhibit 10.5.

On January 25, 2005, the Compensation Committee also approved a grant of 20,000 restricted stock units to Mr. Konidaris under the Company’s 2004 Stock Incentive Plan. The units cliff vest on July 22, 2009, the day before Mr. Konidaris’ 65^th birthday. Mr. Konidaris’ Restricted Stock Units Award Agreement is filed herewith as Exhibit 10.6.

On January 25, 2005, the Company approved certain amendments to the Company’s 2004 Stock Incentive Plan. The Company agreed to submit these amendments for approval pursuant to a letter dated October 12, 2004 from the Company to Fidelity Investments (the “Fidelity Letter”). A copy of this letter was filed with the Securities and Exchange Commission on October 14, 2004. These amendments prohibit option grants with an exercise price less than fair market value, require that time-based awards have a minimum vesting period of at least three years, with the subject shares vesting no more quickly than one-third annually over the three-year period, and expressly prohibiting the reservation of additional shares under the plan without shareholder approval. The 2004 Stock Incentive Plan, as amended, is filed herewith as Exhibit 10.8.

Item 8.01 Other Events

On January 25, 2005, as part of the Company’s undertakings in the Fidelity Letter, the Company approved an amendment to the Compensation Committee Charter which requires the Compensation Committee to recommend compensation for independent directors consistent with the compensation levels of the Company’s peer group.

Item 9.01 Financial Statements and Exhibits

10.1 Amendment No. 1 to Employment Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005.

10.2 Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005 (January 7, 2004 grant).

10.3 Form of Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris dated as of January 25, 2005 (July 13, 2004 grant – Incentive Stock Option).

10.4 Form of Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris dated as of January 25, 2005 (July 13, 2004 grant – Nonstatutory Stock Option).

10.5 Form of Performance Based Restricted Stock Units Award Agreement.

10.6 Form of Restricted Stock Units Award Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005.

10.7 Form of Restricted Stock Units Award Agreement.

10.8 2004 Stock Incentive Plan, as amended

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 31, 2005.


	Electro Scientific Industries, Inc.


	By	/s/ J. Michael Dodson
		J. Michael Dodson
		Senior Vice President of Administration,
		Chief Financial Officer and Secretary

Exhibit Index

Exhibit		Description

10.1		Amendment No. 1 to Employment Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005

10.2		Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005 (January 7, 2004 grant).

10.3		Form of Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris dated as of January 25, 2005 (July 13, 2004 grant – Incentive Stock Option).

10.4		Form of Amendment No. 1 to Stock Option Agreement between the Company and Nicholas Konidaris dated as of January 25, 2005 (July 13, 2004 grant – Nonstatutory Stock Option).

10.5		Form of Performance Based Restricted Stock Units Award Agreement

10.6		Form of Restricted Stock Units Award Agreement between the Company and Nicholas Konidaris, dated as of January 25, 2005.

10.7		Form of Restricted Stock Units Award Agreement

10.8		2004 Stock Incentive Plan, as amended

EX-10.1 2 a05-2536_1ex10d1.htm EX-10.1

Exhibit 10.1

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

This Amendment No. 1 to Employment Agreement (this “Amendment”) is made and entered into as of January 25, 2005 by and between Electro Scientific Industries, Inc., an Oregon corporation (“ESI”), and Nicholas Konidaris (“Executive”). ESI and Executive are parties to an Employment Agreement dated as of January 25 2004 (the “Original Agreement”). Capitalized terms used in this Amendment which are not defined herein shall have the meanings ascribed to them in the Original Agreement.

NOW, THEREFORE, in consideration of the usual promises hereinafter set forth, the parties hereto agree as follows:

AGREEMENT

1. Section 5(c) of the Original Agreement is hereby amended and restated in its entirety as follows:

“(c) Stock Options. ESI shall grant Executive an option to purchase 420,000 shares of ESI common stock. The vesting commencement date and grant date of the option grant shall be the Effective Date. The option shall be evidenced by, and subject to the terms and conditions of, the Stock Option Agreement attached hereto as Exhibit B. Except as otherwise provided herein, Executive’s option shall vest with respect to 105,000 of these shares on each of the dates that are one year, two years, three years and four years, respectively, after the Effective Date; provided, however, that the Board of Directors, in its discretion, may accelerate the vesting of any of the shares subject to the option (the “Accelerated Shares”), in which event the Accelerated Shares shall be restricted upon exercise, with the restriction to lapse with respect to 105,000 of Accelerated Shares on each anniversary of the Effective Date following the date of acceleration (by way of example, if the vesting of all of Executive’s unvested options is accelerated effective August 1, 2005 (i.e. accelerating only the options to vest in years two, three and four) the restriction on 105,000 of the Accelerated Shares would lapse two years after the Effective Date, the restriction on another 105,000 of the Accelerated Shares would lapse three years after the Effective Date, and the restriction on the other 105,000 Accelerated Shares would lapse four years from the Effective Date); provided, further, that such restrictions shall lapse upon any event under this Agreement that would have caused the option to become immediately exercisable prior to the acceleration described in this section. To the maximum extent permitted within the $100,000 annual vesting limitation by Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), this option shall be an incentive stock option within the meaning of such section. Additional stock options may be granted to Executive from time to time in the sole discretion of the Board.”

2. Except as set forth in Section 1 hereof, the terms of the Original Agreement are unchanged and remain in full force and effect.

(Signature pages follow)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and effective as of the date first written above.

ESI:		ELECTRO SCIENTIFIC INDUSTRIES, INC.


		By:	/s/ Jon D. Tompkins
		Name: Jon D. Tompkins
		Title: Chairman


EXECUTIVE:	/s/ Nicholas Konidaris
		Nicholas Konidaris

EX-10.2 3 a05-2536_1ex10d2.htm EX-10.2

Exhibit 10.2

AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT

(Incentive Stock Option)

This Amendment No. 1 to Stock Option Agreement (this “Amendment”) is made and entered into as of January 25, 2005 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and Nicholas Konidaris (“Optionee”). The Company and Optionee are parties to a Stock Option Agreement dated as of January 25, 2004 (the “Original Agreement”). Capitalized terms in this Amendment which are not defined herein shall have the meanings ascribed to them in the Original Agreement.

NOW, THEREFORE, in consideration of the usual promises hereinafter set forth, the parties hereto agree as follows:

AGREEMENT

1. A new paragraph is inserted at the end of the Original Agreement to read in its entirety as follows:

“The Board of Directors, in its discretion, may accelerate the vesting of any of the shares subject to the option (the “Accelerated Shares”), in which event the Accelerated Shares shall be restricted upon exercise, with the restriction to lapse with respect to 3,921 Accelerated Shares on each Full Vest date following the date of acceleration (by way of example, if the vesting of all of Optionee’s unvested options is accelerated effective August 1, 2005, the restriction on 3,921 of the Accelerated Shares would lapse on July 13, 2005, the restriction on another 3,921 of the Accelerated Shares would lapse on July 13, 2006, the restriction on another 3,921 of the Accelerated Shares would lapse on July 13, 2007 and the restriction on the remaining Accelerated Shares would lapse on July 13, 2008); provided, further, that such restrictions shall lapse upon any event under the Employment Agreement that would have caused the option to become immediately exercisable prior to the acceleration described in this section. For purposes of this section, the restriction on the Accelerated Shares prohibits Optionee from selling, assigning, pledging, or in any manner transferring such restricted Accelerated Shares, or any right or interest in such restricted Accelerated Shares, whether voluntarily or by operation of law, or by gift, bequest or otherwise. Any sale or transfer, or purported sale or transfer, of restricted Accelerated Shares, in violation of this provision shall be null and void.”

