Exhibit
10.5





VALPEY-FISHER
CORPORATION





2003
STOCK OPTION PLAN,





AS
AMENDED








1.
            PURPOSE





The Plan
is intended to expand and improve the profitability and prosperity of
Valpey-Fisher Corporation for the benefit of its stockholders by permitting the
Corporation to grant to officers and other key employees of, directors who are
not employees of, and consultants and advisers to, the Corporation and its
Subsidiaries, options to purchase shares of the Corporation’s Common
Stock.  These grants are intended to provide additional incentive to
such persons by offering them a greater stake in the Corporation’s continued
success.  The Plan is also intended as a means of reinforcing the
commonality of interest between the Corporation’s stockholders and such persons,
and as an aid in attracting and retaining the services of individuals of
outstanding and specialized skills.








2.
            DEFINITIONS





For Plan
purposes, except where the context otherwise indicates, the following terms
shall have the meanings which follow:





(a)           “Agreement”
shall mean a written instrument executed and delivered on behalf of the
Corporation which specifies the terms and conditions of a Stock Option granted
to a Participant.





(b)           “Beneficiary”
shall mean the person or persons who may be designated by a Participant from
time to time in writing to the Plan Administrator, to receive, if the
Participant dies, any Option exercise rights held by the
Participant.





(c)           “Board”
shall mean the Board of Directors of the Corporation.





(d)           “Code”
shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time, and the rules and regulations promulgated thereunder.





(e)           “Common
Stock” shall mean the Common Stock of the Corporation having a par value of
$0.05 per share.





(f)           “Corporation”
shall mean VALPEY-FISHER Corporation, a Maryland corporation.





(g)           “Employee”
shall mean any person who is employed by the Corporation or any Subsidiary
corporation.





(h)           “Exercise
Price” shall mean the per share price for which a Participant upon exercise of a
Stock Option may purchase a share of Common Stock.





(i)           “Fair
Market Value” shall mean the value of a share of Common Stock to be determined
by, and in accordance with procedures established by, the Plan
Administrator.  Such fair market value shall be deemed conclusive upon
the determination of the Plan Administrator made in good faith.  The
preceding notwithstanding, so long as the Common Stock is listed on a national
stock exchange, the “Fair Market Value” shall mean with respect to any given
day, the mean between the highest and lowest reported sales prices of the Common
Stock on the principal national stock exchange on which the Common Stock is
listed, or if such exchange was closed on such day or if it was open but the
Common Stock was not traded on such day, then on the next preceding day that the
Common Stock was traded on such exchange, as reported by a responsible reporting
service.


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(j)           “Incentive
Stock Option” shall mean a Stock Option which is intended to meet and comply
with the terms and conditions for an “incentive stock option” as set forth in
Section 422 of the Code, or any other form of tax qualified stock option which
may be incorporated and defined in the Code as it may from time to time be
amended.





(k)           “Non-Qualified
Option” shall mean a Stock Option which does not meet the requirements of
Section 422 of the Code or the terms of which provide that it will not be
treated as an Incentive Stock Option.





(l)           “Participant”
shall mean any person who is granted a Stock Option under the Plan.





(m)           “Plan”
shall mean the VALPEY-FISHER Corporation 2003 Stock Option Plan as set forth
herein and as amended from time to time.





(n)           “Plan
Administrator” shall mean, as determined by the Board, either (i) the Board or
(ii) a designated committee of the Board composed of two or more directors, each
of whom, while serving as a member of the committee, shall be designated by the
Board to administer the Plan and shall be a “non-employee director” within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934.





(o)           “Stock
Option” or “Option” shall mean a right to purchase a stated number of shares of
Common Stock subject to such terms and conditions as are set forth in the Plan
and an Agreement.





(p)           “Subsidiary
corporation” or “Subsidiary” shall mean any corporation which is a “subsidiary
corporation” of the Corporation as defined in Section 424(f) of the
Code.








3.
            ADMINISTRATION





(a)           The
Plan Administrator shall administer the Plan and, accordingly, it shall have
full power to grant Stock Options under the plan, to construe and interpret the
Plan, and to establish rules and regulations and perform all other acts it
believes reasonable and proper, including the authority to delegate
responsibilities to others to assist in administering the Plan.





