Exhibit 10.2


 


NON-STATUTORY STOCK OPTION
AGREEMENT


 


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


 


RECITALS:


 


A.            The Board of Directors of the
Company or its Compensation Committee has authority to grant non-statutory
stock options to employees of the Company outside of the Company’s 1997 Stock
Incentive Plan.


 


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


 


AGREEMENT:


 


Accordingly, the
parties hereto agree as follows:


 


ARTICLE I.


GRANT OF OPTION.


 


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


 


ARTICLE II.


OPTION EXERCISE PRICE.


 


The per share
price to be paid by Optionee in the event of an exercise of the Option shall be
eleven 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 with
respect to the Option Shares in five (5) equal installments.  The following table sets forth the initial
dates of exercisability of each installment and the cumulative number of Option
Shares as to which this Option shall become exercisable on such dates, provided
that this Option shall become so exercisable on such dates only if the Optionee
has 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 to
exercise this Option shall be cumulative with respect to the Option Shares
becoming exercisable on each such date but in no event shall this Option be
exercisable after, and this Option shall become void and expire as to all
unexercised Option Shares at, 5:00P.M. (CST) on March 30, 2015 (the “Time of
Termination”), date which in no case shall exceed ten (10) years after date of
grant.


 


B.            Termination of Employment Due to
Death, Disability or Retirement.  In
the event the Optionee’s employment is terminated with the Company and all of
its Subsidiaries (within the meaning of Section 424(f) of the Code) by reason
of death, an event that constitutes permanent and total disability within the meaning
of Section 22(e)(3) of the Code (“Disability”), or retirement pursuant to and
in accordance with the regular retirement plan or practice of the Company or
the Subsidiary employing the Optionee (“Retirement”), the Option may be
exercised in whole or in part before (a) the expiration of three months, in the
case of Retirement, and one year, in the case of death or Disability, after
such date of termination, or (b) the Time of Termination, whichever shall first
occur.


 


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


 


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


 


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


 


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


 


(c)            the receipt by the Optionee, with respect to each share
of Stock subject to the Option,  as of
the effective date of any such transaction, cash in an amount equal to the
excess of the Fair Market Value of such Stock on the date immediately preceding
the 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 shares
of Common Stock of the Company or shares of stock of any corporation succeeding
the Company by reason of such transaction, such shares having a value equal to
the cash payment herein; and


 


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


 


The Committee may restrict the rights of or the applicability of this
section to the extent necessary to comply with Section 16(b) of the Securities
Exchange Act of 1934, the Internal Revenue Code or any other applicable law or
regulation.  The grant of this Option
shall not limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business 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 of
the Option should not occur in connection with a transaction, Optionee shall be
entitled to receive option rights covering shares of the surviving or acquiring
entity in the same proportion, at an equivalent price, and subject to the same
conditions as this Option; and provided, however, that if, with respect to the
Optionee, acceleration of the vesting of this Option as provided herein (which
acceleration could be deemed a payment within the meaning of
Section 280G(b)(2) of the Code) together with any other payments which the
Optionee has the right to receive from the Company or any corporation which is
a member of an “affiliated group” (as defined in Section 1504(a) of the
Code without regard to Section 1504(b) of the Code) of which the Company
is a member, would constitute a “parachute payment” (as defined in
Section 280G(b)(2) of the Code), the payments to the Optionee as set forth
herein shall be reduced to the largest amount as will result in no portion of
such payments being subject to the excise tax imposed by Section 4999 of
the Code.


 


ARTICLE IV.


MANNER OF OPTION EXERCISE.


 


A.            Notice.  This Option may be exercised by the Optionee
in whole or in part from time to time, by delivery, in person, by registered
mail, or by such other means directed by the Company, including electronic
delivery, to the Company at its principal executive office (Attention: Chief
Financial Officer) of a written notice of exercise.  Such notice shall be in a form satisfactory
to the Committee, shall identify the Option, shall specify the number of Option
Shares with respect to which the Option is being exercised, and, if such notice
is in written form, shall be signed by the person or persons so exercising the
Option.  Such notice shall be accompanied
by payment in full of the total purchase price of the Option Shares purchased,
as provided by Section IV. B. below.  In
the 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 be
accompanied by appropriate proof of right of such person or persons to exercise
the Option.  As soon as practicable after
the effective exercise of the Option, the Optionee shall be recorded on the
stock transfer books of the Company as the owner of the Option Shares
purchased, and the Company shall deliver the Option Shares to the Optionee by
electronic means or by delivering one or more duly issued stock certificates
evidencing such ownership.


 


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B.            Payment.  At the time of exercise of this Option, the
Optionee may determine whether to pay the total purchase price of the Option
Shares to be purchased solely in cash (including a personal check, wire
transfer or a certified or bank cashier’s check, payable to the order of the
Company or a payee designated by the Company), or by transfer from the Optionee
to the Company of previously acquired shares of Common Stock of the Company
with a then current aggregate Fair Market Value equal to such total purchase
price, or by a combination of cash and such previously acquired shares of
Common Stock, or with the proceeds of a same day sale or sell to cover
transaction through the Optionee’s E*Trade OptionsLink account.  The Committee may reject the Optionee’s
election to pay all or part of the purchase price under this Option with
previously acquired shares of Common Stock and may require such purchase price
to 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 to
recognize a charge to earnings in connection therewith.  For purposes of this Agreement, (a) “previously
acquired shares” shall include only those shares of Common Stock which the
Optionee has owned for at least six (6) months prior to the exercise of the
stock option, or for such other period of time as may be required by generally
accepted accounting principles, and (b) “Fair Market Value” will be determined
as set forth in Article X below.