2. Except as set forth in Section 1 hereof, the terms of the Original Agreement are unchanged and remain in full force and effect.

(Signature pages follow)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and effective as of the date first written above.

COMPANY:	ELECTRO SCIENTIFIC INDUSTRIES, INC.


	By:	/s/ Jon D. Tompkins
		Name: John D/ Tompkins
		Title: Chairman


OPTIONEE:	/s/ Nicholas Konidaris
	Nicholas Konidaris

EX-10.3 4 a05-2536_1ex10d3.htm EX-10.3

Exhibit 10.3

AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT

(Incentive Stock Option)

This Amendment No. 1 to Stock Option Agreement (this “Amendment”) is made and entered into as of January 25, 2005 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and Nicholas Konidaris (“Optionee”). The Company and Optionee are parties to a Stock Option Agreement dated as of July 13, 2004 (the “Original Agreement”). Capitalized terms in this Amendment which are not defined herein shall have the meanings ascribed to them in the Original Agreement.

NOW, THEREFORE, in consideration of the usual promises hereinafter set forth, the parties hereto agree as follows:

AGREEMENT

1. A new paragraph is inserted at the end of the Original Agreement to read in its entirety as follows:

2. Except as set forth in Section 1 hereof, the terms of the Original Agreement are unchanged and remain in full force and effect.

(Signature pages follow)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and effective as of the date first written above.

COMPANY:	ELECTRO SCIENTIFIC INDUSTRIES, INC.


	By:
		Name: John D/ Tompkins
		Title: Chairman


OPTIONEE:
	Nicholas Konidaris

EX-10.4 5 a05-2536_1ex10d4.htm EX-10.4

Exhibit 10.4

AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT

(Nonstatutory Stock Option)

This Amendment No. 1 to Stock Option Agreement (this “Amendment”) is made and entered into as of January 25, 2005 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and Nicholas Konidaris (“Optionee”). The Company and Optionee are parties to a Stock Option Agreement dated as of July 13, 2004 (the “Original Agreement”). Capitalized terms in this Amendment which are not defined herein shall have the meanings ascribed to them in the Original Agreement.

NOW, THEREFORE, in consideration of the usual promises hereinafter set forth, the parties hereto agree as follows:

AGREEMENT

1. A new paragraph is inserted at the end of the Original Agreement to read in its entirety as follows:

“The Board of Directors, in its discretion, may accelerate the vesting of any of the shares subject to the option (the “Accelerated Shares”), in which event the Accelerated Shares shall be restricted upon exercise, with the restriction to lapse with respect to 6,079 Accelerated Shares on each Full Vest date following the date of acceleration (by way of example, if the vesting of all of Optionee’s unvested options is accelerated effective August 1, 2005, the restriction on 6,079 of the Accelerated Shares would lapse on July 13, 2005, the restriction on another 6,079 of the Accelerated Shares would lapse on July 13, 2006, the restriction on another 6,079 of the Accelerated Shares would lapse on July 13, 2007 and the restriction on the remaining Accelerated Shares would lapse on July 13, 2008); provided, further, that such restrictions shall lapse upon any event under the Employment Agreement that would have caused the option to become immediately exercisable prior to the acceleration described in this section. For purposes of this section, the restriction on the Accelerated Shares prohibits Optionee from selling, assigning, pledging, or in any manner transferring such restricted Accelerated Shares, or any right or interest in such restricted Accelerated Shares, whether voluntarily or by operation of law, or by gift, bequest or otherwise. Any sale or transfer, or purported sale or transfer, of restricted Accelerated Shares, in violation of this provision shall be null and void.”

2. Except as set forth in Section 1 hereof, the terms of the Original Agreement are unchanged and remain in full force and effect.

(Signature pages follow)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and effective as of the date first written above.

COMPANY:	ELECTRO SCIENTIFIC INDUSTRIES, INC.


	By:
		Name:
		Title:


OPTIONEE:
	Nicholas Konidaris

EX-10.5 6 a05-2536_1ex10d5.htm EX-10.5

Exhibit 10.5

PERFORMANCE-BASED
RESTRICTED STOCK UNITS AWARD AGREEMENT

This Award Agreement (the “Agreement”) is entered into as of July 13, 2004 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and (the “Recipient”), for the grant of restricted stock units with respect to the Company’s Common Stock (“Common Stock”).

On July 13, 2004, the Compensation Committee of the Company’s Board of Directors made a restricted stock units award to Recipient pursuant to the Company’s 1996 Stock Incentive Plan (the “Plan”). The award is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986. Recipient desires to accept the award subject to the terms and conditions of this Agreement.

IN CONSIDERATION of the mutual covenants and agreements set forth in this Agreement, the parties agree to the following.

1. Grant and Terms of Restricted Stock Units. The Company grants to Recipient under the Plan restricted stock units, subject to the restrictions, terms and conditions set forth in this Agreement.

(a) Rights under Restricted Stock Units. A restricted stock unit (a “RSU”) represents the unsecured right to require the Company to deliver to Recipient one share of Common Stock for each RSU. The number of shares of Common Stock deliverable with respect to each RSU is subject to adjustment as determined by the Board of Directors of the Company as to the number and kind of shares of stock deliverable upon any merger, reorganization, consolidation, recapitalization, stock dividend, spin-off or other change in the corporate structure affecting the Common Stock generally.

(b) Vesting. The RSUs issued under this Agreement shall initially be 100% unvested and subject to forfeiture as set forth below.

(i) Except as set forth in Section 1(d), if Recipient ceases to be employed by the Company for any reason or for no reason prior to the end of the Performance Period (as defined below), the unvested RSUs shall be forfeited to the Company.

(ii) To the extent that any of the RSUs do not vest in accordance with Section 1(b)(iii) upon achievement to any extent of the Performance Goal (as defined below) and except as provided in Section 1(d), the unvested RSUs shall be forfeited to the Company. The extent to which the Performance Goal is achieved, if at all, shall be determined no later than the date that the Company’s fiscal year 2007 audit is completed. Nothing contained in this Agreement shall confer upon Recipient any right to be employed by the Company or to continue to provide services to the Company or to interfere in any way with the right of the Company to terminate Recipient’s services at any time for any reason, with or without cause.

