**Exhibit 10.1**

 

|                           | **Electro  Scientific Industries, Inc.** |
|---------------------------|------------------------------------------|
| 13900 NW Science Park Dr. |
| Portland OR  97229   |

 

**Notice of Grant of Stock Optionsand Option Agreement**

 
| **John A  Corr**                      | ** ** | **Option  Number:** | ** ** | **00009594** |
|---------------------------------------|------------|---------------------|------------|--------------|
| **17585  S.W. 111th Ave.**            |       |                |       |         |
| **Tualatin,  OR United States 97062** |       |                |       |         |

 

Effective 8/16/2004 (theGrant Date), you (Optionee) have been granted a Non-Qualified Stock Option tobuy 25,000 shares of Common Stock of Electro Scientific Industries, Inc. (theCompany) at $20.2500 per share.

 

The total option price ofthis option is $506,250.00.

 

Shares in each period willbecome fully vested on the date shown.

 
| **Shares** | ** ** | **Vest Type** | ** ** | **Full Vest** | ** ** | **Expiration** | ** ** |
|------------|------------|---------------|------------|---------------|------------|----------------|------------|
|       |       |          |       |          |       |           |       |
| 6,250      |       | On Vest Date  |       | 8/16/2005     |       | 8/15/2014      |       |
| 6,250      |       | On Vest Date  |       | 8/16/2006     |       | 8/15/2014      |       |
| 6,250      |       | On Vest Date  |       | 8/16/2007     |       | 8/15/2014      |       |
| 6,250      |       | On Vest Date  |       | 8/16/2008     |       | 8/15/2014      |       |

 

By your signature and theCompany’s signature below, you and the Company agree that this option isgoverned by the terms and conditions of the attached Option Terms andConditions which are incorporated into and made a part of this agreement.

 
| /s/ Nicholas Konidaris                 |   | September 14,  2004 |
|----------------------------------------|--------|--------------------------|
| Nicholas Konidaris                     | Date   |                     |
| President and Chief  Executive Officer |   |                     |
|                                   |   |                     |
|                                   |   |                     |
| /s/ John A Corr                        |   | September 29,  2004 |
| John A Corr                            | Date   |                     |

 

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**OPTION TERMS AND CONDITIONS**

**John A Corr**

**Non-Qualified Stock Option**

 

The Compensation Committeeof the Board of Directors has voted in favor of granting to the Optionee anoption to purchase Common Stock of the Company (the “Option”) in the amountindicated on the attached notice.

 

1.                                       The Option is granted upon the followingterms:

 

1.1                                 Duration of Options.  Subject to reductions in the Option period ashereinafter provided in the event of termination of employment or death of theOptionee, the Option shall continue in effect for a period of 10 years from theGrant Date.

 

1.2                                 Time of Exercise.  Except as provided in paragraph 1.5, theOption may be exercised from time to time in the following amounts: (a) noneduring the first year following the Grant Date (b) thereafter not to exceed inany one year 25 percent of the total number of shares covered by the Option,but if the Optionee does not exercise the Option in any one year for the fullnumber of shares to which the Optionee is entitled, the rights shall becumulative and the Optionee may exercise the Option for such shares in anysubsequent year during the term of the Option.

 

1.3                                 Limitations on Rights to Exercise.  Except as provided in paragraph 1.5, theOption may not be exercised unless at the time of such exercise the Optionee isemployed by the Company or any parent or subsidiary of the Company and shallhave been so employed continuously since the date such option was granted.

 

1.4                                 Nonassignability.  The Option is nonassignable andnontransferable by the Optionee except by will or by the laws of descent anddistribution of the state or country of the Optionee’s domicile at the time ofdeath, and is exercisable during the Optionee’s lifetime only by the Optionee.

 

1.5                                 Termination of Employment.

 

(a) Unless otherwise determinedby the Board of Directors, if an optionee’s employment or service with theCompany terminates for any reason other than in the circumstances specified insubsection (b),  (c) or (d) below,his or her option may be exercised at any time before the expiration date ofthe option or the expiration of three months after the date of termination,whichever is the shorter period, but only if and to the extent the optionee wasentitled to exercise the option at the date of termination.

