Exhibit
10.1


 


APPENDIX E


 


ELECTRO
SCIENTIFIC INDUSTRIES, INC. 

2004 STOCK INCENTIVE PLAN


 


1.     Purpose. 
The purpose of this 2004 Stock Incentive Plan (the “Plan”) is to enable
Electro Scientific Industries, Inc. (the “Company”) to attract and retain the
services of selected employees, officers and directors of the Company or any
parent or subsidiary of the Company.  For
purposes of this Plan, a person is considered to be employed by or in the
service of the Company if the person is employed by or in the service of any
entity (the “Employer”) that is either the Company or a parent or subsidiary of
the Company.


 


2.     Shares Subject to the Plan.  Subject to adjustment as provided below and
in Section 12, the shares to be offered under the Plan shall consist of
Common Stock of the Company (“Common Stock”), and the total number of shares of
Common Stock that may be issued under the Plan shall be 3,000,000 shares plus
any shares that at the time the Plan is approved by shareholders are available
for grant under the Company’s 1989 Stock Option Plan, 1996 Stock Incentive Plan
and 2000 Stock Option Incentive Plan, which plans were previously approved by
shareholders of the Company, and the Company’s 2000 Stock Option Plan, which
plan was not previously approved by the Company’s shareholders (collectively,
the “Prior Plans”), or that may subsequently become available for grant under
any of the Prior Plans through the expiration, termination, forfeiture or
cancellation of grants.  If an option,
stock appreciation right or Performance-Based Award granted under the Plan
expires, terminates or is canceled, the unissued shares subject to that option,
stock appreciation right or Performance-Based Award shall again be available
under the Plan.  If shares awarded as a
bonus pursuant to Section 9 or sold pursuant to Section 10 under the
Plan are forfeited to or repurchased by the Company, the number of shares
forfeited or repurchased shall again be available under the Plan.


 


3.     Effective Date and Duration of Plan.


 


3.1           Effective Date.  The Plan shall become effective as of
July 15, 2004.  No awards shall be
made under the Plan until the Plan is approved by shareholders of the Company
in accordance with rules of The Nasdaq Stock Market.


 


3.2           Duration.  The Plan shall continue in effect until all
shares available for issuance under the Plan have been issued and all
restrictions on the shares have lapsed. 
The Board of Directors may suspend or terminate the Plan at any time
except with respect to options, Performance-Based Awards, stock appreciation
rights, and shares subject to restrictions then outstanding under the
Plan.  Termination shall not affect any
outstanding options, Performance-Based Awards, stock appreciation rights or any
right of the Company to repurchase shares or the forfeitability of shares
issued under the Plan.


 





















 


4.     Administration.


 


4.1           Board of Directors.  The Plan shall be administered by the Board
of Directors of the Company, which shall determine and designate the
individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards.  Subject to the provisions of the Plan, the
Board of Directors may adopt and amend rules and regulations relating to
administration of the Plan, advance the lapse of any waiting period, accelerate
any exercise date, waive or modify any restriction applicable to shares (except
those restrictions imposed by law) and make all other determinations in the
judgment of the Board of Directors necessary or desirable for the
administration of the Plan.  The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive.  The Board of Directors may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
related agreement in the manner and to the extent it deems expedient to carry
the Plan into effect, and the Board of Directors shall be the sole and final
judge of such expediency.


 


4.2           Committee.  The Board of Directors may delegate to any committee
of the Board of Directors (the “Committee”) any or all authority for
administration of the Plan.  If authority
is delegated to the Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee, except (i) as otherwise provided
by the Board of Directors and (ii) that only the Board of Directors may amend
or terminate the Plan as provided in Sections 3 and 13.


