Exhibit 10.3


 


	
  

  	
  Electro Scientific Industries, Inc.
13900 NW Science Park Dr.

  Portland, OR 97229

  



 


Notice
of Grant of Stock Options

and Option Agreement


 


	
  [Name]

  	
  Option Number:

  	
              

  
	
  [Address]

  	
  Plan:

  	
  2004

  



 


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


 


The total
option price of this option is
$                        .


 


	
  Vesting:

  	
   

  	
  100% on

  
	
  Sale Restriction Lapses:

  	
   

  	
  100% on

  



 


Shares will
become 100% vested and available for cash exercise on                 .  Shares will be available for Cashless
exercise on the third anniversary of the Grant Date – i.e., on                  .


 


As noted above, the shares will be restricted upon exercise, with the
restriction to lapse on the third anniversary of the Grant Date.  This means that, until the third anniversary
of the Grant Date, you may not sell, assign, pledge or transfer the shares in
any manner, including transferring any right or interest in the shares, whether
voluntarily or by operation of law, or by gift, bequest or otherwise.


 


This option will be visible to you in your ETRADE OptionsLink
account.  Once the option is vested, you
may exercise shares.  However, you must
exercise the vested shares through ESI’s Stock Administrator if exercising
prior to (Sale Restriction Lapse Date). 
As of (Sale Restriction Lapse Date), the shares may be exercised and/or
sold directly through your ETRADE OptionsLink account.


 


By your signature and the Company’s signature below, you and the
Company agree that this option is granted under and governed by the terms and
conditions of the Company’s 2004 Stock Incentive Plan and the attached Option
Terms and Conditions which are incorporated into and made a part of this
agreement.


 


 


	
   

  	
   

  	
   

  	
   

  
	
  Nicholas Konidaris

  	
   

  	
  Date

  	
   

  
	
  President and Chief Executive Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [Name]

  	
   

  	
  Date

  	
   

  



 


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OPTION
TERMS AND CONDITIONS


2004 Stock
Option Incentive Plan


Non-Qualified
Stock Option


Board of
Directors


 


Pursuant to the Company’s 2004 Stock Option
Incentive Plan (the “2004 Plan”), the Optionee has been granted an option to
purchase Common Stock of the Company (the “Option”) in the amount indicated on
the attached notice.


 


1.             The
Option is granted upon the following terms:


 


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


 


1.2                                 Time of Exercise.  Except as provided in paragraph 1.5, the
Option may be exercised from time to time in the following amounts: 100% on or
after                       .


 


1.3                                 Limitations on Rights
to Exercise.  Except as
provided in paragraph 1.5, the Option may not be exercised unless at the time
of such exercise the Optionee is a director of the Company and shall have
served continuously as such since the date such option was granted.


 


1.4                                 Nonassignability.  The Option is nonassignable and
nontransferable by the Optionee except by will or by the laws of descent and
distribution of the state or country of the Optionee’s domicile at the time of
death, and is exercisable during the Optionee’s lifetime only by the Optionee.


 


1.5                                 Termination of
Service.


 


(a)                                  Unless otherwise
determined by the Board of Directors, if an optionee ceases to be a director of
the Company for any reason other than in the circumstances specified in subsection (b),
(c), (d) or (e) below, his or her option may be exercised at any time
before the expiration date of the option or the expiration of seven months
after the last date the optionee served as a director, whichever is the shorter
period, but only if and to the extent the optionee was entitled to exercise the
option as of the last date the optionee served as a director.


 


(b)                                 Unless otherwise
determined by the Board of Directors, if an optionee ceases to be a director of
the Company because of total disability, his or her option may be exercised at
any time before the expiration date of the option or before the date 12 months
after the last date the optionee served as a director, whichever is the shorter
period, but only if and to the extent the optionee was entitled to exercise the
option as of the last date the optionee served as a director.  The term “total disability” means a
medically determinable mental or physical impairment that is expected to result
in death or has lasted or is expected to last for a continuous period of 12
months or more and that, in the opinion of the Company and two independent
physicians, causes the optionee to be unable to perform his or her duties as a
director of the Company and unable to be engaged in any substantial gainful
activity.  Total disability shall be
deemed to have occurred on the first day after the two independent physicians
have furnished their written opinion of total disability to the Company and the
Company has reached an opinion of total disability.


 


(c)                                  Unless otherwise
determined by the Board of Directors, if an optionee dies while serving as a
director of the Company, his or her option may be exercised at any time before
the expiration date of the option or before the date 12 months after the date
of death, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of death and only by
the person or persons to whom the optionee’s rights under the option shall pass
by the optionee’s will or by the laws of descent and distribution of the state
or country of domicile at the time of death.


