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<SEC-DOCUMENT>0000950135-05-001337.txt : 20050311
<SEC-HEADER>0000950135-05-001337.hdr.sgml : 20050311
<ACCEPTANCE-DATETIME>20050311094122
ACCESSION NUMBER:		0000950135-05-001337
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050311
DATE AS OF CHANGE:		20050311

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			COGNEX CORP
		CENTRAL INDEX KEY:			0000851205
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823]
		IRS NUMBER:				042713778
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-17869
		FILM NUMBER:		05674004

	BUSINESS ADDRESS:	
		STREET 1:		ONE VISION DR
		CITY:			NATICK
		STATE:			MA
		ZIP:			01760
		BUSINESS PHONE:		5086503000

	MAIL ADDRESS:	
		STREET 1:		ONE VISION DRIVE
		CITY:			NATICK
		STATE:			MA
		ZIP:			01760
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b53938cce10vk.htm
<DESCRIPTION>COGNEX CORPORATION  FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>Cognex Corporation  Form 10-K</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: Helvetica,Arial,sans-serif">



<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<P align="center" style="font-size: 14pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<P align="center" style="font-size: 18pt"><B>FORM 10-K</B>


<P align="left" style="font-size: 10pt"><I>(Mark One)</I>



<DIV align="left" style="font-size: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="Wingdings">&#254;</FONT> Annual report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended <U>December&nbsp;31, 2004</U> or</B>
 </DIV>

<P align="left" style="font-size: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT face="Wingdings">&#111;</FONT> Transition report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>to<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B>


<P align="center" style="font-size: 10pt"><B>Commission File Number </B><U><B>0-17869</B></U>


<P align="center" style="font-size: 24pt"><B>COGNEX CORPORATION</B>


<DIV align="center" style="font-size: 10pt"><HR size="1" noshade width="56%" align="center" color="#000000"></DIV>


<DIV align="center" style="font-size: 10pt"><I>(Exact name of registrant as specified in its charter)</I></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Massachusetts</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>04-2713778</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><HR size="1" noshade width="80%" align="center" color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade width="80%" align="center" color="#000000"></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>(State or other jurisdiction of<BR>
incorporation or organization)</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><I>(I.R.S. Employer<BR>
Identification No.)</I></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>One Vision Drive<BR>
Natick, Massachusetts 01760-2059<BR>
(508)&nbsp;650-3000</B>


<DIV align="center" style="font-size: 10pt"><HR size="1" noshade width="56%" align="center" color="#000000"></DIV>


<DIV align="center" style="font-size: 10pt"><I>(Address, including zip code, and telephone number,</I></DIV>


<DIV align="center" style="font-size: 10pt"><I>including area code, of principal executive offices)</I></DIV>



<P align="left" style="font-size: 10pt">Securities registered pursuant to Section&nbsp;12(b) of the Act: None



<P align="left" style="font-size: 10pt">Securities registered pursuant to Section&nbsp;12(g) of the Act: Common Stock, par value $.002 per
share



<P align="left" style="font-size: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.



<P align="center" style="font-size: 10pt">Yes <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT>



<P align="left" style="font-size: 10pt">Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation&nbsp;S-K
is not contained herein, and will not be contained, to the best of the registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form&nbsp;10-K
or any amendment to this Form&nbsp;10-K. <FONT face="Wingdings">&#254;</FONT>



<P align="left" style="font-size: 10pt">Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule&nbsp;12b-2 of
the Act).



<P align="center" style="font-size: 10pt">Yes <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT>



<P align="center" style="font-size: 10pt">Aggregate market value of voting stock held by non-affiliates of the registrant<BR>
as of July&nbsp;2, 2004: <U>$1,557,248,000</U>



<P align="center" style="font-size: 10pt">$.002 par value common stock outstanding as of February&nbsp;27, 2005: <U>46,269,923 shares</U>



<P align="left" style="font-size: 10pt">Documents incorporated by reference:



<P align="left" style="font-size: 10pt">The registrant intends to file a Definitive Proxy Statement pursuant to Regulation&nbsp;14A within 120
days of the end of the fiscal year ended December&nbsp;31, 2004. Portions of such Proxy Statement are
incorporated by reference in Part III of this report. Portions of the registrant&#146;s Annual Report
to Shareholders for the year ended December&nbsp;31, 2004 are incorporated by reference in Part I and
Part II of this report.