 


5.     Types of Awards; Eligibility; Limitations.


 


5.1           Types of Awards, Eligibility.  The Board of Directors may, from time to
time, take the following actions, separately or in combination, under the
Plan:  (i) grant Incentive Stock Options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the “Code”), as provided in Sections 6.1, 6.2 and 8; (ii) grant options
other than Incentive Stock Options (“Non-Statutory Stock Options”) as provided
in Sections 6.1, 6.3 and 8; (iii) grant stock appreciation rights as
provided in Sections 7 and 8; (iv) award stock bonuses (including bonuses
in the form of restricted stock units) as provided in Section 9; (v) sell
shares subject to restrictions as provided in Sections 10; (vi) award
Performance-Based Awards as provided in Section 11.  Awards may be made to employees, including
employees who are officers or directors, and to non-employee directors;
provided, however, that only employees of the Company or any parent or
subsidiary of the Company (as defined in subsections 424(e) and 424(f) of
the Code) are eligible to receive Incentive Stock Options under the Plan.  The Board of Directors shall select the
individuals to whom awards shall be made and shall specify the action taken
with respect to each individual to whom an award is made.


 


5.2           Per Employee Share Limitations.  No employee may be granted options and/or
stock appreciation rights for more than an aggregate of 500,000 shares of
Common Stock in any calendar year; provided, however, that to the extent the
annual limitation is not fully used in any year for an employee, any shares not
used may be added to the number of shares for which options and/or stock
appreciation rights may be granted to that employee in any future year.


 


5.3           Prohibition on Option Repricing.  Except as provided in Section 11,
without the prior approval of the Company’s shareholders, an option issued
under the Plan may


 





















 


not
be repriced by lowering the option exercise price or by cancellation of an
outstanding option with a subsequent replacement or regrant of an option with a
lower exercise price.


 


5.4           Maximum Number of Shares Issuable
Upon Exercise of ISOs.   The maximum aggregate number of shares of
Common Stock that may be issued under the Plan upon exercise of Incentive Stock
Options shall be equal to the sum of 3,000,000 shares plus any shares that
at July 15, 2004 are available for grant under the Prior Plans or that may
subsequently become available for grant under any of the Prior Plans through
the expiration, termination, forfeiture or cancellation of grants, which number
will not exceed 9,568,684 shares.


 


6.     Stock Options.


 


6.1           General Rules Relating to Options.


 


6.1-1        Terms of Grant.  The Board of
Directors may grant options under the Plan. 
With respect to each option grant, the Board of Directors shall
determine the number of shares subject to the option, the exercise price, the
period of the option, the time or times at which the option may be exercised
and whether the option is an Incentive Stock Option or a Non-Statutory Stock
Option.  At the time of the grant of an
option or at any time thereafter, the Board of Directors may provide that an
optionee who exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal to the
number of shares surrendered and may specify the terms and conditions of such
new options.


 


6.1-2        Nontransferability.  Each
Incentive Stock Option and, unless otherwise determined by the Board of
Directors, each other option granted under the Plan by its terms (i) shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, 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 (ii)
during the optionee’s lifetime, shall be exercisable only by the optionee.


 


6.1-3        Purchase of Shares.  Unless the Board of Directors determines
otherwise, on or before the date specified for completion of the purchase of
shares pursuant to an option exercise, the optionee must pay the Company the
full purchase price of those shares in cash or by check or, with the consent of
the Board of Directors, in whole or in part, in Common Stock of the Company
valued at fair market value, restricted stock or other contingent awards
denominated in either stock or cash, promissory notes and other forms of
consideration.  Unless otherwise
determined by the Board of Directors, any Common Stock provided in payment of
the purchase price must have been previously acquired and held by the optionee
for at least six months.  The fair market
value of Common Stock provided in payment of the purchase price shall be the
closing price of the Common Stock last reported before the time payment in
Common Stock is made or, if earlier, committed to be made, if the Common Stock
is publicly traded, or another value of the Common Stock as specified by the
Board of Directors.  No shares shall be
issued until full payment for the shares has been made, including all amounts
owed for tax withholding.  With the
consent of the Board of Directors, an optionee may request the Company to apply
automatically the shares to be received upon the exercise of a portion of a
stock option (even though stock certificates have not yet been issued) to
satisfy the purchase price for additional portions of the option.