(iii) The “Performance Goal” shall be based on (A) the average earnings/(loss) per share of the Company for the three-year period comprised of fiscal 2005, 2006 and 2007 (the “Performance Period”) as compared to the average earnings/(loss) per share of the Company for the three-year period comprised of fiscal 2002, 2003 and 2004 relative to (B) the average earnings/(loss) per share for each member of the peer group companies set forth on Exhibit A for the three-year period comprised of the three most recent fiscal years for which annual earnings information is available prior to the date of the completion of the Company’s fiscal 2007 audit (the “Comparable Period”) as compared to the average earnings/(loss) per share for such company for the three-year period comprised of the three fiscal years preceding the Comparable Period. All information with respect to members of the peer group will be based upon publicly available information. The RSUs shall vest as follows:

Company Percentile Rank vs. Peer Group	Portion of RSUs subject to this Agreement Vesting

>90^th	200	%
75^th	150	%
50^th	100	%
25^th	50	%
<25^th	0	%

RSUs will vest proportionately between 0% and 200% for Company rankings between the 25^th and 90^th percentiles. The Compensation Committee of the Board of Directors may, in its discretion, permit the vesting of any or all of the RSUs subject to this Agreement for a Company ranking below the 25^th percentile. Those RSUs vesting pursuant to this Section 1(b)(iii) shall vest immediately upon the determination of the extent of the achievement of the Performance Goal.

(c) Delivery Date. Except as set forth in Section 1(d)(iv), the delivery date for a RSU subject to this Agreement shall be the date of completion of the Company’s fiscal 2007 audit.

(d) Proration upon Termination for Certain Reasons Prior to End of Performance Period.

(i) Proration on Death or Total Disability. If Recipient ceases to be an employee of the Company by reason of Recipient’s death or physical disability prior to the end of the Performance Period, the RSUs Recipient would otherwise be entitled to receive pursuant to Section 1(b)(iii) if Recipient were employed through the end of the Performance Period (the “Base Payout”) shall be reduced to a number determined by multiplying the Base Payout by a percentage calculated by dividing the number of months elapsed from the beginning of the Performance Period to the date of termination of employment (rounded down to the whole

month) by 36 (the “Pro Rata Percentage”); provided, however, that the Board of Directors or the Compensation Committee of the Board of Directors, in its discretion, may increase the number of RSUs the Recipient would otherwise be entitled to receive under this Section 1(d)(i). The term “total disability” means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that, in the opinion of the Company and two independent physicians, causes the Recipient to be unable to perform his or her duties as an employee, director, officer or consultant of the Company and unable to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the two independent physicians have furnished their written opinion of total disability to the Company and the Company has reached an opinion of total disability.

(ii) Proration on Normal Retirement. If Recipient terminates his employment with the Company following normal retirement under the Company’s retirement policy in place at such time prior to the end of the Performance Period, the Base Payout shall be reduced to a number determined by multiplying the Base Payout by the Pro Rata Percentage; provided, however, that the Board of Directors or the Compensation Committee of the Board of Directors, in its discretion, may increase the number of RSUs the Recipient would otherwise be entitled to receive under this Section 1(d)(ii).

(iii) Proration on Termination Other Than for Cause. If the Company terminates Recipient’s employment with the Company other than for cause prior to the end of the Performance Period, the Base Payout shall be reduced to a number determined by multiplying the Base Payout by the Pro Rata Percentage; provided, however, that the Board of Directors or the Compensation Committee of the Board of Directors, in its discretion, may increase the number of RSUs the Recipient would otherwise be entitled to receive under this Section 1(d)(iii). The term “cause” shall mean (i) the willful and continued failure by Recipient substantially to perform his reasonably assigned duties with the Company, other than a failure resulting from Recipient’s incapacity due to physical or mental illness or impairment, after a written demand for performance has been delivered to Recipient by the Company which specifically identifies the manner in which the Company believes that Recipient has not substantially performed his duties, (ii) the willful engagement by Recipient in illegal or dishonest conduct which is materially and demonstrably injurious to the Company, or (iii) the willful failure by Recipient to follow directives of the Board of Directors or the Chief Executive Officer or Company policies.

(iv) Proration following Change in Control. If there is a change in control of the Company, the Recipient shall be entitled to receive the greater of (A) 100% of the RSUs subject to this Agreement or (B) the Adjusted Performance Payout (as defined below). The delivery date shall immediately follow the determination of the number of RSUs to be delivered pursuant to this Section 1(d)(iv). “Change in control” shall mean a “Change in Control Event” as defined in IRS Notice 2005-1 or any successor regulation. The “Adjusted Performance Payout” shall mean the number of RSUs determined by multiplying (x) the number of RSUs that Recipient would receive pursuant to Section 1(b)(iii) if (A) the Performance Period for the Company is deemed to have ended at the end of the Company’s fiscal quarter ending most recently before the change in control of the Company (with the earnings per share for the completed three, six or nine month period, whichever is longer, to be considered the result for the full fiscal year) and (B) the Comparable Period is deemed to have ended at the end of the

fiscal quarter ending most recently before the change in control of the Company for each member of the peer group (with the earnings per share for the completed three, six or nine month period, whichever is longer, to be considered the result for the full fiscal year), by (y) a percentage calculated by dividing the number of months elapsed from the beginning of the Performance Period to the date of the change in control of the Company (rounded down to the whole month) by 36.

(e) Restrictions on Transfer and Delivery on Death. Recipient may not sell, transfer, assign, pledge or otherwise encumber or dispose of the RSUs. Recipient may designate beneficiaries to receive stock if Recipient dies before the delivery date by so indicating on Exhibit B, which is incorporated into and made a part of this agreement. If Recipient fails to designate beneficiaries on Exhibit B, the shares will be delivered to Recipient’s estate.

(f) Reinvestment of Dividend Equivalents. On each date on which the Company pays a dividend on shares of Common Stock underlying a RSU, Recipient shall receive additional whole or fractional RSUs in an amount equal to the value of the dividends that would have been paid on the stock deliverable pursuant to the RSUs (if such shares were outstanding), divided by the closing stock price on the dividend payment date.

(g) Delivery on Delivery Date. As soon as practicable following the delivery date for a RSU, the Company shall deliver a certificate for the number of shares represented by all vested RSUs having a delivery date on the same date, rounded down to the whole share. No fractional shares of Common Stock shall be issued. The Company shall pay to Recipient in cash an amount equal to the value of any fractional shares that would otherwise have been issued, valued as of the delivery date.

(h) Recipient’s Rights as Shareholder. Recipient shall have no rights as a shareholder with respect to the RSUs or the shares underlying them until the Company delivers the shares to Recipient on the delivery date.

(i) Tax Withholding. Recipient acknowledges that, at the delivery date, the value of such vested RSUs will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on this income amount. Promptly following the delivery date, the Company will notify Recipient of the required withholding amount. Concurrently with or prior to the delivery of the certificate referred to in Section 1(g), Recipient shall pay to the Company the required withholding amount in cash or, at the election of the Recipient, by surrendering to the Company for cancellation shares of the Company’s Common Stock to be issued with respect to the RSUs or other shares of the Company’s Common Stock valued at the closing market price for the Company’s Common Stock on the last trading day preceding the date of Recipient’s election to surrender such shares. If the Recipient pays the withholding amount in shares of Common Stock, the Company shall pay to the Recipient in cash the amount of any resulting over payment.

