**EXHIBIT10.2**

 

**INCENTIVESTOCK OPTION AGREEMENT**

 

This AGREEMENT, enteredinto and effective as of _________________________ (the “Date of Grant”), byand between August_Technology Corporation (the “Company”) and ______________________(the “Optionee”).

 

**RECITALS**

 

A.            TheCompany has adopted the 1997 Stock Incentive Plan (the “Plan”) authorizing theBoard of Directors of the Company, or a committee as provided for in the Plan(the Board or such a committee to be referred to as the “Committee”), to grantincentive stock options to eligible employees of the Company, which optionswill qualify as “incentive stock options” within the meaning of Section 422of the Internal Revenue Code of 1986, as amended (the “Code”).

 

B.            TheCompany desires to give the Optionee an inducement to acquire a proprietaryinterest in the Company and an added incentive to advance the interests of theCompany by granting to the Optionee an option to purchase shares of commonstock of the Company.

 

**AGREEMENT**

 

Accordingly, the partieshereto agree as follows:

 

**ARTICLE I.  GRANT OF OPTION**

 

The Company hereby grantsto the Optionee the right, privilege, and option (the “Option”) to purchase _________________(________) shares (the “Option Shares”) of the Company’s common stock, $.01 parvalue (the “Common Stock”), according to the terms and subject to theconditions hereinafter set forth and as set forth in the Plan.  The Option is intended to be an “incentivestock option,” as that term is used in Section 422 of the Code.

 

**ARTICLE II.  OPTION EXERCISE PRICE**

 

The per share price to bepaid by Optionee in the event of an exercise of the Option shall be _____________________1/1000ths dollars ($___________ ).

 

**ARTICLE III.  DURATION OF OPTION AND TIMEOF EXERCISE**

 

A.            InitialPeriod of Exercisability.  The Optionshall become exercisable with respect to the Option Shares in ________________________equal installments. The following table sets forth the initial dates ofexercisability of each installment and the cumulative number of Option Sharesas to which this Option shall become exercisable on such dates, provided thatthis Option shall become so exercisable on such dates only if the Optionee hascontinuously served as an employee of the Company since the Date of Grant.

 
| **Initial  Date of  Exercisability** | ** ** | **Number of Option Shares  Available for Exercise** |
|--------------------------------------|------------|-----------------------------------------------------|
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |

 

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

 

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B.            Terminationof Employment Due to Death, Disability or Retirement.  In the event the Optionee’s employment isterminated 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 totaldisability within the meaning of Section 22(e)(3) of the Code (“Disability”),or retirement pursuant to and in accordance with the regular retirement plan orpractice of the Company or the Subsidiary employing the Optionee (“Retirement”),the Option may be exercised in whole or in part before (a) the expiration ofthree months, in the case of Retirement, and one year, in the case of death orDisability, after such date of termination, or (b) the Time of Termination,whichever shall first occur.

 

C.            Terminationof 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 Companyand all of its Subsidiaries for any reason other than death, Disability orRetirement, all rights of the Optionee hereunder shall terminate at the closeof business on the _____________________ day after the date of termination ofOptionee’s employment, except under no circumstances shall this option beexercisable after the Time of Termination.

 

D.            Changein Control.

 

(i)            For purposes of this Section III.D., the term “Change in Control” shall have the meaning set forth in Section 11of the Plan.

 

(ii)           If any eventsconstituting a Change in Control of the Company shall occur, the terms of thePlan govern any acceleration of the right to exercise this Option prior to theanticipated effective date of any Change in Control, provided that shouldacceleration not occur under the terms of the Plan, Optionee shall be entitledto receive option rights covering shares of the surviving or acquiring entityin the same proportion, at an equivalent price, and subject to the sameconditions as this Option; and provided, however, that if, with respect to theOptionee, acceleration of the vesting of this Option as provided herein (whichacceleration could be deemed a payment within the meaning of Section 280G(b)(2)of the Code) together with any other payments which the Optionee has the rightto receive from the Company or any corporation which is a member of an “affiliatedgroup” (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 “parachutepayment” (as defined in Section 280G(b)(2) of the Code), the payments tothe Optionee as set forth herein shall be reduced to the largest amount as willresult in no portion of such payments being subject to the excise tax imposedby Section 4999 of the Code.