 





















 


6.1-4        Limitations on Grants to Non-Exempt Employees.  Unless
otherwise determined by the Board of Directors, if an employee of the Company
or any parent or subsidiary of the Company is a non-exempt employee subject to
the overtime compensation provisions of Section 7 of the Fair Labor
Standards Act (the “FLSA”), any option granted to that employee shall be
subject to the following restrictions: 
(i) the option price shall be at least 85 percent of the fair
market value, as described in Section 6.2-4, of the Common Stock subject
to the option on the date it is granted; and (ii) the option shall not be
exercisable until at least six months after the date it is granted; provided,
however, that this six-month restriction on exercisability will cease to apply
if the employee dies, becomes disabled or retires, there is a change in
ownership of the Company, or in other circumstances permitted by regulation,
all as prescribed in Section 7(e)(8)(B) of the FLSA.


 


6.2           Incentive Stock Options.  Incentive Stock Options shall be subject to
the following additional terms and conditions:


 


6.2-1        Limitation on Amount of Grants.  If
the aggregate fair market value of stock (determined as of the date the option
is granted) for which Incentive Stock Options granted under this Plan (and any
other stock incentive plan of the Company or its parent or subsidiary
corporations, as defined in subsections 424(e) and 424(f) of the Code) are
exercisable for the first time by an employee during any calendar year exceeds
$100,000, the portion of the option or options not exceeding $100,000, to the
extent of whole shares, will be treated as an Incentive Stock Option and the
remaining portion of the option or options will be treated as a Non-Statutory
Stock Option.  The preceding sentence
will be applied by taking options into account in the order in which they were
granted.  If, under the $100,000
limitation, a portion of an option is treated as an Incentive Stock Option and
the remaining portion of the option is treated as a Non-Statutory Stock Option,
unless the optionee designates otherwise at the time of exercise, the optionee’s
exercise of all or a portion of the option will be treated as the exercise of
the Incentive Stock Option portion of the option to the full extent permitted
under the $100,000 limitation.  If an
optionee exercises an option that is treated as in part an Incentive Stock
Option and in part a Non-Statutory Stock Option, the Company will designate the
portion of the stock acquired pursuant to the exercise of the Incentive Stock
Option portion as Incentive Stock Option stock by issuing a separate
certificate for that portion of the stock and identifying the certificate as
Incentive Stock Option stock in its stock records.


 


6.2-2        Limitations on Grants to 10 percent Shareholders.  An
Incentive Stock Option may be granted under the Plan to an employee possessing
more than 10 percent of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary (as defined in
subsections 424(e) and 424(f) of the Code) only if the option price is at
least 110 percent of the fair market value, as described in
Section 6.2-4, of the Common Stock subject to the option on the date it is
granted and the option by its terms is not exercisable after the expiration of
five years from the date it is granted.


 


6.2-3        Duration of Options.  Subject
to Sections 6.2-2, 8.1 and 8.2, Incentive Stock Options granted under the
Plan shall continue in effect for the period fixed by the Board of Directors,
except that by its terms no Incentive Stock Option shall be exercisable after
the expiration of 10 years from the date it is granted.


 





















 


6.2-4        Option Price.  The option price per
share shall be determined by the Board of Directors at the time of grant.  Except as provided in Section 6.2-2, the
option price shall not be less than 100 percent of the fair market value
of the Common Stock covered by the Incentive Stock Option at the date the
option is granted.  The fair market value
shall be the closing price of the Common Stock last reported on the date the
option is granted, if the stock is publicly traded, or another value of the
Common Stock as specified by the Board of Directors.


 


6.2-5        Limitation on Time of Grant.  No
Incentive Stock Option shall be granted on or after the tenth anniversary of
the last action by the Board of Directors adopting the Plan or approving an
increase in the number of shares available for issuance under the Plan, which
action was subsequently approved within 12 months by the shareholders.


