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                                                                   Exhibit 10.31



                            [AUGUST TECHNOLOGY LOGO]

                                    OVERVIEW
                                AUGUST TECHNOLOGY
                           ANNUAL INCENTIVE PLAN (AIP)
                       EFFECTIVE FOR THE FISCAL YEAR 2002


PURPOSE OF THE PLAN

August Technology's Annual Incentive Plan (AIP) is established to provide a
bonus to participants who meet annual corporate performance goals.

ELIGIBILITY FOR PLAN

-     The CEO will propose the eligible participants prior to the beginning of
      each calendar year. The Plan is generally intended for Officers, Vice
      Presidents, CTO, Chief Engineer, Directors and managers, as well as any
      other key employees such as key technical personnel.

-     The Compensation Committee will review and approve the listing provided by
      the CEO at the beginning of the Plan year, subject to final approval by
      the Board of Directors.

-     Participant must be employed at the end of the plan year to receive their
      respective bonus.

-     Provisions are included in the plan to cover issues of death or
      disability.

DETERMINATION OF THE AWARD

The Bonus will be calculated based upon two measures: (1) satisfaction of the
operating margin target; and (2) satisfaction of the revenue target, as
determined by the plan matrix (shown below).

         The Bonus is calculated based on the following Plan Matrix:

<TABLE>
<CAPTION>
                                                  Revenue (millions)
         ------------------------------------------------------------------------------------
         Operating      >$32.5     $34.6     $36.5      $38.4     $40.3     $42.2       $44.1
         Margin.
         ------------------------------------------------------------------------------------
<S>                     <C>        <C>       <C>        <C>       <C>       <C>         <C>
         >4.7%          55%        65%       75%        80%       85%       90%         92.5%
         ------------------------------------------------------------------------------------
         5.2%           60%        70%       80%        85%       90%       95%         97.5%
         ------------------------------------------------------------------------------------
         5.7 %          65%        75%       85%        100%      110%      120%        130%
         ------------------------------------------------------------------------------------
         6.2%           70%        80%       90%        105%      115%      125%        135%
         ------------------------------------------------------------------------------------
         6.7%           75%        85%       95%        110%      120%      130%        140%
         ------------------------------------------------------------------------------------
         7.1%           77.5%      92.5%     97.5%      115%      125%      135%        145%
         ------------------------------------------------------------------------------------
</TABLE>

         The participant will receive a percent of the target bonus based upon
         the satisfaction of the revenue and operating margin targets as set
         forth in the Plan Matrix. There is no interpolation between the points
         on the Plan Matrix (i.e., each is defined as a distinct achievement).



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If the Company does not achieve the minimum performance levels to participate in
the above bonus structure:

      1)    AND its revenue growth rate is equal to or greater than the
            Worldwide Semiconductor Capital Equipment annual revenue growth rate
            for 2002, as reported by DATAQUEST,

      2)    AND the company generates positive EBITDA;

then the following Alternative Matrix will be used to determine the
Participant's Bonus.

<TABLE>
<CAPTION>
                           -----------------------
                           Percentage        % of
                           Points Above      Target
                           Industry          Bonus
                           -----------------------
<S>                                          <C>
                           0 to 5 pts.       22.5%
                           -----------------------
                           6 to 10 pts       25%
                           -----------------------
                           11 to 15 pts      27.5%
                           -----------------------
                           16 to 20 pts      30%
                           -----------------------
                           21 to 25 pts      32.5%
                           -----------------------
                           >25 pts.          35%
                           -----------------------
</TABLE>


PAYMENT OF AWARD

-     Participant's Bonus will be equal to XX % of their annual base salary as
      defined above by the Plan Matrix or the Alternative Matrix . Subject to
      Board of Director approval, August Technology may propose an early partial
      payment ("Partial Bonus") of Participant's bonus equal to 30% of the
      Participant's Bonus, and where such Partial Bonus is paid, the Participant
      shall only be entitled to the Remaining Bonus defined as the remaining 70%
      of Participant's Bonus. Each participant will have the option to receive
      the Bonus in the following manner (and where a Partial Bonus and thus
      Remaining Bonus are paid, each shall calculated pro-rata):

            (1)   100% stock options*

            (2)   50% cash and 50% stock options**

            (3)   Any participant with 5% or greater ownership, at December 31,
                  2002, will be awarded 100% cash

These stock options are fully vested at the time of grant. All stock option
grants are subject to Board of Director approval. Should the Board of Directors
decide not to grant the options, participants will receive 100% Cash.

*For 100% Incentive Stock Options, the number of Incentive Stock Options to be
granted is calculated by dividing the total dollar value of the bonus by the
closing stock price as of February 28, 2003 (or October 15, 2002 for the Partial
Bonus, if any), and then multiplying by three.

**The number of Incentive Stock Options to be granted, is calculated by dividing
50% of the total bonus by the closing stock price as of February 28, 2003 (or
October 15, 2002 for the Partial Bonus, if any), and then multiplying by three.

VALUATION OF STOCK OPTIONS AWARDED

-     Valuation will be based on the closing stock price on February 28, 2003
      (or October 15, 2002 for the Partial Bonus, if any).

TAX AND CASH FLOW CONSIDERATION

-     Bonus or Remaining Bonus awards will be paid not later than 2 -1/2 months
      after the close of August Technology's fiscal year, except for the Partial
      Bonus which will be paid later than October 30, 2002.


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CHANGE IN CONTROL  (FOR CEO/PRESIDENT, OFFICERS, CTO, CHIEF ENGINEER AND VP'S)

-     If >50% of the Company is sold during the year, and the participant is
      negatively impacted by the change of control as outlined below, then all
      Bonuses will be paid in full at 100% of target at the date of the change
      of control. Negative impacts include:

      -     Termination of employment

      -     Participant's status within the Company is adversely changed

      -     Or, the participant's salary is substantially reduced.


TIER STRUCTURE FOR ANNUAL INCENTIVE PLAN (AIP) PARTICIPANTS:


<TABLE>
<CAPTION>
        --------------------------------------------------------------------------------------------------
                              % OF         COMPONENTS OF
              TIER            BASE       ANNUAL INCENTIVE           SELECTIONS           CHANGE OF CONTROL
                             SALARY          PLAN (AIP)              AVAILABLE              PROVISION?
        --------------------------------------------------------------------------------------------------
<S>                          <C>         <C>                    <C>                      <C>
              CEO
          (co-founder)         90%        100% Corporate             100% Cash                 Yes
        --------------------------------------------------------------------------------------------------
            Officers           80%        100% Corporate        50%Cash/Options or             Yes
                                                                    100% Options
        --------------------------------------------------------------------------------------------------
              VP's             70%        100% Corporate        50%Cash/Options or             Yes
                                                                    100% Options
        --------------------------------------------------------------------------------------------------
        CTO, Chief Engr.       50%        100% Corporate             100% Cash                 Yes
         (co-founders)
        --------------------------------------------------------------------------------------------------
           Directors           35%        100% Corporate        50%Cash/Options or             No
                                                                    100% Options
        --------------------------------------------------------------------------------------------------
            Managers           20%        100% Corporate        50% Cash/Options or            No
                                                                    100% Options
        --------------------------------------------------------------------------------------------------
</TABLE>



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