 

(b) Unless otherwisedetermined by the Board of Directors, if an optionee’s employment or servicewith the Company terminates because of total disability, his or her option maybe exercised at any time before the expiration date of the option or before thedate 12 months after the date of termination, whichever is the shorter period,but only if and to the extent the optionee was entitled to exercise the optionat the date of termination.  The term“total disability” means a medically determinable mental or physical impairmentthat is expected to result in death or has lasted or is expected to last for acontinuous period of 12 months or more and that, in the opinion of the Companyand two independent physicians, causes the optionee to be unable to perform hisor her duties as an employee, director, officer or consultant of the Employerand unable to be engaged in any substantial gainful activity.  Total disability shall be deemed to haveoccurred on the first day after the two independent physicians have furnishedtheir written opinion of total disability to the Company and the Company hasreached an opinion of total disability.

 

(c) Unless otherwisedetermined by the Board of Directors, if an optionee dies while employed by orproviding service to the Company, his or her option may be exercised at anytime before the expiration date of the option or before the date 12 monthsafter the date of death, whichever is the shorter period, but only if and tothe extent the optionee was entitled to exercise the option at the date of deathand only by the person or persons to whom the optionee’s rights under theoption shall pass by the optionee’s will or by the laws of descent anddistribution of the state or country of domicile at the time of death.

 

(d) In the event anoptionee’s employment by the Company or by any parent or subsidiary of theCompany terminates within one year after a change in control of the Company forany reason other than Portlnd2 -4486137.1 0026860-00001

 

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retirement, death, orphysical disability (as defined in Section 1.5(b)), any option held bysuch optionee may be exercised with respect to all remaining shares subjectthereto, free of any limitation on the number of shares with respect to whichthe option may be exercised in any one year, at any time prior to itsexpiration date or the expiration of three months after the date of suchtermination of employment, whichever is the shorter period.  A “change in control of the Company” shallmean a change in control of a nature that would be required to be reported inresponse to item 6(e) of Schedule 14A of Regulation 14A promulgated underthe Securities Exchange Act of 1934, as amended (“Exchange Act”); providedthat, without limitation, such a change in control shall be deemed to haveoccurred if (1) any “person” (as such term is used in Sections 13(d) or14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly orindirectly, of securities of the Company representing 20 percent or more of thecombined voting power of the Company’s then outstanding securities; or (2)during any period of two consecutive years, individuals who at the beginning ofsuch period constitute the Board of Directors of the Company cease for anyreason to constitute at least a majority thereof unless the election, or the nominationfor election by the Company’s shareholders, of each new director was approvedby a vote of at least two-thirds of the directors then still in office who weredirectors at the beginning of the period. A change in control of the Company shall not include any change incontrol pursuant to a written agreement between the Company and another person,which agreement is approved and adopted by the Board of Directors of theCompany or pursuant to any tender offer or exchange offer which the Board ofDirectors has in any manner recommended acceptance of to the shareholders ofthe Company.

 

(e) To the extent the Optionheld by any deceased Optionee or by the Optionee whose employment is terminatedshall not have been exercised within the limited periods provided above, allfurther rights to purchase shares pursuant to the Option shall cease andterminate at the expiration of such periods.

 

(f) Absence on leaveapproved by the Employer or on account of illness or disability shall not bedeemed a termination or interruption of employment or service.  Unless otherwise determined by the Board ofDirectors, vesting of options shall continue during a medical, family, militaryor other leave of absence, whether paid or unpaid.