<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>







<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">









<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>COGNEX CORPORATION ANNUAL REPORT ON<BR>
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004</B>



<P align="center" style="font-size: 10pt"><B>INDEX</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101"><B>PART I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">ITEM 1. BUSINESS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">ITEM 2. PROPERTIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">ITEM 3. LEGAL PROCEEDINGS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">ITEM 4A. EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANT</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107"><B>PART II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">ITEM 5. MARKET FOR THE REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">ITEM 9A. CONTROLS AND PROCEDURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115"><B>PART III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">ITEM 11. EXECUTIVE COMPENSATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121"><B>PART IV</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv10wp.txt">Ex-10P Supplemental Retirement and deferred Compensation Plan</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv13.txt">Ex-13 Annual Report to Shareholders</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv14.txt">Ex-14 Code of Business Conduct and Ethics</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv21.txt">Ex-21 Subsidiaries of the registrant</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv23w1.txt">Ex-23.1 Consent of Ernst & Young LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv23w2.txt">Ex-23.2 Consent of PricewaterhouseCoopers LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv31w1.txt">Ex-31.1 Certification of Chief Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv31w2.txt">Ex-31.2 Certification of Chief Financial Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv32w1.txt">Ex-32.1 Sect. 906 Certification of C.E.O.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="b53938ccexv32w2.txt">Ex-32.2 Sect. 906 Certification of the C.F.O.</A></FONT></TD></TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="left">
<!-- /TOC -->
</DIV>
<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART I</B>



<P align="left" style="font-size: 10pt">This Annual Report on Form&nbsp;10-K contains forward-looking statements within the meaning of the
Federal Securities Laws. Readers can identify these forward-looking statements by the Company&#146;s
use of the words &#147;expects,&#148; &#147;anticipates,&#148; &#147;estimates,&#148; &#147;believes,&#148; &#147;projects,&#148; &#147;intends,&#148; &#147;plans,&#148;
&#147;will,&#148; &#147;may,&#148; &#147;shall,&#148; and similar words and other statements of a similar sense. The Company&#146;s
future results may differ materially from current results and from those projected in the
forward-looking statements as a result of known and unknown risks and uncertainties. Readers
should pay particular attention to considerations described in the section captioned &#147;Risk
Factors,&#148; appearing in Part I &#151; Item&nbsp;I of this Annual Report on Form&nbsp;10-K.


<DIV align="left">
<A name="102"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 1. </B><B><I>BUSINESS</I></B>



<P align="left" style="font-size: 10pt"><B>Corporate Profile</B>



<P align="left" style="font-size: 10pt">Cognex&#174; Corporation (&#147;Cognex&#148; or the &#147;Company,&#148; each of which includes, unless the context
indicates otherwise, Cognex Corporation and its subsidiaries) was incorporated in Massachusetts in
1981. Its corporate headquarters are located at One Vision Drive, Natick, Massachusetts 01760 and
its telephone number is (508)&nbsp;650-3000.



<P align="left" style="font-size: 10pt">The Company designs, develops, manufactures, and markets machine vision systems, or computers that
can &#147;see,&#148; which are used to automate a wide range of manufacturing processes where vision is
required. Machine vision is important for applications in which human vision is inadequate to meet
requirements for feature size, accuracy, or speed, or in instances where substantial cost savings
are obtained through the reduction of direct labor or improved product quality. Today, many types
of manufacturing equipment require machine vision because of the increasing demands for speed and
accuracy in manufacturing processes, as well as the decreasing feature size of items being
manufactured.



<P align="left" style="font-size: 10pt">The Company has two operating divisions: the Modular Vision Systems Division (MVSD), based in
Natick, Massachusetts, and the Surface Inspection Systems Division (SISD), based in Alameda,
California. MVSD designs, develops, manufactures, and markets modular vision systems that are used
to automate the manufacture of discrete items, such as semiconductor chips, cellular phones, and
light bulbs, by locating, identifying, inspecting, and measuring them during the manufacturing
process. SISD designs, develops, manufactures, and markets surface inspection vision systems that
are used to inspect the surfaces of materials processed in a continuous fashion, such as paper,
metals, plastics, and non-wovens, to ensure there are no flaws or defects on the surfaces.
Historically, MVSD has been the source of the majority of the Company&#146;s revenue, representing
approximately 86% of total revenue in 2004.



<P align="left" style="font-size: 10pt"><B>What is Machine Vision?</B>



<P align="left" style="font-size: 10pt">Since the beginning of the Industrial Revolution, human vision has played an indispensable role in
the process of manufacturing products. Human eyes did what no machines could do themselves:
locating and positioning work, tracking the flow of parts, and inspecting output for quality and
consistency. Today, however, the requirements of many manufacturing processes have surpassed the
limits of human eyesight. Manufactured items often are produced too quickly or with tolerances too
small to be analyzed by the human eye. In response to manufacturers&#146; needs, &#147;machine vision&#148;
technology emerged, providing manufacturing equipment with the gift of sight. The Company believes
that virtually every manufacturer that makes products in an automated process can achieve better
quality and manufacturing efficiency by using machine vision.