 

**ARTICLE IV.  MANNER OF OPTION EXERCISE**

 

A.            Notice.  This Option may be exercised by the Optioneein whole or in part from time to time, subject to the conditions contained inthe Plan and herein, by delivery, in person, by registered mail, or by suchother means directed by the Company, including electronic delivery, to theCompany at its principal executive office (Attention: Chief Financial Officer),of a written notice of exercise.  Suchnotice shall be in a form satisfactory to the Committee, shall identify theOption, shall specify the number of Option Shares with respect to which theOption is being exercised, and if such notice is in written form, shall besigned by the person or persons so exercising the Option.  Such notice shall be accompanied by paymentin full of the total purchase price of the Option Shares purchased, as providedby Section IV. B. below.  In theevent that the Option is being exercised, as provided by the Plan and Section III.B. above, by any person or persons other than the Optionee, the notice shall beaccompanied by appropriate proof of right of such person or persons to exercisethe Option.  As soon as practicable afterthe effective exercise of the Option, the Optionee shall be recorded on thestock transfer books of the Company as the owner of the Option Shares purchased,and the Company shall deliver the Option Shares to the Optionee by electronicmeans or by delivering one or more duly issued stock certificates evidencingsuch ownership.

 

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

 

C.            InvestmentPurpose; Stock Transfer Restrictions. The Company shall not be required to issue or deliver any shares ofCommon Stock under this Option unless (a)(1) such shares are covered by aneffective and current registration statement under the Securities Act of 1933and applicable state securities laws or (2) if the Committee has determined notto so register such shares, exemptions from registration under the SecuritiesAct of 1933 and applicable state securities laws are available for suchissuance (as determined by counsel to the Company) and the Company has receivedfrom the Optionee (or, in the event of death or disability, the Optionee’sheir(s) or legal representative(s)) any representations or agreements requestedby 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 anystate or federal governmental agency which the Committee shall, in its solediscretion upon the advice of counsel, deem necessary or advisable.  Unless a registration statement under theSecurities Act of 1933 is in effect with respect to the issuance or transfer ofOption Shares, each certificate representing any such shares shall be endorsedwith a legend in substantially the following form, unless counsel for the Companyis of the opinion as to any such certificate that such legend is unnecessary:

 

THE SECURITIES EVIDENCEDHEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THEACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES HAVE BEEN ACQUIRED FORINVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED,PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN EXEMPTIONFROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF WHICHIS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.

 

**ARTICLE V.  NONTRANSFERABILITY**

 

This Option shall not betransferable by the Optionee, either voluntarily or involuntarily, or subjectto any lien, directly or indirectly, by operation of law or otherwise, exceptas provided in Section 8.2 of the Plan. Any attempt to transfer or encumber this Option other than in accordancewith Section 8.2 of the Plan shall void this Option.

 

**ARTICLE VI.  LIMITATION OF LIABILITY**

 

Nothing in this Agreementshall be construed to (a) limit in any way the right of the Company or any ofits Subsidiaries to terminate the status of the Optionee as an employee of theCompany 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 theOptionee in any particular position, at any particular rate of compensation orfor any particular period of time.

 

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**ARTICLE VII.  DISPOSITION OF STOCK**

 

Prior to making adisposition (as defined in Section 424(c) of the Code) of any shares ofCommon Stock acquired pursuant to the exercise of this Option before theexpiration of two years after the Date of Grant or before the expiration of oneyear after the date on which such shares of Common Stock were transferred tothe Optionee pursuant to exercise of this Option, the Optionee shall sendwritten notice to the Company of the proposed date of such disposition, thenumber of shares to be disposed of, the amount of proceeds to be received fromsuch disposition and any other information relating to such disposition thatthe Company may reasonably request.  Theright of the Optionee to make such a disposition shall be conditioned on thereceipt by the Company of all amounts necessary to satisfy any federal, stateor local withholding tax requirements. The Committee shall have the right, in its sole discretion, to endorsethe certificates representing the Option Shares with a legend restrictingtransfer and to cause a stop transfer order to be entered with the Company’stransfer agent until such time as the Company receives the amounts necessary tosatisfy such withholding requirements or until the later of the expiration oftwo years from the Date of Grant or one year from the date on which such shareswere transferred to the Optionee pursuant to the exercise of this Option.

