Exhibit 10.1


 


ELECTRO SCIENTIFIC INDUSTRIES, INC.


EMPLOYMENT AGREEMENT


 




	
  Nicholas
  Konidaris

  	
   

  	
  Executive

  
	
  5773 Orvieto
  Ct.

  	
   

  	
   

  
	
  San Jose,
  CA  95138

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Electro
  Scientific Industries, Inc.,

  	
   

  	
  ESI

  
	
  an Oregon
  corporation

  	
   

  	
   

  
	
  13900 N.W.
  Science Park Dr.

  	
   

  	
   

  
	
  Portland,
  OR  97229

  	
   

  	
   

  






 


In consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows.


 


1.             Employment. 
ESI hereby employs Executive as the President and Chief Executive
Officer of ESI and Executive accepts such employment with ESI on the terms and
conditions set forth in this Employment Agreement (this “Agreement”).


 


2.             Employment At-Will. 
Executive’s employment shall commence on January 7, 2004, the date of
this agreement (the “Effective Date”), and shall continue until
terminated in accordance with the provisions of Section 8.


 


3.             Election to Board
of Directors.  The ESI Board of Directors (the “Board”)
shall elect Executive as a member of the Board at the regularly scheduled
January 2004 Board meeting, and shall nominate Executive for reelection by
ESI’s shareholders as a member of the Board at the 2004 Annual Meeting of
Shareholders of ESI (the “2004 Shareholders Meeting”)  and thereafter as
long as Executive is Chief Executive Officer of ESI.  Termination of Executive as Chief
Executive Officer of ESI, for any reason, shall constitute the resignation by
Executive, effective upon such termination, as a director and officer of ESI
and as a director and officer of any affiliate of ESI.  Upon request, Executive shall provide ESI
with additional written evidence of any such resignation.  ESI’s undertaking to elect Executive as a
member of the Board and to nominate Executive for reelection to the Board by
ESI’s shareholders at the 2004 Shareholders Meeting and thereafter is
expressly conditioned on this agreement by Executive regarding his resignation
as a director and officer of ESI and as a director and officer of any affiliate
of ESI in the event of his termination as  Chief
Executive Officer of ESI.


 


4.             Executive’s
Duties.  Executive shall
faithfully and diligently perform all such acts and duties, and furnish such
services, as the Board shall reasonably direct and are consistent with the
positions of President and Chief Executive Officer, including but not limited
to strategic planning, implementation of business objectives and supervision of
day-to-day business affairs of ESI. 
Executive shall have authority consistent with his position and such
additional authority as may reasonably be required to fulfill his assigned
duties.  Executive shall devote the
time, energy, and skill to ESI’s business as reasonably required for the
performance of his duties.  Nothing herein,
however, shall limit Executive’s ability to serve on the board of directors of
Ultratech Inc.  Service on the board of
directors (or similar governing body) of any other


 


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corporation,
other business entity or charitable organization must be approved in advance by
the Board.


 


5.             Annual Salary and
Bonus.


 


(a)           Base Salary.  Beginning with the Effective Date, ESI shall
pay Executive a base salary of $395,000 per fiscal year (prorated for any
portion of a year), payable in equal periodic installments in accordance with
ESI’s customary practices (the “Base Salary”) and not less
frequently than in monthly installments.  Executive’s performance and the amount of
the Base Salary shall be reviewed annually, and the Base Salary may be
increased from time to time in the sole discretion of the Board.


 


(b)           Annual Performance
Bonus.  For fiscal year 2004,
Executive shall be eligible to receive an annual bonus, prorated based on the
number of days Executive is employed by ESI in fiscal year 2004, calculated in
accordance with the provisions of the ESI FY 2004 Executive Team Bonus Plan
attached hereto as Exhibit A. 
For fiscal years subsequent to fiscal year 2004, Executive shall be
eligible to receive an annual bonus calculated based upon financial and
management objectives reasonably established for ESI and Executive
by the Board that will establish an annual bonus “target”  of
100% of the Base Salary and opportunities for an annual bonus of up to 200% of
the Base Salary.  


 


(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  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. 
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.


 


(d)           One-Time Grant of
Restricted Stock.  ESI shall issue
Executive, without requiring the payment of any cash consideration, 20,000
shares of restricted ESI common stock.  Subject to acceleration
as provided herein, the restrictions on 10,000 of
these shares of ESI common stock shall lapse on April 1, 2004, and the
restrictions on the remaining 10,000 shares of ESI common stock shall lapse on
April 1, 2005.  If prior to the date on
which the restrictions with respect to any such shares lapse ESI terminates
Executive’s employment for Cause or Executive terminates his employment other than for Good
Reason and, in either case, other than due to Executive’s death or Disability,
the shares shall be forfeited and returned to ESI in accordance with the
Restricted Stock Agreement attached as Exhibit C  hereto.


 


6.             Benefits and
Reimbursement.


 


(a)           Flexible Time Off.  Executive shall be entitled to paid annual
flexible time off and all paid ESI holidays, each in accordance with ESI’s
standard policies, on a basis no less favorable to Executive as to any such policy than as
such policy is applied with respect to 


 


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any other
ESI executive or employee; provided that in no event shall Executive’s paid
flexible time off accrual rate be at a rate that is less than 160 hours of paid
flexible time off accrued per year of employment.  In his first year of employment,  Executive shall be
entitled to take 160 hours of paid flexible time off regardless of whether
Executive has accrued that amount of paid flexible time off as of the relevant
time; provided that (i) at no time will Executive take flexible time off during
his first year of employment when it exceeds the amount accrued by more than 80
hours and (ii) any paid flexible time off taken by Executive in his first year
of employment that exceeds Executive’s accrued paid flexible time off shall be
used to offset Executive’s future paid flexible time off accruals until all of
such excess hours have been used to so offset future accruals.


 


(b)           Benefit Plans.  Executive shall be entitled to participate
in all employee benefit plans, perquisite plans,
and incentive compensation plans of ESI on a basis no less favorable to
Executive as to any such plan than as such plan is applied with respect to any
other ESI executive or employee.


 


(c)           Reimbursed Business
Expenses.  ESI shall reimburse
Executive for all expenses and disbursements reasonably incurred by Executive in the
course of his duties for ESI, subject to any reasonable documentation of such
expenses that ESI may require in accordance with its customary expense
reimbursement policies applicable to senior executive officers.


 


(d)           Relocation Expenses.  ESI shall pay to relocate Executive and his
immediate family from Executive’s home in San Jose, CA to the Portland, OR area
in accordance with the terms of the Relocation Policy attached hereto as Exhibit
D.  It is expected that Executive
will relocate and establish his primary residence in Oregon within six months
of the Effective Date. 