<P align="center" style="font-size: 10pt">1
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">Machine vision systems combine cameras with intelligent software to collect images and then answer
questions about these images, such as:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Question</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Example</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>GUIDANCE</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Where is it?
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Determining the exact physical
location and orientation of an
object.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Determining the position of a printed circuit board
so that a robot can automatically be guided to
insert electronic components.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>IDENTIFICATION</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">What is it?
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Identifying an object by analyzing
its shape or by reading a serial
number.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Identifying the serial number on an automotive
airbag so that it can be tracked and processed
correctly through manufacturing.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>INSPECTION</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">How good is it?
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inspecting an object for flaws or
defects.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inspecting the paper that US currency is printed
on.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>GAUGING</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">What size is it?
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Determining the dimensions of an
object.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Determining the diameter of a bearing prior to
final assembly.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><B>Machine Vision Market</B>



<P align="left" style="font-size: 10pt">The Company&#146;s customers can be classified into three categories: semiconductor and electronics
capital equipment manufacturers, discrete manufacturing customers, and surface inspection
customers. Semiconductor and electronics capital equipment manufacturers purchase Cognex modular
vision systems and integrate them into the capital equipment that they manufacture and then sell to
their customers in the semiconductor and electronics industries that either make computer chips or
make printed circuit boards containing computer chips. Although the Company sells to original
equipment manufacturers (OEMs) in a number of industries, these semiconductor and electronics OEMs
have historically been large consumers of the Company&#146;s products. Sales to semiconductor and
electronics capital equipment manufacturers represented approximately 42% of the Company&#146;s total
revenue in 2004.



<P align="left" style="font-size: 10pt">The discrete manufacturing category includes a wide array of manufacturers who use machine vision
for applications in a variety of industries, including the packaging, automotive, consumer
electronics, food and beverage, and personal care industries. The majority of these customers are
end users who purchase Cognex modular vision systems and install them directly on their production
lines. Unlike OEMs and system integrators, these customers typically have limited computer
programming or machine vision experience. The Company sells its products to end users through its
own direct sales force, as well as through distributors and system integrators. System integrators
are companies that create complete automated inspection solutions for end users. For example, they
combine lighting, conveyors, robotics, machine vision, and other components to produce custom
inspection systems for various applications. Sales to discrete manufacturing customers represented
approximately 44% of the Company&#146;s total revenue in 2004.



<P align="left" style="font-size: 10pt">The last category, surface inspection customers, includes manufacturers of materials processed in a
continuous fashion, such as paper and steel. These customers need sophisticated machine vision to
detect and classify defects in the surfaces of those materials as they are being processed at high
speeds. Surface inspection sales represented approximately 14% of the Company&#146;s total revenue in
2004.



<P align="left" style="font-size: 10pt"><B>Business Strategy</B>



<P align="left" style="font-size: 10pt">The Company&#146;s goal is to expand its position as a leading worldwide supplier of machine vision
systems for factory automation by offering a complete family of machine vision products to a broad
base of manufacturers. Semiconductor and electronics equipment manufacturers have historically
been large consumers of the Company&#146;s products. Over the past few years, however, the Company has
diversified its customer base beyond the semiconductor and electronics capital equipment sector.
Demand from these capital equipment manufacturers is highly cyclical, with periods of investment
followed by temporary




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<P align="left" style="font-size: 10pt">downturns. At its peak in 2000, sales to semiconductor and electronics capital equipment
manufacturers represented approximately 61% of the Company&#146;s total revenue, compared to
approximately 42% in 2004.



<P align="left" style="font-size: 10pt">The Company believes that long-term, sustained revenue growth will come from a broad base of
manufacturers outside of the semiconductor and electronics capital equipment manufacturer sector.
Accordingly, the Company has invested in expanding its product offerings to its discrete
manufacturing customers, who demand a wide range of easy-to-use products of varying capability and
price, and in developing a strong worldwide sales and support infrastructure. The Company intends
to continue to defend its strong position in the semiconductor and electronics capital equipment
sector, while selectively expanding into new machine vision applications through the internal
development of new products, as well as the acquisition of businesses and technologies.



<P align="left" style="font-size: 10pt"><B>Products</B>



<P align="left" style="font-size: 10pt">Cognex offers a full range of machine vision systems designed to meet customer needs at virtually
any stage of the manufacturing process and virtually any capability/price point.



<P align="left" style="font-size: 10pt"><B><I>In-Sight Vision Sensors</I></B>



<P align="left" style="font-size: 10pt">The Company believes that it is firmly positioned in the fast-growing market for vision sensors
with its In-Sight&#174; product line. Vision sensors are machine vision systems that combine a video
camera, software, vision processor, and input/output capability in a low-cost, compact, easy-to-use
package. These general-purpose vision sensors are designed to be easily programmed to perform a
wide range of vision tasks including part location, identification, measurement, and assembly
verification.