 

**ARTICLE VIII.  WITHHOLDING TAXES**

 

A.            GeneralObligation.  The Company is entitledto (a) withhold and deduct from future payment to the Optionee, or make otherarrangements for the collection of, all legally required amounts necessary tosatisfy any federal, state or local withholding tax requirements attributable tothe Optionee’s exercise of this Option, including, without limitation, adisposition of shares of Common Stock described in Article VII above, thatcauses this Option to cease to qualify as an “incentive stock option” withinthe meaning of Section 422 of the Code, or (b) require the Optioneepromptly to remit the amount of such withholding to the Company before actingon any such disposition of shares of Common Stock.  In the event that the Company is unable towithhold such amounts, for whatever reason, the Optionee hereby agrees to payto the Company an amount equal to the amount the Company would otherwise berequired to withhold under federal, state or local law.

 

B.            Useof Shares.  The Committee may, in itssole discretion and subject to such rules as the Committee may adopt, permitthe Optionee to satisfy, in whole or in part, any withholding tax obligationwhich may arise in connection with the exercise of this Option either byelecting to have the Company withhold from the shares of Common Stock to beissued 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 the Plan)on the date such tax is determined under the Code (the “Tax Date”) equal to theamount necessary to satisfy the statutory minimum withholding amount due.  The Optionee’s election to have the Companywithhold shares of Common Stock or to deliver already-owned shares of CommonStock upon exercise is irrevocable and is subject to the consent or disapprovalof the Committee.  If the Optionee is anofficer, director or beneficial owner of more than 10% of the outstandingCommon Stock of the Company and at the time of exercise of this Option theCompany has a class of equity securities registered under Section 12 ofthe Securities Exchange Act of 1934, such election may not be made within sixmonths of the Date of Grant (unless the death or Disability of the Optioneeoccurs prior to the expiration of such six-month period), and must be madeeither six months prior to the Tax Date or between the third and twelfthbusiness days following public release of any of the Company’s quarterly orannual summary earnings statements.  Tothe extent that shares of Common Stock may be issued prior to the Tax Date tothe Optionee making such an election, the Optionee hereby agrees to surrenderthat number of shares on the Tax Date having an aggregate Fair Market Value(determined as set forth in the Plan) equal to the amount of withholding taxdue.  In no event may the Companywithhold or accept shares having a Fair Market Value in excess of the statutoryminimum required tax withholding.

 

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**ARTICLE IX.  CAPITAL ADJUSTMENTS**

 

If the number ofoutstanding shares of Common Stock is increased or decreased or changed into orexchanged for a different number or kind of shares of stock or other securitiesof the Company or of another corporation by reason of any reorganization,merger, consolidation, recapitalization, reclassification, stock split, reversestock split, stock dividend, combination of shares, rights offering or anyother 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 preventdilution or enlargement of the rights of the Optionee, shall make appropriateadjustment as to the number and kind of securities subject to this Option.  Any such adjustment affecting this Optionshall be made without change in the aggregate purchase price applicable to theunexercised portion of the Option but with an appropriate adjustment in theprice for each share or other unit of any security subject to the Option.  Without the consent of the Optionee, however,no such change shall be made in the terms of the Option if such change woulddisqualify the Option from treatment as an “incentive stock option” within themeaning 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 X.  BINDING EFFECT**

 

This Agreement shall bebinding upon the heirs, executors, administrators and successors of the partieshereto.

 

**ARTICLE XI.  SUBJECT TO PLAN**

 

The Option represented bythis Agreement has been granted under, and is subject to the terms of, thePlan.  The terms of the Plan are herebyincorporated by reference herein in their entirety and the Optionee, byexecution hereof, acknowledges having received a copy of the Plan.  The provisions of this Agreement shall beinterpreted as to be consistent with the Plan and any ambiguities herein shallbe interpreted by reference to the Plan. In the event that any provision hereof is inconsistent with the terms ofthe Plan, the Plan shall prevail.

 

**ARTICLE XII.  GOVERNING LAW**

 

This Agreement and allrights and obligations hereunder shall be construed in accordance with the Planand governed by the laws of the State of Minnesota.