 


6.2-6        Early Dispositions.  If
within two years after an Incentive Stock Option is granted or within
12 months after an Incentive Stock Option is exercised, the optionee sells
or otherwise disposes of Common Stock acquired on exercise of the Option, the
optionee shall within 30 days of the sale or disposition notify the
Company in writing of (i) the date of the sale or disposition, (ii) the amount
realized on the sale or disposition and (iii) the nature of the disposition
(e.g., sale, gift, etc.).


 


6.3           Non-Statutory Stock Options.  Non-Statutory
Stock Options shall be subject to the following terms and conditions, in
addition to those set forth in Sections 6.1 and 8.


 


6.3-1        Option Price.  The option price for
Non-Statutory Stock Options shall be determined by the Board of Directors at
the time of grant and may be any amount determined by the Board of Directors.


 


6.3-2        Duration of Options.  Non-Statutory
Stock Options granted under the Plan shall continue in effect for the period
fixed by the Board of Directors, except that no Non-Statutory Option shall be
exercisable after the expiration of 10 years from the date it is granted.


 


7.     Stock Appreciation Rights.


 


7.1           Grant.  Stock appreciation rights may be granted
under the Plan by the Board of Directors, subject to such rules, terms, and
conditions as the Board of Directors prescribes.  The Board of Directors may provide that stock
appreciation rights may be granted in substitution for stock options granted
under the Plan.  With respect to each
grant, the Board shall determine the number of shares subject to the stock
appreciation right, the exercise price of the stock appreciation right, the
period of the stock appreciation right, and the time or times at which the
stock appreciation right may be exercised. 
Stock appreciation rights shall continue in effect for the period fixed
by the Board of Directors.


 


7.2           Stock Appreciation Rights Granted in
Connection with Options. 
If a stock appreciation right is granted in connection with an option,
the stock appreciation right shall be exercisable only to the extent and on the
same conditions that the related option could be exercised.  Upon exercise of a stock appreciation right,
any option or portion thereof to which the stock appreciation right relates
terminates.  If a stock appreciation
right is granted in connection


 





















 


with
an option, upon exercise of the option, the stock appreciation right or portion
thereof to which the grant relates terminates.


 


7.3           Exercise.  Each stock appreciation right shall entitle
the holder, upon exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Common Stock of the Company over the exercise price as
determined by the Board of Directors (or, in the case of a stock appreciation
right granted in connection with an option, the option price per share under
the option to which the stock appreciation right relates), multiplied by the
number of shares covered by the stock appreciation right, or portion thereof,
that is surrendered.  Payment by the
Company upon exercise of a stock appreciation right may be made in Common Stock
valued at fair market value, in cash, or partly in Common Stock and partly in
cash, all as determined by the Board of Directors.  For this purpose, the fair market value of
the Common Stock shall be the closing price of the Common Stock last reported
before the time of exercise, or such other value of the Common Stock as
specified by the Board of Directors.


 


7.4           Fractional Shares.  No fractional shares shall be issued upon
exercise of a stock appreciation right. 
In lieu thereof, cash may be paid in an amount equal to the value of the
fraction or, if the Board of Directors shall determine, the number of shares
may be rounded downward to the next whole share.


 


7.5           Nontransferability.   Each stock appreciation right granted in
connection with an Incentive Stock Option and, unless otherwise determined by
the Board of Directors, each other stock appreciation right granted under the
Plan, by its terms shall be nonassignable and nontransferable by the holder,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder’s domicile at
the time of death, and each stock appreciation right by its terms shall be
exercisable during the holder’s lifetime only by the holder.


 


8.     Exercise of Options and Stock Appreciation Rights.


 


8.1           Exercise.  Except as provided in Section 8.2 or as
determined by the Board of Directors, no option or stock appreciation right
granted under the Plan may be exercised unless at the time of exercise the
holder is employed by or in the service of the Company and shall have been so
employed or provided such service continuously since the date the option or
stock appreciation right was granted. 
Except as provided in Sections 8.2 and 12, options and stock
appreciation rights granted under the Plan may be exercised from time to time
over the period stated in each option or stock appreciation right in amounts
and at times prescribed by the Board of Directors, provided that options and
stock appreciation rights may not be exercised for fractional shares.  Unless otherwise determined by the Board of
Directors, if a holder does not exercise an option or stock appreciation right
in any one year for the full number of shares to which the holder is entitled
in that year, the holder’s rights shall be cumulative and the holder may
acquire those shares in any subsequent year during the term of the option or
stock appreciation right.