 


7.             Definitions.  The following terms shall have the following meanings
for purposes of this Agreement:


 


(a)           “Cause”
shall mean (i) the willful and continued failure by Executive substantially to
perform his reasonably assigned duties with ESI or legitimate directives of the
Board, other than a failure resulting from Executive’s incapacity due to
physical or mental illness or impairment, after a written demand for
performance has been delivered to Executive by the Chairman of the Board which
specifically identifies the manner in which the Chairman believes that
Executive has not substantially performed his duties and after a
reasonable opportunity for Executive to cure of at least sixty days, and other
than as a result of a termination without Cause or a resignation for Good
Reason (as defined herein), or  (ii) the willful engagement by Executive
in illegal conduct which is materially and demonstrably injurious to ESI or
(iii) the willful failure by Executive to follow material written ESI
policies.  For purposes of this
subsection (a), no act, or failure to act, on Executive’s part shall be
considered “willful” unless done, or omitted to be done, by Executive in bad
faith.  Any act, or failure to act,
expressly authorized by a resolution duly adopted by the Board or based upon
the advise of counsel for ESI shall be conclusively presumed to be done, or
omitted to be done, by Executive in good faith.  Notwithstanding the foregoing, Executive shall not be deemed to
have been terminated for Cause unless and until (1) Executive shall have been
given advance written notice of ESI’s intent to terminate his employment for
Cause (which notice shall include the specific provisions of this Agreement


 


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intended to
be relied upon by ESI in establishing Cause and a description of the alleged
conduct or actions that ESI believes supports a finding of Cause), (2)
Executive shall be given a reasonable opportunity to be heard by the Board with
respect to such matter, and (3) there shall
have been delivered to Executive a copy of a resolution duly adopted by the
Board finding, after such appearance by Executive, that in
the good faith opinion of the Board, Executive has engaged in the conduct set
forth above in (i), (ii) or (iii) of this paragraph (a).  Any such determination by the Board shall be
subject to de novo review in mediation or in arbitration conducted pursuant to
Section 13(d).


 


(b)           “Change of
Control” of ESI shall mean the occurrence of any of the following events:


 


(i)            The approval by the shareholders of ESI of
any of the following (or the occurrence of any of the following if shareholder
approval for such event is not required or otherwise obtained in the
circumstances):


 


(A)          any
consolidation, merger, plan of share exchange, or other reorganization
involving ESI (each, a “Merger”), unless (1) as a result of such Merger
at least fifty percent (50%) of the outstanding securities voting generally in
the election of directors of the surviving or resulting entity or a parent
thereof (the “Successor Entity”) immediately after the Merger are, or will be,
owned, directly or indirectly, in substantially the same proportions, by
shareholders of ESI immediately before the Merger, and (2) no Person (as
defined below) beneficially owns, directly or indirectly, more than fifty
percent (50%) of the outstanding shares of the combined voting power or the
outstanding voting securities of the Successor Entity, and (3) more than fifty
percent (50%) of the members of the board of directors of the Successor Entity
were members of the Board at the time the Merger was approved by ESI;


 


(B)           any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of ESI; or


 


(C)           the
adoption of any plan or proposal for the liquidation or dissolution of ESI;


 


(ii)           At any time during a period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (“Incumbent Directors”) shall cease for any reason to
constitute at least a majority thereof, unless each new director elected during
such two-year period was nominated or elected by two-thirds of the Incumbent
Directors then in office and voting (with new directors nominated or elected by
two-thirds of the Incumbent Directors also being deemed to be Incumbent
Directors); or


 


(iii)          Any Person (as hereinafter defined) shall
have become the beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934 (the “Exchange Act”)), directly or
indirectly, of securities of ESI ordinarily having the right to vote for the
election of directors (“Voting Securities”) representing fifty percent
(50%) or more of the combined voting power of the then outstanding Voting
Securities.


 


Notwithstanding
anything in the foregoing to the contrary, unless otherwise determined by the
board, no change in control shall be deemed to have occurred for purposes of
this


 


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Agreement if (1) Executive
acquires (other than on the same basis as all other holders of the Company
Shares) an equity interest in an entity that acquires the Company in a change
in control otherwise described under subparagraph (i) above, or (2) Executive
is part of group that constitutes a Person which becomes a beneficial owner of
Voting Securities in a transaction that otherwise would have resulted in a
change in control under subparagraph (iii) above.


 


For purposes of this Agreement, the term “Person” shall mean and
include any individual, corporation, partnership, group, association or other
“person”, as such term is used in Section 14 (d) of the Exchange Act, other
than ESI or any employee benefit plan(s) sponsored by ESI.


 


(c)           “Disability”
shall mean the absence of Executive from his duties with ESI on a full-time
basis for 180 consecutive days as a result of Executive’s incapacity due to
physical or mental illness, unless, within 30 days after a Notice of Termination
(as defined below) is given to Executive following such absence, Executive
shall have returned to the full performance of Executive’s duties.


 


(d)           “Good Reason” shall mean:


 


(i)            a diminution of
Executive’s status, title, position(s) or responsibilities as President and
Chief Executive Officer of ESI (which diminution shall be deemed to occur,
without limiting other events that may constitute a diminution, if Executive is
no longer the most senior executive officer of ESI or if Executive no longer
reports directly to the Board) or the assignment to Executive of any duties or
responsibilities which are inconsistent with such status, title or position(s),
or any removal of Executive from such position(s), except in connection with
the termination of Executive’s employment for Cause, Disability or as a result
of Executive’s death or voluntarily by Executive other than for Good Reason;


 


(ii)           if for any reason
Executive is not elected to the Board on or before January 31, 2004, or if
thereafter the Board shall fail to nominate Executive for reelection by ESI’s
shareholders;


 


(iii)          a reduction by ESI
in Executive’s rate of Base Salary (other than as part of any general salary
reduction that may be implemented for all of ESI’s senior management);


 


(iv)          the failure by ESI
to timely provide any other compensation, reimbursement or benefit required
pursuant to this Agreement;


 


(v)           ESI’s requiring
Executive to be based anywhere other than the Portland, OR area except for
reasonably required travel on ESI’s business; or


 


(vi)          any purported
termination by ESI of Executive’s employment which is not effected pursuant to
a Notice of Termination satisfying the requirements of Section 8; and for
purposes of this Agreement, no such purported termination shall be effective.


 


8.             Termination.  This Agreement and Executive’s employment hereunder
may be terminated by either party by providing the other party with written
notice that indicates the


 


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specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated (a “Notice of Termination”).  The effective date of any such termination
of this Agreement shall be:  (i) if
Executive’s employment is terminated by ESI for
Disability, 30 days after a Notice of Termination is given (provided that
Executive shall not have returned to the performance of Executive’s duties on a
full-time basis during such 30-day period), (ii) if Executive’s employment is
terminated by ESI for Cause, by Executive for Good Reason, or
by Executive for Disability, the date on which the Notice of Termination is
given, provided the applicable cure period has been provided, and
(iii) if Executive’s employment is terminated by Executive (other than for Good
Reason or due to Disability) or by ESI for any reason other than Cause,
the date specified in the Notice of Termination, which shall be a date no
earlier than 90 days after the  date on which  the  Notice of Termination is given,  unless
an earlier date has been agreed to by the party receiving the Notice of
Termination either in advance of, or after, receiving such Notice of
Termination.


 


9.             Effect of
Termination.


 


(a)           Termination by Executive without Good Reason or by ESI for Cause.  If ESI terminates Executive’s employment for
Cause, or Executive terminates his employment without Good Reason, Executive
shall be entitled to receive only (1) the Base Salary and Annual Bonus earned
and payable through the effective date of such termination, together with any
other compensation or benefits which have been earned or become payable as of
the date of termination but which have not yet been paid to Executive, (2) all
paid time off accrued but untaken through the effective date of such
termination, (3) reimbursement of expenses incurred through the effective date
of such termination pursuant to Section 6(c), and (4) payment in full of all
relocation expenses previously unpaid pursuant to Section 6(d).  (For purposes of clarity, ESI shall be
obligated to pay Executive’s relocation costs pursuant to Section 6(d) once
Executive commences his relocation to Oregon if ESI terminates Executive’s
employment without Cause or Employee departs for Good Reason before such
relocation is completed.)  The amounts
described in clauses (1) through (4) of the foregoing are referred to as the “Accrued
Obligations.”


