<PAGE>

                                                                    EXHIBIT 10.1


                              EMPLOYMENT AGREEMENT

      This Agreement is entered into by and between August Technology
Corporation ("August Technology " or the "Company"), a Minnesota corporation,
with its principal place of business at 4900 West 78th Street, Bloomington,
Minnesota 55435, and Scott Gabbard of 19820 Doonbey Circle, Prior Lake,
Minnesota 55372 USA ("Employee").

      WHEREAS, Employee desires employment with August Technology or has been
employed with August Technology and wishes to continue employment under the
terms and conditions set forth in this Agreement;

      WHEREAS, Employee acknowledges and agrees that he has and will continue to
have access to confidential, proprietary and trade secret information in the
course of his/her employment and continued employment with August Technology,
the unauthorized use or disclosure of which would cause irreparable harm to
August Technology;

      WHEREAS, August Technology and Employee wish to set forth the terms of
their agreement in writing;

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and for other good and valuable consideration the receipt and
sufficiency of which is specifically acknowledged by the parties, August
Technology and Employee agree as follows:

      1. EMPLOYMENT. August Technology agrees to employ or continue to employ
Employee, effective May 9, 2002, and Employee accepts employment or continued
employment, upon the terms and conditions set forth in this Agreement.

      2. TERM OF EMPLOYMENT. August Technology shall continue to employ Employee
for an indefinite duration until his/her employment is terminated in accordance
with Paragraph 8 of this Agreement.

      3. DUTIES AND RESPONSIBILITIES. Employee shall devote his/her time,
attention and best efforts to the duties and responsibilities of his/her
position, and to the business and affairs of August Technology. Employee's title
shall be as set forth in Exhibit A as "Employee's Title", reporting to the
person or office as set forth in Exhibit A as "Manager". Employee shall perform
all duties and responsibilities of the position he/she holds with August
Technology as those duties and responsibilities may change from time to time.
Employee shall comply with August Technology's standards, policies and
procedures in effect and as they may change from time to time; provided that to
the extent such policies and procedures are inconsistent with this Agreement,
the provisions of this Agreement shall control.

      4. COMPENSATION. August Technology shall pay Employee a gross annual
salary as set forth in Exhibit A as "Base Salary", less appropriate payroll
deductions. Employee may also receive incentive compensation in accordance with
the Annual Incentive Plan, as issued and as may change from time to time by the
Company, or any other similar plan authorized by the Board of Directors.
Employee's compensation may be periodically increased or adjusted as authorized
by the Board of
<PAGE>
Directors in the case of the Chief Executive Officer, or, in the case of all
others, as recommended by the Chief Executive Officer and approved by the Board
of Directors.

      5. BUSINESS EXPENSES. August Technology will, in accordance with its
policies and practices as such may change from time to time, reimburse Employee
for all ordinary and necessary business expenses after receipt of appropriate
documentation of such expenses.

      6. BENEFITS. Employee shall be entitled to insurance and other benefits
provided to key management employees in accordance with applicable plan
documents and commensurate with vice president and higher positions within the
Company. Benefits provided to employees are subject to change in the discretion
of August Technology.

      7. STOCK OPTIONS. At the discretion of August Technology, Employee may be
granted stock options from time to time, which options shall be subject to the
terms and conditions of the August Technology Corporation 1997 Stock Option
Plan, as amended from time to time, or any successor plan, and the related stock
option agreements. Further, Employee shall be eligible to participate in the
August Technology Corporation 2000 Employee Stock Purchase Plan, as amended from
time to time, or any successor plan, subject to the terms and conditions
contained therein.

      8. TERMINATION. Employee's employment under this Agreement may be
terminated:

            (a)   At any time upon mutual written agreement of the parties;

            (b)   By either Employee or August Technology at any time, with or
                  without cause, upon thirty (30) days' written notice to the
                  other;

            (c)   By August Technology immediately upon notice to Employee for
                  cause which shall be defined as:

                  (i)   Employee's material failure or neglect, or refusal to
                        perform, the duties and responsibilities of his/her
                        position and/or the reasonable direction of the Board of
                        Directors or his/her superiors;

                  (ii)  Commission by Employee of any willful, intentional or
                        negligent act that has the effect of injuring the
                        reputation, business or performance of August
                        Technology;

                  (iii) Employee's conviction of a crime, or commission
                        of any act involving moral turpitude;

                  (iv)  Any material default or nonperformance of the terms of
                        this Agreement, or any violation of Paragraphs 10, 11,
                        12, 14 and/or 15 of this Employment Agreement; or

            (d)   Employee's employment will terminate immediately upon
                  his/her death.