(b)           The
determination of those eligible to receive Stock Options, and the amount, type
and terms and conditions of each Stock Option shall rest in the sole discretion
of the Plan Administrator, subject to the provisions of the Plan.





(c)           The
Plan Administrator may permit the voluntary surrender of all or a portion of any
Option granted under the Plan to be conditioned upon the granting to the
Participant of a new Option for the same or a different number of shares as the
Option surrendered, or may require such voluntary surrender as a condition
precedent to a grant of a new Option to such Participant.  Such new
Option shall be exercisable at the price, during the period and in accordance
with any other terms or conditions specified by the Plan Administrator at the
time the new Option is granted, all determined in accordance with the provisions
of the Plan without regard to the price, period of exercise, or any other terms
or conditions of the Option surrendered.





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4.
            COMMON STOCK
      LIMITS





The total
number of shares of Common Stock which may be issued on exercise of Stock
Options shall not exceed 200,000 shares, subject to adjustment in accordance
with Paragraph 9 of the Plan.  Shares issued under the Plan may be, in
whole or in part, as determined by the Plan Administrator, authorized but
unissued or treasury shares of Common Stock.  If any Options granted
under the Plan shall expire or terminate without having been exercised, the
shares subject to such Options shall be added back to the number of shares of
Common Stock which may be issued on exercise of Stock Options.








5.
            ELIGIBILITY FOR
      PARTICIPATION





(a)           Consistent
with Plan objectives, the following persons shall be eligible to become
Participants in the Plan: officers and other key Employees, directors who are
not Employees, and consultants and advisers to the Corporation or any Subsidiary
corporation.





(b)           The
foregoing subparagraph (a) notwithstanding, Incentive Stock Options shall be
granted only to officers and other key Employees, and no Incentive Stock Options
shall be granted to an Employee who owns more than 10% of the Common Stock
determined in accordance with the provisions of Section 422(b)(6) of the Code,
unless the Option meets the requirements of Section 422(c)(5) of the
Code.





(c)           Options
shall be granted to consultants and advisers only for bona fide services rendered
other than in connection with the offer or sale of securities.








6.
            STOCK OPTIONS – TERMS
      AND CONDITIONS





All Stock
Options granted under the Plan shall be evidenced by Agreements which shall
contain such provisions as shall be required by the Plan together with such
other provisions as the Plan Administrator may prescribe, including the
following provisions:





(a)           Price:
The Plan Administrator shall establish the Exercise Price, provided, however,
that in the case of an Incentive Stock Option the Exercise Price shall not be
less than the Fair Market Value of a share of Common Stock on the date of the
grant of the Option.





(b)           Period:
The Plan Administrator shall establish the term of any Option awarded under the
Plan, provided, however, that no Option shall be exercisable after the
expiration of 10 years from the date of the grant of the Option.





(c)           Time of
Exercise: The Plan Administrator shall establish the time or times at
which an Option, or portion thereof, shall be exercisable.  The Plan
Administrator, subsequent to the grant of an Option, may accelerate the date or
dates on which the Option may be exercisable.





(d)           Exercise:
An Option, or portion thereof, shall be exercised by delivery or a written
notice of exercise to the Corporation together with payment of the full purchase
price of the shares as to which the Option is exercised (“Purchase
Price”).  Payment may be made:





(i)           in
United States dollars by good check, bank draft or money order payable to the
order of the Corporation, or





(ii)           at
the discretion of the Plan Administrator by the transfer to the Corporation of
shares of Common Stock owned by the Participant having an aggregate Fair Market
Value on the date of exercise equal to the Purchase Price or the portion thereof
being so paid, or


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(iii)           at
the discretion of the Plan Administrator and subject to any restrictions or
conditions as it deems appropriate (including any restrictions as may be set
forth in Rule 16b-3 under the Securities Exchange Act of 1934), by electing to
have the Corporation withhold from the shares issuable upon exercise of the
Option such number of shares of Common Stock as shall have an aggregate Fair
Market Value on the date of exercise equal to the Purchase Price or the portion
thereof being so paid, or





(iv)           at
the discretion of the Plan Administrator by a combination of (i) and (ii) or (i)
and (iii) above.





