Document:

Exhibit
10.1

 

AUGUST TECHNOLOGY
CORPORATION

 

1997 STOCK OPTION PLAN

(Restated to Include Amendments and
Stock Adjustments Through July 29, 2003)

 

ARTICLE 1.  ESTABLISHMENT AND PURPOSE

 

1.1  ESTABLISHMENT.  August Technology Corporation (the “Company”) hereby
establishes a plan providing for the grant of stock options to certain eligible
employees, directors and consultants of the Company and its subsidiaries.  This plan shall be known as the 1997 Stock
Option Plan (the “Plan”).

 

1.2  PURPOSE. 
The purpose of the Plan is to advance the interests of the Company and
its shareholders by enabling the Company to attract and retain persons of
ability as employees, directors and consultants, by providing an incentive to
such individuals through equity participation in the Company and by rewarding
such individuals who contribute to the achievement by the Company of its
long-term economic objectives.

 

ARTICLE 2.  DEFINITIONS

 

The following terms shall
have the meanings set forth below, unless the context clearly otherwise
requires:

 

2.1  “BOARD” means the Board of Directors of the
Company.

 

2.2  “CHANGE IN CONTROL” means an event described
in Article 11 below.

 

2.3  “CODE” 
means the Internal Revenue Code of 1986, as amended.

 

2.4  “COMMITTEE” means the entity administering
the Plan, as provided in Article 3 below.

 

2.5  “COMMON STOCK” means the common stock of the
Company, par value $.01 per share, or the number and kind of shares of stock or
other securities into which such Common Stock may be changed in accordance with
Section 4.3 below.

 

2.6  “DISABILITY” means the occurrence of an
event which constitutes permanent and total disability within the meaning of
Section 22(e)(3) of the Code.

 

2.7  “ELIGIBLE PERSONS” means individuals who are
(a) salaried employees (including, without limitation, officers and directors
who are also employees) of the Company or one of its Subsidiaries, (b)
Non-Employee Directors, or (c) consultants to the Company.

 

2.8  “EXCHANGE ACT” means the Securities Exchange
Act of 1934, as amended.

 

2.9  “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

 

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reported on the NASDAQ National Market System, the mean between the
reported high and low sale prices of the Common Stock on such exchange or by
the NASDAQ National Market System 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 System, and bid and asked prices therefor in the over-the-counter market
are reported by the NASDAQ System 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 NASDAQ System, 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 listed or
admitted to unlisted trading privileges, or reported on the NASDAQ National
Market System, and bid and asked prices are not reported, 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 shareholders of the
Company, the Optionees 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.

 

2.10 “INCENTIVE STOCK
OPTION” means a right to purchase Common Stock granted to an Optionee pursuant
to Section 6.5 of the Plan that qualifies as an incentive stock option within
the meaning of Section 422 of the Code.

 

2.11 “NON-EMPLOYEE
DIRECTOR” means any member of the Board who is not an employee of the Company
or any Subsidiary.

 

2.12 “NON-STATUTORY STOCK
OPTION means a right to purchase Common Stock granted to an Optionee pursuant
to Section 6.6 of the Plan that does not qualify as an Incentive Stock Option.

 

2.13 “OPTION” means an
Incentive Stock Option or a Non-Statutory Stock Option.

 

2.14 “OPTIONEE” means an
Eligible Person who receives one or more Incentive Stock Options or Non-Statutory
Stock Options under the Plan.

 

2.15 “PERSON” means any
individual, corporation, partnership, group, association or other “person” (as
such term is used in Section 14(d) of the Exchange Act), other than the
Company, a wholly owned subsidiary of the Company or any employee benefit plan
sponsored by the Company.

 

2.16 “RETIREMENT” means
the retirement of an Optionee pursuant to and in accordance with the regular
retirement plan or practice of the Company or the Subsidiary employing the
Optionee.

 

2.17 “SECURITIES ACT”
means the Securities Act of 1933, as amended.

 

2.18 “SUBSIDIARY” means
any corporation that is a subsidiary corporation of the Company (within the
meaning of Section 424(f) of the Code).

 

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2.19 “TAX DATE” means a
date defined in Section 6.5(c) of the Plan.

 

ARTICLE 3.  PLAN ADMINISTRATION

 

The Plan shall be
administered by the Board or by a Committee of the Board consisting of two or
more directors.  In the event the
Company’s securities are registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, each of the members of the Committee shall be
a “Non-Employee Director” within the meaning of Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations under the
Securities Exchange Act of 1934 as amended. 
Members of a Committee, if established, shall be appointed from time to
time by the Board, shall serve at the pleasure of the Board and may resign at
any time upon written notice to the Board. 
A majority of the members of the Committee shall constitute a
quorum.  The Committee shall act by
majority approval of its members, shall keep minutes of its meetings and shall
provide copies of such minutes to the Board. 
Action of the Committee may be taken without a meeting if unanimous
written consent thereto is given. 
Copies of minutes of the Committee’s meetings and of its actions by
written consent shall be provided to the Board and kept with the corporate
records of the Company.  As used in this
Plan, the term “Committee” will refer either to the Board or to such a
Committee, if established.  From and
after the date on which the Company first registers a class of its equity
securities under Section 12 of the Exchange Act, no member of the Committee
shall be eligible, or shall have been eligible at any time within the lesser of
one year or the period since the Company first registered a class of its equity
securities under Section 12 of the Exchange Act, to receive an Incentive Stock
Option or a Non-Statutory Stock Option under the Plan.