<P align="left" style="font-size: 10pt">In 2004, the Company introduced the In-Sight 5000 series, with increased processing power and a
rugged, industrial-grade package that meets high standards for shock, vibration, and dust and
wash-down protection.



<P align="left" style="font-size: 10pt">In-Sight is sold to end users located in North America, Japan, Europe, and Southeast Asia in a wide
range of general manufacturing industries, such as medical devices, automotive parts, disposable
consumer goods, and electronic components.



<P align="left" style="font-size: 10pt"><B><I>Expert Sensors</I></B>



<P align="left" style="font-size: 10pt">Unlike general-purpose vision sensors that can be programmed to solve a wide variety of vision
tasks, expert sensors are designed to deliver very simple, low-cost solutions for specific
automation problems.



<P align="left" style="font-size: 10pt">Late in 2004, the Company introduced Checker&#153; 101, its lowest cost and easiest-to-use vision sensor
designed to detect the presence or absence of multiple product features. Performing this common
vision task provides manufacturers with a reliable and cost effective way to check 100% of their
products during the manufacturing process, instead of relying upon random sampling at the end of
the production line. Checker is currently sold primarily in North America to end users in a wide
range of general manufacturing industries, although the Company intends to market Checker
worldwide. Because of its low price and ease of use, the Company expects to solve many new
manufacturing problems with its Checker series of products.



<P align="left" style="font-size: 10pt">The CPS-1000 is a vision sensor designed for door security; it detects and counts people as they
pass through an access-controlled doorway. The CPS-1000 utilizes Cognex&#146;s existing vision software,
as well as patented 2D and 3D vision technology that Cognex developed specifically for &#147;people
sensing&#148; applications. The CPS-1000 is currently sold to OEM customers located in North America.



<P align="left" style="font-size: 10pt"><B><I>ID Products</I></B>



<P align="left" style="font-size: 10pt">The Company&#146;s ID products are designed to quickly and reliably read codes (e.g. serial numbers, bar
codes, or two-dimensional codes) that have been stamped, scribed, etched, printed, or otherwise
formed directly on the surfaces of manufactured goods ranging from pharmaceutical items to aircraft
components




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<P align="left" style="font-size: 10pt">to semiconductor wafers. Industrial ID, or Direct Part Marking, is an increasingly critical tool
to ensure the appropriate manufacturing processes are performed in the correct sequence on the
right parts. In addition, it can be used to create a history of the part from the beginning of its
life to the end, and for use in supply chain management and repair.



<P align="left" style="font-size: 10pt">In 2004, the Company introduced the In-Sight 5110 fixed-mount Industrial ID reader and the DataMan&#153;
6400 and DataMan 6500 hand-held Industrial ID readers. Each model incorporates IDMax&#153; software,
new Data Matrix code-reading software based upon Cognex PatMax&#174; technology. IDMax reads reliably
despite degradations to the appearance of the code. In addition, the Company&#146;s In-Sight 1700
series of Wafer ID readers identifies and tracks semiconductor wafers through the manufacturing
process.



<P align="left" style="font-size: 10pt">ID products are sold to OEMs, system integrators, and end users located in North America, Japan,
Europe, and Southeast Asia in a wide range of industries.



<P align="left" style="font-size: 10pt"><B><I>PC-Based Vision Systems</I></B>



<P align="left" style="font-size: 10pt">The Company sells a full range of PC-based vision systems that combine the power and flexibility of
advanced programming with the simplicity of a graphical programming environment. These products
contain the Company&#146;s most extensive library of vision software tools featuring PatMax,
high-accuracy pattern location software that can locate objects that vary in size and orientation
or whose appearance is degraded, and PatFlex, which enables a vision system to locate an object,
feature, or pattern whose perspective has changed or whose surface is curved, warped, wrinkled, or
stretched.



<P align="left" style="font-size: 10pt"><I>MVS-8000 Product Family</I>



<P align="left" style="font-size: 10pt">The MVS-8000&#153; family of programmable machine vision systems combines Cognex&#146;s unique algorithms
with Intel&#146;s MMX instruction set. The MVS-8100 Series features PCI bus-mastering frame grabbers
for high-speed image transfer from the video camera to the host PC for processing and display. The
MVS-8200 Series of embedded CPU machine vision systems enables all vision processing to occur
on-board, freeing the PC to perform other tasks. The MVS-8500 Series of frame grabbers are
designed to support next-generation, high-speed analog cameras that use the latest progressive scan
CCD sensor technology.