The Plan
Administrator shall determine the procedures for the use of Common Stock in
payment of the Purchase Price and may impose such limitations and prohibitions
on such use as it deems appropriate.





(e)           Special
Rules for Incentive Stock Options:  Notwithstanding any other
provisions of the Plan, with respect to Incentive Stock Options granted under
the Plan (in addition to any other provisions specifically made applicable to
Incentive Stock Options), the following provisions will apply:





(i)           To
the extent that the aggregate Fair Market Value (determined at the time of
grant) of the shares of Common Stock with respect to which Incentive Stock
Options (whether granted hereunder or pursuant to any other plan of the
Corporation or a Subsidiary) are first exercisable by a Participant during any
calendar year exceeds $100,000 (or such other limit as may be in effect from
time to time under the Code), such Options shall be treated as Non-Qualified
Options.





(ii)           Any
Participant who disposes of shares of Common Stock acquired on the exercise of
an Incentive Stock Option by sale or exchange either (a) within two years after
the date of the grant of the Option under which such shares were acquired or (b)
within one year after the acquisition of such shares, shall notify the
Corporation in writing of such disposition and of the amount realized upon such
disposition promptly after the disposition.








7.
            TERMINATION OF
      EMPLOYMENT





If a
Participant holding an Option shall cease to be employed by (or in the case of a
Participant who is not an Employee, shall cease to be engaged by or, in the case
of a director who is not an Employee, shall cease to be a director of) the
Corporation or any Subsidiary corporation by reason of death or any other reason
other than voluntary quitting, discharge for cause or permanent and total
disability as defined in Section 22(e)(3) of the Code (hereinafter called a
“Disability”), as determined by the Plan Administrator, such Participant (or, if
applicable, such Participant’s Beneficiary or legal representative) may, but
only within the three months next succeeding such cessation, exercise such
Option to the extent that such Participant would have been entitled to do so on
the date of such cessation.  If a Participant holding an Option
voluntarily quits or is discharged for cause, such Option shall terminate on the
date of cessation of employment or engagement.








8.
            DISABILITY





If a
Participant holding an Option shall cease to be employed by (or, in the case of
a Participant who is not an Employee, shall cease to be engaged by or, in the
case of a director who is not an Employee, shall cease to be a director of) the
Corporation or any Subsidiary corporation by reason of a Disability, the Option
shall be exercisable by such Participant or such Participant’s duly appointed
guardian or other legal representative, to the extent that such Participant
would have been entitled to do so on the date of such cessation, but only within
one year following such cessation due to said Disability.





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9.
            ADJUSTMENTS





If in the
event of a recapitalization, stock split, stock combination, stock dividend,
exchange of shares, or a change in the corporate structure or shares of the
Company, or similar event, the Board of Directors upon recommendation of the
Committee shall make appropriate adjustments in the kind or number of shares
which may be issued upon exercise of Options and in the kind or number of shares
issuable upon exercise of Options theretofore granted and in the exercise price
of such options. The Board of Directors may also make appropriate adjustments in
the event of any distribution of assets to stockholders other than an ordinary
dividend.  Adjustments, if any, and any determinations or
interpretations, including any determination of whether a distribution is other
than an ordinary dividend, made by the Board shall be final, binding and
conclusive.








10.
            MERGER, CONSOLIDATION
      OR SALE OF ASSETS





If the
Corporation shall be a party to a merger or consolidation or shall sell
substantially all its assets, each outstanding Option shall pertain and apply to
the securities and/or property which a holder of the number of shares of Common
Stock subject to the Option immediately prior to such merger, consolidation, or
sale of assets would be entitled to receive in such merger, consolidation or
sale of assets.








11.
            AMENDMENT AND
      TERMINATION OF PLAN





(a)           The
Board, without further approval of the stockholders, may at any time, and from
time to time, suspend or terminate the Plan in whole or in part or amend it from
time to time in such respects as the Board may deem appropriate and in the best
interests of the Corporation; provided, however, that no such amendment shall be
made, without approval of the stockholders, to the extent such approval is
required by applicable law, regulation or rule, or which would:





(ii)           modify
the eligibility requirements for participation in the Plan; or





(iii)           increase
the total number of shares of Common Stock which may be issued pursuant to Stock
Options, except as is provided for in accordance with Paragraph 9 of the
Plan.





