Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Agreement is entered into by and between August
Technology Corporation (“August Technology ” or the “Company”), a Minnesota
corporation, with its principal place of business at 4900 West 78th
Street, Bloomington, Minnesota 55435, and Lynn Davis of 6405 Harold Woods Lane,
Edina, MN 55436 (“Employee”).

 

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

 

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

 

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

 

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

 

1.             Employment.  August
Technology agrees to employ or continue to employ Employee, effective March 30,
2005, and Employee accepts employment or continued employment, upon the terms
and conditions set forth in this Agreement.

 

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

 

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

 

4.             Compensation.  August
Technology shall pay Employee a gross annual salary as set forth in Exhibit A
as “Base Salary”, less appropriate payroll deductions.  Employee may also receive incentive
compensation in accordance with the Annual Incentive Plan, as issued and as may
change from time to time by the Company, or any other similar plan authorized
by the Board of Directors.  Employee’s
compensation may be periodically increased or adjusted as authorized by

 

 

the Board of Directors in the case of the Chief Executive Officer, or,
in the case of all others, as recommended by the Chief Executive Officer and
approved by the Board of Directors.

 

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

 

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

 

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

 

8.             Termination. 
Employee’s employment under this Agreement may be terminated:

 

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

 

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

 

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

 

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

 

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

 

(iii)          Employee’s
conviction of a crime, or commission

of any act involving moral turpitude;

 

(iv)                              Any material default or nonperformance of
the terms of this Agreement, or any violation of 

 

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                                                Paragraphs 10, 11, 12, 14 and/or 15 of
this Employment Agreement; or

 

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

 

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

 

9.             Change in Control.  If, within 12
months following a Change in Control (as defined below), Employee’s employment
is terminated (as defined below), then:

 

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

 

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

 

 

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

 

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(d)                                 Limitation on Change of
Control Payments.  Employee shall not be entitled to receive any
Change of Control Action, as defined below, which would constitute an “excess
parachute payment” for purposes of Code Section 280G, or any successor
provision, and the regulations thereunder. 
In the event any Change of Control Action payable to Employee would
constitute an “excess parachute payment,” then the acceleration of the
exercisability of such stock options and the payments to such Participant
pursuant to this Paragraph 9 shall be reduced to the largest extent or amount
as will result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code.  For
purposes of this Paragraph 9, a “Change of Control Action” shall mean any
payment, benefit or transfer of property in the nature of compensation paid to
or for the benefit of Employee under any arrangement which is considered
contingent on a Change of Control for purposes of Code Section 280G, including,
without limitation, any and all salary, bonus, incentive, restricted stock,
stock option, compensation or benefit plans, programs or other arrangements,
and shall include benefits payable under this Agreement.

 

(e)                                  Change of Control. 
For purposes of this Agreement, “Change of Control” shall mean any of
the following events occurring after the date of this Agreement:

 

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

 

(2)                                  The acquisition of direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Company by any person or entity or by a group
of associated persons or entities acting in concert in one or a series of
transactions, which causes the aggregate beneficial ownership of such

 

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                                                person, entity or group to equal or
exceed twenty percent (20%) or more of the total combined voting power of all
classes of the Company’s then issued and outstanding securities;

 

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

 

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

 

(5)                                  A change in the composition of the Board
of the Company at any time during any consecutive twenty-four (24) month
period such that the “Continuity Directors” no longer constitute at least a
seventy percent (70%) majority of the Board. For purposes of this event, “Continuity
Directors” means (i) those members of the Board who were directors at the
beginning of such consecutive twenty-four (24) month period or at the
date of this Agreement if this Agreement was entered into less than twenty-four
months prior to the change in composition of the Board; and (ii) any new
director whose election to the Board of Directors or nominations for election
to the Board of Directors was approved by a vote of at least two-thirds (2/3)
of the directors identified in the immediately preceding clause (i).

