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                                                                 Exhibit 10.34

                                    AGI, INC.

                          TRANSITION SERVICES AGREEMENT


-    This Transition Services Agreement (the "Agreement"), dated as of March 25,
     1996 is entered into by and between AG Associates, Inc. ("AGA"), AG
     Associates (Israel) Ltd. ("AG Israel") and AGI, Inc. ("AGI").

-    The parties hereto have agreed to enter this Agreement in connection with
     the closing of the transactions contemplated by the Agreement (the
     "Investment Agreement"), dated February 27, 1995, among the parties hereto
     and Clal Electronics Industries Ltd. (the "Closing").

-    The parties agreed that AGA will provide to AGI, for the time period and
     consideration described below, certain of the services that have been
     provided for the "CVD Activities" (as defined in the Investment Agreement)
     prior to the Closing, in order to ensure the continued and uninterrupted
     operation of the CVD Activities under AGI, following the Closing.

-    Therefore, the parties hereto agree as follows.

1. SERVICES TO BE PROVIDED BY AGA. AGA will provide the following services to
AGI.

     1.1    Human Resources Services. Those services generally described in
            Schedule 1(a) hereto and incorporated herein by reference, and
            related support, training, maintenance, information and reports.
            With respect to the following matters, it is provided as follows.

            New Hires; Terminations. AGI will make all decisions regarding
            hiring, promotions and termination of its own employees. However,
            AGA will provide employment services to AGI including administrative
            aid in recruiting, interview scheduling and preparation of
            employment offers. Any disputes between AGI and any of its
            employees, former employee or other service providers with respect
            to their employment by AGI will be administered by, and the
            responsibility of, AGI.

            Separation of Employment Records. AGI's employees shall be carried
            on AGI payroll records and not those of AGA. However, upon receipt
            by AGA from AGI of amounts needed to cover AGI's payroll from time
            to time, AGA will, through its own bank account, make payroll
            payments to AGI employees and on AGI's behalf. AGI will be listed on
            AGA's payroll files as a separate organization. Each AGI employee or
            other service provider will have a personnel file separate from
            those of AGA employees.

            Benefits. Although they may be administered by AGA, employment
            benefits will be provided under separate plans for AGA and AGI
            employees, wherever possible.

            Notice to Employees. Each employee of AGI is to be informed in
            writing by AGI at the time of hiring that, although employment
            services are being provided by AGA as a service to AGI, such
            employee is an employee of AGI, which will be solely responsible for
            any compensation or other payments that may be due to such employee.

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     1.2    Operational Services. Those services generally described in Schedule
            1(b) hereto and incorporated herein by reference, and related
            training, support, maintenance, information and reports, including,
            without limitation, the following.

            Telephone and Facsimile. Although AGA may, at the written request of
            AGI, administer and manage payment for same, AGI will obtain and
            maintain its own telephone and facsimile numbers.

            Segregation of Assets; Grant of Security Interest and Guarantee. AGI
            and AG Israel generally will purchase their own inventory, raw
            materials and other assets under their own purchase orders. However,
            if acceptable to AGA on a case by case basis, AGA may at the request
            of AGI or AG Israel purchase inventory, raw materials or other
            assets on the requesting party's behalf and sell such assets to the
            requesting party at AGA's cost, including shipping, taxes and other
            ordinary procurement expenses. Any inventory or other assets
            purchased by AGA under this Agreement will be purchased at the
            request of AGI or AG Israel and in the name of AGA, will upon
            receipt and physical designation by AGA as the requesting party's
            property and will become the property of requesting party, which
            will then have an obligation to pay therefor. To secure payment of
            the purchase price of any inventory or assets purchased by AGA for
            the benefit of AGI under this paragraph, AGI hereby grants AGA a
            security interest in any and all inventory and other assets so
            purchased and to be so purchased. AGI will sign any UCC financing
            statement reasonably requested by AGA to perfect its security
            interest in such inventory and assets. Inventory may be sold to
            customers of AGI free and clear of AGA's security interest if sold
            in the ordinary course of business as permitted by California law.