 

The parties hereto haveexecuted this Agreement effective the day and year first above written.

 
|                          | AUGUST TECHNOLOGY  CORPORATION |
|-------------------------------|-------------------------------------|
|                          |                                |
|                          |                                |
|                          | By                                  |   |   |
|                          |                                |
|                          | Its                                 |   |   |
|                          |                                |
|                          |                                |
| By execution hereof,  the     | OPTIONEE                            |
| Optionee acknowledges  having |                                |
| received a copy of the  Plan. |                                |   |
|                               |                                     |  |  |  |  |

 

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**NON-STATUTORYSTOCK OPTION AGREEMENT**

 

This AGREEMENT, enteredinto and effective as of ___________________ (the “Date of Grant”), by andbetween August Technology Corporation (the “Company”) and ___________________________________(the “Optionee”).

 

**RECITALS:**

 

A.            TheCompany has adopted the 1997 Stock Incentive Plan (the “Plan”) authorizing theBoard of Directors of the Company, or a committee as provided for in the Plan(the Board or such a committee to be referred to as the “Committee”), to grantnon-statutory stock options to eligible employees, non-employee directors andconsultants of the Company.

 

B.            TheCompany desires to give the Optionee an inducement to acquire a proprietaryinterest in the Company and an added incentive to advance the interests of theCompany by granting to the Optionee an option to purchase shares of commonstock of the Company.

 

**AGREEMENT:**

 

Accordingly, the partieshereto agree as follows:

 

**ARTICLE I.  GRANT OF OPTION.**

 

The Company hereby grantsto the Optionee the right, privilege, and option (the “Option”) to purchase _________________(____________) shares (the “Option Shares”) of the Company’s common stock, $.01par value (the “Common Stock”), according to the terms and subject to theconditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentivestock option,” as that term is used in Section 422 of the Internal RevenueCode of 1986, as amended (the “Code”).

 

**ARTICLE II.  OPTION EXERCISE PRICE.**

 

The per share price to bepaid by Optionee in the event of an exercise of the Option shall be__________________1/1000ths dollars ($____________).

 

**ARTICLE III.  DURATION OF OPTION**

**AND TIMEOF EXERCISE.**

 

A.            InitialPeriod of Exercisability.  The Optionshall become exercisable with respect to the Option Shares in __________ equalinstallments.  The following table setsforth the initial dates of exercisability of each installment and thecumulative number of Option Shares as to which this Option shall becomeexercisable on such dates, provided that this Option shall become soexercisable on such dates only if the Optionee has continuously served as anemployee, non-employee director or consultant of the Company since the Date ofGrant.

 
| **Initial  Date of  Exercisability** | ** ** | **Number of Option Shares  Available for Exercise** |
|--------------------------------------|------------|-----------------------------------------------------|
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |
| ** **                           | ** ** | ** **                                          |

 

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

 

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B.            Terminationof Employment or Consulting Relationship Due to Death, Disability or Retirement.  In the event the Optionee’s employment orconsulting relationship is terminated with the Company and all of itsSubsidiaries (within the meaning of Section 424(f) of the Code) by reasonof death, an event that constitutes permanent and total disability within themeaning of Section 22(e)(3) of the Code (“Disability”), or retirementpursuant to and in accordance with the regular retirement plan or practice ofthe Company or the Subsidiary employing the Optionee (“Retirement”), the Optionmay 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 shallfirst occur.

 

C.            Terminationof Employment or Consulting Relationship for Reasons Other Than Death, Disabilityor Retirement.  Except as provided inSection III. D. below, in the event the Optionee’s employment orconsulting relationship is terminated with the Company and all of itsSubsidiaries for any reason other than death, Disability or Retirement, allrights of the Optionee hereunder shall terminate at the close of business ______________________day after the date of termination of Optionee’s employment or consultingrelationship, except under no circumstances shall this option be exercisableafter the Time of Termination.

 

D.            Changein Control.

 

(i)            For purposes of this Section III.D.,the term “Change in Control” shall have the meaning set forth in Section 11of the Plan.