 

In accordance with the
provisions of the Plan, the Committee shall select the Optionees from Eligible
Persons; shall determine the number of shares of Common Stock to be subject to
Options granted pursuant to the Plan, the time at which such Options are
granted, the Option exercise price, Option period and the manner in which each
such Option vests or becomes exercisable; and shall fix such other provisions
of such Options as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan. 
The Committee shall determine the form or forms of the agreements with
Optionees which shall evidence the particular terms, conditions, rights and
duties of the Company and the Optionees under Options granted pursuant to the
Plan.  The Committee shall have the
authority, subject to the provisions of the Plan, to establish, adopt and
revise such rules and regulations relating to the Plan as it may deem necessary
or advisable for the administration of the Plan.  With the consent of the Optionee affected thereby, the Committee
may amend or modify the terms of any outstanding Incentive Stock Option or
Non-Statutory Stock Option in any manner, provided that the amended or modified
terms are permitted by the Plan as then in effect.  Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Optionee affected thereby, modify the
exercise price, number of shares or other terms and conditions of an Incentive
Award, extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an Incentive Award,
extend, renew or accept the surrender of any outstanding Incentive Stock Option
or Non-Statutory Stock Option, to the extent not previously exercised, and the
Committee may authorize the grant of new Options in substitution therefor to
the extent not previously exercised.

 

Each determination,
interpretation or other action made or taken by the Committee pursuant to the
provisions of the Plan shall be conclusive and binding for all purposes and on
all persons, including, without limitation, the Company and its Subsidiaries,
the shareholders of the Company,

 

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the Committee and each of the members thereof, the directors, officers
and employees of the Company and its Subsidiaries, and the Optionees and their
respective successors in interest.

 

ARTICLE 4.  SHARES SUBJECT TO THE PLAN

 

4.1  NUMBER. 
The maximum number of shares of Common Stock that shall be reserved for
issuance under the Plan shall be 3,050,000, subject to adjustment upon changes
in capitalization of the Company as provided in Section 4.3 below. The maximum
number of shares authorized may be increased from time to time by approval of
the Board and, if required pursuant to Rule 16b-3, Section 422A of the Code, or
the rules of any securities exchange or the NASD, or the shareholders of the
Company.  Shares of Common Stock that
may be issued upon exercise of Options shall be applied to reduce the maximum
number of shares of Common Stock remaining available for use under the Plan.

 

4.2  UNUSED STOCK.  Any shares of Common Stock that are subject to an Option (or any
portion thereof) that lapses, expires or for any reason is terminated
unexercised shall automatically again become available for use under the Plan.

 

4.3  CHANGE IN SHARES, ADJUSTMENTS, ETC.  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 dividend, stock split,
reverse stock split, 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) shall make appropriate adjustment as to
the number and kind of securities subject to and reserved under the Plan and,
in order to prevent dilution or enlargement of the rights of Optionees, the
number and kind of securities subject to outstanding Options.  Any such adjustment in any outstanding
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 covered by the
Option.  However, no change shall be
made in the terms of any outstanding Incentive Stock Option as a result of any
such change in the corporate structure or shares of the Company, without the
consent of the Optionee affected thereby, that would disqualify that Incentive
Stock Option from treatment under Section 422 of the Code or would be
considered a modification, extension or renewal of an option under Section
424(h) of the Code.

 

ARTICLE 5.  ELIGIBILITY

 

Incentive Stock Options or
Non-Statutory Stock Options shall be granted only to those Eligible Persons
who, in the judgment of the Committee, are performing, or during the term of an
Option, will perform, vital services in the management, operation and
development of the Company or a Subsidiary, and significantly contribute or are
expected to significantly contribute to the achievement of long-term corporate
economic objectives.  Optionees may be
granted from time to time one or more Incentive Stock Options and/or
Non-Statutory Stock Options under the Plan, provided that only employees of the
Company or a Subsidiary may be granted Incentive Stock Options under the Plan,
in any case as may be determined by the Committee in its sole discretion.  The number, type, terms and conditions of
Options granted to various Eligible Persons need not be uniform, consistent or
in accordance with any plan, whether or not such Eligible Persons are similarly
situated. The Committee may grant both an Incentive Stock Option and a
Non-Statutory Stock Option to the same Optionee at the same time or at
different times. Incentive Stock Options

 

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and Non-Statutory Stock Options, whether granted at the same or
different times, shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event will the exercise of one Option affect
the right to exercise any other Option or affect the number of shares of Common
Stock for which any other Option may be exercised.  Upon determination by the Committee that an Option is to be
granted to an Optionee, written notice shall be given such person specifying
such terms, conditions, rights and duties related thereto.  Each Optionee shall enter into an agreement
with the Company, in such form as the Committee shall determine and which is
consistent with the provisions of the Plan, specifying the terms, conditions,
rights and duties of Incentive Stock Options and Non-Statutory Stock Options
granted under the Plan. Options shall be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date shall be the
date of the related agreement with the Optionee.

