**Exhibit 10.2**

** **

**NON-STATUTORY STOCK OPTIONAGREEMENT**

 

This AGREEMENT,entered into and effective as of March 30, 2005 (the “Date of Grant”) by andbetween August Technology Corporation (the “Company”) and Lynn J. Davis  (the “Optionee”).

 

**RECITALS****:**

 

A.            The Board of Directors of theCompany or its Compensation Committee has authority to grant non-statutorystock options to employees of the Company outside of the Company’s 1997 StockIncentive Plan.

 

B.            The Company desires to give theOptionee an inducement to acquire a proprietary interest in the Company and anadded incentive to advance the interests of the Company by granting to theOptionee an option to purchase shares of common stock of the Company, whichoption is granted outside of the Company’s 1997 Stock Incentive Plan.

 

**AGREEMENT****:**

 

Accordingly, theparties hereto agree as follows:

 

**ARTICLE I.**

**GRANT OF OPTION****.**

 

The Company herebygrants to the Optionee the right, privilege, and option (the “Option”) topurchase one hundred seventy-five thousand (175,000) shares (the “Option Shares”)of the Company’s common stock, no par value (the “Common Stock”), according tothe terms and subject to the conditions hereinafter set forth.  The Option is not intended to be an “incentivestock option,” as that term is used in Section 422 of the Internal RevenueCode of 1986, as amended (the “Code”).

 

**ARTICLE II.**

**OPTION EXERCISE PRICE****.**

 

The per shareprice to be paid by Optionee in the event of an exercise of the Option shall beeleven and 57/100ths dollars ($11.57).

 

**ARTICLE III.**

**DURATION OF OPTION AND TIME OF EXERCISE****.**

 

A.            Initial Period of Exercisability.  The Option shall become exercisable withrespect to the Option Shares in five (5) equal installments.  The following table sets forth the initialdates of exercisability of each installment and the cumulative number of OptionShares as to which this Option shall become exercisable on such dates, providedthat this Option shall become so exercisable on such dates only if the Optioneehas continuously served as an employee of the Company since the Date of Grant.

 

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| **Initial Date of  Exercisability** | ** ** | **Number of Option Shares  Available for Exercise** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
| March 30, 2006                      |       | 35,000                                              |       |
| March 30, 2007                      |       | 35,000                                              |       |
| March 30, 2008                      |       | 35,000                                              |       |
| March 30, 2009                      |       | 35,000                                              |       |
| March 30, 2010                      |       | 35,000                                              |       |

 

The foregoing rights toexercise this Option shall be cumulative with respect to the Option Sharesbecoming exercisable on each such date but in no event shall this Option beexercisable after, and this Option shall become void and expire as to allunexercised Option Shares at, 5:00P.M. (CST) on March 30, 2015 (the “Time ofTermination”), date which in no case shall exceed ten (10) years after date ofgrant.

 

B.            Termination of Employment Due toDeath, Disability or Retirement.  Inthe event the Optionee’s employment is terminated with the Company and all ofits Subsidiaries (within the meaning of Section 424(f) of the Code) by reasonof death, an event that constitutes permanent and total disability within the meaningof Section 22(e)(3) of the Code (“Disability”), or retirement pursuant to andin accordance with the regular retirement plan or practice of the Company orthe Subsidiary employing the Optionee (“Retirement”), the Option may beexercised in whole or in part before (a) the expiration of three months, in thecase of Retirement, and one year, in the case of death or Disability, aftersuch date of termination, or (b) the Time of Termination, whichever shall firstoccur.

 

C.            Termination of Employment for ReasonsOther Than Death, Disability or Retirement. Except as provided in Section III. D. below, in the event the Optionee’semployment is terminated with the Company and all of its Subsidiaries for anyreason other than death, Disability or Retirement, all rights of the Optioneehereunder shall terminate at the close of business on the ninetieth day afterthe date of termination of Optionee’s employment, except under no circumstancesshall this option be exercisable after the Time of Termination.