2. Miscellaneous.

(a) Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subjects hereof and may be amended only by written agreement between the Company and the Recipient.

(b) Notices. Any notice required or permitted under this Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States mail as registered or certified mail, return receipt requested, postage prepaid, addressed to Electro Scientific Industries, Inc., Attention: Corporate Secretary, at its principal executive offices or to the Recipient at the address of Recipient in the Company’s records, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party.

(c) Rights and Benefits. The rights and benefits of this Agreement shall inure to the benefit of and be enforceable by the Company’s successors and assigns and, subject to the restrictions on transfer of this Agreement, be binding upon the Recipient’s heirs, executors, administrators, successors and assigns.

(d) Further Action. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

(e) Applicable Law; Attorneys’ Fees. The terms and conditions of this Agreement shall be governed by the laws of the State of Oregon. In the event either party institutes litigation hereunder, the prevailing party shall be entitled to reasonable attorneys’ fees to be set by the trial court and, upon any appeal, the appellate court.

(f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original.

ELECTRO SCIENTIFIC INDUSTRIES, INC.


By:
	Authorized Officer



		, Recipient

EXHIBIT A

PEER GROUP COMPANIES

Applied Materials

Asyst Technologies

Axcelis Technologies

Brooks Automation

Coherent

Cohu

Credence Systems

Cymer

FEI

FSI International

GSI Lumonics

Helix Technology

KLA-Tencor

Kulicke & Soffa Industries

Lam Research

LTX

Mattson Technology

Newport

Novellus Systems

Photronics

Teradyne

Ultratech

Varian Semiconductor

Veeco Instruments

Zygo

EXHIBIT B

DESIGNATION OF BENEFICIARY

Name

Social Security Number

I designate the following person(s) to receive any restricted stock units outstanding upon my death under the Performance-Based Restricted Stock Units Award Agreement with Electro Scientific Industries, Inc.:

A. Primary Beneficiary(ies)

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one primary beneficiary is named, the units will be divided equally among those primary beneficiaries who survive the undersigned.

B. Secondary Beneficiary(ies)

In the event no Primary Beneficiary is living at the time of my death, I designate the following the person(s) as my beneficiary(ies):

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one Secondary Beneficiary is named, the units will be divided equally among those Secondary beneficiaries who survive the undersigned.

This designation revokes and replaces all prior designations of beneficiaries under the Performance-Based Restricted Stock Units Award Agreement.

			Date signed:		, 20
Signature

EX-10.6 7 a05-2536_1ex10d6.htm EX-10.6

Exhibit 10.6

RESTRICTED STOCK UNITS
AWARD AGREEMENT

This Award Agreement (the “Agreement”) is entered into as of January 25, 2005 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and Nicholas Konidaris (the “Recipient”), for the grant of restricted stock units with respect to the Company’s Common Stock (“Common Stock”).

On January 25, 2005, the Compensation Committee of the Company’s Board of Directors made a restricted stock units award to Recipient pursuant to Section 9 of the Company’s 2004 Stock Incentive Plan (the “Plan”) and Recipient desires to accept the award subject to the terms and conditions of this Agreement.

IN CONSIDERATION of the mutual covenants and agreements set forth in this Agreement, the parties agree to the following.

1. Grant and Terms of Restricted Stock Units. The Company grants to Recipient under the Company’s Plan 20,000 restricted stock units, subject to the restrictions, terms and conditions set forth in this Agreement.

(b) Vesting and Delivery Dates. The RSUs issued under this Agreement shall initially be 100% unvested and subject to forfeiture. Subject to this Section 1(b), the RSUs shall vest on July 22, 2009. The RSUs shall become vested on the vesting date only if Recipient continues to be an employee of the Company immediately after such vesting date. The delivery date for a RSU shall be the date on which such RSU vests.

(1) Acceleration on Death or Total Disability. If Recipient ceases to be an employee of the Company by reason of Recipient’s death or physical disability, outstanding but unvested RSUs shall become immediately vested in an amount determined by multiplying the total number of RSUs subject to this Agreement by a percentage calculated by dividing the number of whole months elapsed from the date of this Agreement to the date of termination of employment by 54 (the “Pro Rata Percentage”); provided, however, that the number of RSUs so vested shall be reduced by the number of any RSUs that previously vested pursuant to Section 1(b). The delivery date shall also accelerate. The term “total

disability” means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that, in the opinion of the Company and two independent physicians, causes the Recipient to be unable to perform his or her duties as an employee, director, officer or consultant of the Company and unable to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the two independent physicians have furnished their written opinion of total disability to the Company and the Company has reached an opinion of total disability.

(2) Acceleration on Normal Retirement. If Recipient terminates his employment with the Company following normal retirement under the Company’s retirement policy in place at such time, outstanding but unvested RSUs shall become immediately vested in an amount determined by multiplying the total number of RSUs subject to this Agreement by the Pro Rata Percentage; provided, however, that the number of RSUs so vested shall be reduced by the number of any RSUs that previously vested pursuant to Section 1(b). The delivery date shall also be accelerated.

(3) Acceleration of Termination Other Than for Cause. If the Company terminates Recipient’s employment with the Company other than for cause, outstanding but unvested RSUs shall become immediately vested in an amount determined by multiplying the total number of RSUs subject to this Agreement by the Pro Rata Percentage; provided, however, that the number of RSUs so vested shall be reduced by the number of any RSUs that previously vested pursuant to Section 1(b). The delivery date shall also be accelerated. The term “cause” shall mean (i) the willful and continued failure by Recipient substantially to perform his reasonably assigned duties with the Company, other than a failure resulting from Recipient’s incapacity due to physical or mental illness or impairment, after a written demand for performance has been delivered to Recipient by the Company which specifically identifies the manner in which the Company believes that Recipient has not substantially performed his duties, (ii) the willful engagement by Recipient in illegal or dishonest conduct which is materially and demonstrably injurious to the Company, or (iii) the willful failure by Recipient to follow directives of the Board of Directors or the Chief Executive Officer or Company policies.

(4) Acceleration on Change in Control. If there is a change in control of the Company, all outstanding but unvested RSUs shall become immediately vested. The delivery date shall also accelerate. “Change in control” shall mean a “Change in Control Event” as defined in IRS Notice 2005-1 or any successor regulation.

(d) Forfeiture of RSUs on Other Terminations of Service. If Recipient ceases to be an employee of the Company for any reason that does not result in acceleration of vesting pursuant to Section 1(c), Recipient shall immediately forfeit all outstanding but unvested RSUs

granted pursuant to this Agreement and Recipient shall have no right to receive the related Common Stock.

(e) Restrictions on Transfer and Delivery on Death. Recipient may not sell, transfer, assign, pledge or otherwise encumber or dispose of the RSUs. Recipient may designate beneficiaries to receive stock if Recipient dies before the delivery date by so indicating on Exhibit A, which is incorporated into and made a part of this agreement. If Recipient fails to designate beneficiaries on Exhibit A, the shares will be delivered to Recipient’s estate.