<P align="left" style="font-size: 10pt">The MVS-8000 product family is sold primarily to OEMs located in North America, Japan, Europe, and
Southeast Asia who integrate the machine vision systems into capital equipment for the
semiconductor and electronics industries. These vision systems are also sold to system integrators
located in North America, Japan, Europe, and Southeast Asia who integrate them into capital
equipment for end users in a broad range of industries.



<P align="left" style="font-size: 10pt"><I>VisionPro Product Family</I>



<P align="left" style="font-size: 10pt">VisionPro&#174; is an Active X-based vision system that combines Cognex machine vision technology with
quick and powerful application development. These PC-based systems offer the flexibility of an
advanced programming language with the simplicity of graphical prototyping, speeding time-to-market
for OEMs, system integrators, and advanced manufacturing engineers. VisionPro&#146;s powerful software,
combined with Cognex MVS-8100 and 8500 Series frame grabbers, provide a complete vision system to
solve demanding applications.



<P align="left" style="font-size: 10pt">The VisionPro product family is sold to OEMs, system integrators, and end users located in North
America, Japan, Europe, and Southeast Asia in a wide range of industries.



<P align="left" style="font-size: 10pt"><I>Application Specific PC-based Vision Systems</I>



<P align="left" style="font-size: 10pt">The Company offers a variety of application-specific systems that combine Cognex PC-based hardware
and software to create a solution that is tailored to the particular requirements of certain vision
applications. A partial list of application-specific vision systems is as follows:



<P align="left" style="font-size: 10pt"><I>SMD 4</I>&#153; guides the placement of surface mount devices onto printed circuit boards and other
assemblies.



<P align="center" style="font-size: 10pt">4
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<P align="left" style="font-size: 10pt"><I>BGA II</I>&#153; inspects ball grid array devices for missing, misplaced, or improperly formed solder balls.



<P align="left" style="font-size: 10pt"><I>Fiducial Finder II</I>&#153; locates fiducial or alignment marks on printed circuit boards for automatic
printed circuit board alignment.



<P align="left" style="font-size: 10pt"><I>DisplayInspect</I>&#174; inspects the small, high-resolution displays commonly found on cellular phones,
pagers, medical test instruments, and other electronic devices.



<P align="left" style="font-size: 10pt"><I>FiberInspect</I>&#153; is a machine vision system specifically designed to automatically detect and measure
scratches, cracks, and spots that form during the fiber end polishing process.



<P align="left" style="font-size: 10pt"><I>TIS-8000</I>&#153; <I>Tire Identification System and WIS-8000</I>&#153;<I> Wheel Identification System </I>are high-performance
identification systems for automatically identifying tires and wheels by their unique
characteristics. The systems ensure the presence of correct tires or wheels at any point in the
manufacturing or assembly process.



<P align="left" style="font-size: 10pt">Application-specific systems are targeted to OEMs, system integrators, and end users located in
North America, Japan, Europe, and Southeast Asia in a wide range of industries, depending upon the
application.



<P align="left" style="font-size: 10pt"><I>Digital Cameras for PC-Based Products</I>



<P align="left" style="font-size: 10pt">The Company designs, develops, manufactures, and markets the CDC Series of digital Complementary
Metal-Oxide Semiconductor (CMOS)&nbsp;cameras designed specifically for machine vision applications.
CDC cameras are designed for use with the MVS-8100D digital frame grabber. These products, in
combination with Cognex&#146;s vision software, provide a complete, tightly-integrated solution to the
Company&#146;s PC-based vision customers.



<P align="left" style="font-size: 10pt"><B>Surface Inspection Systems</B>



<P align="left" style="font-size: 10pt">The SmartView&#174; surface/web inspection system provides reliable detection, identification, and
visualization of defects on products that are manufactured in a continuous process. The SmartView
system provides greyscale imaging capability to visualize the defects, as well as a high-quality
snapshot of the inspected surface or web. Most advanced open data access capabilities embedded
into the SmartView system ensure real-time inspection control and data access between the SmartView
system and other business, production, and quality systems in the mill. The SmartView system is a
modular and scalable system on a Microsoft Windows-based platform that enables the Company to
expand into more complex vision applications in the paper, metals, plastics, and nonwovens
industries.



<P align="left" style="font-size: 10pt">SmartView is sold primarily to end users located in North America, Japan, Europe, and Southeast
Asia in the paper, metals, plastics, and nonwovens industries. In addition, SmartView is sold to
end users located in Europe and Asia in the paper industry through an OEM relationship with
Honeywell International, Inc.



<P align="left" style="font-size: 10pt"><B>Research, Development, and Engineering</B>



<P align="left" style="font-size: 10pt">The Company engages in research, development, and engineering (R, D &#038; E) to enhance its existing
products and to develop new products and functionality to meet market opportunities. In addition
to internal research and development efforts, the Company intends to continue its strategy of
gaining access to new technology through strategic relationships and acquisitions where
appropriate. The Company considers its on-going efforts in R, D &#038; E to be a key component of its
strategy.