 





















 


8.2           Termination of Employment or Service.


 


8.2-1        General Rule.  Unless
otherwise determined by the Board of Directors, if a holder’s employment or
service with the Company terminates for any reason other than because of total
disability or death as provided in Sections 8.2-2 and 8.2-3, his or her option
or stock appreciation right may be exercised at any time before the expiration
date of the option or stock appreciation right or the expiration of
3 months after the date of termination, whichever is the shorter period,
but only if and to the extent the holder was entitled to exercise the option or
stock appreciation right at the date of termination.


 


8.2-2        Termination Because of Total Disability.   Unless otherwise determined by the Board of
Directors, if a holder’s employment or service with the Company terminates
because of total disability, his or her option or stock appreciation right may
be exercised at any time before the expiration date of the option or stock
appreciation right or before the date 12 months after the date of
termination, whichever is the shorter period, but only if and to the extent the
holder was entitled to exercise the option or stock appreciation right 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 holder to be unable to
perform his or her duties as an employee, director or officer 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.


 


8.2-3        Termination Because of Death.  Unless otherwise determined by the Board of
Directors, if a holder dies while employed by or providing service to the
Company, his or her option or stock appreciation right may be exercised at any
time before the expiration date of the option or stock appreciation right or
before the date 12 months after the date of death, whichever is the shorter
period, but only if and to the extent the holder was entitled to exercise the
option or stock appreciation right at the date of death and only by the person
or persons to whom the holder’s rights under the option or stock appreciation
right shall pass by the holder’s will or by the laws of descent and
distribution of the state or country of domicile at the time of death.


 


8.2-4        Amendment of Exercise Period Applicable to Termination.  The Board of Directors may at any time extend
the 3-month and 12-month exercise periods any length of time not longer than
the original expiration date of the option or stock appreciation right.  The Board of Directors may at any time
increase the portion of an option or stock appreciation right that is
exercisable, subject to terms and conditions determined by the Board of
Directors.


 


8.2-5        Failure to Exercise Option or Stock Appreciation Right.  To the extent that the option or
stock appreciation right of any deceased holder or any holder whose employment
or service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to the option or stock appreciation
right shall cease and terminate.


 


8.2-6        Leave of Absence.  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 and stock appreciation rights
shall continue during a medical, family or military leave of absence or other
leave approved by the Employer, whether paid or unpaid, and vesting of options
and stock appreciation rights shall be suspended during any other unpaid leave
of absence.


 


8.3           Notice of Exercise or Surrender.  Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option or stock appreciation
right granted under the Plan only upon the Company’s receipt of written notice
from the holder of the holder’s binding commitment to purchase shares,
specifying the number of shares the holder desires to acquire under the option
or stock appreciation right and the date on which the holder agrees to complete
the transaction, and, if required to comply with the Securities Act of 1933,
containing a representation that it is the holder’s intention to acquire the
shares for investment and not with a view to distribution.  Unless the Board of Directors determines
otherwise, cash may be paid upon surrender of a stock appreciation right
granted under the Plan only upon the Company’s receipt of written notice from
the holder of the holder’s binding commitment to surrender the stock
appreciation right, specifying the number of shares subject to the stock
appreciation right being surrendered and the date on which the holder agrees to
complete the surrender.