2. Miscellaneous.

(b) Notices. Any notice required or permitted under this Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is

addressed or when deposited into the United States mail as registered or certified mail, return receipt requested, postage prepaid, addressed to Electro Scientific Industries, Inc., Attention: Corporate Secretary, at its principal executive offices or to the Recipient at the address of Recipient in the Company’s records, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party.

(d) Further Action. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

(f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original.

(g) Application of Employment Agreement. Notwithstanding Section (1)(c)(3) hereof, Section 9 of the Employment Agreement between Recipient and the Company dated January 7, 2004 (the “Employment Agreement”) shall govern the vesting of the RSUs in the event the Company terminates Recipient’s employment without cause (as defined in the Employment Agreement) or in the event the Recipient terminates employment for Good Reason (as defined in the Employment Agreement).

	ELECTRO SCIENTIFIC INDUSTRIES, INC.


	By:
		Authorized Officer



	Nicholas Konidaris, Recipient

EXHIBIT A

DESIGNATION OF BENEFICIARY

Name

Social Security Number

I designate the following person(s) to receive any restricted stock units outstanding upon my death under the Restricted Stock Units Award Agreement with Electro Scientific Industries, Inc.:

C. Primary Beneficiary(ies)

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one primary beneficiary is named, the units will be divided equally among those primary beneficiaries who survive the undersigned.

D. Secondary Beneficiary(ies)

In the event no Primary Beneficiary is living at the time of my death, I designate the following the person(s) as my beneficiary(ies):

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one Secondary Beneficiary is named, the units will be divided equally among those Secondary beneficiaries who survive the undersigned.

This designation revokes and replaces all prior designations of beneficiaries under the Restricted Stock Units Award Agreement.

			Date signed:		, 20
Signature

EX-10.7 8 a05-2536_1ex10d7.htm EX-10.7

Exhibit 10.7

RESTRICTED STOCK UNITS
AWARD AGREEMENT

This Award Agreement (the “Agreement”) is entered into as of , 200 by and between Electro Scientific Industries, Inc., an Oregon corporation (the “Company”), and (the “Recipient”), for the grant of restricted stock units with respect to the Company’s Common Stock (“Common Stock”).

On , 200 , the Compensation Committee of the Company’s Board of Directors made a restricted stock units award to Recipient pursuant to [Section 6 of the Company’s 1996 Stock Incentive Plan] [Section 9 of the Company’s 2004 Stock Incentive Plan] (the “Plan”) and Recipient desires to accept the award subject to the terms and conditions of this Agreement.

IN CONSIDERATION of the mutual covenants and agreements set forth in this Agreement, the parties agree to the following.

1. Grant and Terms of Restricted Stock Units. The Company grants to Recipient under the Company’s Plan restricted stock units, subject to the restrictions, terms and conditions set forth in this Agreement.

(b) Vesting and Delivery Dates. The RSUs issued under this Agreement shall initially be 100% unvested and subject to forfeiture. Subject to this Section 1(b), the RSUs shall vest on [fifth anniversary of the date of grant]. The RSUs shall become vested on the vesting date only if Recipient continues to be an employee of the Company immediately after such vesting date. The delivery date for a RSU shall be the date on which such RSU vests.

(1) Acceleration on Death or Total Disability. If Recipient ceases to be an employee of the Company by reason of Recipient’s death or physical disability, outstanding but unvested RSUs shall become immediately vested in an amount determined by multiplying the total number of RSUs subject to this Agreement by a percentage calculated by dividing the number of whole months elapsed from the date of this Agreement to the date of termination of employment by 60 (the “Pro Rata Percentage”); provided, however, that the number of RSUs so vested shall be reduced by the number of any RSUs that previously vested

pursuant to Section 1(b). The delivery date shall also accelerate. The term “total disability” means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that, in the opinion of the Company and two independent physicians, causes the Recipient to be unable to perform his or her duties as an employee, director, officer or consultant of the Company and unable to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the two independent physicians have furnished their written opinion of total disability to the Company and the Company has reached an opinion of total disability.

granted pursuant to this Agreement and Recipient shall have no right to receive the related Common Stock.

(e) Restrictions on Transfer and Delivery on Death. Recipient may not sell, transfer, assign, pledge or otherwise encumber or dispose of the RSUs. Recipient may designate beneficiaries to receive stock if Recipient dies before the delivery date by so indicating on Exhibit A, which is incorporated into and made a part of this agreement. If Recipient fails to designate beneficiaries on Exhibit A, the shares will be delivered to Recipient’s estate.

2. Miscellaneous.

(b) Notices. Any notice required or permitted under this Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is

(d) Further Action. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

(f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original.

	ELECTRO SCIENTIFIC INDUSTRIES, INC.


	By:
		Authorized Officer



	Recipient

EXHIBIT A

DESIGNATION OF BENEFICIARY

Name

Social Security Number

I designate the following person(s) to receive any restricted stock units outstanding upon my death under the Restricted Stock Units Award Agreement with Electro Scientific Industries, Inc.:

E. Primary Beneficiary(ies)

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one primary beneficiary is named, the units will be divided equally among those primary beneficiaries who survive the undersigned.

F. Secondary Beneficiary(ies)

In the event no Primary Beneficiary is living at the time of my death, I designate the following the person(s) as my beneficiary(ies):

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

Name

Social Security Number

Birth Date

Relationship

Address

City

State

Zip

If more than one Secondary Beneficiary is named, the units will be divided equally among those Secondary beneficiaries who survive the undersigned.

This designation revokes and replaces all prior designations of beneficiaries under the Restricted Stock Units Award Agreement.

			Date signed:		, 20
Signature

EX-10.8 9 a05-2536_1ex10d8.htm EX-10.8

Exhibit 10.8

ELECTRO SCIENTIFIC INDUSTRIES, INC.
2004 STOCK INCENTIVE PLAN

(As amended January 25, 2005)

1. Purpose. The purpose of this 2004 Stock Incentive Plan (the “Plan”) is to enable Electro Scientific Industries, Inc. (the “Company”) to attract and retain the services of selected employees, officers and directors of the Company or any parent or subsidiary of the Company. For purposes of this Plan, a person is considered to be employed by or in the service of the Company if the person is employed by or in the service of any entity (the “Employer”) that is either the Company or a parent or subsidiary of the Company.

2. Shares Subject to the Plan. Subject to adjustment as provided below and in Section 12, the shares to be offered under the Plan shall consist of Common Stock of the Company (“Common Stock”), and the total number of shares of Common Stock that may be issued under the Plan shall be 3,000,000 shares plus any shares that at the time the Plan is approved by shareholders are available for grant under the Company’s 1989 Stock Option Plan, 1996 Stock Incentive Plan and 2000 Stock Option Incentive Plan, which plans were previously approved by shareholders of the Company, and the Company’s 2000 Stock Option Plan, which plan was not previously approved by the Company’s shareholders (collectively, the “Prior Plans”), or that may subsequently become available for grant under any of the Prior Plans through the expiration, termination, forfeiture or cancellation of grants. If an option, stock appreciation right or Performance-Based Award granted under the Plan expires, terminates or is canceled, the unissued shares subject to that option, stock appreciation right or Performance-Based Award shall again be available under the Plan. If shares awarded as a bonus pursuant to Section 9 or sold pursuant to Section 10 under the Plan are forfeited to or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan.