 


(b)           Termination by ESI
Without Cause  or by Executive for Good Reason.  If ESI
terminates Executive’s employment without Cause, or if Executive terminates
employment for Good Reason, Executive shall be
entitled to receive:


 


(i)            the Accrued Obligations;



 


(ii)           if the termination occurs and there has been
no Change of Control, a  severance payment (subject to applicable
taxes and withholding) in an amount equal to two times Executive’s annualized rate of ESI Base
Salary in effect immediately prior to the time of
termination paid in equal installments in accordance with ESI’s normal pay practices
over
the 24-month period following the date of termination;
provided, however, that if the effective date of Executive’s termination is
after July 23, 2008, the amount payable under this subsection
(ii) shall decrease ratably in increments of 1/24th for each
calendar month between the effective date of Executive’s termination and July
23, 2008,
such that Executive shall receive no severance payment under this subsection
(ii) if the effective date of Executive’s termination is after July 23,


 


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2010;
provided further that any payments made pursuant to this subsection (ii) shall
be repaid by Executive in the event Executive violates in any material respect
the Employee Confidentiality, Non Competition and Assignment Agreement provided
for in Section 10(a) hereof;


 


(iii)          if the termination occurs within twenty-four
(24) months following a Change of Control, a lump sum severance payment
(subject to applicable taxes and withholding) in an amount equal to two times
Executive’s annualized rate of ESI Base Salary then in effect and two times
Executive’s target bonus in effect immediately prior to the time of
termination.


 


(iv)          if
the termination occurs and there has been no Change of Control, continued
vesting and exercisability for a period of two full years
following the date of termination of all option(s) to purchase shares of ESI
common stock then held by Executive, all stock appreciation rights and other ESI
equity-based awards then held by Executive, and all shares of restricted ESI
common stock then held by Executive;


 


(v)           if the termination occurs within
twenty-four (24) months following a Change of Control, all options to purchase
ESI common stock then held by Executive, all stock appreciation rights and all
other equity based awards then held by Executive shall become immediately
vested and exercisable;


 


(vi)          an extension of the term for exercise of any
vested and unexpired options to purchase shares of ESI common stock, and any vested and
unexpired ESI stock appreciation rights, until the date that is three full
years after the effective date of Executive’s termination; provided that no
such option or right shall be exercisable after the expiration of the term of
years provided at the time of the original grant;


 


(vii)         for a twenty-four
(24) month period after the date of termination, ESI shall arrange to provide
Executive and his dependents with life, accident, medical and dental insurance
benefits substantially similar to those which Executive was entitled hereunder
to receive immediately prior to the termination of employment; provided that
ESI shall not be required to provide a benefit to Executive pursuant to this
clause (vii) to the extent that a similar benefit is actually received by
Executive from a subsequent employer during such twenty-four (24) month period,
and any such benefit actually received by Executive shall be promptly reported
by Executive to ESI; and provided further that ESI shall not be required to
provide a benefit pursuant to this clause (vii) after the date on which
Executive becomes entitled to receive medical benefits under Medicare or July
23, 2010, whichever is sooner; and


 


(viii)        if the termination occurs within
twenty-four (24) months following a Change of Control, for a thirty six (36)
month period after the date of termination, ESI shall arrange to provide
Executive and his dependents with life, accident, medical and dental insurance
benefits substantially similar to those which Executive was entitled hereunder
to receive immediately prior to the termination of employment; provided that
ESI shall not be required to provide a benefit to Executive pursuant to this
clause (viii) to the extent that a similar benefit is actually received by
Executive from a subsequent employer during such thirty-six (36) month period,
and any such benefit actually received by Executive shall be promptly reported
by Executive to ESI; and provided further that ESI shall not be required to
provide a benefit 


 


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pursuant to this clause (viii)
after the date on which Executive becomes entitled to receive medical benefits
under Medicare or July 23, 2010, whichever is sooner


 


(c)           Death.  If Executive’s employment is terminated as a
result of Executive’s death, Executive shall be entitled to receive the Accrued Obligations.


 


(d)           Disability.  If Executive’s employment is terminated as a
result of Executive’s Disability, Executive shall be entitled to receive the Accrued Obligations.


 


(e)           Date of Payment.  Except as otherwise provided herein, all
cash payments and lump-sum awards required to be made pursuant to the
provisions of this Section 9 shall be made no later than the 30th day
following the effective date of Executive’s termination.


 


(f)            Release of Claims.  ESI shall have the right to require
Executive to execute a general release of claims relating to his employment at
ESI and termination of employment at ESI that could be brought by Executive
hereunder as a condition to Executive’s receipt of any payments pursuant to
Section 9(b);
provided that ESI and each of its affiliates shall release any and all claims
that each of them may have against Executive as a condition of any such release.


 


(g)           Options and Restricted Stock.  The options and restricted stock awarded to
Executive pursuant to Section 5 shall, in the event of a termination of
Executive’s employment and except as provided above in this Section 9, be
governed by the provisions of the applicable award agreement; provided that the
accelerated vesting and stock option exercise provisions of this Section 9
shall, if triggered, control in the event of any inconsistency with any such
agreement and the stock option or stock restriction plan and all related
agreements.


 


(h)           No Obligation of Executive to Mitigate.  The amount of any payment provided for in
this Section 9 shall not be reduced, offset or subject to recovery by ESI by
reason of any compensation earned by Executive as the result of employment by
another employer after the date of termination, or otherwise (except as
expressly provided with respect to Executive’s obligation pursuant to Section
10(a)).


 


10.          Non-Competition and
Non-Disclosure; Executive Cooperation.


 


(a)           Prior to the
Effective Date, Executive shall execute and deliver to an officer of ESI the
Employee Confidentiality, Non Competition and Assignment Agreement (a copy of
which is attached hereto as Exhibit E).


 


(b)           Executive agrees to  cooperate
with ESI, by making himself reasonably available to testify on behalf of
ESI or any subsidiary or affiliate of ESI, in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, and to reasonably assist
ESI, or any subsidiary or affiliate of ESI in any such action, suit or
proceeding, by providing reasonable information and making himself
reasonably available for meeting and consulting with
the Board or its representatives or counsel, or representatives or counsel of
ESI, or any subsidiary or affiliate of ESI, as reasonably requested
by the Board, representatives or counsel. 
ESI agrees to reimburse Executive, on an after-tax basis, for all
expenses actually incurred in connection with his provision of testimony or
assistance.


 


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11.          Section 280G Provision.


 


(a)           Notwithstanding
anything contained in this Agreement to the contrary, to the extent that any
payment, distribution, transfer, benefit or other event with respect to ESI or
a successor, direct or indirect subsidiary or affiliate of ESI (or any
successor or affiliate of any of them, and including any benefit plan of any of
them), and arising in connection with an event described in Section
280G(b)(2)(A)(i) of the Code, occurring after the Effective Date and on or
before the first anniversary of the Effective Date, to or for the benefit of
Executive or Executive’s dependents, heirs or beneficiaries (whether such
payment, distribution, transfer, benefit or other event occurs pursuant to the
terms of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 11) (each a “Payment” and collectively
the “Payments”) is, was or will
be subject to the excise tax imposed by Section 4999 of the Code, and any
successor provision or any comparable provision of state or local income tax
law (collectively, “Section 4999”), then ESI shall
reduce the Payments (but not below zero) so that the maximum amount of the
Payments shall be one dollar ($1.00) less than the amount which would cause the
Payments to be subject to the excise tax imposed by Section 4999 of the Code;
provided that such reduction shall be made if (and only if) such reduction
results in a greater after-tax net benefit to Executive than if no such
reduction had been made and Executive had paid the excise tax and other taxes
due.  If a reduction of Payments is
required pursuant to the foregoing, then unless Executive shall have given
prior written notice to ESI to effectuate a reduction in the Payments in a
different manner, ESI shall reduce or eliminate the Payments by first reducing
or eliminating any cash severance benefits, then by reducing or eliminating any
accelerated vesting of stock options, then by reducing or eliminating any
accelerated vesting of restricted stock, then by reducing or eliminating any
other remaining Payments.  The preceding
provisions of this Section 11 shall take precedence over the provisions of any
other plan, arrangement or agreement governing Executive’s rights and
entitlements to any benefits or compensation. 
In connection with any termination of Executive’s employment hereunder
that occurs in connection with an event described in Section 280G(b)(2)(A)(i)
that occurs on or before the first anniversary of the Effective Date.


