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

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  >90th

  	
   

  	
  200

  	
  %

  	
   

  
	
  75th

  	
   

  	
  150

  	
  %

  	
   

  
	
  50th

  	
   

  	
  100

  	
  %

  	
   

  
	
  25th

  	
   

  	
  50

  	
  %

  	
   

  
	
  <25th

  	
   

  	
  0

  	
  %

  	
   

  



 


RSUs will vest proportionately between 0% and 200% for Company rankings
between the 25th and 90th 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 25th
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