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, the Company employed 157 professionals in R, D &#038; E, most of whom are software
developers. The Company&#146;s R, D &#038; E expenses totaled $27,063,000, $24,719,000, and $25,630,000, or
approximately 14%, 17%, and 23% of revenue, in 2004, 2003, and 2002, respectively.




<P align="center" style="font-size: 10pt">5
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<P align="left" style="font-size: 10pt"><B>Manufacturing</B>

<P align="left" style="font-size: 10pt">The Company&#146;s MVSD manufacturing organization utilizes a turnkey operation whereby the majority of
component procurement, subassembly, final assembly, and initial testing are performed under
agreement by third-party contract manufacturers. After the completion of initial testing, the
contract manufacturers deliver the products to the Company&#146;s Natick, Massachusetts facility for
final testing, quality control, and shipment to the customer. The contract manufacturers use
specified components and assembly and test documentation created and controlled by the Company.
From time to time, the Company will procure large quantities of end-of-life components for
strategic purposes that will not be consumed within one year. Certain components are presently
available only from a single source.



<P align="left" style="font-size: 10pt">The Company&#146;s SISD products are manufactured at its Alameda, California facility, with the
exception of the frames on which the cameras are mounted. The manufacturing process at the Alameda
facility consists of system design, configuration management and control, component procurement,
and subassembly. After the completion of subassembly at the Alameda facility, some of the systems
are delivered to the Company&#146;s Kuopio, Finland facility where the frames are manufactured. The
manufacturing process at the Kuopio facility consists of system integration with the frames, final
testing, quality control, and shipment to the customer. Certain products are manufactured by
third-party contract manufacturers using documentation created and controlled by the Company.
Certain components are presently available only from a single source.



<P align="left" style="font-size: 10pt"><B>Sales and Service</B>



<P align="left" style="font-size: 10pt">The Company sells its MVSD and SISD products primarily through a direct sales force in North
America, Japan, Europe, and Southeast Asia. In addition, the Company is developing an indirect
sales channel of distributors to sell its low-cost vision sensors in the United States. The
Company intends to expand this distribution network outside of the United States. At December&nbsp;31,
2004, the Company&#146;s direct sales force consisted of 202 professionals, including sales and
application engineers. The majority of the Company&#146;s sales force holds engineering or science
degrees. Sales engineers call directly on targeted accounts and coordinate the activity of the
application engineers.



<P align="left" style="font-size: 10pt">Sales to customers based outside of the United States represented approximately 69% of total
revenue in 2004, compared to approximately 66% in 2003 and approximately 60% in 2002. No customer
accounted for greater than 10% of revenue in 2004, 2003, or 2002. Although international sales may
from time to time be subject to federal technology export regulations, to date the Company has not
suffered significant delays or prohibitions in sales to any of its foreign customers. Financial
information about segments and geographic areas may be found in the Notes to the Consolidated
Financial Statements, appearing on pages 67 and 68 of the Annual Report to Shareholders for the
year ended December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13 hereto, and is incorporated herein by
reference.



<P align="left" style="font-size: 10pt">The Company&#146;s MVSD service offerings include maintenance and support, education, and consulting
services. Maintenance and support programs include hardware support programs that entitle
customers to have failed product repaired, as well as software support programs that provide
customers with application support and software updates on the latest software releases. Education
services include a variety of product courses that are available at the Company&#146;s offices
worldwide, at customer facilities, and on computer-based tutorials, video, and the Internet. The
Company provides consulting services that range from a specific area of functionality to a
completely integrated machine vision application.



<P align="left" style="font-size: 10pt">The Company&#146;s SISD service offerings include maintenance and support and education services similar
to those provided by MVSD, as well as installation services. The installation services group
supervises the physical installation of the hardware at the customer location, configures the
software application to detect the customer&#146;s defects, validates that the entire integrated system
with the peripheral components is functioning according to the specifications, and performs
operator training.



<P align="left" style="font-size: 10pt"><B>Intellectual Property</B>



<P align="left" style="font-size: 10pt">Because the Company relies on the technical expertise, creativity, and knowledge of its personnel,
it utilizes patent, trademark, copyright, and trade secret protection to safeguard its competitive
position. At December&nbsp;31, 2004, the Company had obtained 202 patents on various innovations in the
field of machine vision technology and had more than 106 patent applications pending. In addition,
the Company




<P align="center" style="font-size: 10pt">6
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<P align="left" style="font-size: 10pt">makes use of non-disclosure agreements with customers, suppliers, employees, and consultants. The
Company attempts to protect its intellectual property by restricting access to its proprietary
information by a combination of technical and internal security measures. There can be no
assurance, however, that any of the above measures will be adequate to protect the proprietary
technology of the Company. Moreover, effective patent, trademark, copyright, and trade secret
protection may be unavailable in certain foreign countries.