 

1.6                                 Purchase of Shares.  Shares may be purchased or acquired pursuantto the Option only upon receipt by the Company of notice in writing from theOptionee of the Optionee’s intention to exercise, specifying the number ofshares as to which the Optionee desires to exercise the Option and the date onwhich the Optionee desires to complete the transaction, which shall not be morethan 30 days after receipt of the notice, and, unless in the opinion of counselfor the Company such a representation is not required in order to comply withthe Securities Act of 1933, as amended, containing a representation that it isthe Optionee’s present intention to acquire the shares for investment and notwith a view to distribution.  On orbefore the date specified for completion of the purchase of shares pursuant tothe Option, the Optionee must have paid the Company the full purchase price ofsuch shares in cash, or in shares of Common Stock of the Company previouslyacquired and held by the optionee for at least six months and valued at fairmarket value of the Common Stock of the Company on the date of exercise, or inany combination of cash and shares of Common Stock of the Company.  No shares shall be issued until full paymenttherefor has been made, and the Optionee shall have none of the rights of ashareholder until a certificate for shares is issued to the Optionee.  The Optionee shall, upon notification of theamount due, if any, and prior to or concurrently with delivery of thecertificates representing the shares with respect to which the Option wasexercised, pay to the Company amounts necessary to satisfy any applicablefederal, state and local withholding tax requirements.  If additional withholding becomes requiredbeyond any amount deposited before delivery of the certificates, the Optioneeshall pay such amount to the Company on demand.

 

1.7                                 Changes in Capital Structure.  In the event that the outstanding shares ofCommon Stock of the Company are hereafter increased or decreased or changedinto or exchanged for a different number or kind of shares or other securitiesof the Company or another corporation, by reason of any reorganization, merger,consolidation, recapitalization, reclassification, stock split-up, combinationof shares, or dividend payable in shares, appropriate adjustment shall be made bythe Board of Directors in the number and kind of shares for purchase pursuantto the Option and the corresponding Option price.  Any such adjustment made by the Board ofDirectors shall be conclusive.

 

1.8                                 Mergers, Reorganizations, Etc.  In the event of a merger, consolidation, planof exchange, acquisition of property or stock, split-up, split-off, spin-off,reorganization or liquidation to which the Company is a party or a sale of allor substantially all of the Company’s assets (each, a “Transaction”), the Boardof Directors shall, in its sole discretion and to the extent possible under thestructure of the Transaction, select one of the following alternatives fortreating the Option:

 

(a) The Option shall remainin effect in accordance with its terms.

 

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(b) The Option shall beconverted into an option to purchase stock in one or more of the corporations,including the Company, that are the surviving or acquiring corporations in theTransaction.  The amount, type of securitiessubject thereto and exercise price of the converted option shall be determinedby the Board of Directors of the Company, taking into account the relativevalues of the companies involved in the Transaction and the exchange rate, ifany, used in determining shares of the surviving corporation(s) to be held byholders of shares of the Company following the Transaction.  Unless otherwise determined by the Board ofDirectors, the converted option shall be vested only to the extent that thevesting requirements relating to the Option granted hereunder have beensatisfied.

 

(c) The Board of Directorsshall provide a period of 30 days or less before the completion of theTransaction during which the Option may be exercised to the extent thenexercisable, and upon the expiration of that period the unexercised portion ofthe Option shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate theexercisability of the Option so that it is exercisable in full during that period.

 

1.9                                 Dissolution of the Company.  In the event of dissolution of the Company,the Option shall be treated in accordance with Section 1.8.

 

2.                                       The obligations of the Company under thisAgreement are subject to the approval of such state or federal authorities oragencies, if any, as may have jurisdiction in the matter.  The Company will use its reasonable bestefforts to take such steps as may be required by state or federal law orapplicable regulations, including rules and regulations of the Securities andExchange Commission and any stock exchange on which the Company’s shares maythen be listed, in connection with the issuance or sale of any shares purchasedupon the exercise of the Option.

 

3.                                       Nothing in this Agreement shall confer uponthe Optionee any right to be continued in the employment of the Company or anysubsidiary of the Company, or to interfere in any way with the right of theCompany or any subsidiary by whom the Optionee is employed to terminate theOptionee’s employment at any time, with or without cause.

 

4.                                       This Agreement shall be binding upon andshall inure to the benefit of any successor or successors of the Company butexcept as hereinabove provided the Option herein granted shall not be assignedor otherwise disposed of by the Optionee.

 

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