Exhibit 10.1

 

To:    Charles Winston   

cc.    Rick Black

From:    Compensation Committee   

cc.    Linda Palmer

RE: Incentive Compensation Program

Date: December 1, 2005

Dear Charles,

At the meeting of the outside Board Members on October 24th we concluded our
continuing discussions on CEO transition plans and agreed upon an incentive
compensation program that we feel would be more than fair to you, recognizing
your substantial contribution to the Company, as well as direct your energies to
an orderly transition that would be of invaluable benefit to the shareholders
and employees.

This document outlines that incentive compensation program which supersedes
prior incentive and contractual agreements.

In the past, you as the CEO have been afforded an annual bonus opportunity and a
long term equity incentive opportunity. We feel that the incentive focus on
short term profit considerations may be leading to decisions that tend to
preserve or enhance short term profitability in 2006 to the detriment or risk of
the longer term good of the Company. We feel that this is not in the interest of
the shareholders and other principal stakeholders.

Your 2005 bonus plan is typical of that of prior years — the opportunity to earn
70% of your base salary, with 70% of this opportunity tied to Operating Profit,
Revenue Growth and Working Capital, and with 30% based on qualitative targets.
You also have a long term incentive opportunity to earn 100,000 common shares,
to be given at no cost if Operating Profit reaches 16% of sales in 2006 (there
were complications in executing this grant, as you know). There is also a
special acquisition bonus that can be earned in 2005 and 2006. In normal times,
we feel that these metrics would be appropriate goals, but in the 2006
transition period, in which you may only actively serve as the CEO for part of
the year, the current targets may influence decisions unsupportive of the longer
term benefit to the Company.

With this in mind, we are revising your incentive plan to reward you for
successfully executing a detailed transition plan — one that will enable your
successor to hit the road running.

For 2006, your new goals will be as follows:

 

  •   Throughout the remainder of this year and 2006, your key objective will be
both to retain (best efforts) all of your current GMs and Corporate staff and to
maintain a reasonably high level of morale among these executives.

 

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  •   Express a positive attitude to all employees about the Board and its
actions, the transition process, the prospect of a new CEO, and cooperate fully
and agreeably with the new CEO when he joins the Company.

 

  •   Meet with the most important 15 or 20 customers. Based on each of these
meetings, document the visit and any issues raised. Prepare for the new CEO a
status report and recommendations for retaining and enhancing the business at
each customer (Q1 2006). After the new CEO is on Board, offer to make a joint
visit to each major customer with the new CEO.

 

  •   Prepare a concise strategic planning document, defining both the current
Corporate business, product, marketing strategy, and technology dash-boards,
encompassing all divisions as well as the plan for new initiatives (December
2005).

 

  •   Compile a strategic and operational overview of GSI Group for your
successor in anticipation of his arrival (Q2 2006). This “Transition Book”
should include such items such as the following:

 

  •   History of the Company

 

  •   Evolution of the Strategy with specific reference to the acquisition
process

 

  •   The Company’s core technology

 

  •   Description of markets served – characteristics, trends, competitors

 

  •   A detailed summary of all current development projects (see below)

 

  •   Summary of current/potential acquisitions and prospects (see below)

 

  •   Company demographics

 

  •   Key Account documentation (see above)

 

  •   Investor/ Shareholder Documentation

 

  •   Any relevant employee issues/concerns documented by site

 

  •   Any outstanding compliance issues

 

  •   Any pending/anticipated litigation

 

  •   Executive Assessments (see below)

 

  •   Prepare a report for the top 6-10 key development projects, identifying
the products to be developed (including those covered in your existing incentive
program), the timeline and resources to commercialize that product, a product
marketing plan, and the expected sales and returns to be expected over the first
three years after its release (April 2006).

 

  •   Prepare a report for any contemplated acquisition, acquisition in process,
or major expansion, for the new CEO outlining how it fits into the strategic
plan of the Company, discussion of the risk versus reward possibility, and your
recommendations as to how to proceed to accomplish it and the estimated range of
price to be paid (May 2006).