3. Effective Date and Duration of Plan.

3.1 Effective Date. The Plan shall become effective as of July 15, 2004. No awards shall be made under the Plan until the Plan is approved by shareholders of the Company in accordance with rules of The Nasdaq Stock Market.

3.2 Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on the shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options, Performance-Based Awards, stock appreciation rights, and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, Performance-Based Awards, stock appreciation rights or any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan.

4. Administration.

4.1 Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate the individuals to whom awards

shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it deems expedient to carry the Plan into effect, and the Board of Directors shall be the sole and final judge of such expediency.

4.2 Committee. The Board of Directors may delegate to any committee of the Board of Directors (the “Committee”) any or all authority for administration of the Plan. If authority is delegated to the Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee, except (i) as otherwise provided by the Board of Directors and (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 13.

5. Types of Awards; Eligibility; Limitations.

5.1 Types of Awards, Eligibility. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), as provided in Sections 6.1, 6.2 and 8; (ii) grant options other than Incentive Stock Options (“Non-Statutory Stock Options”) as provided in Sections 6.1, 6.3 and 8; (iii) grant stock appreciation rights as provided in Sections 7 and 8; (iv) award stock bonuses (including bonuses in the form of restricted stock units) as provided in Section 9; (v) sell shares subject to restrictions as provided in Sections 10; (vi) award Performance-Based Awards as provided in Section 11. Awards may be made to employees, including employees who are officers or directors, and to non-employee directors; provided, however, that only employees of the Company or any parent or subsidiary of the Company (as defined in subsections 424(e) and 424(f) of the Code) are eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made.

5.2 Per Employee Share Limitations. No employee may be granted options and/or stock appreciation rights for more than an aggregate of 500,000 shares of Common Stock in any calendar year; provided, however, that to the extent the annual limitation is not fully used in any year for an employee, any shares not used may be added to the number of shares for which options and/or stock appreciation rights may be granted to that employee in any future year.

5.3 Prohibition on Option Repricing. Except as provided in Section 12, without the prior approval of the Company’s shareholders, an option issued under the Plan may not be repriced by lowering the option exercise price or by cancellation of an outstanding option with a subsequent replacement or regrant of an option with a lower exercise price.

5.4 Maximum Number of Shares Issuable Upon Exercise of ISOs. The maximum aggregate number of shares of Common Stock that may be issued under the Plan upon exercise of Incentive Stock Options shall be equal to the sum of 3,000,000 shares plus any shares that at July 15, 2004 are available for grant under the Prior Plans or that may subsequently become available for grant under any of the Prior Plans through the expiration, termination, forfeiture or cancellation of grants, which number will not exceed 9,568,684 shares.

5.5 Reservation of Additional Shares. Except as provided in Section 12, additional shares of Common Stock may not be reserved for issuance under the Plan without the approval of the Company’s shareholders.

6. Stock Options.

6.1 General Rules Relating to Options.

6.1-1 Terms of Grant. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the exercise price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options.

6.1-2 Nontransferability. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other option granted under the Plan by its terms (i) shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee’s domicile at the time of death, and (ii) during the optionee’s lifetime, shall be exercisable only by the optionee.

6.1-3 Purchase of Shares. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option exercise, the optionee must pay the Company the full purchase price of those shares in cash or by check or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock or other contingent awards denominated in either stock or cash, promissory notes and other forms of consideration. Unless otherwise determined by the Board of Directors, any Common Stock provided in payment of the purchase price must have been previously acquired and held by the optionee for at least six months. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock last reported before the time payment in Common Stock is made or, if earlier, committed to be made, if the Common Stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors. No shares shall be issued until full payment for the shares has been made, including all amounts owed for tax withholding. With the consent of the Board of Directors, an optionee may request the Company to apply automatically the shares to be received upon the exercise of a portion of a

stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option.

6.1-4 Limitations on Grants to Non-Exempt Employees. Unless otherwise determined by the Board of Directors, if an employee of the Company or any parent or subsidiary of the Company is a non-exempt employee subject to the overtime compensation provisions of Section 7 of the Fair Labor Standards Act (the “FLSA”), any option granted to that employee shall be subject to the following restrictions: (i) the option price shall be at least 85 percent of the fair market value, as described in Section 6.2-4, of the Common Stock subject to the option on the date it is granted; and (ii) the option shall not be exercisable until at least six months after the date it is granted; provided, however, that this six-month restriction on exercisability will cease to apply if the employee dies, becomes disabled or retires, there is a change in ownership of the Company, or in other circumstances permitted by regulation, all as prescribed in Section 7(e)(8)(B) of the FLSA.

6.2 Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions:

6.2-1 Limitation on Amount of Grants. If the aggregate fair market value of stock (determined as of the date the option is granted) for which Incentive Stock Options granted under this Plan (and any other stock incentive plan of the Company or its parent or subsidiary corporations, as defined in subsections 424(e) and 424(f) of the Code) are exercisable for the first time by an employee during any calendar year exceeds $100,000, the portion of the option or options not exceeding $100,000, to the extent of whole shares, will be treated as an Incentive Stock Option and the remaining portion of the option or options will be treated as a Non-Statutory Stock Option. The preceding sentence will be applied by taking options into account in the order in which they were granted. If, under the $100,000 limitation, a portion of an option is treated as an Incentive Stock Option and the remaining portion of the option is treated as a Non-Statutory Stock Option, unless the optionee designates otherwise at the time of exercise, the optionee’s exercise of all or a portion of the option will be treated as the exercise of the Incentive Stock Option portion of the option to the full extent permitted under the $100,000 limitation. If an optionee exercises an option that is treated as in part an Incentive Stock Option and in part a Non-Statutory Stock Option, the Company will designate the portion of the stock acquired pursuant to the exercise of the Incentive Stock Option portion as Incentive Stock Option stock by issuing a separate certificate for that portion of the stock and identifying the certificate as Incentive Stock Option stock in its stock records.

6.2-2 Limitations on Grants to 10 percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary (as defined in subsections 424(e) and 424(f) of the Code) only if the option price is at least 110 percent of the fair market value, as described in Section 6.2-4, of the Common Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted.

6.2-3 Duration of Options. Subject to Sections 6.2-2, 8.1 and 8.2, Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by

the Board of Directors, except that by its terms no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted.

6.2-4 Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in Section 6.2-2, the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be the closing price of the Common Stock last reported on the date the option is granted, if the stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors.

6.2-5 Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the tenth anniversary of the last action by the Board of Directors adopting the Plan or approving an increase in the number of shares available for issuance under the Plan, which action was subsequently approved within 12 months by the shareholders.