            AGI hereby unconditionally guaranties, and does hereby become surety
            for, the punctual payment to AGA of any amounts owed to AGA by AG
            Israel, and AG Israel hereby unconditionally guaranties, and does
            hereby become surety for, the punctual payment to AGA of any amounts
            owed to AGA by AGI, all under the immediately preceding paragraph in
            this Section 1.2, when such payments are due, whether by reason of
            acceleration or otherwise and whether the obligation for payment is
            now existing or hereafter arising (the "Obligations"). The
            Obligations of each guarantor are absolute, unconditional and
            continuing whether or not this Agreement expires or is terminated.
            Each guarantor hereby consents that, from time to time, without
            notice to, or further consent of such guarantor, the performance or
            observance of any provision of any Obligation may be waived by AGA,
            or the time of performance thereof extended or accelerated or may be
            renewed in whole or in part or otherwise amended, changed, released
            or compromised, all without affecting the liability of such
            guarantor hereunder. Each guarantor hereby waives notice of
            acceptance of this guaranty, presentment, demand, protest, notice of
            protest and notice of dishonor of any Obligation guaranteed hereby.

            Whenever possible, AGA, AG Israel and AGI will segregate from AGA's
            other assets any inventory or assets purchased for, or owned by, AGI
            or AG Isreal and shall clearly mark such assets as dedicated to, or
            owned by, AGI or AG Isreal, as the case may be.

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            Facilities. The sublease of office facilities by AGI that are leased
            or owned by AGA will be the subject of a separate real property
            sublease between AGA and AGI (the "Sublease"). Whenever possible,
            the workplace of AGI employees will be separated from the workplace
            of AGA employees and signage will be employed to identify those
            areas used by AGI sufficient to put to those visiting with each
            party on notice that AGA and AGI are separate businesses.

            Patents. Title to, and payment for, patents and patent applications
            shall be governed by the terms of the Agreement, when applicable.
            Although AGA may aid AGI in the preparation and filing of certain
            patents or patent applications not covered by the Agreement, such
            assets will be applied for in the name of AGI and paid for by AGI as
            incurred or as specified in Section 2 below.

     1.3    Financial and Control Systems. Those services generally described in
            Schedule 1(c) hereto and incorporated herein by reference and
            related support, maintenance, training, information and reports,
            except as set forth below.

            Separate Records. The books and records of AGI will be separate from
            those of AGA.

            Collection Services and Accounts Payable. AGI will pay all AGI
            accounts payable and other expenses incurred in connection with the
            activities described in Schedule 1(c) from its own bank accounts and
            shall collect its own accounts receivable. However, AGA shall
            provide accounts payable services for AGI, consisting of such
            services as preparing purchase orders and administering the payment
            by AGI of invoices. AGA may also, at the request of AGI and in AGA's
            discretion, collect any AGI accounts receivable and may pay any AGI
            accounts payable and other expenses incurred in connection with the
            activities described in Schedule 1(c). Such payments and
            collections, if any, shall be netted and subject to offset as
            described in Section 2 below.

            Other Financial and Control Systems. Any other matters listed on
            Schedule 1(c) will consist of AGA's administrative services only and
            will not require AGA to make any payments on AGI's behalf for
            reimbursement of expenses, benefits, petty cash, credit cards or the
            like, unless expressly described in this Agreement. Such payments
            will be made directly from AGI's own bank accounts.

     1.4    Additional Services. Any additional services that may be agreed to
            in writing by AGI and AGA and which are not explicitly and
            unambiguously referred to in this Agreement will be provided by AGA
            for a fee to be mutually agreed upon between AGA and AGI.

2.   CONSIDERATION.

     2.1    Payments. In exchange for the services provided under Schedules
            1(a), 1(b) and 1(c), AGI shall pay to AGA the incremental direct
            costs and out-of-pocket expenses, derived directly from the
            provision of those services. No AGA overhead allocations will be
            charged to AGI. Payment will be made after presentation of AGA's
            invoice therefor, net 30. Interest per annum on any amount overdue
            will accrue at a floating rate equal to prime applicable to, and
            reported by, AGA's bank from time to time.