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<PAGE>
      Upon Employee's resignation or termination under this Paragraph 8 for any
reason, August Technology shall pay Employee his/her Base Salary through the
Employee's last date of employment, and any accrued and unused vacation or other
paid time off through the Employee's last date of employment. Employee's
entitlement to any vested pension, profit sharing or other benefits shall be
governed by applicable plan documents. In the event Employee's employment is
terminated either by Employee or August Technology under Paragraph 8 (b), August
Technology may elect, in its sole discretion, to pay Employee his/her salary for
the thirty (30) day notice period in lieu of Employee's continued performance of
duties during the notice period. In the event Employee is terminated by August
Technology in accordance with Paragraph 8 (b), August Technology shall, in
addition to the above, pay Employee a severance at his/her then current Base
Salary rate for the time period as set forth in Exhibit A as "Severance Period",
to be paid according to the normal payroll schedule, directly following the
thirty (30) day notice period, and August Technology shall, if the Employee
elects to continue group health or other group benefits as allowed by COBRA,
make the COBRA payments for the Severance Period. Employee shall not be entitled
to any further or other payments or benefits of any kind upon the Employee's
termination or resignation under this Paragraph 8. In the event, Employee is
entitled to Change in Control benefits as set forth in Paragraph 9, Employee
shall not be entitled to any severance or notice rights under this Paragraph 8.

      9. CHANGE IN CONTROL. If, within eighteen (18) months following a Change
in Control (as defined below), Employee's employment is terminated (as defined
below), then:

            (a)   Employee shall be paid his/her last Base Salary on a regular
                  payroll cycle as of the effective date for the time period as
                  set forth in Exhibit A as "Change In Control Severance Period"
                  from the effective date of such termination;

            (b)   For the same Change In Control Severance Period from the
                  effective date of such termination as set forth in Paragraph
                  9(b), the Company shall, if Employee elects to continue group
                  health or other group benefits as allowed under COBRA, make
                  the COBRA payments for the Change In Control Severance Period;

            (c)   The right to exercise all unexpired and non-vested stock
                  options in favor of Employee shall immediately vest and
                  accelerate; and

            (d)   LIMITATION ON CHANGE OF CONTROL PAYMENTS.  Employee shall
                  not be entitled to receive any Change of Control Action, as
                  defined below, which would constitute an "excess parachute
                  payment" for purposes of Code Section 280G, or any
                  successor provision, and the regulations thereunder.  In
                  the event any Change of Control Action payable to Employee
                  would constitute an "excess parachute payment," then the
                  acceleration of the exercisability of such stock options
                  and the payments to such Participant pursuant to this
                  Paragraph 9 shall be reduced to the largest extent or
                  amount as will result in no portion of such payments being
                  subject to the excise tax imposed by Section 4999 of the
                  Code.  For purposes of this Paragraph 9, a "Change of
                  Control Action" shall mean any payment, benefit or transfer
                  of property in the nature of compensation paid to or for
                  the benefit of Employee under any arrangement which is
                  considered contingent on a Change of Control for purposes
                  of Code Section 280G, including, without limitation,


                                       3
<PAGE>
                  any and all salary, bonus, incentive, restricted stock, stock
                  option, compensation or benefit plans, programs or other
                  arrangements, and shall include benefits payable under this
                  Agreement.