 


(b)           Notwithstanding
anything contained in this Agreement to the contrary, to the extent that any
and all Payments with respect to ESI or a successor, direct or indirect
subsidiary or affiliate of ESI (or any successor or affiliate of any of them,
and including any benefit plan of any of them), and arising in connection with
an event described in Section 280G(b)(2)(A)(i) of the Code, occurring after the
first anniversary of the Effective Date to or for the benefit of Executive or
Executive’s dependents, heirs or beneficiaries is, was or will be subject to
the excise tax imposed by Section 4999, then ESI shall pay to Executive (or to
the applicable taxing authority on Executive’s behalf) an additional cash
payment (hereinafter referred to as the “Gross-Up Payment”) equal to an
amount such that after payment by Executive of all taxes, interest, penalties,
additions to tax and costs imposed or incurred with respect to the Gross-Up
Payment (including, without limitation, any income and excise taxes imposed
upon the Gross-Up Payment), Executive retains an amount of the Gross-Up Payment
equal to the excise tax imposed upon such Payment or Payments.  This provision is intended to put Executive
in the same position as Executive would have been had no excise tax been
imposed upon or incurred as a result of any Payment.


 


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(c)           Except as provided
in subsection (d) below, the determination that a Payment is subject to an
excise tax (and the amount of such tax), the amount of any Gross-Up Payment
required, or a determination that Payments are to be reduced in accordance with
the foregoing shall be made in writing by a certified public accounting firm
selected by ESI (“ESI’s Accountant”).  Such determination shall include the amount
of any such excise tax, Gross-Up Payment, or reduction and detailed
computations thereof, including any assumptions used in such computations (the
written determination of ESI’s Accountant, hereinafter,  “ESI’s
Determination”).  ESI’s Determination may be reviewed on behalf of Executive by a
certified public accounting firm selected by Executive (the “Executive’s
Accountant”).  Executive shall notify ESI within 30 business days after receipt
of ESI’s Determination of any disagreement or dispute therewith, and failure to
so notify within that period shall be considered an agreement by Executive of
ESI’s determination.  In the event of an
objection by Executive to ESI’s Determination, any amount not in dispute shall
be paid within 30 days following the 30 business-day period referred to herein,
and with respect to the amount in dispute Executive’s Accountant and ESI’s
Accountant shall jointly select a third certified public accounting firm to
resolve the dispute and the decision of such third firm shall be final, binding
and conclusive upon the Executive and ESI. 
In such a case, the third accounting firm’s findings shall be deemed the
binding determination with respect to the amount or reduction in dispute,
obligating ESI to make any payment as a result thereof within 30 days following
the receipt of such third accounting firm’s determination.  All fees and expenses of each of the
accounting firms referred to in this subsection (c) shall be borne solely by
ESI.


 


(d)           As a result of
uncertainty in the application of Section 4999 that may exist at the time of
any determination is made pursuant to paragraph (c) above, it may be possible
that in making the calculations required to be made hereunder, the parties or
their accountants shall determine that a Gross-Up Payment need not be made (or
shall make no determination with respect to such a payment) that properly
should be made (“Underpayment”), or that a
Gross-Up Payment not properly needed to be made should be made or that no
reduction in Payments should be made when such a reduction should be made (“Overpayment”).  The determination of any Underpayment shall
be made using the procedures set forth in paragraph (c) above and shall be paid
to Executive as an additional Gross-Up Payment.  ESI or Executive shall be entitled to use procedures similar to
those available in paragraph (c) to determine the amount of any Overpayment
(provided that ESI shall bear all costs of the accountants as provided in
paragraph (c)).  In the event of a
determination that an Overpayment was made, Executive shall promptly pay to ESI
the amount of such Overpayment together with interest at the applicable Federal
rate provided for in Section 1274(d) of the Code; provided, however, that the
amount to be repaid by Executive to ESI shall be subject to reduction to the
extent necessary to put Executive in the same after-tax position as if such
Overpayment were never made.


 


12.          Indemnity Agreement
and D&O Insurance.  Executive and ESI
shall enter into for the benefit of Executive ESI’s standard Directors’ and
Officers’ indemnification agreement. During the period of Executive’s
employment by ESI and for a period of six years thereafter, ESI shall keep in
place a directors’ and officers’ liability insurance policy (or policies)
providing comprehensive coverage to Executive to the extent that ESI provides
such coverage for any other present or former senior executive or director of
ESI.


 


10

















 


13.          Miscellaneous.


 


(a)           Withholding. 
Payment of all compensation under this Agreement, including but not
limited to the Base Salary and Annual Performance Bonus, shall be subject to
all applicable federal, state and local tax withholding.


 


(b)           Successors;  Assignment; Binding Agreement.  This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights
or obligations hereunder; provided,
however, that in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of
ESI with or to any other individual(s) or entity, this Agreement shall be binding upon and  inure to the benefit of such successor and
such successor shall discharge and perform all the promises, covenants, duties,
and obligations of ESI hereunder.  This Agreement shall inure to the benefit of
and be enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.


 


(c)           Governing Law.  This Agreement shall be construed in
accordance with and governed by the laws of the State of Oregon.


 


(d)           Dispute Resolution.  Executive agrees that, to the fullest extent
permitted by applicable law, any dispute concerning Executive’s employment or
this Agreement shall first be submitted to confidential mediation before a mediator
selected by the parties.  If the dispute
is not resolved through mediation, it shall be submitted and settled
exclusively by confidential binding arbitration in accordance with the National Rules for
the Resolution of Employment Disputes of the American
Arbitration Association or such comparable rules as may be agreed upon by the
parties.


 


(e)           Attorneys’ Fees.  Each party shall bear his or its own costs
and attorneys’ fees which have been or may be incurred in connection with any
matter herein or in connection with the negotiation and consummation of this
Agreement or any attachment or exhibit hereto or in any action to enforce the
provisions of this Agreement or any attachment or exhibit hereto.  Notwithstanding the foregoing, any
arbitrator shall have the right to award attorneys’ fees to the prevailing
party in an arbitration proceeding. 
If this Agreement is executed on or before January 7, 2004, ESI will
reimburse Executive for one-half of his legal fees and expenses incurred in
connection with the review of this Agreement and all related agreements up to a
maximum amount of $5,000.  ESI shall pay
all legal fees and related expenses incurred by Executive as a result of (i)
his termination following a Change of Control of ESI (including all such fees
and expenses, if any, incurred in contesting or disputing such termination) or
(ii) Executive seeking to obtain or enforce any right or benefit provided by
this Agreement following a Change of Control.  


 


(f)            Notices.  All notices, requests, demands, consents,
approvals, declarations and other communications required by this Agreement
shall be in writing and shall be deemed delivered (i) if delivered personally;
(ii) if given by e-mail or facsimile, when transmitted and evidence of
confirmed transmission is received; (iii) if given by first-class air mail
(certified and return receipt requested), when delivered; and (iv) when given
by a nationally recognized overnight courier, when received or personally
delivered, in each case, with all charges prepaid


 


11

















 


and addressed to the respective party set forth on the first page of
this Agreement (and in the case of deliveries on behalf of Executive, addressed
to the Chairman of the Board of ESI), or to such other address as any party
shall specify in a notice delivered to all other parties in accordance with
this Section 13(f).