 

ARTICLE 6.  DURATION AND EXERCISE

 

6.1  MANNER OF OPTION EXERCISE.  An Option may be exercised by an Optionee in
whole or in part from time to time, subject to the conditions contained herein
and in the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office (Attention: 
Secretary), and by paying in full the total Option exercise price for
the shares of Common Stock purchased in accordance with Section 6.3.  Such notice shall be in a form satisfactory
to the Committee and shall specify the particular Option (or portion thereof)
that is being exercised and the number of shares with respect to which the
Option is being exercised.  Subject to
Section 9.1, the exercise of the Option shall be deemed effective upon receipt
of such notice and payment.  As soon as
practicable after the effective exercise of the Option, the Company shall
record on the stock transfer books of the Company the ownership of the shares
purchased in the name of the Optionee, and the Company shall deliver to the
Optionee one or more duly issued stock certificates evidencing such ownership.

 

6.2  METHOD OF PAYMENT OF OPTION EXERCISE
PRICE.  At the time of the exercise of
an Incentive Stock Option or a Non-Statutory Stock Option, the Optionee may
determine whether the total purchase price of the shares to be purchased shall
be paid solely in cash or by transfer from the Optionee to the Company of
previously acquired shares of Common Stock, or by a combination thereof.  In the event the Optionee elects to pay the
purchase price in whole or in part with previously acquired shares of Common
Stock, the value of such shares shall be equal to their Fair Market Value on
the date of exercise.  The Committee may
reject an Optionee’s election to pay all or part of the purchase price with
previously acquired shares of Common Stock and 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 Section 6.2,
“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. 
In its sole discretion, the Committee may determine either at the time
of grant or exercise of an Incentive Stock Option or a Non-Statutory Stock
Option, to permit a Optionee to pay all or any portion of the purchase price by
delivery of a promissory note in form and substance acceptable to the
Committee.

 

6.3  RIGHTS AS A SHAREHOLDER.  The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and
no adjustments shall be made for dividends or other

 

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distributions or other rights as to which there is a record date
preceding the date the Optionee becomes the holder of record except as the
Committee may determine pursuant to Section 4.3.

 

6.4  INCENTIVE STOCK OPTIONS.

 

(a)  INCENTIVE STOCK OPTION EXERCISE PRICE.  The per share price to be paid by the Optionee
at the time an Incentive Stock Option is exercised will be determined by the
Committee, but shall not be less than (i) 100% of the Fair Market Value of one
share of Common Stock on the date the Option is granted, or (ii) 110% of the
Fair Market Value of one share of Common Stock on the date the Option is
granted if, at that time the Option is granted, the Optionee owns, directly or
indirectly (as determined pursuant to Section 424(d) of the Code), more than
10% of the total combined voting power of all classes of stock of the Company,
any Subsidiary or any parent corporation of the Company (within the meaning of
Section 424(e) of the Code).

 

(b)  AGGREGATE LIMITATION OF STOCK SUBJECT TO
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan, the
aggregate Fair Market Value (determined as of the date an Incentive Stock
Option is granted) of the shares of Common Stock with respect to which
incentive stock options (within the meaning of Section 422 of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and any other incentive stock option plans of the Company, any
Subsidiary or any parent corporation of the Company (within the meaning of
Section 424(e) of the Code)) shall not exceed $100,000 (or such other amount as
may be prescribed by the Code from time to time).

 

(c)  DURATION OF INCENTIVE STOCK OPTIONS.  The period during which an Incentive Stock
Option may be exercised shall be fixed by the Committee at the time such Option
is granted, but in no event shall such period exceed ten years from the date
the Option is granted or, in the case of an Optionee that owns, directly or
indirectly (as determined pursuant to Section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of the Company, any
Subsidiary or any parent corporation of the Company (within the meaning of
Section 424(e) of the Code), five years from the date the Incentive Stock
Option is granted.  An Incentive Stock
Option shall become exercisable at such times and in such installments (which
may be cumulative) as shall be determined by the Committee at the time the
Option is granted.  Upon the completion
of its exercise period, an Incentive Stock Option, to the extent not then
exercised, shall expire.  Except as
otherwise provided in Articles 7 or 11, all Incentive Stock Options granted to
an Optionee hereunder shall terminate and may no longer be exercised if the
Optionee ceases to be an employee of the Company and all Subsidiaries or if the
Optionee is an employee of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Optionee continues as an employee of the
Company or another Subsidiary).