 


(d)                                 Unless otherwise
determined by the Board of Directors, if an optionee ceases to be a director of
the Company as a result of his or her retirement in accordance with the
retirement policy of the Board of Directors in effect from time to time, his or
her option may be exercised at any time before the expiration date of the
option or five years after the last day the optionee served as a director,
whichever is the shorter period, but only if and to the extent the optionee was
entitled to exercise the option as of the last date the optionee served as a
director.


 


(e)                                  In the event an
optionee ceases to be a director of the Company within one year after a change
in control of the Company for any reason other than retirement, death, or
physical disability (as defined in Section 1.5(b)), any option held by
such optionee may be exercised with respect to all remaining shares subject
thereto, free of any limitation on the number of shares with respect to which
the option may be exercised in any one year, at any time prior to its
expiration date or the expiration of three months after the date of such
termination of service, whichever is the shorter period.  A


 


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“change in control of the Company” shall mean a change in control of a
nature that would be required to be reported in response to item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (“Exchange Act”); provided that, without limitation, such a change in
control shall be deemed to have occurred if (1) any “person” (as such term
is used in Sections 13(d) or 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20 percent or more of the combined voting power of the
Company’s then outstanding securities; or (2) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
the Company’s shareholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.  A change in
control of the Company shall not include any change in control pursuant to a
written agreement between the Company and another person, which agreement is
approved and adopted by the Board of Directors of the Company or pursuant to
any tender offer or exchange offer which the Board of Directors has in any
manner recommended acceptance of to the shareholders of the Company.


 


(f)                                    To the extent the
Option held by any deceased Optionee or by the Optionee who ceases to serve as
a director shall not have been exercised within the limited periods provided
above, all further rights to purchase shares pursuant to the Option shall cease
and terminate at the expiration of such periods.


 


(g)                                 Absence on leave
approved by the Company or on account of illness or disability shall not be
deemed a termination or interruption of service.  Unless otherwise determined by the Board of
Directors, vesting of options shall continue during a medical, family, military
or other leave of absence, whether paid or unpaid.


 


1.6                                 Purchase of
Shares.  Shares may be purchased or
acquired pursuant to the Option only upon receipt by the Company of notice in
writing from the Optionee of the Optionee’s intention to exercise, specifying
the number of shares as to which the Optionee desires to exercise the Option
and the date on which the Optionee desires to complete the transaction, which shall
not be more than 30 days after receipt of the notice, and, unless in the
opinion of counsel for the Company such a representation is not required in
order to comply with the Securities Act of 1933, as amended, containing a
representation that it is the Optionee’s present intention to acquire the
shares for investment and not with a view to distribution.  On or before the date specified for
completion of the purchase of shares pursuant to the Option, the Optionee must
have paid the Company the full purchase price of such shares in cash (including
cash which may at the election of the Company be the proceeds of a loan from
the Company), or in shares of Common Stock of the Company previously acquired
and held by the optionee for at least six months and valued at fair market
value as defined in the 2004 Plan, or in any combination of cash and shares of
Common Stock of the Company.  No shares
shall be issued until full payment therefor has been made, and the Optionee shall
have none of the rights of a shareholder until a certificate for shares is
issued to the Optionee.  The Optionee
shall, upon notification of the amount due, if any, and prior to or
concurrently with delivery of the certificates representing the shares with
respect to which the Option was exercised, pay to the Company amounts necessary
to satisfy any applicable federal, state and local withholding tax
requirements.  If additional withholding
becomes required beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company on demand.


 


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


 


2.                                       The obligations
of the Company under this Agreement are subject to the approval of such state
or federal authorities or agencies, if any, as may have jurisdiction in the
matter.  The Company will use its best
efforts to take such steps as may be required by state or federal law or
applicable regulations, including rules and regulations of the Securities
and Exchange Commission and any stock exchange on which the Company’s shares
may then be listed, in connection with the issuance or sale of any shares
purchased upon the exercise of the Option.


 


3.                                       Nothing in the
2004Plan or this Agreement shall confer upon the Optionee any right to be
continued in the employment of the Company or any subsidiary of the Company, or
to interfere in any way with the right of the Company or any subsidiary by whom
the Optionee is employed to terminate the Optionee’s employment at any time,
with or without cause.


 


4.                                       This Agreement
shall be binding upon and shall inure to the benefit of any successor or
successors of the Company but except as hereinabove provided the Option herein
granted shall not be assigned or otherwise disposed of by the Optionee.


 


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