EXHIBIT 10.23


 


ELECTRO
SCIENTIFIC INDUSTRIES, INC.

2004 STOCK INCENTIVE PLAN


(As amended
January 25, 2005 and April 20, 2005)


 


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 12,
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.


 


5.5           Reservation
of Additional Shares.  Except as provided in Section 12,
additional shares of Common Stock may not be reserved for issuance under the
Plan without the approval of the Company’s shareholders.


 


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. 
The option price shall not be less than 100 percent of the fair
market value of the Common Stock covered by the Non-Statutory 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.


 


6.3-2        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.  Notwithstanding the foregoing, 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, and such holder
dies before the expiration date of the option or stock appreciation right and
the expiration of 3 months after the date of termination, 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 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.


 


8.2-2        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; provided, however, that
any award made under this Section 10 the vesting for which is time-based
will provide for a restriction period of at least three years, with the
restriction to lapse no more quickly than with respect to one-third of the
shares annually over the three-year restriction period.  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.


 


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.