 


8.4           Tax Withholding.  Each holder who has exercised an option
or stock appreciation right shall, immediately upon notification of the amount
due, if any, pay to the Company in cash or by check amounts necessary to
satisfy any applicable federal, state and local tax withholding
requirements.  If additional
withholding is or becomes required (as a result of exercise of an option or
stock appreciation right or as a result of disposition of shares acquired
pursuant to exercise of an option or stock appreciation right) beyond any
amount deposited before delivery of the certificates, the holder shall pay such
amount, in cash or by check, to the Company on demand.  If the holder fails to pay the amount
demanded, the Company or the Employer may withhold that amount from other
amounts payable to the holder, including salary, subject to applicable
law.  With the consent of the Board
of Directors, a holder may satisfy this obligation, in whole or in part, by
instructing the Company to withhold from the shares to be issued upon exercise
or by delivering to the Company other shares of Common Stock; provided,
however, that the number of shares so withheld or delivered in connection with
an option exercise shall not exceed the minimum amount necessary to satisfy the
required withholding obligation.


 


8.5           Reduction of Reserved Shares.  Upon the exercise of an option or stock
appreciation right, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued upon exercise of the option or
stock appreciation right.  Cash payments
of stock appreciation rights shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan.


 


9.     Stock Bonuses.  The Board of Directors may award shares under
the Plan as stock bonuses, including restricted stock units that provide for
delivery of Common Stock at a later date. 
Shares awarded as a bonus shall be subject to the terms, conditions and
restrictions determined by the Board of Directors.  The restrictions may include restrictions
concerning transferability and forfeiture of the shares awarded, together with
any other restrictions determined by the Board of Directors.  The Board of Directors may require the recipient
to sign


 





















 


an
agreement as a condition of the award, but may not require the recipient to pay
any monetary consideration other than amounts necessary to satisfy tax
withholding requirements.  The agreement
may contain any terms, conditions, restrictions, representations and warranties
required by the Board of Directors.  The
certificates representing the shares awarded shall bear any legends required by
the Board of Directors.  The Company may
require any recipient of a stock bonus to pay to the Company in cash or by
check upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements.  If
the recipient fails to pay the amount demanded, the Company or the Employer may
withhold that amount from other amounts payable to the recipient, including salary,
subject to applicable law.  With the
consent of the Board of Directors, a recipient may satisfy this obligation, in
whole or in part, by instructing the Company to withhold from any shares to be
issued or by delivering to the Company other shares of Common Stock; provided,
however, that the number of shares so withheld or delivered shall not exceed
the minimum amount necessary to satisfy the required withholding
obligation.  Upon the issuance of a stock
bonus, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued.


 


10.   Restricted Stock


 


10.1         Restricted Stock.  The Board of Directors may issue shares under
the Plan for any consideration (including promissory notes and services)
determined by the Board of Directors. 
Shares issued under the Plan shall be subject to the terms, conditions
and restrictions determined by the Board of Directors.  Subject to the provisions of the Plan, the
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with any other
restrictions determined by the Board of Directors.  All Common Stock issued pursuant to this
Section 10.1 shall be subject to a Restricted Stock Agreement, which shall
be executed by the Company and the prospective recipient of the shares before
the delivery of certificates representing the shares.  The Agreement may contain any terms,
conditions, restrictions, representations and warranties required by the Board
of Directors.


 


10.2         Other Provisions.  The certificates representing shares of
restricted stock shall bear any legends required by the Board of
Directors.  The Company may require any
participant receiving restricted stock to pay to the Company in cash or by
check upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements.  If
the participant fails to pay the amount demanded, the Company or the Employer
may withhold that amount from other amounts payable to the participant,
including salary, subject to applicable law. 
With the consent of the Board of Directors, a participant may satisfy
this obligation, in whole or in part, by instructing the Company to withhold
from any shares to be issued or by delivering to the Company other shares of
Common Stock; provided, however, that the number of shares so withheld or
delivered shall not exceed the minimum amount necessary to satisfy the required
withholding obligation.  Upon the
issuance of restricted stock, the number of shares reserved for issuance under
the Plan shall be reduced by the number of shares issued.