 

(d)  DISPOSITION OF COMMON STOCK ACQUIRED
PURSUANT TO THE EXERCISE OF INCENTIVE STOCK OPTIONS.  Prior to making a disposition (as defined in Section 424(c) of
the Code) of any shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option granted under the Plan before the expiration of two
years after the date on which the Option was granted or before the expiration
of one year after the date on which such shares of Common Stock were
transferred to the Optionee pursuant to exercise of the Option, the Optionee
shall send written notice to the Company of the proposed date of such
disposition, the number of shares to be disposed of, the amount of proceeds to
be received from such disposition and any other information relating to such
disposition that the Company may reasonably request.  The right of an Optionee to make any such disposition shall be
conditioned on the receipt by the Company of all

 

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amounts necessary to satisfy any federal, state or local withholding
tax requirements attributable to such disposition.  The Committee shall have the right, in its sole discretion, to
endorse the certificates representing such shares with a legend restricting
transfer and to cause a stop transfer order to be entered with the Company’s
transfer agent until such time as the Company receives the amounts necessary to
satisfy such withholding requirements or until the later of the expiration of
two years from the date the Option was granted or one year from the date on
which such shares were transferred to the Optionee pursuant to the exercise of
the Option.

 

(e)  WITHHOLDING TAXES.  The Company is entitled to withhold and deduct from future wages
of 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 any action by the Optionee, including, without
limitation, a disposition of shares of Common Stock described in Section 6.4(d)
above, that causes the Incentive Stock Option to cease to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

 

6.5  NON-STATUTORY STOCK OPTIONS.

 

(a)  OPTION EXERCISE PRICE.  The per share price to be paid by the
Optionee at the time a Non-Statutory Stock Option is exercised will be determined
by the Committee, but shall not be less than 85% of the Fair Market Value of
one share of Common Stock on the date the Option is granted.

 

(b)  DURATION OF NON-STATUTORY STOCK
OPTIONS.  The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the Committee at
the time such Option is granted, but in no event shall such period exceed 10
years and one month from the date the Option is granted. A Non-Statutory Stock
Option shall become exercisable at such times and in such installments (which
may be cumulative) as shall be determined by the Committee at the time the
Option is granted.  Upon the completion
of its exercise period, a Non-Statutory Stock Option, to the extent not then
exercised, shall expire.  Except as
otherwise provided in Articles 7 or 11, all Non-Statutory Stock Options granted
hereunder to an Optionee who is an employee of the Company or any Subsidiaries
shall terminate and may no longer be exercised if the Optionee ceases to be an
employee of the Company or a Subsidiary or if the Optionee is an employee of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless
the Optionee continues as an employee of the Company or another
Subsidiary).  A Non-Statutory Stock
Option granted hereunder to an Optionee who is not an employee of the Company
or a Subsidiary will terminate as determined by the Committee at the time of
grant.

 

(c)  WITHHOLDING TAXES.

 

(i) The Company is
entitled to (aa) withhold and deduct from future wages of 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 a Non-Statutory Stock Option or
otherwise incurred with respect to the Option, or (bb) require the Optionee
promptly to remit the amount of such withholding to the Company before acting
on the Optionee’s notice of exercise of the Option.

 

(ii) The Committee may,
in its discretion and subject to such rules as the Committee may adopt, permit
an Optionee to satisfy, in whole or in part, any withholding tax obligation
which may arise in connection with the exercise of a Non-Statutory Option
either by

 

7

 

electing to have the Company withhold from the shares of Common Stock
to be issued upon exercise that number of shares of Common Stock, or by
electing to deliver to the Company that number of already-owned shares of
Common Stock, in either case having a Fair Market Value, on the date such tax
is determined under the Code (the “Tax Date”), equal to the amount necessary to
satisfy the minimum required tax withholding, based on the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to the supplemental income resulting from the option.  In no event may the Company or any Affiliate
withhold shares having a Fair Market Value in excess of such statutory minimum
required tax withholding.  An Optionee’s
election to have the Company withhold shares of Common Stock or to deliver
already-owned shares of Common Stock is irrevocable, subject to the consent of
the Committee, and subject to such rules as the Committee may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of 1934, if
applicable.  If shares of Common Stock
are issued prior to the Tax Date to an Optionee making such an election, the
Optionee shall agree in writing to surrender that number of shares on the Tax
Date having an aggregate Fair Market Value equal to the minimum statutory
withholding tax due.

 

ARTICLE 7.  EFFECT OF TERMINATION OF EMPLOYMENT ON
OPTIONS

 

7.1  TERMINATION OF EMPLOYMENT OR OTHER SERVICE
DUE TO DEATH, DISABILITY OR RETIREMENT. 
Except as otherwise provided in the agreement evidencing the option, in
the event an Optionee’s employment or other service is terminated with the
Company and all Subsidiaries by reason of his death, Disability or Retirement,
all outstanding Incentive Stock Options and Non-Statutory Stock Options then
held by the Optionee (a) in the capacity of Non-Employee Director or where the
Committee has otherwise unanimously approved, shall become immediately
exercisable in full and remain exercisable for the full term of the Option as
set forth under either Section 6.4(c) or 6.5(b), or (b) in all other capacities
including employees and consultants, shall become immediately exercisable in
full and remain exercisable for a period of three months in the case of
Retirement and one year in the case of death or Disability and shall thereafter
if not exercised terminate without notice of any kind and no Incentive Stock
Option or Non-Statutory Stock Option then held by the Optionee shall thereafter
be exercisable, provided, however, in any of the above that an exercise may not
occur after the expiration date thereof in any event.  The Company shall undertake to use its best efforts to notify the
Optionee or his heirs or representatives, as the case may be, of the last date
by which Options may be exercised pursuant to this Section 7.1, at least thirty
(30) days in the case of Retirement and at least sixty (60) days in the case of
death or Disability, prior to such date.