 

                D.            Change in Control.  In theevent of an acquisition of the Company through the sale of substantially all ofthe Company’s assets and the consequent discontinuance of its business orthrough  a merger, consolidation,exchange, reorganization, reclassification, extraordinary dividend, divestitureor liquidation of the Company (collectively referred to as a “transaction”),the Committee (or, if the Company is not the surviving corporation in any suchtransaction, the board of directors of the surviving corporation) may providefor one or more of the following:

 

(a)           the equitable acceleration of the exercisability of theOption;

 

(b)           the cancellation of the Option not exercised prior to adate specified by the Board (which date shall give Optionee a reasonable periodof time in which to exercise such Option prior to the effectiveness of suchtransaction);

 

(c)            the receipt by the Optionee, with respect to each shareof Stock subject to the Option,  as ofthe effective date of any such transaction, cash in an amount equal to theexcess of the Fair Market Value of such Stock on the date immediately precedingthe effective date of such transaction over the price per share of such Option;provided that the Committee may, in lieu of

 

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such cash payment, distribute to Optionee sharesof Common Stock of the Company or shares of stock of any corporation succeedingthe Company by reason of such transaction, such shares having a value equal tothe cash payment herein; and

 

(d)           the continuance of the Option with respect to the exerciseof such Option as of the date of adoption by the Board of such plan for suchtransaction and provide to Optionee the right to exercise the Option as to anequivalent number of shares of stock of the corporation succeeding theCompany  by reason of such transaction.

 

The Committee may restrict the rights of or the applicability of thissection to the extent necessary to comply with Section 16(b) of the SecuritiesExchange Act of 1934, the Internal Revenue Code or any other applicable law orregulation.  The grant of this Optionshall not limit in any way the right or power of the Company to makeadjustments, reclassifications, reorganizations or changes of its capital orbusiness structure or to merge, exchange or consolidate or to dissolve,liquidate, sell or transfer all or any part of its business or assets.

 

If acceleration ofthe Option should not occur in connection with a transaction, Optionee shall beentitled to receive option rights covering shares of the surviving or acquiringentity in the same proportion, at an equivalent price, and subject to the sameconditions as this Option; and provided, however, that if, with respect to theOptionee, acceleration of the vesting of this Option as provided herein (whichacceleration could be deemed a payment within the meaning ofSection 280G(b)(2) of the Code) together with any other payments which theOptionee has the right to receive from the Company or any corporation which isa member of an “affiliated group” (as defined in Section 1504(a) of theCode without regard to Section 1504(b) of the Code) of which the Companyis a member, would constitute a “parachute payment” (as defined inSection 280G(b)(2) of the Code), the payments to the Optionee as set forthherein shall be reduced to the largest amount as will result in no portion ofsuch payments being subject to the excise tax imposed by Section 4999 ofthe Code.

 

**ARTICLE IV.**

**MANNER OF OPTION EXERCISE****.**

 

A.            Notice.  This Option may be exercised by the Optioneein whole or in part from time to time, by delivery, in person, by registeredmail, or by such other means directed by the Company, including electronicdelivery, to the Company at its principal executive office (Attention: ChiefFinancial Officer) of a written notice of exercise.  Such notice shall be in a form satisfactoryto the Committee, shall identify the Option, shall specify the number of OptionShares with respect to which the Option is being exercised, and, if such noticeis in written form, shall be signed by the person or persons so exercising theOption.  Such notice shall be accompaniedby payment in full of the total purchase price of the Option Shares purchased,as provided by Section IV. B. below.  Inthe event that the Option is being exercised, as provided in Section III.B. above, by any person or persons other than the Optionee, the notice shall beaccompanied by appropriate proof of right of such person or persons to exercisethe Option.  As soon as practicable afterthe effective exercise of the Option, the Optionee shall be recorded on thestock transfer books of the Company as the owner of the Option Sharespurchased, and the Company shall deliver the Option Shares to the Optionee byelectronic means or by delivering one or more duly issued stock certificatesevidencing such ownership.

 

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B.            Payment.  At the time of exercise of this Option, theOptionee may determine whether to pay the total purchase price of the OptionShares to be purchased solely in cash (including a personal check, wiretransfer or a certified or bank cashier’s check, payable to the order of theCompany or a payee designated by the Company), or by transfer from the Optioneeto the Company of previously acquired shares of Common Stock of the Companywith a then current aggregate Fair Market Value equal to such total purchaseprice, or by a combination of cash and such previously acquired shares ofCommon Stock, or with the proceeds of a same day sale or sell to covertransaction through the Optionee’s E*Trade OptionsLink account.  The Committee may reject the Optionee’selection to pay all or part of the purchase price under this Option withpreviously acquired shares of Common Stock and may require such purchase priceto be paid entirely in cash if, in the sole discretion of the Committee,payment in previously acquired shares would cause the Company to be required torecognize a charge to earnings in connection therewith.  For purposes of this Agreement, (a) “previouslyacquired shares” shall include only those shares of Common Stock which theOptionee has owned for at least six (6) months prior to the exercise of thestock option, or for such other period of time as may be required by generallyaccepted accounting principles, and (b) “Fair Market Value” will be determinedas set forth in Article X below.