 

(ii)           If any eventsconstituting a Change in Control of the Company shall occur, the terms of thePlan govern any acceleration of the right to exercise this Option prior to theanticipated effective date of any Change in Control, provided that shouldacceleration not occur under the terms of the Plan, Optionee shall be entitledto receive option rights covering shares of the surviving or acquiring entityin the same proportion, at an equivalent price, and subject to the sameconditions as this Option; and provided, however, that if, with respect to theOptionee, acceleration of the vesting of this Option as provided herein (whichacceleration could be deemed a payment within the meaning of Section 280G(b)(2)of the Code) together with any other payments which the Optionee has the rightto receive from the Company or any corporation which is a member of an “affiliatedgroup” (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 “parachutepayment” (as defined in Section 280G(b)(2) of the Code), the payments tothe Optionee as set forth herein shall be reduced to the largest amount as willresult in no portion of such payments being subject to the excise tax imposedby Section 4999 of the Code.

 

**ARTICLE IV.  MANNER OF OPTION EXERCISE.**

 

A.            Notice.  This Option may be exercised by the Optioneein whole or in part from time to time, subject to the conditions contained inthe Plan and herein, by delivery, in person, by registered mail, or by suchother means directed by the Company, including electronic delivery, to theCompany at its principal executive office (Attention: Chief Financial Officer),of a written notice of exercise.  Suchnotice shall be in a form satisfactory to the Committee, shall identify theOption, shall specify the number of Option Shares with respect to which theOption is being exercised, and if such notice is in written form, shall besigned by the person or persons so exercising the Option.  Such notice shall be accompanied by paymentin full of the total purchase price of the Option Shares purchased, as providedby Section IV. B. below.  In theevent that the Option is being exercised, as provided by the Plan and Section III.B. above, by any person or persons other than the Optionee, the notice shall beaccompanied by appropriate proof of right of such person or persons to exercisethe Option.  As soon as practicable afterthe effective exercise of the Option, the Optionee shall be recorded on thestock transfer books of the Company as the owner of the Option Sharespurchased, and the Company shall deliver the Option Shares to the Optionee byelectronic means or by delivering one or more duly issued stock certificatesevidencing such ownership.

 

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

 

C.            InvestmentPurpose; Stock Transfer Restrictions. The Company shall not be required to issue or deliver any shares ofCommon Stock under this Option unless (a)(1) such shares are covered by aneffective and current registration statement under the Securities Act of 1933and applicable state securities laws or (2) if the Committee has determined notto so register such shares, exemptions from registration under the SecuritiesAct of 1933 and applicable state securities laws are available for suchissuance (as determined by counsel to the Company) and the Company has receivedfrom the Optionee (or, in the event of death or disability, the Optionee’sheir(s) or legal representative(s)) any representations or agreements requestedby the Company in order to permit such issuance to be made pursuant to suchexemptions, and (b) the Company has obtained any other consent, approval orpermit from any state or federal governmental agency which the Committee shall,in its sole discretion upon the advice of counsel, deem necessary oradvisable.  Unless a registrationstatement under the Securities Act of 1933 is in effect with respect to theissuance or transfer of Option Shares, each certificate representing any suchshares shall be endorsed with a legend in substantially the following form,unless counsel for the Company is of the opinion as to any such certificatethat such legend is unnecessary:

 

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

 

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**ARTICLE V.  NONTRANSFERABILITY.**

 

This Option shall not betransferable by the Optionee, either voluntarily or involuntarily, or subjectto any lien, directly or indirectly, by operation of law or otherwise, exceptas provided in Section 8.2 of the Plan. Any attempt to transfer or encumber this Option other than in accordancewith Section 8.2 of the Plan shall void this Option.

 

**ARTICLE VI.  LIMITATION OF LIABILITY.**

 

Nothing in this Agreementshall be construed to (a) limit in any way the right of the Company or any ofits Subsidiaries to terminate the status of the Optionee as an employee, nonemployee director or consultant of the Company at any time, or (b) be evidenceof any agreement or understanding, express or implied, that the Company or anyof its Subsidiaries will employ the Optionee in any particular position, at anyparticular rate of compensation or for any particular period of time.

 

**ARTICLE VII.  WITHHOLDING TAXES.**

 

A.            GeneralObligation.  The Company is entitledto (a) withhold and deduct from future payment to the Optionee, or make otherarrangements for the collection of, all legally required amounts necessary tosatisfy any federal, state or local withholding tax requirements attributableto the Optionee’s exercise of this Option or otherwise incurred with respect tothis Option, or (b) require the Optionee promptly to remit the amount of suchwithholding to the Company before acting on any such disposition of shares ofCommon Stock.  In the event that theCompany is unable to withhold such amounts, for whatever reason, the Optioneehereby agrees to pay to the Company an amount equal to the amount the Companywould otherwise be required to withhold under federal, state or local law.