 

7.2  TERMINATION OF EMPLOYMENT OR OTHER SERVICE
FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.

 

(a)  Except as otherwise provided in Article 11
or in the agreement evidencing the option, in the event an Optionee’s
employment or other service is terminated with the Company and all Subsidiaries
for any reason other than his death, Disability or Retirement, all vested
rights of the Optionee under the Plan (a) in the capacity of Non-Employee
Director or where the Committee has otherwise unanimously approved, shall
remain exercisable in full up to the expiration date thereof which is not to
exceed the term as set forth under either Section 6.4(c) or 6.5(b), or (b) in
all other capacities including employees and consultants, shall remain
exercisable in full for a period of no more than ninety (90) days following
such termination of employment and shall thereafter if not exercised terminate
without notice of any kind and no Incentive Stock Option or Non-Statutory Stock

 

8

 

Option then held by the Optionee shall thereafter be exercisable
provided, however, in any of the above that an exercise may not occur after the
expiration date thereof in any event.

 

(b)  Notwithstanding the provisions of Subsection
(a) above, upon an Optionee’s termination of employment or other service with
the Company and all Subsidiaries, the Committee may, in its sole discretion
(which may be exercised before or following such termination), cause Incentive
Stock Options and Non-Statutory Stock Options then held by such Optionee to
become exercisable and to remain exercisable following such termination of
employment or other service in the manner determined by the Committee;
provided, however, that no Option shall be exercisable after the expiration
date thereof in any event, and any Incentive Stock Option that remains
unexercised more than three months following termination of employment shall
thereafter be deemed to be a Non-Statutory Stock Option.

 

7.3  DATE OF TERMINATION.  For purposes of the Plan, an Optionee’s
employment or other service shall be deemed to have terminated on the date that
the Optionee ceases to perform services for the Company or the last day of the
pay period covered by the Optionee’s final paycheck, as the case may be. Notwithstanding
the foregoing, the employee Optionee shall not be deemed to have ceased to be
an employee for purposes of the Plan until the later of the 91st day of any
bona fide leave of absence approved by the Company or a Subsidiary for the
Optionee (including, without limitation any layoff) or the expiration of the
period of any bona fide leave of absence approved by the Company or a
Subsidiary for the Optionee (including without limitation any layoff) during
which the Optionee’s right to reemployment is guaranteed either by statute or
contract.

 

ARTICLE 8.  RIGHTS OF EMPLOYEES; OPTIONEES

 

8.1  EMPLOYMENT. 
Nothing in the Plan shall interfere with or limit in any way the right
of the Company or any Subsidiary to terminate the employment of any Eligible
Person or Optionee at any time, nor confer upon any Eligible Person or Optionee
any right to continue in the employ of the Company or any Subsidiary.

 

8.2  NONTRANSFERABILITY.  No right or interest of any Optionee in an
Option granted pursuant to the Plan 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 an Optionee’s death, an
Optionee’s rights and interest in any Options shall be transferable by
testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options (to
the extent permitted pursuant to Section 7.1) may be made by, the Optionee’s
legal representatives, heirs or legatees. 
If in the opinion of the Committee an Optionee holding any Option is
disabled from caring for his or her affairs because of mental condition,
physical condition or age, any payments due the Optionee may be made to, and
any rights of the Optionee under the Plan shall be exercised by, such
Optionee’s guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of such
status.

 

8.3  NON-EXCLUSIVITY OF THE PLAN.  Nothing contained in the Plan is intended to
amend, modify or rescind any previously approved compensation plans or programs
entered into by the Company.  The Plan
will be construed to be an addition to any and all such other plans or
programs.  Neither the adoption of the
Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or
authority of the

 

9

 

Board to adopt such additional or other compensation arrangements as
the Board may deem necessary or desirable.

 

ARTICLE 9.  SHARE ISSUANCE AND TRANSFER RESTRICTIONS

 

9.1  SHARE ISSUANCES.  Notwithstanding any other provision of the Plan or any agreements
entered into pursuant hereto, the Company shall not be required to issue or
deliver any certificate for shares of Common Stock under this Plan (and an
Option shall not be considered to be exercised, notwithstanding the tender by
the Optionee of any consideration therefor), unless and until each of the
following conditions has been fulfilled:

 

(a) (i) there shall be in
effect with respect to such shares a registration statement under the
Securities Act and any applicable state securities laws if the Committee, in
its sole discretion, shall have determined to file, cause to become effective
and maintain the effectiveness of such registration statement; or (ii) if the Committee
has determined not to so register the shares of Common Stock to be issued under
the Plan, (A) exemptions from registration under the Securities Act and
applicable state securities laws shall be available for such issuance (as
determined by counsel to the Company) and (B) there shall have been 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)  there shall have been 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.