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     2.2    Offset. Any amounts due from AGA to AGI, or visa versa, may be
            offset from time to time at the discretion of either party exercised
            in writing delivered to the other party.

     2.3    Indemnification. For purposes of this Section 2.3, the entity(ies)
            to be indemnified in a particular instance described in this Section
            shall be referred to collectively as the "Indemnified Person or
            Persons" with respect to such instance and entity(ies) that are
            obligated to provide such indemnification shall be referred to in
            such instance as the "Indemnifing Person or Persons"). AGI and AG
            Israel hereby agree to indemnify AGA of and from any claim, demand
            or action of any third person (i.e. other than the parties hereto)
            and any cost, expense, loss, damage, settlement or other charge of
            any kind or nature that AGA may incur, or with which AGA may be
            charged, as a result of such third party claim, demand or action,
            which was a consequence of providing services and other assets to
            AGI in accordance with this Agreement; provided that AGA shall not
            be entitled to indemnification under this Section 2.3 as a result of
            AGA's gross negligence or willful misconduct. Likewise AGA hereby
            agrees to indemnify each of AGI and AG Israel of and from any claim,
            demand or action of any third person (i.e. other than the parties
            hereto) and the resulting cost, expense, loss, damage, settlement or
            other charge of any kind or nature that such Indemnified Person may
            incur, or with which any such Indemnified Person may be charged, as
            a result of such third party claim, demand or action, which was a
            consequence of the gross negligence or willful misconduct of AGA in
            providing services and assets to AGI in accordance with this
            Agreement. With respect to any claim for indemnity hereunder
            resulting from a third party claim, demand or action, the
            Indemnified Persons who are the subject of such claim, demand or
            action shall, after receipt of notice of the commencement of any
            action or the presentation or other assertion of any claim or demand
            which could result in any indemnification claim or demand pursuant
            to this Section 2.3, give prompt written notice thereof to the
            Indemnifying Persons (although failure to give prompt notice shall
            not mitigate the indemnification obligations hereunder unless and to
            the extent the Indemnifying Parties are prejudiced by such failure
            or delay).

           (i)    The Indemnifying Party or Parties shall be entitled to
                  participate in the defense of any such claim, demand or
                  action. The Indemnifying Party or Parties may also, to the
                  extent that it or they may desire, assume the defense thereof
                  with its or their own counsel, unless the Indemnified Party
                  reasonably objects to such assumption on the grounds that
                  representation of all entities by the same counsel would be
                  prohibited under any rule of professional conduct applicable
                  to such counsel, then the Indemnified Party or Parties may
                  participate in their own defense with counsel of its or their
                  own choosing at the cost of the Indemnifying Party or Parties.
                  Except as specified in the preceding sentence, an Indemnifying
                  Party or Parties that assumes the defense of a claim, demand
                  or action shall not be liable to the Indemnified Party or
                  Parties for any fees of other counsel or any other expenses,
                  in each case, incurred by such Indemnified Party or Parties in
                  connection with the defense thereof.

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           (ii)   The Indemnifying Party or Parties shall be authorized, without
                  the consent of the Indemnified Party being required, to settle
                  or compromise any such claim, demand or action, provided that
                  such settlement or compromise includes an unconditional
                  release of the Indemnified Parties from all liability arising
                  out of such claim, demand or action. An Indemnifying Party or
                  Parties shall not be liable for any compromise or settlement
                  of any such claim, demand or action effected by the
                  Indemnified Party or Parties without the Indemnifying Party's
                  or Parties' written consent.

           (iii)  The parties agree to cooperate to the fullest extent possible
                  in connection with any claim, demand or action for which
                  indemnification is or may be sought under this Agreement.

3.   TERM AND TERMINATION.

     3.1    Term. The term of this Agreement shall begin on June 1, 1995, and
            shall continue until terminated by AGI or AGA as described in
            Section 3.2 below.