6.2-6 Early Dispositions. If within two years after an Incentive Stock Option is granted or within 12 months after an Incentive Stock Option is exercised, the optionee sells or otherwise disposes of Common Stock acquired on exercise of the Option, the optionee shall within 30 days of the sale or disposition notify the Company in writing of (i) the date of the sale or disposition, (ii) the amount realized on the sale or disposition and (iii) the nature of the disposition (e.g., sale, gift, etc.).

6.3 Non-Statutory Stock Options. Non-Statutory Stock Options shall be subject to the following terms and conditions, in addition to those set forth in Sections 6.1 and 8.

6.3-1 Option Price. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant. The option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Non-Statutory Stock Option at the date the option is granted. The fair market value shall be the closing price of the Common Stock last reported on the date the option is granted, if the stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors.

6.3-2 Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Non-Statutory Option shall be exercisable after the expiration of 10 years from the date it is granted.

7. Stock Appreciation Rights.

7.1 Grant. Stock appreciation rights may be granted under the Plan by the Board of Directors, subject to such rules, terms, and conditions as the Board of Directors prescribes. The Board of Directors may provide that stock appreciation rights may be granted in substitution for stock options granted under the Plan. With respect to each grant, the Board shall determine the number of shares subject to the stock appreciation right, the exercise price of the stock appreciation right, the period of the stock appreciation right, and the time or times at which the stock appreciation right may be exercised. Stock appreciation rights shall continue in effect for the period fixed by the Board of Directors.

7.2 Stock Appreciation Rights Granted in Connection with Options. If a stock appreciation right is granted in connection with an option, the stock appreciation right shall be exercisable only to the extent and on the same conditions that the related option could be exercised. Upon exercise of a stock appreciation right, any option or portion thereof to which the stock appreciation right relates terminates. If a stock appreciation right is granted in connection with an option, upon exercise of the option, the stock appreciation right or portion thereof to which the grant relates terminates.

7.3 Exercise. Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock of the Company over the exercise price as determined by the Board of Directors (or, in the case of a stock appreciation right granted in connection with an option, the option price per share under the option to which the stock appreciation right relates), multiplied by the number of shares covered by the stock appreciation right, or portion thereof, that is surrendered. Payment by the Company upon exercise of a stock appreciation right may be made in Common Stock valued at fair market value, in cash, or partly in Common Stock and partly in cash, all as determined by the Board of Directors. For this purpose, the fair market value of the Common Stock shall be the closing price of the Common Stock last reported before the time of exercise, or such other value of the Common Stock as specified by the Board of Directors.

7.4 Fractional Shares. No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Board of Directors shall determine, the number of shares may be rounded downward to the next whole share.

7.5 Nontransferability. Each stock appreciation right granted in connection with an Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other stock appreciation right granted under the Plan, by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder’s domicile at the time of death, and each stock appreciation right by its terms shall be exercisable during the holder’s lifetime only by the holder.

8. Exercise of Options and Stock Appreciation Rights.

8.1 Exercise. Except as provided in Section 8.2 or as determined by the Board of Directors, no option or stock appreciation right granted under the Plan may be exercised unless at the time of exercise the holder is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the date the option or stock appreciation right was granted. Except as provided in Sections 8.2 and 12, options and stock appreciation rights granted under the Plan may be exercised from time to time over the period stated in each option or stock appreciation right in amounts and at times prescribed by the Board of Directors, provided that options and stock appreciation rights may not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if a holder does not exercise an option or stock appreciation right in any one year for the full number of shares to which the holder is entitled in that year, the holder’s rights shall be cumulative and

the holder may acquire those shares in any subsequent year during the term of the option or stock appreciation right.

8.2 Termination of Employment or Service.

8.2-1 General Rule. Unless otherwise determined by the Board of Directors, if a holder’s employment or service with the Company terminates for any reason other than because of total disability or death as provided in Sections 8.2-2 and 8.2-3, his or her option or stock appreciation right may be exercised at any time before the expiration date of the option or stock appreciation right or the expiration of 3 months after the date of termination, whichever is the shorter period, but only if and to the extent the holder was entitled to exercise the option or stock appreciation right at the date of termination.

8.2-2 Termination Because of Total Disability. Unless otherwise determined by the Board of Directors, if a holder’s employment or service with the Company terminates because of total disability, his or her option or stock appreciation right may be exercised at any time before the expiration date of the option or stock appreciation right or before the date 12 months after the date of termination, whichever is the shorter period, but only if and to the extent the holder was entitled to exercise the option or stock appreciation right at the date of termination. The term “total disability” means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that, in the opinion of the Company and two independent physicians, causes the holder to be unable to perform his or her duties as an employee, director or officer of the Employer and unable to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the two independent physicians have furnished their written opinion of total disability to the Company and the Company has reached an opinion of total disability.

8.2-3 Termination Because of Death. Unless otherwise determined by the Board of Directors, if a holder dies while employed by or providing service to the Company, his or her option or stock appreciation right may be exercised at any time before the expiration date of the option or stock appreciation right or before the date 12 months after the date of death, whichever is the shorter period, but only if and to the extent the holder was entitled to exercise the option or stock appreciation right at the date of death and only by the person or persons to whom the holder’s rights under the option or stock appreciation right shall pass by the holder’s will or by the laws of descent and distribution of the state or country of domicile at the time of death.

8.2-4 Amendment of Exercise Period Applicable to Termination. The Board of Directors may at any time extend the 3-month and 12-month exercise periods any length of time not longer than the original expiration date of the option or stock appreciation right. The Board of Directors may at any time increase the portion of an option or stock appreciation right that is exercisable, subject to terms and conditions determined by the Board of Directors.

8.2-5 Failure to Exercise Option or Stock Appreciation Right. To the extent that the option or stock appreciation right of any deceased holder or any holder whose

employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to the option or stock appreciation right shall cease and terminate.

8.2-6 Leave of Absence. Absence on leave approved by the Employer or on account of illness or disability shall not be deemed a termination or interruption of employment or service. Unless otherwise determined by the Board of Directors, vesting of options and stock appreciation rights shall continue during a medical, family or military leave of absence or other leave approved by the Employer, whether paid or unpaid, and vesting of options and stock appreciation rights shall be suspended during any other unpaid leave of absence.

8.3 Notice of Exercise or Surrender. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option or stock appreciation right granted under the Plan only upon the Company’s receipt of written notice from the holder of the holder’s binding commitment to purchase shares, specifying the number of shares the holder desires to acquire under the option or stock appreciation right and the date on which the holder agrees to complete the transaction, and, if required to comply with the Securities Act of 1933, containing a representation that it is the holder’s intention to acquire the shares for investment and not with a view to distribution. Unless the Board of Directors determines otherwise, cash may be paid upon surrender of a stock appreciation right granted under the Plan only upon the Company’s receipt of written notice from the holder of the holder’s binding commitment to surrender the stock appreciation right, specifying the number of shares subject to the stock appreciation right being surrendered and the date on which the holder agrees to complete the surrender.