 

9.2  SHARE TRANSFER.  Shares  of Common Stock
issued pursuant to the exercise of Options granted under the Plan may not be
sold, assigned, transferred, pledged, encumbered or otherwise disposed of
(whether voluntarily or involuntarily) except pursuant to registration under
the Securities Act and applicable state securities laws or pursuant to
exemptions from such registrations.  The
Company may condition the sale, assignment, transfer, pledge, encumbrance or
other disposition of such shares not issued pursuant to an effective and
current registration statement under the Securities Act and all applicable
state securities laws on the receipt from the party to whom the shares of
Common Stock are to be so transferred of any representations or agreements
requested by the Company in order to permit such transfer to be made pursuant
to exemptions from registration under the Securities Act and applicable state
securities laws.

 

9.3  LEGENDS. 
Unless a registration statement under the Securities Act is in effect
with respect to the issuance or transfer of shares of Common Stock issued under
the Plan, 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

 

10

 

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.

 

ARTICLE 10.  PLAN AMENDMENT, MODIFICATION AND TERMINATION

 

The Board may suspend or
terminate the Plan or any portion thereof at any time, and may amend the Plan
from time to time in such respects as the Board may deem advisable in order
that Incentive Stock Options and Non-Statutory Stock Options under the Plan
shall conform to any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the Company;
provided, however, that no such amendment, without approval of the shareholders
of the Company, may (a) materially increase the benefits accruing to Optionees
under the Plan, (b) increase the total number of shares of Common Stock as to
which Options may be granted under the Plan, except as provided in Section 4.3
of the Plan, or (c) materially modify the requirements as to eligibility for
participation in the Plan.  No
termination, suspension or amendment of the Plan shall alter or impair any
outstanding Option without the consent of the Optionee affected thereby;
provided, however, that this sentence shall not impair the right of the
Committee to take whatever action it deems appropriate under Section 4.3.

 

ARTICLE 11.  CHANGE IN CONTROL

 

If, during the term of an
Option, (i) the Company merges or consolidates with any other corporation and
is not the surviving corporation after such merger or consolidation; (ii) the
Company transfers all or substantially all of its business and assets to any
other person; or (iii) more than 50% of the Company’s outstanding voting shares
are purchased by any other person, all outstanding stock options shall become
immediately exercisable prior to the anticipated effective date of any of the
foregoing transactions, whether or not such options had become exercisable
prior to the transaction; provided, however, that if the Board of Directors, based
upon the opinion of either the Company’s independent outside legal counsel or
independent certified public accountants, deems that such acceleration of the
exercisability of such options would prohibit, negate or preclude the
transaction under any applicable law or generally accepted accounting
principles then the exercisability of such options shall not accelerate.

 

ARTICLE 12.  EFFECTIVE DATE OF THE PLAN

 

12.1 EFFECTIVE DATE.  The Plan is effective as of July 31,
1997, the effective date it was adopted by the Board subject to the approval of
the shareholders within 12 months. 
Options may be granted under the Plan prior to shareholder approval if
made subject to shareholder approval.

 

12.2 DURATION OF THE
PLAN.  The Plan shall terminate at
midnight on July 30, 2007 and may be terminated prior thereto by Board
action, and no Options shall be granted after such termination.  Options outstanding upon termination of the
Plan may continue to be exercised in accordance with their terms.

 

ARTICLE 13.  MISCELLANEOUS

 

13.1 GOVERNING LAW.  The Plan and all agreements hereunder shall
be construed in accordance with and governed by the laws of the State of  Minnesota without regard to the conflict of
laws provisions of any jurisdictions. 
All parties agree to submit to the jurisdiction of the state and

 

11

 

federal courts of Minnesota with respect to matters relating to the
Plan and agree not to raise or assert the defense that such forum is not
convenient for such party.

 

13.2 GENDER AND
NUMBER.  Except when otherwise indicated
by the context, reference to the masculine gender in the Plan shall include,
when used, the feminine gender and any term used in the singular shall also
include the plural.

 

13.3 CONSTRUCTION.  Wherever possible, each provision of this
Plan shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Plan shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Plan.

 

13.4 SUCCESSORS AND
ASSIGNS.  This Plan shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
Company, including, without limitation, whether by way of merger,
consolidation, operation of law, assignment, purchase or other acquisition of
substantially all of the assets or business of the Company, and any and all such
successors and assigns shall absolutely and unconditionally assume all of the
Company’s obligations under the Plan.

 

13.5 SURVIVAL OF
PROVISIONS.  The rights, remedies,
agreements, obligations and covenants contained in or made pursuant to the
Plan, any agreement evidencing an Incentive Award and any other notices or
agreements in connection therewith, including, without limitation, any notice
of exercise of an Option, shall survive the execution and delivery of such
notices and agreements and the delivery and receipt of shares of Common Stock
and shall remain in full force and effect.

 

12Exhibit
10.2

 

AUGUST TECHNOLOGY
CORPORATION

 

AMENDED 1998 BOARD
OF DIRECTOR COMPENSATION PLAN

 

(Amended as of July 29, 2003)

 

ARTICLE 1. 
ESTABLISHMENT AND PURPOSE

 

a.                                       Establishment.  August Technology Corporation (the
“Company”) hereby establishes a plan providing for the compensation of certain
eligible directors of the Company and its subsidiaries.  This plan shall be known as the 1998 Board
Compensation Plan (the “Board Compensation Plan”).

