Exhibit
10.3


 


	
  

  	
  Electro Scientific Industries,
  Inc.

  13900 NW Science Park Dr.

  Portland, OR 97229

  



 


Notice of Grant of Stock Options

and Option Agreement


 


	
  [Name]

  	
  Option
  Number:

  	
              

  
	
  [Address]

  	
  Plan:

  	
  2004

  



 


Effective                         
(the Grant Date), you (Optionee) have been granted an Incentive Stock Option to
buy               
shares of Common Stock of Electro Scientific Industries, Inc. (the Company) at
$                
per share.


 


The total option price of
this option is $                        .


 


Shares vest at a rate of
25% annually on the date shown.


 


	
  Shares

  	
   

  	
  Vest Type

  	
   

  	
  Full Vest

  	
   

  	
  Expiration

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On Vest Date

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On Vest Date

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On Vest Date

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On Vest Date

  	
   

  	
   

  	
   

  	
   

  



 


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 2004
Stock Incentive Plan and the attached Option Terms and Conditions which are
incorporated into and made a part of this agreement.


 


	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Nicholas Konidaris

  	
   

  	
  Date

  	
   

  
	
  President and Chief
  Executive Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [Name]

  	
   

  	
  Date

  	
   

  



 





















 


OPTION TERMS AND CONDITIONS


2004
Stock Incentive Plan


Incentive
Stock Option


 


Pursuant to the Company’s
2004 Stock Incentive Plan (the “2004 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.  The option is intended to be an Incentive
Stock Option as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”).


 


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)           Unless
otherwise determined by the Board of Directors, if an 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 or her 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 the optionee was entitled to exercise the option at the date of
termination.


 


(b)           Unless
otherwise determined by the Board of Directors, if an optionee’s employment or
service with the Company terminates because of total disability, 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 termination, whichever is the
shorter period, but only if and to the extent the optionee was entitled to
exercise the option at the date of termination. 
The term “total disability” means a medically determinable mental
or physical impairment that is expected to result in death or has lasted or is
expected to last for a continuous period of 12 months or more and that, in the
opinion of the Company and two independent physicians, causes the optionee to
be unable to perform his or her 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)           Unless
otherwise determined by the Board of Directors, if an 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 the optionee was entitled to exercise the option at the date of
death and only by the person or persons to whom the 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)           In
the event an optionee’s employment by the Company or by any parent or
subsidiary of the Company terminates within one year after a change in control
of the Company for any reason other than retirement, death, or physical disability
(as defined in Section 1.5(b)), 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, whichever is the shorter period. 
A “change in control of the Company” shall mean a change in control of a
nature that would be required to be reported in response to item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (“Exchange Act”); provided that, without limitation, such a change in
control shall be deemed to have occurred if (1) any “person” (as such term is
used in Sections 13(d) or 14(d)(2) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of the Company’s
then outstanding securities; or (2) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the Company’s
shareholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.  A change in
control of the Company shall not include any change in control pursuant to a
written agreement between the Company and another person, which agreement is
approved and adopted by the Board of Directors of the Company or pursuant to
any tender offer or exchange offer which the Board of Directors has in any
manner recommended acceptance of to the shareholders of the Company.


 


(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
on leave approved by the Employer or on account of illness or disability shall
not be deemed a termination or interruption of employment or service.  Unless otherwise determined by the Board of
Directors, vesting of options 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 a 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 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 2004 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.  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.  Any such adjustment made by
the Board of Directors shall be conclusive.


 


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.


 


3.             Nothing
in the 2004 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.