 


(g)           Entire Agreement.  This Agreement, including the attachments
and exhibits hereto, contains the entire agreement between Executive and ESI
concerning the subject matters discussed herein.  This Agreement supersedes all prior negotiations, agreements and
understandings of the parties with respect to Executive’s employment
relationship with ESI and the other subject matter herein.


 


(h)           Modification.  Modification of this Agreement shall be
effective only if in writing and signed by each party or its duly authorized
representative


 


(i)            No Waiver.  The waiver of any breach of this Agreement
by one party shall not constitute waiver by the non-breaching party of any
other breach of the Agreement.


 


(j)            Severability.  If any of the provisions or terms of this
Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other terms of this Agreement,
and this Agreement shall be construed as if such unenforceable term had never
been contained in this Agreement.


 


(k)           Surviving Provisions.  Not withstanding anything in this Agreement
to the contrary, Sections 3, 9, 10, 11, 12 and this
Section 13 shall survive the termination of
Executive’s employment and this Agreement.


 


(l)            Interpretation.  Unless specifically identified as a
reference to another document, any reference to a “section” or “subsection”
herein shall be deemed to be a reference to a section or subsection of this
Agreement.  Whenever the terms hereof
call for any notice, payment or other action on a day which is not a business
day, such payment or action may be taken, or such notice given, as the case may
be, on the next succeeding business day.


 


(m)          Counterparts and
Facsimile Signatures.  This
Agreement may be executed in two or more counterparts, each of which shall
constitute one and the same instrument. 
Facsimile signatures may be used in place of original signatures on this
Agreement.


 


(n)           Proof of Right to Work.  For purposes of federal immigration law,
Executive shall provide ESI satisfactory documentary evidence of Executive’s
identity and eligibility for employment in the United States.  Such documentation must be provided to ESI
within three (3) business days of the Effective Date, or ESI may terminate
Executive’s employment for Cause.


 


 


[SIGNATURE PAGE FOLLOWS]


 


12

















 


IN WITNESS WHEREOF, the undersigned has
executed this Agreement as of the 7th day of January, 2004.


 


 


 


	
  ELECTRO
  SCIENTIFIC INDUSTRIES, INC.

  
	
   

  
	
   

  
	
  By:

  	
  s//Nicholas
  Konidaris

  	
   

  
	
  Name:  Nicholas Konidaris

  
	
  Title:  President and Chief Executive Officer

  



 


 


 


	
  Exhibit A:

  	
   

  	
  ESI FY 2004 Executive Team Bonus Plan

  
	
  Exhibit B:

  	
   

  	
  Stock Option Agreement

  
	
  Exhibit C:

  	
   

  	
  Restricted Stock
  Agreement

  
	
  Exhibit D:

  	
   

  	
  Relocation Policy

  
	
  Exhibit E:

  	
   

  	
  Employee Confidentiality, Non Competition
  and Assignment Agreement

  



 


13

















 


EXHIBIT A


 


FY 2004 EXECUTIVE TEAM BONUS PLAN


 




	
  Prepared by:
  MWB Associates

  	
   

  	
  December 2003

  
	
   

  	
   

  	
  Rev. 2

  






 


The ESI Executive Team Bonus
Plan provides annual bonuses to Executive Team members for achievement of 2004
Revenue, Profit, and MBO targets.


 


The Plan is an annual Plan,
with bonus payments made after completion of the FY 2004 annual audit.


 


The following individuals are
eligible to participate in the FY 2004 Executive Team Bonus Plan: Harmon,
Chamberlain, Dodson, Del Vecchio, Harris, Taft, Vickers, Phillips


 


The Plan’s parameters will be:


Achievement of
FY 2004 Revenue Target – 25%


Achievement of
FY 2004 Operating Profit Target – 25%


Achievement of
FY 2004 Individual MBOs – 50%


 


FY 2004 Revenue Target is $166
million.


 


The Revenue Parameter will
trigger as follows:


0% payout at
$166 million in revenue


100% payout at
$200 million in revenue


200% payout at
$250 million in revenue


 


The Profit Parameter will
trigger as follows:


0% payout at
0% Operating Profit


100% payout at
5% Operating Profit


200% payout at
10% Operating Profit


 


14

















 


Revenue Parameter


 





 


Operating Profit Parameter


 





 


MBO Achievement Payout


 


The MBO payout will be
triggered only if the Company achieves a FY 2004 Operating Profit of 5% or
better, after deducting profit-sharing and bonus payments.


 


If the MBO payout is triggered,
payments will be based on the participant’s percentage of MBO achievement for
FY 2004.


 


Bonus Targets


 


The FY 2004 Executive Team
bonus targets at 100% achievement of Plan are:


CEO – 100% of
base salary


Senior Vice
President – 80% of base salary


Vice President
– 60% of base salary


 


15

















 


General Bonus Plan Rules


 


All Bonus Plan calculations for
achievement of Revenue and Operating Plan parameters are net of all
profit-sharing and bonus payments. 
Payouts are funded with 50% of the Operating Profits in excess of 5% of
Revenue and profit-sharing payments are a credit against amounts earned under
this Plan.  Maximum Bonus for achieving
Revenue Target is 200%.  Maximum Bonus
for achieving Operating Profit Target is 200%. 
Bonus will be paid within 30 days of completion of the annual audit
Bonus payouts are based on the participant’s actual base payroll for the bonus
year. Employees eligible to receive bonuses must be employees on the date the
bonus is paid to receive a bonus.


 


General Provisions


 


The Company reserves the right
to change or modify the Bonus Plan at any time with the concurrence of the
Board of Directors.


 


EXHIBIT B


 


STOCK OPTION AGREEMENT


 


Notice
of Grant of Stock Options and Option Agreement


 


	
  Nicholas
  Konidaris

  	
   

  	
  Option
  Number:

  
	
  5773 Orvieto
  Ct.

  	
   

  	
  Plan:

  
	
  San Jose,
  CA  95138

  	
   

  	
   

  



 


Effective January 7, 2004, (the
“Grant Date”), you (“Optionee”) have been granted an option to buy 420,000
shares of Common Stock of Electro Scientific Industries, Inc. (the “Company”)
at $[    ] per share.  This option is intended as an incentive
stock option within the meaning of, and to the maximum extent permitted within
the $100,000 annual vesting limitation under, Section 422 of the Internal
Revenue Code of 1986, as amended.


 


The total option price of this
option is $[     ].


 


Shares in each period will
become fully vested on the date shown.


 


	
  Shares

  	
   

  	
  Vest Type

  	
   

  	
  Full Vest

  	
   

  	
  Expiration

  	
   

  
	
  105,000

  	
   

  	
  On Vest Date

  	
   

  	
  January 7, 2005

  	
   

  	
  January 7, 2014

  	
   

  
	
  105,000

  	
   

  	
  On Vest Date

  	
   

  	
  January 7, 2006

  	
   

  	
  January 7, 2014

  	
   

  
	
  105,000

  	
   

  	
  On Vest Date

  	
   

  	
  January 7, 2007

  	
   

  	
  January 7, 2014

  	
   

  
	
  105,000

  	
   

  	
  On Vest Date

  	
   

  	
  January 7, 2008

  	
   

  	
  January 7, 2014

  	
   

  



 


By your signature and the
Company’s signature below, you and the Company agree that this option is
granted under and governed by the terms and conditions of the Company’s 2000
Stock Option Incentive Plan, as amended, and the attached Option Terms and
Conditions, which are incorporated into and made a part of this agreement.