 


11.   Performance-Based Awards.  The Board of Directors may grant awards
intended to qualify as qualified performance-based compensation under
Section 162(m) of the Code and the regulations thereunder (“Performance-Based
Awards”).  Performance-Based Awards shall
be denominated at the time of grant either in Common Stock (“Stock Performance
Awards”) or in dollar amounts (“Dollar Performance Awards”).  Payment under a Stock Performance Award or


 





















 


a
Dollar Performance Award shall be made, at the discretion of the Board of
Directors, in Common Stock (“Performance Shares”), or in cash or in any
combination thereof.  Performance-Based
Awards shall be subject to the following terms and conditions:


 


11.1         Award Period.  The
Board of Directors shall determine the period of time for which a
Performance-Based Award is made (the “Award Period”).


 


11.2         Performance Goals and Payment.  The
Board of Directors shall establish in writing objectives (“Performance Goals”)
that must be met by the Company or any subsidiary, division or other unit of
the Company (“Business Unit”) during the Award Period as a condition to payment
being made under the Performance-Based Award. 
The Performance Goals for each award shall be one or more targeted
levels of performance with respect to one or more of the following objective
measures with respect to the Company or any Business Unit:  earnings, earnings per share, stock price
increase, total shareholder return (stock price increase plus dividends),
return on equity, return on assets, return on capital, economic value added,
revenues, operating income, inventories, inventory turns, cash flows, or any of
the foregoing before the effect of acquisitions, divestitures, accounting
changes, and restructuring and special charges (determined according to
criteria established by the Board of Directors).  The Board of Directors shall also establish
the number of Performance Shares or the amount of cash payment to be made under
a Performance-Based Award if the Performance Goals are met or exceeded,
including the fixing of a maximum payment (subject to Section 11.4).  The Board of Directors may establish other
restrictions to payment under a Performance-Based Award, such as a continued
employment requirement, in addition to satisfaction of the Performance
Goals.  Some or all of the Performance
Shares may be issued at the time of the award as restricted shares subject to
forfeiture in whole or in part if Performance Goals or, if applicable, other
restrictions are not satisfied.


 


11.3         Computation of Payment.  During
or after an Award Period, the performance of the Company or Business Unit, as
applicable, during the period shall be measured against the Performance
Goals.  If the Performance Goals are not
met, no payment shall be made under a Performance-Based Award.  If the Performance Goals are met or exceeded,
the Board of Directors shall certify that fact in writing and certify the number
of Performance Shares earned or the amount of cash payment to be made under the
terms of the Performance-Based Award.


 


11.4         Maximum Awards.  No
participant may receive in any fiscal year Stock Performance Awards under which
the aggregate amount payable under the Awards exceeds the equivalent of
200,000 shares of Common Stock or Dollar Performance Awards under which
the aggregate amount payable under the Awards exceeds $4,000,000.


 


11.5         Tax Withholding.  Each
participant who has received Performance Shares shall, upon notification of the
amount due, pay to the Company in cash or by check amounts necessary to satisfy
any applicable federal, state and local tax withholding requirements.  If the participant fails to pay the amount
demanded, the Company or the Employer may withhold that amount from other
amounts payable to the participant, including salary, subject to applicable
law.  With the consent of the Board of
Directors, a participant may satisfy this obligation, in whole or in part, by
instructing the Company to withhold from any shares to be issued or by


 





















 


delivering
to the Company other shares of Common Stock; provided, however, that the number
of shares so delivered or withheld shall not exceed the minimum amount
necessary to satisfy the required withholding obligation.


 


11.6         Effect on Shares Available.  The
payment of a Performance-Based Award in cash shall not reduce the number of
shares of Common Stock reserved for issuance under the Plan.  The number of shares of Common Stock reserved
for issuance under the Plan shall be reduced by the number of shares issued
upon payment of an award.  Cash payments
of Performance-Based Awards shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan.