 

B.            Useof Shares.  The Committee may, in itssole discretion and subject to such rules as the Committee may adopt, permitthe Optionee to satisfy, in whole or in part, any withholding tax obligationwhich may arise in connection with the exercise of this Option either byelecting to have the Company withhold from the shares of Common Stock to beissued 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 the Plan)on the date such tax is determined under the Code (the “Tax Date”) equal to theamount necessary to satisfy the statutory minimum withholding amount due.  The Optionee’s election to have the Companywithhold shares of Common Stock or to deliver already-owned shares of CommonStock upon exercise is irrevocable and is subject to the consent or disapprovalof the Committee.  If the Optionee is anofficer, director or beneficial owner of more than 10% of the outstandingCommon Stock of the Company and at the time of exercise of this Option theCompany has a class of equity securities registered under Section 12 ofthe Securities Exchange Act of 1934, such election may not be made within sixmonths of the Date of Grant (unless the death or Disability of the Optioneeoccurs prior to the expiration of such six-month period), and must be madeeither six months prior to the Tax Date or between the third and twelfthbusiness days following public release of any of the Company’s quarterly orannual summary earnings statements.  Tothe extent that shares of Common Stock may be issued prior to the Tax Date tothe Optionee making such an election, the Optionee hereby agrees to surrenderthat number of shares on the Tax Date having an aggregate Fair Market Value(determined as set forth in the Plan) equal to the amount of withholding tax due.  In no event may the Company withhold oraccept shares having a Fair Market Value in excess of the statutory minimumrequired tax withholding.

 

**ARTICLE VIII.  CAPITAL ADJUSTMENTS.**

 

If the number of outstanding shares of Common Stock isincreased or decreased or changed into or exchanged for a different number orkind of shares of stock or other securities of the Company or of anothercorporation by reason of any reorganization, merger, consolidation,recapitalization, reclassification, stock split, reverse stock split, stockdividend, combination of shares, rights offering or any other change in thecorporate structure or shares of the Company, the Committee (or, if the Companyis not the surviving corporation in any such transaction, the board of directorsof the surviving corporation), in order to prevent dilution or enlargement ofthe rights of the Optionee, shall make appropriate adjustment as to the numberand kind of securities subject to this Option. Any such adjustment affecting this Option shall be made without changein the aggregate purchase price applicable to the unexercised portion of theOption but with an appropriate adjustment in the price for each share or otherunit 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 changewould disqualify the 

 

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Option from treatment as an “incentive stock option”within the meaning of Section 422 of the Code or would be considered amodification, extension or renewal of an option under Section 425(h) ofthe Code.

 

**ARTICLE IX.  BINDING EFFECT.**

 

This Agreement shall bebinding upon the heirs, executors, administrators and successors of the partieshereto.

 

**ARTICLE X.  SUBJECT TO PLAN.**

 

The Option represented bythis Agreement has been granted under, and is subject to the terms of, thePlan.  The terms of the Plan are herebyincorporated by reference herein in their entirety and the Optionee, by executionhereof, acknowledges having received a copy of the Plan.  The provisions of this Agreement shall beinterpreted as to be consistent with the Plan and any ambiguities herein shallbe interpreted by reference to the Plan. In the event that any provision hereof is inconsistent with the terms ofthe Plan, the Plan shall prevail.

 

**ARTICLE XI.  GOVERNING LAW.**

 

This Agreement and allrights and obligations hereunder shall be construed in accordance with the Planand governed by the laws of the State of Minnesota.

 

The parties hereto haveexecuted this Agreement effective the day and year first above written.

 
|                          | AUGUST TECHNOLOGY  CORPORATION |
|-------------------------------|-------------------------------------|
|                          |                                |
|                          |                                |
|                          | By                                  |   |   |
|                          |                                |
|                          | Its                                 |   |   |
|                          |                                |
|                          |                                |
| By execution hereof,  the     | OPTIONEE                            |
| Optionee acknowledges  having |                                |
| received a copy of the  Plan. |                                |   |
|                               |                                     |  |  |  |  |

 

10

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