 

b.                                      Purpose.  The purpose of this Board Compensation Plan
is to advance the interests of the Company and its shareholders by enabling the
Company to attract and retain persons of ability as directors, by providing an
incentive to such individuals through cash and/or equity participation in the
Company and by rewarding such individuals who contribute to the achievement by
the Company of its long-term economic objectives.

 

ARTICLE
2.  DEFINITIONS

 

The following terms shall
have the meanings set forth below, unless the context clearly otherwise
requires:

 

a.                                       “Board”
means the Board of Directors of the Company.

 

b.                                      “Code”
means the Internal Revenue Code of 1986, as amended.

 

c.                                       “Common
Stock” means the common stock of the Company, par value $.01 per share, or
the number and kind of shares of stock or other securities into which such
Common Stock may be changed in accordance with Section 4.3 below.

 

d.                                      “Eligible
Persons” means individuals who are Non-Employee Directors of the Company.

 

e.                                       “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

f.                                         “Incentive
Stock Option” means a right to purchase Common Stock granted to an Optionee
pursuant to the Company’s 1997 Stock Option Plan that qualifies as an incentive
stock option within the meaning of Section 422 of the Code.

 

g.                                      “Non-Employee
Director” means any member of the Board who is not an employee of the
Company or any Subsidiary.

 

h.                                      “Non-Statutory
Stock Option” means a right to purchase Common Stock granted to an Optionee
pursuant to the Company’s 1997 Stock Option Plan that does not qualify as an
Incentive Stock Option.

 

 

i.                                          “Option”
means an Incentive Stock Option or a Non-Statutory Stock Option.

 

j.                                          “Optionee”
means an Eligible Person who receives one or more Incentive Stock Options
or Non-Statutory Stock Options under the Company’s 1997 Stock Option Plan.

 

k.                                       “Person”
means any individual, corporation, partnership, group, association or other
“person” (as such term is used in Section 14(d) of the Exchange Act),
other than the Company, a wholly owned subsidiary of the Company or any
employee benefit plan sponsored by the Company.

 

l.                                          “Securities
Act” means the Securities Act of 1933, as amended.

 

m.                                    “Subsidiary”
means any corporation that is a subsidiary corporation of the Company (within
the meaning of Section 424(f) of the Code).

 

ARTICLE 3. 
ADMINISTRATION

 

The Plan shall be
administered by the Board or by a Committee of the Board consisting of not less
than three persons; provided, however, that from and after the date on which
the Company first registers a class of its equity securities under Section 12
of the Exchange Act Plan shall be administered by the Board, majority of whom
acting on any matter under the Plan shall be “disinterested persons” as defined
by Rule 16b-3 of the Rules and Regulations of the Securities and Exchange
Commission, as amended (“Rule 16b-3”) or by a Committee consisting solely of
not less than three members of the Board who are “disinterested persons” within
the meaning of Rule 16b-3.  Members of a
Committee, if established, shall be appointed from time to time by the Board,
shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board.  A majority
of the members of the Committee shall constitute a quorum.  The Committee shall act by majority approval
of its members, shall keep minutes of its meetings and shall provide copies of
such minutes to the Board.  Action of
the Committee may be taken without a meeting if unanimous written consent
thereto is given.  Copies of minutes of
the Committee’s meetings and of its actions by written consent shall be
provided to the Board and kept with the corporate records of the Company.  As used in this Plan, the term “Committee”
will refer either to the Board or to such a Committee, if established.  From and after the date on which the Company
first registers a class of its equity securities under Section 12 of the
Exchange Act, no member of the Committee shall be eligible, or shall have been
eligible at any time within the lesser of one year or the period since the
Company first registered a class of its equity securities under Section 12 of
the Exchange Act, to receive an Incentive Stock Option or a Non-Statutory Stock
Option under the Plan.

 

In accordance with the
provisions of the Plan, the Committee shall select the Optionees from Eligible
Persons; shall determine the number of shares of Common Stock to be subject to
Options granted pursuant to the Plan, the time at which such Options are
granted, the Option exercise price, Option period and the manner in which each
such Option vests or becomes exercisable; and shall fix such other provisions
of such Options as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan. 
The Committee shall determine the form or forms of the agreements with
Optionees which shall evidence the particular terms, conditions, rights and
duties

 

 

of the Company and the Optionees under Options granted pursuant to the
Plan.  The Committee shall have the
authority, subject to the provisions of the Plan, to establish, adopt and
revise such rules and regulations relating to the Plan as it may deem necessary
or advisable for the administration of the Plan.  With the consent of the Optionee affected thereby, the Committee
may amend or modify the terms of any outstanding Incentive Stock Option or
Non-Statutory Stock Option, to the extent not previously exercised, and the
Committee may authorize the grant of new Options in substitution therefore to
the extent not previously exercised.