     3.2   Termination. Either AGI or AGA may cancel any or all service or
           services provided pursuant to this Agreement on 90 days prior notice
           to the other party. However, this Agreement, and/or any service
           provided for in this Agreement, may be terminated immediately upon
           notice duly given by either AGI or AGA to the other in the event of a
           default by AGA, or either AGI or AG Israel, respectively, under this
           Agreement. Failure of the other party to perform as required by this
           Agreement, including, without limitation, the failure to pay any
           amount when due, will deemed to constitute such a default. Failure of
           any party to declare a default under this Agreement, or to take any
           other action to be taken in event of default of the other, will not
           be deemed a waiver of such default. The terms of this Agreement may
           only be waived in writing signed by the party to be charged.

     3.3   Effect of Termination. Cancellation of any particular service
           pursuant to this Section 3 shall not affect the remaining services,
           if any. Expiration or termination of this Agreement shall not affect
           the indemnification obligations set forth in Section 2 hereof, which
           shall survive such expiration or termination and shall apply to cover
           advancement of expenses or other monetary obligations incurred by AGA
           on behalf of AGI that are described in this Agreement whether arising
           before or after such expiration or termination.

4.   MANAGING THE AGREEMENT.

     4.1    Status Report. AGI will distribute to AGA a monthly status report
            regarding the services actually received, any changes required and
            implementation problems, if any.

     4.2   Conflicts. Significant conflicts between the parties regarding the
           implementation of this Agreement, or any portion of it, will be
           submitted to AGA's and AG Israel's Chief 

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            Financial Officers (each, a "CFO") for resolution. If such persons
            do not resolve such conflict within 60 days after submission, either
            of such CFOs may refer the matter to AG Israel's General Manager and
            to AGA's Chairman of the Board for resolution. If such persons do
            not resolve such conflict within 30 days after such submission, the
            matter shall be submitted, at the election of any party by notice
            given to the other parties, to binding arbitration before one
            arbitrator in Santa Clara, California, under the rules of the
            American Arbitration Association. The decision of the arbitrator, of
            the Chief Financial Officers or of the General Manager and Chairman
            of the Board, as the case may be, will be final and binding.

5.   GENERAL PROVISIONS.

     5.1   Confidentiality. None of the parties will disclose to any third party
           or use any part of the information exchanged among the parties or to
           which a party is exposed to during the course of the fulfillment of
           this Agreement that is disclosed in written, graphic, machine
           readable or other tangible form by the disclosing party or that is
           disclosed orally or visually by one party to another pursuant to this
           Agreement (collectively, "Confidential Information"), without the
           prior written consent of the disclosing party, except for the purpose
           of fulfilling its obligations and exercising its rights under this
           Agreement. Each receiving party will take all reasonable measures to
           maintain the confidentiality of all Confidential Information of the
           other parties in its possession or control, which will in no event be
           less than the measures it uses to maintain the confidentiality of its
           own information of similar importance. This Section 5(a) will not
           apply to Confidential Information which:

           (i)    is now in the public domain, or subsequently enters the public
                  domain, without the fault of the receiving party,

           (ii)   is known by the receiving party at the time of receiving such
                  information,

           (iii)  is furnished by the disclosing party to third parties without
                  restriction on disclosure,

           (iv)   is subsequently rightfully furnished to the receiving party by
                  a third party without breach of an obligation with respect to
                  disclosure taken by such third party toward the disclosing
                  party, or

           (v)    is independently developed by the receiving party without use
                  of the Confidential Information of the disclosing party.

     5.2    Independent Contractors. The parties to this Agreement are
            independent contractors. There is no relationship of partnership,
            joint venture, employment, franchise or agency among the parties.
            None of the parties has the power to bind any of the others or to
            incur obligations on the other's behalf without the other's prior
            written consent.

     5.3    Limitations. Regardless of AGA's obligation to provide licenses for
            AutoCAD 13, ORCAD or provide any other asset, AGA will be released
            from its obligation to do so with respect to any particular license
            or asset to the extent the provision of the same 

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            would violate any contract with the owner of such asset (such as a
            prohibition on assignment) or violate any laws, rules or regulations
            of any governmental authority. This provision shall not derogate
            from AGA's obligations under the Investment Agreement.