8.4 Tax Withholding. Each holder who has exercised an option or stock appreciation right shall, immediately upon notification of the amount due, if any, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required (as a result of exercise of an option or stock appreciation right or as a result of disposition of shares acquired pursuant to exercise of an option or stock appreciation right) beyond any amount deposited before delivery of the certificates, the holder shall pay such amount, in cash or by check, to the Company on demand. If the holder fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the holder, including salary, subject to applicable law. With the consent of the Board of Directors, a holder may satisfy this obligation, in whole or in part, by instructing the Company to withhold from the shares to be issued upon exercise or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered in connection with an option exercise shall not exceed the minimum amount necessary to satisfy the required withholding obligation.

8.5 Reduction of Reserved Shares. Upon the exercise of an option or stock appreciation right, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option or stock appreciation right. Cash payments of stock appreciation rights shall not reduce the number of shares of Common Stock reserved for issuance under the Plan.

9. Stock Bonuses. The Board of Directors may award shares under the Plan as stock bonuses, including restricted stock units that provide for delivery of Common Stock at a later date. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with any other restrictions determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued.

10. Restricted Stock.

10.1 Restricted Stock. The Board of Directors may issue shares under the Plan for any consideration (including promissory notes and services) determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors; provided, however, that any award made under this Section 10 the vesting for which is time-based will provide for a restriction period of at least three years, with the restriction to lapse no more quickly than with respect to one-third of the shares annually over the three-year restriction period. Subject to the provisions of the Plan, the restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with any other restrictions determined by the Board of Directors. All Common Stock issued pursuant to this Section 10.1 shall be subject to a Restricted Stock Agreement, which shall be executed by the Company and the prospective recipient of the shares before the delivery of certificates representing the shares. The Agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors.

10.2 Other Provisions. The certificates representing shares of restricted stock shall bear any legends required by the Board of Directors. The Company may require any participant receiving restricted stock to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by

delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued.

11. Performance-Based Awards. The Board of Directors may grant awards intended to qualify as qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder (“Performance-Based Awards”). Performance-Based Awards shall be denominated at the time of grant either in Common Stock (“Stock Performance Awards”) or in dollar amounts (“Dollar Performance Awards”). Payment under a Stock Performance Award or a Dollar Performance Award shall be made, at the discretion of the Board of Directors, in Common Stock (“Performance Shares”), or in cash or in any combination thereof. Performance-Based Awards shall be subject to the following terms and conditions:

11.1 Award Period. The Board of Directors shall determine the period of time for which a Performance-Based Award is made (the “Award Period”).

11.2 Performance Goals and Payment. The Board of Directors shall establish in writing objectives (“Performance Goals”) that must be met by the Company or any subsidiary, division or other unit of the Company (“Business Unit”) during the Award Period as a condition to payment being made under the Performance-Based Award. The Performance Goals for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: earnings, earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, inventories, inventory turns, cash flows, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, and restructuring and special charges (determined according to criteria established by the Board of Directors). The Board of Directors shall also establish the number of Performance Shares or the amount of cash payment to be made under a Performance-Based Award if the Performance Goals are met or exceeded, including the fixing of a maximum payment (subject to Section 11.4). The Board of Directors may establish other restrictions to payment under a Performance-Based Award, such as a continued employment requirement, in addition to satisfaction of the Performance Goals. Some or all of the Performance Shares may be issued at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Goals or, if applicable, other restrictions are not satisfied.

11.3 Computation of Payment. During or after an Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Goals. If the Performance Goals are not met, no payment shall be made under a Performance-Based Award. If the Performance Goals are met or exceeded, the Board of Directors shall certify that fact in writing and certify the number of Performance Shares earned or the amount of cash payment to be made under the terms of the Performance-Based Award.

11.4 Maximum Awards. No participant may receive in any fiscal year Stock Performance Awards under which the aggregate amount payable under the Awards exceeds the

equivalent of 200,000 shares of Common Stock or Dollar Performance Awards under which the aggregate amount payable under the Awards exceeds $4,000,000.

11.5 Tax Withholding. Each participant who has received Performance Shares shall, upon notification of the amount due, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so delivered or withheld shall not exceed the minimum amount necessary to satisfy the required withholding obligation.

11.6 Effect on Shares Available. The payment of a Performance-Based Award in cash shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. The number of shares of Common Stock reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award. Cash payments of Performance-Based Awards shall not reduce the number of shares of Common Stock reserved for issuance under the Plan.

12. Changes in Capital Structure.

12.1 Stock Splits, Stock Dividends. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan and in all other share amounts set forth in the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options and stock appreciation rights, or portions thereof then unexercised, shall be exercisable, so that the holder’s proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive.

12.2 Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, split-up, split-off, spin-off, reorganization or liquidation to which the Company is a party or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (each, a “Transaction”), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options and stock appreciation rights under the Plan:

12.2-1 Outstanding options and stock appreciation rights shall remain in effect in accordance with their terms.

12.2-2 Outstanding options and stock appreciation rights shall be converted into options and stock appreciation rights to purchase stock in one or more of the corporations, including the Company, that are the surviving or acquiring corporations in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options and stock appreciation rights shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the Transaction. Unless otherwise determined by the Board of Directors, the converted options and stock appreciation rights shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied.

12.2-3 The Board of Directors shall provide a period of 30 days or less before the completion of the Transaction during which outstanding options and stock appreciation rights may be exercised to the extent then exercisable, and upon the expiration of that period, all unexercised options and stock appreciation rights shall immediately terminate. The Board of Directors may, in its sole discretion accelerate the exercisability of options and stock appreciation rights so that they are exercisable in full during that period.

12.3 Dissolution of the Company. In the event of the dissolution of the Company, options and stock appreciation rights shall be treated in accordance with Section 12.2-3.

12.4 Rights Issued by Another Corporation. The Board of Directors may also grant options, stock appreciation rights, stock bonuses and Performance-Based Awards and issue restricted stock under the Plan with terms, conditions and provisions that vary from those specified in the Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, Performance-Based Awards or restricted stock granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction.

13. Amendment of the Plan. The Board of Directors may at any time modify or amend the Plan in any respect. Except as provided in Section 12, however, no change in an award already granted shall be made without the written consent of the holder of the award if the change would adversely affect the holder.

14. Approvals. The Company’s obligations under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company’s shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate state or federal securities laws.

15. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of an Employer or interfere in any way with the Employer’s right to terminate the employee’s employment at will at any time, for any reason, with or without cause, or to decrease the employee’s compensation or benefits, or (ii) confer upon any person engaged by an Employer any right to be retained or employed by the Employer or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by the Employer.

16. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any shares of Common Stock until the date the recipient becomes the holder of record of those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs before the date the recipient becomes the holder of record.

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

ELECTRO SCIENTIFIC INDUSTRIES, INC.

No Change

DESIGNATION OF BENEFICIARY

DESIGNATION OF BENEFICIARY

DESIGNATION OF BENEFICIARY