<P align="left" style="font-size: 10pt">The Company&#146;s trademark and servicemark portfolio includes various registered marks, including but
not limited to, Cognex<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, PatMax<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, VisionPro<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>,
In-Sight<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, DisplayInspect<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, and SmartView<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, as well as many
common-law marks, including but not limited to, Checker<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> and DataMan<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP>. In
addition, the Company has sought and obtained a number of trademark registrations outside of the
United States. All third-party brand names, servicemarks, and trademarks referenced in this
document are the property of their respective owners.



<P align="left" style="font-size: 10pt">The Company&#146;s software products are protected by various security schemes and are primarily
licensed to customers pursuant to a license agreement that restricts the use of the products to the
customer&#146;s purposes, as well as imposes strict limitations on the customer&#146;s use of the Company&#146;s
trade secret, proprietary, and other confidential business information to which the customer may
have access. The Company has made portions of its source code available to certain customers under
very limited circumstances and for restricted uses. If the source code is released to a customer,
the customer is required by contract to maintain its confidentiality and, in general, to use the
source code solely for internal purposes or for maintenance.



<P align="left" style="font-size: 10pt">Numerous users of the Company&#146;s products have received notice of patent infringement from the
Lemelson Medical, Educational, &#038; Research Foundation, Limited Partnership (the &#147;Partnership&#148;)
alleging that their use of the Company&#146;s products infringes certain patents transferred to the
Partnership by the late Jerome H. Lemelson. The Company does not believe its products infringe any
valid and enforceable claims of the Partnership&#146;s patents.



<P align="left" style="font-size: 10pt">As a result of continuing assertions against current and potential Cognex customers, the Company
decided to initiate action against the Partnership in order to preserve its right to sell machine
vision products without the threat of legal action against the Company or its customers.
Accordingly, on September&nbsp;23, 1998, the Company filed a complaint against the Partnership seeking a
declaration that Lemelson&#146;s machine vision patents are invalid, unenforceable, and not infringed by
either Cognex or by any users of Cognex products.



<P align="left" style="font-size: 10pt">On January&nbsp;23, 2004, the U.S. District Court of Nevada issued a court order ruling in favor of
Cognex and finding that all of the Lemelson patent claims in suit are unenforcable, invalid, and
not infringed by Cognex. On June&nbsp;23, 2004, the Partnership filed a notice of appeal with respect
to this decision with the U.S. Court of Appeals for the Federal Circuit. The matter has been fully
briefed to the Court of Appeals which will likely render its decision during 2005. Cognex cannot
predict the outcome of this appeal.



<P align="left" style="font-size: 10pt"><B>Compliance with Environmental Provisions</B>



<P align="left" style="font-size: 10pt">The Company&#146;s capital expenditures, earnings, and competitive position are not materially affected
by compliance with federal, state, and local environmental provisions which have been enacted or
adopted to regulate the distribution of materials into the environment.



<P align="left" style="font-size: 10pt"><B>Competition</B>



<P align="left" style="font-size: 10pt">The Company competes with other vendors of machine vision systems, the internal engineering efforts
of the Company&#146;s current or prospective customers, and the manufacturers of image processing
systems. Any of these competitors may have greater financial and other resources than the Company.
Although the Company considers itself to be one of the leading machine vision companies in the
world, reliable estimates of the machine vision market and the number of competitors are not
available. The primary competitive factors affecting the choice of a machine vision system include
vendor reputation, product functionality and performance, ease-of-use, price, and post-sales
support.




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<P align="left" style="font-size: 10pt"><B>Backlog</B>



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, the Company&#146;s backlog totaled $29,023,000, compared to $25,930,000 at
December&nbsp;31, 2003. Backlog reflects purchase orders for products scheduled for shipment primarily
within three months at MVSD and within six months at SISD. The level of backlog at any particular
date is not necessarily indicative of future revenue of the Company. The Company&#146;s low-cost vision
sensors typically ship within one week of when the order is booked. In addition, delivery
schedules may be extended and orders may be canceled at any time subject to certain cancellation
penalties.



<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, the Company employed 662 persons, including 330 in sales, marketing, and
service activities; 157 in research, development, and engineering; 61 in manufacturing and quality
assurance; and 114 in information technology, finance, and administration. Of the Company&#146;s 662
employees, 242 are based outside of the United States. None of the Company&#146;s employees are
represented by a labor union and the Company has experienced no work stoppages. The Company
believes that its employee relations are good.