     5.4    Notices. All notices provided for herein will be given in writing
            and delivered personally, sent by confirmed facsimile transmission
            or sent by registered mail, postage prepaid, in each case addressed
            to the party to receive notice at its address set forth below or to
            such other address as such party previously may have noticed to the
            other pursuant to this Section 5.4.

     5.5    Governing Law. This Agreement will be governed by, and interpreted
            in accordance with, the laws of the State of California without
            regard to the principles of conflicts of laws.

     5.6    Entire Agreement. The terms and conditions contained in this
            Agreement and in the Sublease, together, constitute the entire
            agreement among the parties hereto concerning its subject matter and
            supersede all previous or contemporaneous communications, whether
            oral or written, among the parties with respect to such subject
            matter.

     5.7    Assignment. This Agreement may not be assigned without the prior
            written consent of the other parties, which consent will not be
            unreasonably withheld or delayed. This Agreement shall be binding
            upon, and inure to the benefit of, the permitted successors and
            assigns of the parties.



      ------------------------------        ------------------------------------
           AG ASSOCIATES, INC.                          AGI, INC.

      By:                                   By:                                
         ---------------------------           ---------------------------------

      Address:  4425 Fortran Drive,         Address:  4425 Fortran Drive,
                  Santa Clara                            Santa Clara
                California, 95134-2300                California, 95134-2300
                Attention: Chief Financial            Attention:                
                  Officer                                         --------------
      Facsimile No:  (408) 935-2701         Facsimile No:                       
                                                          ----------------------
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      -----------------------------------------------------
                    AG ASSOCIATES (ISRAEL) LTD.

      By:                                                  
         --------------------------------------------------

      Address: Industrial Park at Ramat Gabriel
                     P.O.B. 171, Migdal HeEmeq 10551
                     Israel
                     Attention:  President
      Facsimile No:  06-440551

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                               SERVICES SCHEDULES


<TABLE>
<CAPTION>
<S>      <C>                            
SCHEDULE 1(a) - HUMAN RESOURCES SERVICES
         a.     Recruiting
         b.     Benefits administration / payroll
         c.     Employee relations
         d.     Employee training
         e.     Travel

SCHEDULE 1(b) - OPERATIONAL SERVICES
         Materials / Stock Room
         a.     Inventory tracking
         b.     Spare parts inventory maintenance
         c.     Shipping / receiving / QA
         d.     FED-EX services
         e.     Provide packaging materials
         f.     Order entry
         g.     Materials planning
         h.     Purchase of Heatpulse 610 parts
         i.     Office supplies

         MIS
         a.     PC repair / maintenance
         b.     PC applications software
         c.     Phones, long distance charges
         d.     Voicemail
         e.     E-mail
         f.     MRP, shortage, custom MIS reports
         g.     Software license for AutoCAD 13, ORCAD
         h.     Training

Facilities (Borregas building)
         a.     Apps, lab / support areas
         b.     Facilities services (i.e., water, CDA, process gases, sensors / alarm, scrubber)
         c.     Janitorial services (including clean room smock changes)
         d.     Safety (includes performing government regulations concerning safety and hazardous materials)

         Marketing / Sales
         a.     MARCOM costs (presentations, literature)
         b.     Trade Show support / representation
         c.     Patent applications
</TABLE>

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<TABLE>
<CAPTION>
<S>      <C>                                    
SCHEDULE 1(b) - OPERATIONAL SERVICES (Continued)
         Other
         a.     Receptionist
         b.     Machine shop services
         c.     Coffee, microwave
         d.     Mail services

SCHEDULE 1(c) - FINANCIAL AND CONTROL SYSTEMS
         a.     A / P
         b.     A / R
         c.     Payroll
         d.     Benefits
         e.     Expense report processing
         f.     Petty cash, travel
         g.     Credit cards, travel insurance
         h.     Departmental expenses
         i.     Monthly / quarterly financial statements
         j.     Inventory Valuation
         k.     Property accounting
         l.     Legal entity requirements
</TABLE>

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