 


16

















 


Notwithstanding paragraphs 1.2,
1.3 and 1.5 of the attached Terms & Conditions, Section 9 of the Employment
Agreement between Optionee and the Company (the “Employment Agreement”) shall
govern the time of exercise and vesting of the option in the event that the
Company terminates Optionee’s employment without Cause (as defined in the
Employment Agreement), or in the event that Optionee terminates employment for
Good Reason (as defined in the Employment Agreement).


 


	
  Electro Scientific Industries, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  s//Jon D. Tompkins

  	
   

  	
  January 7,
  2004

  
	
   

  	
  Jon D.
  Tompkins

  	
   

  	
   

  
	
   

  	
  Chairman of
  the Board

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  s// Nicholas
  Konidaris

  	
   

  	
  January 7,
  2004

  
	
  Nicholas
  Konidaris

  	
   

  	
   

  



 


17

















 


OPTION TERMS AND CONDITIONS

2000 Stock Option Incentive Plan


 


Pursuant to the Company’s 2000 Stock Option
Incentive Plan (the “Plan”), the Board of Directors has voted in favor of
granting to the Optionee an option to purchase Common Stock of the Company (the
“Option”) in the amount indicated on the attached notice.  This Option is granted in conjunction with
the Employment Agreement between Optionee and the Company dated January 7, 2004
(the “Employment Agreement”).


 


1.             The Option is granted
upon the following terms:


 


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


 


1.2           Time of Exercise.  Except as provided in paragraph 1.5, the
Option may be exercised from time to time in the following amounts:  (a) none during the first year following the
Grant Date, (b) thereafter not to exceed in any 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 full number of shares to which the
Optionee is entitled, the rights shall be cumulative and the Optionee may
exercise the Option for such shares in any subsequent year during the term of
the Option.


 


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


 


1.4           Nonassignability.  The Option is nonassignable and
nontransferable by the Optionee 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 is exercisable during the Optionee’s lifetime only by the Optionee.


 


1.5           Termination of
Employment.


 


(a)           Except as provided in
the Employment Agreement, if Optionee’s employment or service with the Company
terminates for any reason other than in the circumstances specified in
subsection (b), (c) or (d) below, his option may be exercised at any time
before the expiration date of the option or the expiration of three months
after the date of termination, whichever is the shorter period, but only if and
to the extent Optionee was entitled to exercise the option at the date of
termination.


 


(b)           If Optionee’s
employment or service with the Company terminates because of total disability,
his option may be exercised at any time before the expiration date of the
option or before the date 12 months after the date of termination, whichever is
the shorter period, but only if and to the extent Optionee was entitled to exercise
the option at the date of


 


18

















 


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 Optionee to be unable to perform his duties as an employee,
director, officer or consultant 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.


 


(c)           If Optionee dies while
employed by or providing service to the Company, his or her option may be
exercised at any time before the expiration date of the option or before the
date 12 months after the date of death, whichever is the shorter period, but
only if and to the extent Optionee was entitled to exercise the option at the
date of death and only by the person or persons to whom Optionee’s rights under
the option shall pass by the Optionee’s will or by the laws of descent and
distribution of the state or country of domicile at the time of death.


 


(d)           Except as provided in
the Employment Agreement, in the event Optionee’s employment is terminated by
the Company without Cause or Optionee quits for Good Reason within two years or
after a Change of Control of the Company, any option held by such Optionee may
be exercised with respect to all remaining shares subject thereto, free of any
limitation on the number of shares with respect to which the option may be
exercised in any one year, at any time prior to its expiration date or the
expiration of three months after the date of such termination of employment (or
such longer period as may be provided for in the Employment Agreement),
whichever is the shorter period.  A
“Change of Control”, “Cause” and “Good Reason” shall have the meanings set
forth in the Employment Agreement.


 


(e)           To the extent the
Option held by any deceased Optionee or by the Optionee whose employment is
terminated shall not have been exercised within the limited periods provided
above, all further rights to purchase shares pursuant to the Option shall cease
and terminate at the expiration of such periods.


 


(f)            Absence or 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 shall continue during a medical, family, military
or other leave of absence, whether paid or unpaid.


 


1.6           Purchase of Shares.  Shares may be purchased or acquired pursuant
to the Option only upon receipt by the Company of notice in writing from the
Optionee of the Optionee’s intention to exercise, specifying the number of
shares as to which the Optionee desires to exercise the Option and the date on
which the Optionee desires to complete the transaction, which shall not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such representation is not required in order to comply with the
Securities Act of 1933, as amended, containing a representation that it is the
Optionee’s present intention to acquire the shares for investment and not with
a view to distribution.  On or before
the date specified for completion of the purchase of shares pursuant to the
Option, the Optionee must have paid the Company the full purchase price of such
shares in cash (including cash which may at the election of the Company be the
proceeds of a loan from the Company), or


 


19

















 


in shares of Common Stock
of the Company previously acquired and held by the Optionee for at least six
months and valued at fair market value as defined in the Plan, or in any
combination of cash and shares of Common Stock of the Company.  No shares shall be issued until full payment
therefor has been made, and the Optionee shall have none of the rights of a
shareholder until a certificate for shares is issued to the Optionee.  The Optionee shall, upon notification of the
amount due, if any, and prior to or concurrently with delivery of the
certificates representing the shares with respect to which the Option was
exercised, pay to the Company amounts necessary to satisfy any applicable
federal, state and local withholding tax requirements (which may be settled, in
the Optionee’s discretion, by cash payment or by a reduction of the number of
shares issuable upon exercise of the option by the number (valued at their fair
market value at the time of the exercise) required to satisfy such tax withholding
obligations).  If additional withholding
becomes required beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company on demand.


 


1.7           Changes in Capital
Structure.  In the event that the
outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company or another corporation, by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares, or dividend payable in shares,
appropriate adjustment shall be made by the Board of Directors in the number
and kind of shares for purchase pursuant to the Option and the corresponding
Option price.


 


2.             The obligations of
the Company under this Agreement are subject to the approval of such state or
federal authorities or agencies, if any, as may have jurisdiction in the
matter.  The Company will use its best
efforts to take such steps as may be 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 issuance or sale of any shares purchased
upon the exercise of the Option.  The
Company has filed a valid and effective Registration Statement on Form S-8 with
respect to the shares available under the Plan which are sufficient in number
to cover the shares that are subject to the Option and the Company shall use
its best efforts to continue the effectiveness of such Registration Statement
through the time that the Option is exercised or terminates.


 


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


 


4.             This Agreement shall
be binding upon and shall inure to the benefit of any successor or successors
of the Company but except as hereinabove provided the Option herein granted
shall not be assigned or otherwise disposed of by the Optionee.  To the extent there is any conflict between
the terms of this document and the Employment Agreement, the terms of the
Employment Agreement shall control. 
Notwithstanding anything else herein or in the Plan to the contrary, in
the event that the Company proposes to terminate the Option pursuant to Section
7(b) of the Plan in the event of or in connection with a Transaction (as such
term is defined in the Plan) or a dissolution of the Company, the Board of
Directors shall accelerate the vesting of the otherwise unvested portion of the
Option, shall give the Optionee at least thirty (30) days


 


20

















 


advance notice of the
impending termination, and shall afford Optionee a reasonable opportunity to exercise
the Option (including the portion that accelerates pursuant to this clause)
before any such termination.


 


21

















 


EXHIBIT C


 


RESTRICTED STOCK AGREEMENT


 


This Agreement
is entered into as of January 7, 2004 between Electro Scientific Industries,
Inc., an Oregon corporation (“ESI”), and Nicholas Konidaris (the “Recipient”).