            (e)   "CHANGE OF CONTROL." For purposes of this Agreement, "Change
                  of Control" shall mean any of the following events occurring
                  after the date of this Agreement:

                  (1)   A merger or consolidation to which the Company is a
                        party, an acquisition by the Company involving the
                        issuance of the Company's securities as consideration
                        for the acquired business, or any combination of fully
                        closed and completed mergers, consolidations or
                        acquisitions during any consecutive twenty-four (24)
                        month period, if the individuals and entities who were
                        shareholders of the Company immediately prior to the
                        effective date of such merger, consolidation, or
                        acquisition (or prior to the effective date of the first
                        of a combination of such transactions) have, immediately
                        following the effective date of such merger,
                        consolidation or acquisition (or following the effective
                        date of the last of a combination of such transactions),
                        beneficial ownership (as defined in Rule 13d-3 under the
                        Securities Exchange Act of 1934) of less than fifty
                        percent (50%) of the total combined voting power of all
                        classes of securities issued by the surviving
                        corporation for the election of directors of the
                        surviving corporation;

                  (2)   The acquisition of direct or indirect beneficial
                        ownership (as defined in Rule 13d-3 under the Securities
                        Exchange Act of 1934) of securities of the Company by
                        any person or entity or by a group of associated persons
                        or entities acting in concert in one or a series of
                        transactions, which causes the aggregate beneficial
                        ownership of such person, entity or group to equal or
                        exceed twenty percent (20%) or more of the total
                        combined voting power of all classes of the Company's
                        then issued and outstanding securities;

                  (3)   The sale of the properties and assets of the Company
                        substantially as an entirety, to any person or entity
                        which is not a wholly-owned subsidiary of the Company;

                  (4)   The stockholders of the Company approve any plan or
                        proposal for the liquidation of the Company; or

                  (5)   A change in the composition of the Board of the Company
                        at any time during any consecutive twenty-four (24)
                        month period such that the "Continuity Directors" no
                        longer constitute at least a seventy percent (70%)
                        majority of the Board. For purposes of this event,
                        "Continuity Directors" means (i) those members of the
                        Board who were directors at the beginning of such
                        consecutive twenty-four (24) month period or at the date
                        of this Agreement if this Agreement was entered into
                        less than twenty-four months prior to the change in
                        composition of the


                                       4
<PAGE>
                        Board; and (ii) any new director whose election to the
                        Board of Directors or nominations for election to the
                        Board of Directors was approved by a vote of at least
                        two-thirds (2/3) of the directors identified in the
                        immediately preceding clause (i).

                  (6)   The Company enters into a letter of intent, an agreement
                        in principle or a definitive agreement relating to an
                        event described in Paragraph 9(e)(1), 9(e)(2), 9(e)(3),
                        9(e)(4), or 9(e)(5) that ultimately results in such a
                        Change of Control, or a tender or exchange offer or
                        proxy contest is commenced that ultimately results in an
                        event described in Paragraph 9(e)(2) or 9(e)(5).

            (f)   TERMINATION. For purposes of this Paragraph 9, "Termination"
                  shall mean any of the following events occurring within
                  eighteen (18) months after a Change of Control:

                  (1)   The termination of Employee's employment by the Company
                        for any reason, with or without cause, except for
                        termination resulting from conduct by Employee
                        constituting (a) a felony involving moral turpitude
                        under either federal law or the law of the State of
                        Minnesota, or (b) Employee's willful failure to fulfill
                        his/her employment duties with the Company; provided,
                        however, that for purposes of this clause (c), an act or
                        failure to act by Employee shall not be "willful" unless
                        it is done, or omitted to be done, in bad faith and
                        without any reasonable belief that Employee's action or
                        omission were in the best interests of the Company; or

                  (2)   The termination of employment with the Company by
                        Employee for Good Reason. Such termination shall be
                        accomplished by, and effective upon, Employee giving
                        written notice to Company of his/her decision to
                        terminate. "Good Reason" shall mean a good faith
                        determination by Employee, in Employee's sole and
                        absolute judgment, that any one or more of the following
                        events has occurred, at any time during the term of this
                        Agreement or after a Change of Control; provided,
                        however, that such event shall not constitute "Good
                        Reason" if Employee has expressly consented to such
                        event in writing or if Employee fails to provide written
                        notice of his/her decision to terminate within sixty
                        (60) days of the occurrence of such event:

                        (a)   A material change in Employee's reporting
                              responsibilities, titles or offices, or any
                              removal of Employee from or any failure to
                              re-elect Employee to any of such positions, which
                              has the effect of materially diminishing
                              Employee's responsibility or authority;