(a)           No
amendment, suspension or termination of this Plan shall, without the
Participant’s consent, alter or impair any of the rights or obligations under
any Stock Option theretofore granted to the Participant under the
Plan.





(b)           The
Board may amend the Plan, subject to the limitations cited above, in such manner
as it deems necessary to permit the granting of Stock Options meeting the
requirements of future amendments the Plan.








12.
            GOVERNMENT AND OTHER
      REGULATIONS





The
granting of Stock Options under the Plan and the obligation of the Corporation
to issue or transfer and deliver shares for Stock Options exercised under the
Plan shall be subject to all applicable laws, regulations, rules and orders
which shall then be in effect.








13.
            MISCELLANEOUS
      PROVISIONS





(a)           Rights to
Continued Employment:  No person shall
have any claim or right to be granted a Stock Option under the Plan, and the
grant of an Option under the Plan shall not be construed as giving any
Participant the right to be retained in the employ of the Corporation or any
Subsidiary corporation (or to be otherwise retained in the case of a Participant
who is not an Employee) and the Corporation expressly reserves the right at any
time to dismiss a Participant with or without cause, free of any liability or
any claim under the Plan, except as provided herein or in an
Agreement.





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(b)           WhoShall
Exercise:  Except as
provided by the Plan, an Incentive Stock Option shall be exercisable during the
lifetime of the Participant to whom it is granted only by such Participant, and
it may be exercised only if such Participant has been in the continuous employ
of the Corporation or any Subsidiary corporation from the date of grant of the
Option to the date of its exercise.





(c)           Non-Transferability:  No right or
interest of any Participant in the Plan or an Agreement shall be assignable or
transferable except by will or the laws of descent and distribution, and no
right or interest of any Participant shall be liable for, or subject to, any
lien, obligation or liability of such Participant; provided that in the
discretion of the Plan Administrator a Non-Qualified Option may be made
transferable and assignable on such terms and conditions as the Plan
Administrator shall in its discretion determine.





(d)           Withholding
Taxes:  The Corporation
may require a payment to cover applicable withholding for income and employment
taxes in connection with a Stock Option.





(e)           Rights as
Stockholder:  A Participant as
such shall not have any of the rights or privileges of a holder of Common Stock
until such time as shares of Common Stock are issued or are transferred to the
Participant upon exercise of an Option.





(f)           Plan
Expenses:  Any expenses of
administering this Plan shall be borne by the Corporation.





(g)           Legal
Considerations:  The Corporation
shall not be required to issue, transfer or deliver shares of Common Stock upon
exercise of Options until all applicable legal, listing or registration
requirements, as determined by legal counsel, have been satisfied, and any
necessary or appropriate written representations have been given by the
Participant.





(h)           Other
Plans:  Nothing contained
herein shall prevent the Corporation from establishing other incentive and
benefit plans in which Participants in the Plan may also
participate.





(i)           No
Warranty of Tax Effect:  Except as may be
contained in any Agreement, no opinion shall be deemed to be expressed or
warranties made as to the effect for federal, state or local tax purposes of any
grants hereunder.





(j)           Construction
of Plan:  The validity,
construction, interpretation, administration and effect of the Plan and of its
rules and regulations, and rights relating to the Plan, shall be determined in
accordance with the laws of the State of Maryland.








14.
            STOCKHOLDER APPROVAL –
      TERM OF PLAN





Upon
approval by the stockholders of the Corporation, the Plan as amended shall
become unconditionally effective as of May 6, 2004.  No Option shall
be granted after February 25, 2013, provided, however, that the Plan and all
outstanding Options granted under the Plan prior to such date shall remain in
effect until the applicable Options have expired.  If the stockholders
shall not approve the Plan, the Plan shall not be effective and any and all
actions taken prior thereto shall be null and void or shall, if necessary, be
deemed to have been fully rescinded.






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