 

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

 

(f)                                    Termination.  For purposes of this Paragraph 9, “Termination”
shall mean any of the following events occurring within 12 months after a
Change of Control:

 

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

 

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                                                and without any
reasonable belief that Employee’s action or omission were in the best interests
of the Company; or

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)                                  Directly or
indirectly solicit, on Employee’s own behalf, or on behalf of another, any of
August Technology’s or any subsidiary’s customers or potential customers with
whom Employee or Employee’s supervisees had contact, either directly or
indirectly, within the twelve months immediately

 

7

 

                                                preceding Employee’s
resignation or termination of employment, for the purpose of providing,
selling, or attempting to sell any products or services competing with those
provided or sold by August Technology or any subsidiary, or clearly
contemplated thereby due to research, development, engineering, applications,
licensing, or other like projects in process, at the time of resignation or
termination; or

 

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

 

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

 

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

 

This Agreement does not obligate Employee to assign to
August Technology any invention, discovery, improvement or design for which no
equipment, supplies, facility or trade secret information of August Technology
or any subsidiary was used and which was developed entirely on Employee’s own
time, and (1) which does not relate (a) directly to the business of August
Technology or any subsidiary, or (b) to August Technology’s or any subsidiary’s
actual or demonstrably anticipated research or development, or (2) which does
not result from any work performed by Employee for August Technology or any
subsidiary.

 

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

 

8

 

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

 

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

 

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

 

17.          Other Agreements.  By Employee’s signature to this Agreement,
Employee warrants that he/she is not subject to any employment, noncompetition,
confidentiality, inventions or other obligations or agreements which would
prevent or restrict the Employee in any way from accepting employment with
August Technology and fully performing his/her duties and responsibilities as
described in this Agreement.  Employee,
by his/her signature to this Agreement, further warrants that he/she has not taken
and will not take any trade secret, proprietary or

 

9

 

confidential information of any former employer, and will not use or
disclose any such information to anyone in the performance of duties and responsibilities
under this Agreement.

 

18.          Successors and Assigns.  This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of August Technology.

 

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

 

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

 

General Counsel

August Technology Corporation

4900 West 78th Street

Bloomington, MN 55435

 

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

 

Lynn Davis

6405 Harold Woods Lane

Edina, MN 55436

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

	
   

  	
  AUGUST TECHNOLOGY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated: March 24, 2005

  	
  By 

  	
  /s/ David Klenk

  	
   

  
	
   

  	
   

  	
  Its President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated: March 23, 2005

  	
  By 

  	
  /s/ Lynn J. Davis

  	
   

  
	
   

  	
   

  	
  Employee

  	
   

  

 

11

 

EXHIBIT
A

 

 

	
  Employee’s Name

  	
  =

  	
  Lynn Davis

  
	
   

  	
   

  	
   

  
	
  Employee’s Title

  	
  =

  	
  President and Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
  Manager

  	
  =

  	
  Jeff O’Dell

  
	
   

  	
   

  	
   

  
	
  Base Salary

  	
  =

  	
  $300,000

  
	
   

  	
   

  	
   

  
	
  Severance Period

  	
  =

  	
  12 MONTHS

  
	
   

  	
   

  	
   

  
	
  Change In Control Severance Period

  	
  =

  	
  9 MONTHS (if termination takes place during the
  first 12 months of employment)

  
	
   

  	
  =

  	
  18 MONTHS (if termination takes place after first 12
  months of employment)

  
	
   

  	
   

  	
   

  
	
  Exempted Inventions

  	
  =

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Initials of approval:

  	
  AUGUST TECHNOLOGY CORP.

  	
  /s/ DK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EMPLOYEE

  	
  /s/ LJD

  	
   

  
							

 

12Exhibit 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.

 

1

 

	
  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

 

2

 

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.

 

3

 

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.

 

4

 

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.

 

5

 

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.

 

6

 

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

  	
   

  

 

7

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