                        (b)   A reduction by the Company in Employee's base
                              salary (as increased from time to time);


                                       5
<PAGE>
                        (c)   A requirement imposed by the Company on Employee
                              that results in Employee being based at a location
                              that is outside of a twenty-five (25) mile radius
                              of Employee's prior job location;

                        (d)   Without the adoption of a replacement plan,
                              program or arrangement that provides benefits to
                              Employee that are equal to or greater than those
                              benefits that are discontinued or adversely
                              affected:

                              i.    A failure by the Company to continue in
                                    effect, within its maximum stated term,
                                    any pension, bonus, incentive, stock
                                    ownership, stock purchase, stock option,
                                    life insurance, health, accident,
                                    disability, or any other employee
                                    compensation or benefit plan, program or
                                    arrangement, in which Employee is or has
                                    been participating;

                              ii.   The taking of any action by the Company
                                    that would adversely affect Employee's
                                    participation or materially reduce
                                    Employee's benefits under any of such
                                    plans, programs or arrangements; or

                        (e)   Any action by the Company that would materially
                              adversely affect the physical conditions in or
                              under which Employee performs his/her employment
                              duties; or

                        (f)   Any material breach by the Company of this
                              Employment Agreement between Employee and the
                              Company.

                        Termination for "Good Reason" shall not include
                  Employee's death or a termination for any reason other than
                  the events specified in clauses (a) through (f) above.

      10. CONFIDENTIAL INFORMATION. During the term of this Agreement and at all
times thereafter, Employee shall not directly or indirectly use or disclose any
trade secret, proprietary or confidential information of August Technology or
any subsidiary for the benefit of any person or entity other than August
Technology or any subsidiary without prior written approval of August
Technology's Board of Directors. For purposes of this Agreement, in addition to
all materials and information protected by applicable statute or law, the
parties acknowledge that confidential information shall include any information,
whether in print, on computer disc or tape or otherwise, which is not public
information and which relates to August Technology or any subsidiary, or August
Technology's or any subsidiary's existing or reasonably foreseeable business,
including but not limited to information relating to research, development,
technology, manufacturing processes, purchasing and sales, information relating
to sales and other financial strategies, plans and/or goals, information
relating to proprietary rights and data, ideas, know-how, and/or trade secrets,
information regarding the identity and/or needs of clients or customers, client
or customer lists and other client or customer information, information
regarding active and inactive accounts of August


                                       6
<PAGE>
Technology or any subsidiary, and information relating to August Technology's or
any subsidiary's methods of operation.

      11. NONCOMPETITION OBLIGATIONS. As a condition to and in consideration of
his/her employment and continued employment, and in exchange for the severance
and Change of Control provisions as set forth in Paragraphs 8 and 9 of this
Employment Agreement, and the mutual covenants herein, Employee agrees that,
during his/her employment and for a period of one (1) year following his/her
voluntary or involuntary resignation or termination for any reason, the Employee
will not, on behalf of himself/herself or any other person or entity:

            (a)   Directly or indirectly solicit, on Employee's own behalf,
                  or on behalf of another, any of August Technology's or any
                  subsidiary's customers or potential customers with whom
                  Employee or Employee's supervisees had contact, either
                  directly or indirectly, within the twelve months
                  immediately preceding Employee's resignation or termination
                  of employment, for the purpose of providing, selling, or
                  attempting to sell any products or services competing with
                  those provided or sold by August Technology or any
                  subsidiary, or clearly contemplated thereby due to
                  research, development, engineering, applications,
                  licensing, or other like projects in process, at the time
                  of resignation or termination; or

            (b)   hire or attempt to hire, or influence or solicit, or attempt
                  to influence or solicit, either directly or indirectly, any
                  employee of August Technology or any subsidiary to leave or
                  terminate his/her or her employment, or to work for any other
                  person or entity.