 


12.   Changes in Capital
Structure.


 


12.1         Stock Splits, Stock Dividends.  If
the outstanding Common Stock of the Company is hereafter increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any stock split, combination of shares,
dividend payable in shares, recapitalization or reclassification, appropriate
adjustment shall be made by the Board of Directors in the number and kind of
shares available for grants under the Plan and in all other share amounts set
forth in the Plan.  In addition, the
Board of Directors shall make appropriate adjustment in the number and kind of
shares as to which outstanding options and stock appreciation rights, or
portions thereof then unexercised, shall be exercisable, so that the holder’s
proportionate interest before and after the occurrence of the event is
maintained.  Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares, and
any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors.  Any such adjustments made by the Board of
Directors shall be conclusive.


 


12.2         Mergers, Reorganizations, Etc.  In
the event of a merger, consolidation, plan of exchange, acquisition of property
or stock, split-up, split-off, spin-off, reorganization or liquidation to which
the Company is a party or any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company (each, a “Transaction”), the Board of Directors
shall, in its sole discretion and to the extent possible under the structure of
the Transaction, select one of the following alternatives for treating
outstanding options and stock appreciation rights under the Plan:


 


12.2-1      Outstanding
options and stock appreciation rights shall remain in effect in accordance with
their terms.


 


12.2-2      Outstanding
options and stock appreciation rights shall be converted into options and stock
appreciation rights to purchase stock in one or more of the corporations,
including the Company, that are the surviving or acquiring corporations in the
Transaction.  The amount, type of
securities subject thereto and exercise price of the converted options and
stock appreciation rights shall be determined by the Board of Directors of the
Company, taking into account the relative values of the companies involved in
the Transaction and the exchange rate, if any, used in determining shares of
the surviving corporation(s) to be held by holders of shares of the Company
following the Transaction.  Unless
otherwise


 





















 


determined
by the Board of Directors, the converted options and stock appreciation rights
shall be vested only to the extent that the vesting requirements relating to
options granted hereunder have been satisfied.


 


12.2-3      The
Board of Directors shall provide a period of 30 days or less before the
completion of the Transaction during which outstanding options and stock appreciation
rights may be exercised to the extent then exercisable, and upon the expiration
of that period, all unexercised options and stock appreciation rights shall
immediately terminate.  The Board of
Directors may, in its sole discretion accelerate the exercisability of options
and stock appreciation rights so that they are exercisable in full during that
period.


 


12.3         Dissolution of the Company.  In
the event of the dissolution of the Company, options and stock appreciation
rights shall be treated in accordance with Section 12.2-3.


 


12.4         Rights Issued by Another
Corporation.  The Board of Directors may also
grant options, stock appreciation rights, stock bonuses and Performance-Based
Awards and issue restricted stock under the Plan with terms, conditions and
provisions that vary from those specified in the Plan, provided that any such
awards are granted in substitution for, or in connection with the assumption
of, existing options, stock appreciation rights, stock bonuses,
Performance-Based Awards or restricted stock granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.


 


13.   Amendment of the Plan.  The Board of Directors may at any time modify
or amend the Plan in any respect.  Except
as provided in Section 12, however, no change in an award already granted shall
be made without the written consent of the holder of the award if the change
would adversely affect the holder.


 


14.   Approvals.  The Company’s obligations under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter.  The Company
will use its best efforts to take steps 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 grants under the Plan.  The foregoing notwithstanding, the Company
shall not be obligated to issue or deliver Common Stock under the Plan if such
issuance or delivery would violate state or federal securities laws.


 


15.   Employment and Service Rights.  Nothing in the Plan or any award pursuant to
the Plan shall (i) confer upon any employee any right to be continued in the
employment of an Employer or interfere in any way with the Employer’s right to
terminate the employee’s employment at will at any time, for any reason, with
or without cause, or to decrease the employee’s compensation or benefits, or
(ii) confer upon any person engaged by an Employer any right to be retained or
employed by the Employer or to the continuation, extension, renewal or
modification of any compensation, contract or arrangement with or by the
Employer.


 


16.   Rights as a Shareholder.  The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any shares of Common
Stock until the date the recipient


 





















 


becomes
the holder of record of those shares.  Except as otherwise expressly provided in the
Plan, no adjustment shall be made for dividends or other rights for which the
record date occurs before the date the recipient becomes the holder of record.