 

  •   Initiate a program to meet with investment analysts and major shareholders
as soon as the planned succession is announced to discuss the succession plan
and

 

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status (the Chairman of the Board of Directors has been asked by the Board to
accompany you on these visits, to be available to explain the transition process
and give investors confidence in the continuity of leadership). The objective
here is that you should do all that is reasonably possible to keep the analysts
and major shareholders well advised, and the ownership community reasonably
stabilized. To that end you should document each meeting with a copy for the
Board. If we encounter any problems in this activity, you and the Chairman
should work together to see if they can be promptly resolved. After the new CEO
is appointed, you will offer to accompany him on visits to each of these
analysts and major shareholders.

 

  •   Initiate a program to visit each principal GSIG site and conduct employee
meetings to address the CEO transition plan. You might also review the Company
strategy and how that site plays an important role in it. This should be an
opportunity for employee questions, concerns, and comments. You should document
your visits to be included in the Transition Book, and bring any appropriate
item to the Board’s attention. While you serve as CEO, you will, of course,
continue your normal monthly financial and operating reviews, and address
appropriate issues. In 2006, minutes of such meetings will be kept for the new
CEO to assist in a seamless transition.

 

  •   Continue your normal program of executive performance assessment including
goal setting. Documented performance assessments are to be shared with the Board
and included in the Transition Book for the new CEO.

With these revised objectives, your revised incentive compensation will be
calculated as follows:

Annual 70% performance bonus:

By accepting this plan and implementing its objectives, your 2005 bonus will be
calculated as follows: 30% qualitative portion will be automatically granted,
and up to one-half of the 70% portion will be awarded on the recommendation of
the Chairman of the Board based upon his observations of your performance
against the objectives (above) that pertain to 2005. Payment will be made not
later than the month following the completion of the year end audit for 2005.

For 2006, in addition to your $500,000 salary to be paid throughout the year,
you will be eligible to earn up to the full 70% bonus ($350,000), on the
recommendation of the Chairman of the Board based upon his observations of your
performance against the objectives (above) that pertain to 2006. Payment will be
made not later than the month following the completion of the year end audit for
2006.

 

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Long-Term 100,000 Performance Share Opportunity

This opportunity will be withdrawn and replaced with an opportunity for you to
earn $500,000 as follows:

$250,000 will be added to your advisory consulting agreement payments in 2007 as
recommended by the Chairman to the Board and based upon his observations of your
performance on the above transition objectives in 2006 and your continuing
cooperation with the CEO during 2007. Meetings will take place between Chairman,
CEO and Charles Winston on a quarterly basis.

$250,000 will be added to your advisory consulting agreement payments in 2008 as
recommended by the Chairman to the Board and based upon his observations of your
continuing cooperation with the CEO during 2008.

Acquisition Bonus:

You have been eligible for special bonuses associated with the two acquisitions,
West Wind and MicroE. For the year 2005, your bonus amount will be calculated
and paid in accordance with the approved plan for that year. For the year 2006,
you have a bonus opportunity to earn $25,000 related solely to MicroE
performance metrics.

In lieu of using the originally approved metrics to determine the amount of this
bonus payment for 2006, you are given the opportunity to earn up to a $20,000
amount, on the recommendation of the Chairman of the Board based upon his
observations of your performance against the objectives (above) that pertain to
2006. Payment will be made not later than the month following the completion of
the year end audit for 2006.

Charles, this comprehensive plan should give us the best atmosphere for a smooth
transition, as well as the best opportunity to seamlessly fulfill your long
range strategic vision and continue your valuable legacy. It can reward you
handsomely for your role in an orderly transition, which will be of inestimable
value to the shareholders and other stakeholders in the Company. I trust that
you will see these values and wholeheartedly adopt this program and its
benefits.

On behalf of the Compensation Committee.

/s/ B. Virgilio 3-7-06

/s/ C.D. Winston 3-7-06

 

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