 

C.            Investment Purpose; StockTransfer Restrictions.  The Companyshall not be required to issue or deliver any shares of Common Stock under thisOption unless (a)(1) such shares are covered by an effective and currentregistration statement under the Securities Act of 1933 and applicable statesecurities laws or (2) if the Committee has determined not to so register suchshares, exemptions from registration under the Securities Act of 1933 andapplicable state securities laws are available for such issuance (as determinedby counsel to the Company) and the Company has received from the Optionee (or,in the event of death or disability, the Optionee’s heir(s) or legalrepresentative(s)) any representations or agreements requested by the Companyin order to permit such issuance to be made pursuant to such exemptions, and(b) the Company has obtained any other consent, approval or permit from anystate or federal governmental agency which the Committee shall, in its solediscretion upon the advice of counsel, deem necessary or advisable.  Unless a registration statement under theSecurities Act of 1933 is in effect with respect to the issuance or transfer ofOption Shares, each certificate representing any such shares shall be endorsedwith a legend in substantially the following form, unless counsel for theCompany is of the opinion as to any such certificate that such legend isunnecessary:

 

THE SECURITIESEVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED (“THE ACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES HAVE BEEN ACQUIRED FORINVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED,PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO ANEXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITYOF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.

 

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**ARTICLE V.**

**NONTRANSFERABILITY****.**

 

                A.            Nontransferability.  Except as provided in Section B below, noright or interest of the Optionee in the Option shall be assignable or transferableduring the lifetime of the Optionee, either voluntarily or involuntarily, orsubjected to any lien, directly or indirectly, by operation of law, orotherwise, including execution, levy, garnishment, attachment, pledge orbankruptcy.  In the event of death,Optionee’s rights and interest in the Option shall be transferable bytestamentary will or the laws of descent and distribution, and payment of anyamounts due under the Option shall be made to, and exercise of any Options (tothe extent permitted herein) may be made by, Optionee’s legal representatives,heirs or legatees.  If in the opinion ofthe Committee, Optionee is disabled from caring for his or her affairs becauseof mental condition, physical condition or age, any payments due Optionee maybe made to, and any rights of Optionee under the Option shall be exercised byOptionee’s guardian, conservator or other legal personal representative uponfurnishing the Committee with evidence satisfactory to the Committee of suchstatus.

 

                B.            PermittedTransfers of Non-statutory Stock Options. The Committee may, in its sole discretion, permit Optionee to transferthe Option or any portion to any member of Optionee’s “immediate family” assuch term is defined in Rule 16a-1(e) promulgated under the Securities ExchangeAct of 1934, or any successor provision, or to one or more trusts whosebeneficiaries are members of Optionee’s “immediate family” or partnerships inwhich such family members are the only partners; provided, however, that theOptionee receives no consideration for the transfer and such transferred Optionshall continue to be subject to the same terms and conditions as wereapplicable to the Option immediately prior to its transfer.

 

**ARTICLE VI.**

**LIMITATION OF LIABILITY****.**

 

Nothing in thisAgreement shall be construed to (a) limit in any way the right of the Companyor any of its Subsidiaries to terminate the status of the Optionee as anemployee of the Company at any time, or (b) be evidence of any agreement orunderstanding, express or implied, that the Company or any of its Subsidiarieswill employ the Optionee in any particular position, at any particular rate ofcompensation or for any particular period of time.

 

**ARTICLE VII.**

**WITHHOLDING TAXES****.**

 

A.            General Obligation.  The Company is entitled to (a) withhold anddeduct from future payment to the Optionee, or make other arrangements for thecollection of, all legally required amounts necessary to satisfy any federal,state or local withholding tax requirements attributable to the Optionee’s exerciseof this Option or otherwise incurred with respect to this Option, or (b)require the Optionee promptly to remit the amount of such withholding to theCompany before acting on any such disposition of shares of Common Stock.  In the event that the Company is unable towithhold such amounts, for whatever reason, the Optionee hereby agrees to payto the Company an amount equal to the amount the Company would otherwise berequired to withhold under federal, state or local law.