 


ESI has
awarded a restricted stock grant to the Recipient pursuant to paragraph 6 of
ESI’s 1996 Stock Incentive Plan and Recipient desires to accept the grant
subject to the terms and conditions of this agreement.


 


NOW,
THEREFORE, the parties agree as follows:


 


1.             Grant
of Restricted Stock.  Subject to the
terms and conditions of this Agreement, ESI hereby grants to the Recipient
20,000 shares of ESI Common Stock (the “Restricted Shares”).  The Restricted Shares are subject to
forfeiture to ESI as set forth in Section 2 below.


 


2.             Forfeiture
Restriction.  If the Recipient
ceases to be employed by ESI because ESI terminates Recipient’s employment for
Cause, as defined in the Employment Agreement dated January 7, 2004 between ESI
and the Recipient (together with the exhibits attached thereto, the “Employment
Agreement”), or the Recipient terminates his employment for any reason other
than Good Reason (as defined in the Employment Agreement), death, or Disability
(as defined in the Employment Agreement), any unvested Restricted Shares shall
be forfeited to ESI.  All of the
Restricted Shares shall initially be unvested. 
Subject to acceleration as provided below, fifty percent of the
Restricted Shares shall vest on April 1, 2004, and the remaining fifty percent
of the Restricted Shares shall vest on April 1, 2005.  If the Recipient ceases to be employed by ESI as a result of
death, Disability (as defined in the Employment Agreement), a termination of
employment by ESI other than for Cause (as defined in the Employment
Agreement), or a termination by Recipient for Good Reason (as defined in the
Employment Agreement), all of the Restricted Shares shall immediately vest as
of such termination.  Nothing contained
in this Agreement shall confer upon Recipient any right to be employed by ESI
or to continue to provide services to ESI or to interfere in any way with the
right of ESI to terminate Recipient’s services at any time for any reason, with
or without cause.


 


3.             Restriction
on Transfer.  The Recipient shall
not sell, assign, pledge, or in any manner transfer unvested Restricted Shares,
or any right or interest in unvested Restricted Shares, whether voluntarily or
by operation of law, or by gift, bequest or otherwise.  Any sale or transfer, or purported sale or
transfer, of unvested Restricted Shares, or any right or interest in unvested
Restricted Shares, in violation of this Section 3 shall be null and void.


 


4.             Tax Withholding
and Section 83(b) Election. 
Recipient acknowledges that any income recognized as a result of
receiving the Restricted Shares will be treated as ordinary compensation income
subject to federal, state and local income, employment and other tax
withholding.  Recipient understands that
if he makes an election under Section 83(b) of the Internal Revenue Code of
1986, as amended (a “Section 83(b) Election”), with respect to some


 

















 


or all of the Restricted
Shares, Recipient will recognize ordinary compensation income at the time such
Restricted Shares are received, in an amount equal to the fair market value of
the Restricted Shares on that date.  If
Recipient does not make a Section 83(b) Election with respect to some or all of
the Restricted Shares, Recipient will recognize ordinary compensation income at
the time any portion of such Restricted Shares vest in accordance with Section
2 of this Agreement, in an amount equal to the fair market value of those
Restricted Shares on the vesting date. 
Within 10 days after notification by ESI, and prior to or concurrently
with the delivery of the certificates representing the Restricted Shares,
Recipient shall pay to ESI the amount necessary to satisfy any applicable
federal, state and local tax withholding requirements arising in connection
with Recipient’s receipt of the Restricted Shares, including any amounts
required to be withheld at the time any portion of the Restricted Shares vest
in accordance with Section 2 of this Agreement.  Recipient shall pay such amounts in cash or, at the election of
the Recipient, by surrendering to ESI for cancellation Restricted Shares or
other shares of ESI Common Stock valued at the closing market price for the ESI
Common Stock on the last trading day preceding the date of Recipient’s election
to surrender such shares.  If additional
withholding becomes required beyond any amount paid before delivery of the
certificates representing the Restricted Shares, Recipient shall pay such
amount to ESI upon demand.  If
shareholder fails to pay any amount demanded, ESI shall have the right to
withhold such amount from other amounts payable by ESI to the Recipient,
including salary, subject to applicable law. 
RECIPIENT UNDERSTANDS THAT TO BE VALID, A SECTION 83(b) ELECTION MUST BE
FILED WITH THE INTERNAL REVENUE SERVICE WITHIN 30 DAYS OF THE DATE THE
OWNERSHIP OF THE RESTRICTED SHARES IS TRANSFERRED TO RECIPIENT, A COPY OF THE
ELECTION MUST BE PROVIDED TO ESI, AND A COPY OF THE ELECTION MUST BE ATTACHED
TO THE RECIPIENT’S FEDERAL (AND POSSIBLY STATE) INCOME TAX RETURN FOR THE YEAR
OF THE ELECTION.  RECIPIENT ACKNOWLEDGES
THAT IF HE CHOOSES TO FILE A SECTION 83(b) ELECTION, IT IS RECIPIENT’S SOLE
RESPONSIBILITY, AND NOT ESI’S, TO MAKE A VALID AND TIMELY ELECTION.  RECIPIENT IS ENCOURAGED TO CONSULT HIS TAX
ADVISOR REGARDING THE ADVISABILITY OF, AND PROCEDURE FOR, MAKING A SECTION
83(b) ELECTION WITH RESPECT TO SOME OR ALL OF THE RESTRICTED SHARES.


 


5.             Stock
Certificate.  Upon the execution and delivery of this Agreement,
the award of the Restricted Shares shall be completed and the Recipient shall
be the owner of the Restricted Shares with all voting, dividend and other
rights of a shareholder, except as limited by this Agreement.  To secure the rights of ESI under Sections 2
and 4, ESI will retain the certificate or certificates representing the
Restricted Shares.  Upon any forfeiture
of the Restricted Shares covered by this Agreement, ESI shall have the right to
cancel the Restricted Shares in accordance with this Agreement without any
further action by the Recipient.  Upon
any failure of the Recipient to pay required withholding under Section 4, ESI
shall have the right to cancel vested Restricted Shares with a value equal to the
required withholding amount without any further action by the Recipient.  After Restricted Shares have vested and all
required withholding has been paid to ESI in connection with such vesting, ESI
shall promptly deliver a certificate for the vested Restricted Shares to the
Recipient.


 


6.             Additional
ESI Shares.  If, prior to vesting of Restricted Shares, the
outstanding ESI Common Stock is increased as a result of a stock dividend or
stock split, the restrictions and


 


2

















 


other
provisions of this Agreement shall apply to any such additional shares of ESI
Common Stock which are issued in respect of the Restricted Shares to the same
extent as such restrictions and other provisions apply to the Restricted
Shares.


 


7.             Restrictive
Legends.  Stock certificates for shares issued under this
Agreement may bear the following legends:


 


The shares
represented by this certificate are subject to a Restricted Stock Agreement
between the registered owner and Electro Scientific Industries, Inc. which
restricts the transferability of the shares. 
A copy of the agreement is on file with the Secretary of Electro
Scientific Industries, Inc.


 


ESI shall
promptly remove such legend as to any Restricted Shares that vest pursuant to
this Agreement and the share certificate delivered by ESI to Recipient with
respect to such vested Restricted Shares shall be free of any such restrictive
legend.  ESI represents that it has
filed a valid and effective Registration Statement on Form S-8 with the
Securities and Exchange Commission to register a sufficient number of shares
with respect to ESI’s 1996 Stock Incentive Plan to cover the Restricted Shares
subject to this award.