 

Each determination,
interpretation or other action made or taken by the Committee pursuant to the
provisions of the Plan shall be conclusive and binding for all purposes and on
all persons, including, without limitation, the Company and its Subsidiaries,
the shareholders of the Company, the Committee and each of the members thereof,
the directors, officers and employees of the Company and its Subsidiaries, and
the Optionees and their respective successors in interest.  No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted under the Plan.

 

ARTICLE
4.  EFFECTIVE DATE OF THE BOARD
COMPENSATION PLAN

 

a.                                                                                       Effective
Date.  This Amended Board
Compensation Plan is effective as of July 1, 2003.  Options may be granted under the Plan prior
to shareholder approval if made subject to shareholder approval.

 

b.                                                                                      Priority
of the Board Compensation Plan.  The
Board Compensation Plan hereby supersedes and replaces any prior compensation
plan applicable to any Board member in his or her capacity as a Board member.

 

ARTICLE 5.  AWARDS UNDER THE BOARD COMPENSATION PLAN

 

Compensation awards to
members of the Company’s Board of Directors shall be as stated on Schedule 1
attached hereto as may be amended and/or supplemented from time to time.  Any Incentive Stock Options or Non-Statutory
Stock Options awarded pursuant to this Board Compensation Plan shall be
governed by the terms of the Company’s 1997 Stock Option Plan and any Option
agreement issued in accordance therewith.

 

ARTICLE
6.  MISCELLANEOUS

 

a.                                       Governing
Law.  The Board Compensation Plan
and all agreements hereunder shall be construed in accordance with and governed
by the laws of the State of Minnesota without regard to the conflict of laws
provisions of any jurisdictions.  All
parties agree to submit to the jurisdiction of the state and federal courts of
Minnesota with respect to matters relating to the Plan and agree not to raise
or assert the defense that such forum is not convenient for such party.

 

b.                                      Gender
and Number.  Except when otherwise
indicated by the context, reference to the masculine gender in the Plan shall
include, when used, the feminine gender and any term used in the singular shall
also include the plural.

 

 

c.                                       Construction.  Wherever possible, each provision of this
Board Compensation Plan shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Board
Compensation Plan shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the
remaining provisions of this Board Compensation Plan.

 

d.                                      Successors
and Assigns.  This Plan shall be
binding upon and inure to the benefit of the successors and permitted assigns
of the Company, including, without limitation, whether by way of merger,
consolidation, operation of law, assignment, purchase or other acquisition of
substantially all of the assets or business of the Company, and any and all
such successors and assigns shall absolutely and unconditionally assume all of
the Company’s obligations under the Board Compensation Plan.

 

e.                                       Survival
of Provisions.  The rights,
remedies, agreements, obligations and covenants contained in or made pursuant
to the Board Compensation Plan, any agreement evidencing an Award and any other
notices or agreements in connection therewith, including, without limitation,
any notice of exercise of an Option, shall survive the execution and delivery
of such notices and agreements and the delivery and receipt of shares of Common
Stock and shall remain in full force and effect.

 

 

Schedule
1 – effective July 1, 2003

 

Board
Compensation Plan

 

1.               External
Board members(1)

a.               Stock
Options:

i.                  At
appointment (initial grant) = 20,000 one time grant at time of appointment

ii.               Annually
(yearly grant) = 6,500 (paid out at end of the year)

b.              Cash:

i.                  At
appointment = $0

ii.               Retainer
(paid out at the end of the year) = see below

1.               $500/month
for guidance, telephone calls, etc.

2.               $1,000/meeting
for regularly scheduled Board meeting attendance

3.               $500/meeting
for regularly scheduled committee meeting attendance

4.               $500/meeting
of additional compensation for chairing any Board or committee meeting – only
paid for meetings attendance fee is paid at

5.               $500
for any special meeting attendance – compensation not to exceed 4 special
meetings per year

c.               Perquisites:

i.                  Director’s
Liability Insurance = Yes (paid by August Technology)

ii.               Life
Insurance – No

iii.            Other
- No

d.              Expense
Reimbursement:

i.                  Reasonable
“out of pocket” expenses – yes

ii.               Travel
– yes if necessary

 

2.               Internal
Board members

a.               Stock
Options:

i.                  At
appointment = none for directorship

ii.               Per
meeting on annual basis = none for directorship

b.              Cash:

i.                  At
appointment = $0 for directorship

ii.               Per
meeting on annual basis = $0 for directorship

c.               Perquisites:

i.                  Director’s
Liability Insurance = Yes (paid by August Technology)

ii.               Life
Insurance – none under directorship

iii.            Other
- none under directorship

d.              Expense
Reimbursement:

i.                  Reasonable
“out of pocket” expenses – yes

ii.               Travel
– yes if necessary

 

(1)          Terms
on Initial appointment grant and yearly participation grant:

a.               Exercise
price = market price on date of grant

b.              Vesting
= 

(i) for initial grant = 33.3% immediate, 33.3% in one
year, and 33.3% in two years

(ii) for yearly grants =
100% immediate

c.               Life = 7 years

d.              Termination: none
regardless of continuing Board service not to exceed expiration (life) of
option

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