 


C.            Investment Purpose; Stock
Transfer Restrictions.  The Company
shall not be required to issue or deliver any shares of Common Stock under this
Option unless (a)(1) such shares are covered by an effective and current
registration statement under the Securities Act of 1933 and applicable state
securities laws or (2) if the Committee has determined not to so register such
shares, exemptions from registration under the Securities Act of 1933 and
applicable state securities laws are available for such issuance (as determined
by 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 legal
representative(s)) any representations or agreements requested by the Company
in 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 any
state or federal governmental agency which the Committee shall, in its sole
discretion upon the advice of counsel, deem necessary or advisable.  Unless a registration statement under the
Securities Act of 1933 is in effect with respect to the issuance or transfer of
Option Shares, each certificate representing any such shares shall be endorsed
with a legend in substantially the following form, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:


 


THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (“THE ACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITY
OF 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, no
right or interest of the Optionee in the Option shall be assignable or transferable
during the lifetime of the Optionee, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy.  In the event of death,
Optionee’s rights and interest in the Option shall be transferable by
testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Option shall be made to, and exercise of any Options (to
the extent permitted herein) may be made by, Optionee’s legal representatives,
heirs or legatees.  If in the opinion of
the Committee, Optionee is disabled from caring for his or her affairs because
of mental condition, physical condition or age, any payments due Optionee may
be made to, and any rights of Optionee under the Option shall be exercised by
Optionee’s guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of such
status.


 


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


 


ARTICLE VI.


LIMITATION OF LIABILITY.


 


Nothing in this
Agreement shall be construed to (a) limit in any way the right of the Company
or any of its Subsidiaries to terminate the status of the Optionee as an
employee of the Company at any time, or (b) be evidence of any agreement or
understanding, express or implied, that the Company or any of its Subsidiaries
will employ the Optionee in any particular position, at any particular rate of
compensation or for any particular period of time.


 


ARTICLE VII.


WITHHOLDING TAXES.


 


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


 


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B.            Use of Shares.  The Committee may, in its sole discretion and
subject to such rules as the Committee may adopt, permit the Optionee to
satisfy, in whole or in part, any withholding tax obligation which may arise in
connection with the exercise of this Option either by electing to have the
Company withhold from the shares of Common Stock to be issued upon the exercise
of this Option that number of shares of Common Stock, or by electing to deliver
to the Company already-owned shares of Common Stock, in either case having a
Fair Market Value (determined as set forth in Article X below) on the date such
tax is determined under the Code (the “Tax Date”) equal to the amount necessary
to satisfy the statutory minimum withholding amount due.  The Optionee’s election to have the Company
withhold shares of Common Stock or to deliver already-owned shares of Common
Stock upon exercise is irrevocable and is subject to the consent or disapproval
of the Committee.  If the Optionee is an
officer, director or beneficial owner of more than 10% of the outstanding
Common Stock of the Company and at the time of exercise of this Option the
Company has a class of equity securities registered under Section 12 of
the Securities Exchange Act of 1934, such election may not be made within six
months of the Date of Grant (unless the death or Disability of the Optionee
occurs prior to the expiration of such six-month period), and must be made
either six months prior to the Tax Date or between the third and twelfth business
days following public release of any of the Company’s quarterly or annual
summary earnings statements.  To the
extent that shares of Common Stock may be issued prior to the Tax Date to the
Optionee making such an election, the Optionee hereby agrees to surrender that
number 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 withholding
tax due.  In no event may the Company
withhold or accept shares having a Fair Market Value in excess of the statutory
minimum required tax withholding.


 


ARTICLE VIII.


CAPITAL ADJUSTMENTS.


 


If the number of
outstanding shares of Common Stock is increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split, reverse
stock split, stock dividend, combination of shares, rights offering or any other
change in the corporate structure or shares of the Company, the Committee (or,
if the Company is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation), in order to prevent dilution
or enlargement of the rights of the Optionee, shall make appropriate adjustment
as to the number and kind of securities subject to this Option.  Any such adjustment affecting this Option
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with an appropriate adjustment in the
price 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 in
the terms of the Option if such change would disqualify the Option from
treatment as an “incentive stock option” within the meaning of Section 422
of the Code or would be considered a modification, extension or renewal of an
option under Section 425(h) of the Code.


 


ARTICLE IX.


BINDING EFFECT.


 


This Agreement
shall be binding upon the heirs, executors, administrators and successors of
the parties hereto.


 


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ARTICLE X.


FAIR MARKET VALUE.


 


As used in this
agreement, “Fair Market Value” means, with respect to the Common Stock, as of
any date:


 


                                (a)           if the Common Stock is listed or
admitted to unlisted trading privileges on any national securities exchange or
is not so listed or admitted but transactions in the Common Stock are reported
on the Nasdaq National Market or Nasdaq SmallCap Market, the closing sale
prices of the Common Stock on such exchange or market as of such date (or, if
no shares were traded on such day, as of the next preceding day on which there
was such a trade); or


 


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


 


                                (c)           if
the Common Stock is not publicly traded, the price that the Committee
determines in good faith in the exercise of its reasonable discretion.  The Committee’s determination as to the
current value of the Common Stock shall be final, conclusive and binding for
all 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 shall
be liable for any determination regarding current value of the Common Stock
that is made in good faith.


 


ARTICLE XI.


GOVERNING LAW.


 


This Agreement and
all rights and obligations hereunder shall be governed by the laws of the State
of Minnesota.


 


The parties hereto
have 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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