 


8.             Miscellaneous.


 


8.1           Entire
Agreement; Amendment.  This
Agreement and the Employment Agreement collectively constitute the entire
agreement of the parties with regard to the subjects hereof, and this Agreement
may be amended only by written agreement between ESI and the Recipient.


 


8.2           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 ESI, Attention: Corporate Secretary, at its
principal executive offices or to the Recipient at the address of Recipient in
ESI’s records, or at such other address as such party may designate by ten (10)
days’ advance written notice to the other party.


 


8.3           Rights and Benefits.  The rights and benefits of this Agreement
shall inure to the benefit of and be enforceable by ESI’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.


 


8.4           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.


 


8.5           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


 


3

















 


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.


 


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


 


IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.


 


	
   

  	
  ELECTRO
  SCIENTIFIC INDUSTRIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By RECIPIENT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  s//Nicholas
  Konidaris

  
	
   

  	
  Nicholas
  Konidaris

  



 


4

















 


EXHIBIT D


 


RELOCATION POLICY


 


ESI shall reimburse
Executive for the following:


 


•      The
documented Realtor Fee for the sale of Executive’s primary residence up to a
maximum of 6%.


 


•      Up to 1% closing costs on
the sale of Executive’s primary residence.


 


•      Up to 2% to cover all closing
cost appraisals and normal transition costs of purchasing a new residence in
Oregon (must be complete by June 30, 2004).


 


•      Relocation of household
goods and up to two (2) automobiles from San Jose, CA to the Portland, OR
area.  ESI will ask for 3 bids and will
work with Executive to choose the right vendor.  These bids shall include catastrophic loss insurance for
Executive’s household goods while in transit and storage.


 


•      Up to 180 days temporary storage of Executive’s
household goods and delivery to Executive’s Portland area residence of choice.


 


•      Up to 180 days temporary living assistance while
Executive closes on his new primary residence up to a maximum of $3,000 per
month.


 


•      Two house hunting trips for
Executive and his spouse (including airfare, hotel and meals) for a duration of
up to 7 days.


 


•      Final transportation for
Executive and his family (coach airfare or mileage reimbursement, hotel and per
diem if driving) to Oregon.


 


All reimbursable expenses
require receipts.  ESI shall gross up
all reimbursable expenses to make ESI’s payment of these expenses a tax-neutral
event for Executive.


 


The maximum relocation
expenditure for all items will be $200,000.  Relocation
assistance must be repaid to ESI on a pro-rated basis if Executive voluntarily terminates
his position with ESI other than for Good Reason (and other than due to Executive’s death or
Disability)  within 24 months of the Effective Date.


 

















 


EXHIBIT E


 


EMPLOYEE
CONFIDENTIALITY, NON COMPETITION


AND ASSIGNMENT AGREEMENT


 


In consideration of my employment by Electro
Scientific Industries, Inc. or by one of its subsidiaries and affiliates
(herein collectively called “ESI”), I agree to the following:


 


1.             Confidentiality.  I
acknowledge that my employment gives me access to manufacturing processes,
business plans, customer lists, drawings, documents, reports, facilities,
formulas, computer data, computer programs (including algorithms, flowcharts,
source code, object code and firmware), and other information all of which ESI
regards as confidential and treats as trade secrets.  I recognize that my employment creates a relationship of
confidence and trust which requires me to protect the secrecy of such
confidential information.


 


2.             Nondisclosure
and Nonuse.  Except as the duties of my employment may
require, I will not use, publish or disclose any confidential information to
which I am given access.  This
obligation will continue even if I cease to be employed by ESI.  On termination of my employment, I shall
deliver to ESI all files, notes, records, data and documents which are under my
control and which relate to confidential information of ESI.


 


3.             Assignment
of Inventions.  I shall promptly disclose and I hereby
assign to ESI all proprietary rights, including any patents or copyrights which
may be obtained, in all inventions, processes, ideas, improvements, computer
programs embodied in any medium and at any stage of development (including but
not limited to algorithms, flowcharts, source code, object code and firmware),
and any other discoveries which are conceived by me, alone or with others,
while I am employed by ESI and for one year thereafter, and which relate to the
business of ESI (herein collectively called “the Inventions”).  This obligation shall apply even if the
Inventions are not patentable and even if they were not conceived during
regular working hours.


 


4.             Patents
and Copyrights.  I shall cooperate fully with ESI during and
subsequent to my employment if ESI decides, at its expense, to obtain U.S. or
worldwide patents or copyrights covering my Inventions.  If ESI elects not to file patent or
copyright applications within one year after I have submitted a written
disclosure on an Invention, and if ESI determines that the Invention does not constitute
a trade secret of ESI, the Invention will be released to me with the retention
by ESI of a transferable, nonexclusive and royalty-free license under any
patents or copyrights which may subsequently be issued.


 


5.             Bonus.  If
ESI elects to seek patent or copyright protection on any Invention disclosed by
me, it will pay me a bonus of $100.00 for each Invention of which I am the sole
inventor or my pro rata share of $100.00 if there are multiple inventors.


 


6.             Prior
Inventions.  I have set out below a complete list of all
Inventions, if any,


 

















 


patented or unpatented,
including the number of all patents and patent applications filed thereon, and
a brief description of all unpatented Inventions, which I made prior to my
employment by the Company, and which are to be excluded from the scope of this
Agreement.  I agree that any patentable
improvements made upon the listed Inventions subsequent to my employment by the
Company are to be the property of ESI if within the scope of Paragraph 3
hereof.


 


7.             I hereby irrevocably consent to and authorize
the use and reproduction by Electro Scientific Industries, Inc. (ESI), or
anyone authorized by ESI, of any and all photographs which are taken of me,
during my employment by ESI, negative or positive, proofs of which will be
retained in ESI files, for any purpose whatsoever, without further compensation
to me.   All negatives and positives,
together with the prints shall constitute ESI property, solely and completely.


 


8.             Covenant
Not To Compete.   If I leave the employment of ESI for any
reason, I agree that for a period of two years after termination of employment
I will not be an employee of, consultant to or member of the board of directors
of any business which is in competition with ESI’s then principal businesses
(currently semiconductor memory repair, laser trimming and tuning of electronic
circuits, passive component manufacturing equipment and laser drilling systems
for electronic equipment); provided, however, that this covenant shall not
apply to the high volume, semiconductor automated test equipment (ATE)
business; and provided further that this covenant shall terminate after one
year if I am terminated with Cause or quit without Good Reason.


 


9.             LITIGATION.  I recognize that ESI will not have an adequate monetary remedy to
compensate it if I violate the terms of this Agreement.  Accordingly, if I fail to honor my
obligations, I hereby consent to the immediate entry of a temporary restraining
order and preliminary injunction against me by a court of competent
jurisdiction.  If any litigation is
commenced to enforce this Agreement, the prevailing party at trial and on
appeal shall be entitled to an award of reasonable attorney’s fees.


 


10.           Binding
Effect.  The provisions of this Agreement shall inure
to the benefit of and be binding upon the heirs, legal representatives,
successors and assigns of the parties.


 


11.           Employee
certifies that there is no other contract or duty on Employee’s part that would
interfere with Employee’s ability to provide services to ESI.


 


Reserved
Inventions (drawings, photographs, etc. attached).


 


[SIGNATURE PAGE FOLLOWS]


 

















 


	
  Employee Name (print):

  	
  Nicholas Konidaris

  	
   

  
	
   

  	
   

  
	
  Employee Signature

  	
  s//Nicholas Konidaris

  	
   

  	
   

  
	
   

  	
   

  
	
  Date January 7, 2004

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted:

  	
   

  
	
   

  	
   

  
	
  Electro Scientific
  Industries, Inc.

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date