      12. WORK PRODUCT AND INVENTIONS. August Technology shall be entitled to
all of the benefits, profits, results and work product arising from or incident
to all work, services, advice and activities of Employee, including without
limitation all rights in inventions (as set forth below), trademark or trade
name creations, and copyrightable materials. Employee shall not, during the term
of his/her employment by August Technology, be interested, directly or
indirectly, in any manner, including, but not limited to, as partner, officer,
advisor, or in any other capacity in any other business similar to, or in
competition with, August Technology's or any subsidiary's business.

      Employee agrees to communicate promptly and fully to August Technology all
inventions, discoveries, improvements or designs conceived or reduced to
practice by Employee during the period of his/her employment with August
Technology (alone or jointly with others), and, except as provided in this
Paragraph 12, Employee will and hereby does assign to August Technology and/or
its nominees all of the Employee's right, title and interest in such inventions,
discoveries, improvements or designs and all of his/her right, title and
interest in any patents, patent applications or copyrights based thereon without
obligation on the part of August Technology or any subsidiary to make any
further compensation, royalty or payment to Employee. Employee further agrees to
assist August Technology and/or its nominee (without charge but at no expense to
Employee) at any time and in every proper way to obtain and maintain for its
and/or their own benefit, patents for all such inventions, discoveries and
improvements and copyrights for all such designs.

      This Agreement does not obligate Employee to assign to August Technology
any invention, discovery, improvement or design for which no equipment,
supplies, facility or trade secret information of August Technology or any
subsidiary was used and which was developed entirely on


                                       7
<PAGE>
Employee's own time, and (1) which does not relate (a) directly to the business
of August Technology or any subsidiary, or (b) to August Technology's or any
subsidiary's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by Employee for August Technology
or any subsidiary.

      13. EXEMPT INVENTIONS. Identified under Exempt Inventions in Exhibit A by
descriptive title are all of the Inventions, if any, in which Employee possesses
any right, title or interest prior to Employee's employment with August
Technology or execution of this Employment Agreement which are not subject to
the terms hereof.

      14. COPYRIGHTS. Employee acknowledges that any documents, drawings,
computer software or other work of authorship prepared by Employee within the
scope of his/her employment is a "work made for hire" under U.S. copyright laws
and that, accordingly, August Technology exclusively owns all copyright rights
in such works of authorship. For purposes of this paragraph, "scope of
employment" means that the work of authorship (a) relates to any subject matter
pertaining to his/her employment, (b) relates to or is directly or indirectly
connected with the existing or reasonably foreseeable business, products,
projects or confidential information of August Technology or any subsidiary, or
(c) involves the use of any time, material or facility of August Technology or
any subsidiary.

      15. RETURN OF PROPERTY. Employee shall, immediately upon his/her
involuntary or voluntary resignation or termination from employment for any
reason, deliver to August Technology all documents and other items, whether on
computer disc or tape or otherwise, including all copies thereof, belonging to
August Technology or any subsidiary or in any way related to the business of
August Technology or any subsidiary or the services Employee performed for
August Technology or any subsidiary, including but not limited to any documents
or items containing trade secret, proprietary, or confidential information,
documents in any way relating to any inventions or copyrights, client or
customer information, information relating to August Technology's or any
subsidiary's processes or procedures and any other materials or documents of any
sort relating to August Technology or any subsidiary. Employee shall not retain
any copies or summaries of any kind of documents and materials covered by this
Paragraph 15.

      16. REMEDY UPON VIOLATION. Employee and August Technology agree that a
breach or threatened breach of Paragraphs 10, 11, 12, 14 or 15 would cause
irreparable harm to August Technology and/or its subsidiaries, and that monetary
damages alone would not be an adequate remedy. Employee agrees that August
Technology and any subsidiary shall be entitled, in addition to any other remedy
it may have at law or in equity, to an injunction, without the posting of a bond
if allowed by applicable law or with the posting of a minimal bond if required,
enjoining or restraining Employee from any violation or violations or threatened
violation or violations of Paragraphs 10, 11, 12, 14 and 15, and/or for specific
performance of duties and obligations under such paragraphs, and Employee hereby
consents to the issuance of such injunction. If any rights or restrictions
contained in Paragraphs 10, 11, 12, 14 and 15 shall be deemed to be
unenforceable by reason of the extent, duration or geographic scope, or other
provision thereof, the parties contemplate that the Court shall reduce such
extent, duration or geographic scope or other provision and enforce Paragraphs
10, 11, 12, 14 and 15 in their reduced form for all purposes in the manner
contemplated by such Paragraphs.