 

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B.            Use of Shares.  The Committee may, in its sole discretion andsubject to such rules as the Committee may adopt, permit the Optionee tosatisfy, in whole or in part, any withholding tax obligation which may arise inconnection with the exercise of this Option either by electing to have theCompany withhold from the shares of Common Stock to be issued upon the exerciseof this Option that number of shares of Common Stock, or by electing to deliverto the Company already-owned shares of Common Stock, in either case having aFair Market Value (determined as set forth in Article X below) on the date suchtax is determined under the Code (the “Tax Date”) equal to the amount necessaryto satisfy the statutory minimum withholding amount due.  The Optionee’s election to have the Companywithhold shares of Common Stock or to deliver already-owned shares of CommonStock upon exercise is irrevocable and is subject to the consent or disapprovalof the Committee.  If the Optionee is anofficer, director or beneficial owner of more than 10% of the outstandingCommon Stock of the Company and at the time of exercise of this Option theCompany has a class of equity securities registered under Section 12 ofthe Securities Exchange Act of 1934, such election may not be made within sixmonths of the Date of Grant (unless the death or Disability of the Optioneeoccurs prior to the expiration of such six-month period), and must be madeeither six months prior to the Tax Date or between the third and twelfth businessdays following public release of any of the Company’s quarterly or annualsummary earnings statements.  To theextent that shares of Common Stock may be issued prior to the Tax Date to theOptionee making such an election, the Optionee hereby agrees to surrender thatnumber of shares on the Tax Date having an aggregate Fair Market Value(determined as set forth in Article X below) equal to the amount of withholdingtax due.  In no event may the Companywithhold or accept shares having a Fair Market Value in excess of the statutoryminimum required tax withholding.

 

**ARTICLE VIII.**

**CAPITAL ADJUSTMENTS****.**

 

If the number ofoutstanding shares of Common Stock is increased or decreased or changed into orexchanged for a different number or kind of shares of stock or other securitiesof the Company or of another corporation by reason of any reorganization,merger, consolidation, recapitalization, reclassification, stock split, reversestock split, stock dividend, combination of shares, rights offering or any otherchange in the corporate structure or shares of the Company, the Committee (or,if the Company is not the surviving corporation in any such transaction, theboard of directors of the surviving corporation), in order to prevent dilutionor enlargement of the rights of the Optionee, shall make appropriate adjustmentas to the number and kind of securities subject to this Option.  Any such adjustment affecting this Optionshall be made without change in the aggregate purchase price applicable to theunexercised portion of the Option but with an appropriate adjustment in theprice for each share or other unit of any security subject to the Option.Without the consent of the Optionee, however, no such change shall be made inthe terms of the Option if such change would disqualify the Option fromtreatment as an “incentive stock option” within the meaning of Section 422of the Code or would be considered a modification, extension or renewal of anoption under Section 425(h) of the Code.

 

**ARTICLE IX.**

**BINDING EFFECT****.**

 

This Agreementshall be binding upon the heirs, executors, administrators and successors ofthe parties hereto.

 

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**ARTICLE X.**

**FAIR MARKET VALUE****.**

 

As used in thisagreement, “Fair Market Value” means, with respect to the Common Stock, as ofany date:

 

                                (a)           if the Common Stock is listed oradmitted to unlisted trading privileges on any national securities exchange oris not so listed or admitted but transactions in the Common Stock are reportedon the Nasdaq National Market or Nasdaq SmallCap Market, the closing saleprices of the Common Stock on such exchange or market as of such date (or, ifno shares were traded on such day, as of the next preceding day on which therewas such a trade); or

 

                                (b)           if the Common Stock is not listed oradmitted to unlisted trading privileges or reported on the Nasdaq NationalMarket, and bid and asked prices therefore in the over-the-counter market arereported by the OTC Bulletin Board or the National Quotation Bureau, Inc. (orany comparable reporting service), the mean of the closing bid and asked pricesas of such date, as reported by the OTC Bulletin Board, or, if not reportedthereon, as reported by the National Quotation Bureau, Inc. (or a comparablereporting service); or

 

                                (c)           ifthe Common Stock is not publicly traded, the price that the Committeedetermines in good faith in the exercise of its reasonable discretion.  The Committee’s determination as to thecurrent value of the Common Stock shall be final, conclusive and binding forall purposes and on all persons, including, without limitation, the Company,the Optionee and their respective successors-in-interest.  No member of the Board or the Committee shallbe liable for any determination regarding current value of the Common Stockthat is made in good faith.

 

**ARTICLE XI.**

**GOVERNING LAW****.**

 

This Agreement andall rights and obligations hereunder shall be governed by the laws of the Stateof Minnesota.

 

The parties heretohave executed this Agreement effective the day and year first above written.

 

| AUGUST TECHNOLOGY CORPORATION |                           |
|-------------------------------|--------------------------------|
|                          |                           |   |
|                          |                           |   |
| By                            | /s/ Stan Piekos                |   |
| Its                           |  Chief  Financial Officer |   |
|                          |                           |   |
| OPTIONEE                      |                           |
|                          |                           |   |
| By                            | /s/ Lynn J Davis               |   |
| Lynn J. Davis                 |                           |

 

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