      17. OTHER AGREEMENTS. By Employee's signature to this Agreement, Employee
warrants that he/she is not subject to any employment, noncompetition,
confidentiality, inventions or other obligations or agreements which would
prevent or restrict the Employee in any way from


                                       8
<PAGE>
accepting employment with August Technology and fully performing his/her duties
and responsibilities as described in this Agreement. Employee, by his/her
signature to this Agreement, further warrants that he/she has not taken and will
not take any trade secret, proprietary or confidential information of any former
employer, and will not use or disclose any such information to anyone in the
performance of duties and responsibilities under this Agreement.

      18. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of August Technology.

      19. NOTICES. All notices and other communications to be given under this
Agreement shall be in writing and shall be deemed to be given when delivered
personally, or when mailed by registered or certified mail, addressed to the
party to whom such notice is intended to be given, at the last known address for
that party or at such other address as the party may specify by written notice.

      (a)   In the case of August Technology, the notice shall be provided to:

                  General Counsel
                  August Technology Corporation
                  4900 West 78th Street
                  Bloomington, MN 55435

      (b)   In the case of Employee, the notice shall be provided to:

Scott Gabbard

                  19820 Doonbey Circle
                  Prior Lake, Minnesota 55372

      Either party may, by written notice hereunder, designate a change of
address. Any notice, if mailed properly addressed, postage prepaid, registered
or certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received within the
fifth business day thereafter, or when it is actually received, whichever is
sooner.

      20. SURVIVAL OF PROVISIONS. Employee acknowledges and agrees that the
restrictions and obligations set forth in Paragraphs 10, 11, 12, 13, 14, 15 and
16 of this Agreement are reasonable, shall survive his/her resignation from or
the termination of his/her employment, and shall apply to him/her whether
his/her resignation or termination from employment is voluntary or involuntary
and regardless of the reason for such resignation or termination.

      21. NONWAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
right or remedy granted hereby or by any related document or by law.

      22.   GOVERNING LAW.  This Agreement shall be construed and interpreted
according to the laws of the State of Minnesota, without reference to its
conflict of laws provisions.

      23.   PARAGRAPH HEADINGS.  Paragraph headings are included in this
Agreement for convenience of reference only, and are not intended to be full
or accurate descriptions of the contents hereof.


                                       9
<PAGE>
      24.   COUNTERPARTS.  This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one (1) and the same instrument.

      25. ENTIRE AGREEMENT. This Agreement states the entire Agreement of the
parties on the subjects set forth herein, and merges and supersedes all prior
agreements and understandings between the parties. No modification, termination,
or attempted waiver of any provision of this Agreement will be valid unless it
is made in writing and signed by the party against whom the same is sought to be
enforced, and is specifically identified as a modification, termination,
release, waiver or discharge of this Agreement. If any term, clause or provision
of this Agreement shall for any reason be adjudged invalid, unenforceable or
void, the same shall not impair or invalidate any of the other provisions
contained herein, all of which shall be performed in accordance with their
respective terms.

                                                 AUGUST TECHNOLOGY CORPORATION


Dated:  July 11, 2002                        By: /s/ JEFF L. O'DELL
                                                 -------------------------------
                                             Its Chief Executive Officer
                                                 -------------------------------


Dated:  July 11, 2002                        By: /s/ SCOTT A. GABBARD
                                                 -------------------------------
                                             EMPLOYEE


                                       10
<PAGE>
EXHIBIT A

Employee's Name                     =     Scott Gabbard

Employee's Title                    =     V.P. Finance

Manager                             =     Chief Executive Officer

Base Salary                         =     $135,000

Severance Period                    =     twelve (12) months

Change In Control Severance Period  =     eighteen (18) months

Exempted Inventions                 =     ____________________________________

                                          ____________________________________

                                          ____________________________________

                                          ____________________________________








Initials of approval of Exhibit:    AUGUST TECHNOLOGY CORP. _______

                                    EMPLOYEE                _______



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