<P align="left" style="font-size: 10pt"><B>Risk Factors</B>



<P align="left" style="font-size: 10pt"><I>Unfavorable changes in economic conditions and capital spending may negatively impact the Company&#146;s
operating results.</I>



<P align="left" style="font-size: 10pt">The Company&#146;s revenue is dependent upon the capital spending trends of manufacturers in a number of
industries and regions. These spending levels are, in turn, impacted by global economic
conditions. The Company&#146;s operating results have been materially adversely affected in the past,
and could be materially adversely affected in the future, as a result of unfavorable economic
conditions and reduced capital spending by manufacturers worldwide.



<P align="left" style="font-size: 10pt"><I>Downturns in the semiconductor and electronics industries may adversely affect the Company&#146;s
business.</I>



<P align="left" style="font-size: 10pt">In 2004, approximately 42% of the Company&#146;s revenue was derived from semiconductor and electronics
capital equipment manufacturers. This concentration was as high as 61% in 2000. The semiconductor
and electronics industries are highly cyclical and have historically experienced periodic
downturns, which have often had a severe effect on demand for production equipment that
incorporates the Company&#146;s products. While the Company has been successful in recent years in
diversifying its business beyond OEM customers who serve the semiconductor and electronics
industries, the Company is still largely dependent upon the capital expenditures in these
industries, which, in turn, are dependent upon the market demand for products containing computer
chips. As a result, the Company&#146;s operating results in the foreseeable future could be
significantly and adversely affected by a slowdown in either of these industries.



<P align="left" style="font-size: 10pt"><I>Economic, political, and other risks associated with international sales and operations could
adversely affect the Company&#146;s business and operating results.</I>



<P align="left" style="font-size: 10pt">In 2004, approximately 69% of the Company&#146;s revenue was derived from customers located outside of
the United States. The Company anticipates that international sales will continue to account for a
significant portion of its revenue. The Company intends to continue to expand its operations
outside of the United States and may enter additional international markets, which will require
significant management attention and financial resources. The Company&#146;s operations are subject to
the risks inherent in international sales, including, but not limited to, various regulatory
requirements, transportation delays, difficulties in staffing and managing foreign sales
operations, and potentially adverse tax consequences. In addition, fluctuations in foreign
currency exchange rates may render the Company&#146;s products less competitive relative to local
product offerings, or could result in significant foreign currency losses if not properly hedged.
The Company is also subject to the political risks inherent in international operations and their
impact on the global economy, including economic disruption from acts of war or terrorism,
particularly in





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<P align="left" style="font-size: 10pt">the aftermath of the terrorist attacks of September&nbsp;11, 2001. Any of these factors could have a
material adverse effect on the Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>Fluctuations in foreign exchange rates could materially affect the Company&#146;s reported results.</I>



<P align="left" style="font-size: 10pt">The Company faces exposure to adverse movements in foreign currency exchange rates as a significant
portion of its revenue, expenses, assets, and liabilities are denominated in currencies other than
the functional currencies of the Company or its subsidiaries. In certain instances, the Company
utilizes derivative instruments to hedge against certain foreign currency fluctuations. These
contracts are used to reduce the Company&#146;s risk associated with foreign currency exchange rate
changes, as the gains or losses on the derivative are intended to offset the losses or gains on the
underlying exposure. The Company does not engage in foreign currency speculation. The success of
the Company&#146;s foreign currency risk management program depends upon forecasts of transaction
activity denominated in various currencies. To the extent that these forecasts are overstated or
understated during periods of currency volatility, the Company could experience unanticipated
foreign currency gains or losses that could have a material impact on the Company&#146;s results of
operations. In addition, the failure to identify new exposures and hedge them in a timely manner
may result in material foreign currency gains or losses.



<P align="left" style="font-size: 10pt"><I>The loss of a large customer could have an adverse effect on the Company&#146;s operating results.</I>



<P align="left" style="font-size: 10pt">In 2004, the Company&#146;s top five customers accounted for approximately 15% of total revenue. In
recent years, the Company&#146;s expansion into the end-user marketplace has reduced its reliance upon
the revenue from any one of its larger OEM customers. Nevertheless, the loss of, or significant
curtailment of purchases by, any one or more of the Company&#146;s larger customers could have a
material adverse effect on the Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>The failure of a key supplier to deliver quality product in a timely manner or the Company&#146;s
inability to obtain components for its products could adversely affect the Company&#146;s operating
results.</I>



<P align="left" style="font-size: 10pt">A significant portion of the Company&#146;s MVSD inventory is manufactured by a third-party contractor.
The Company is dependent upon this contractor to provide quality product and meet delivery
schedules. The Company engages in extensive product quality programs and processes, including
actively monitoring the performance of its third-party manufacturers, however, these programs and
processes may not detect all product quality issues. In addition, a variety of components used in
the Company&#146;s products are only available from a single source. The announcement by a
single-source supplier of a last-time component buy could result in a significant amount of
inventory purchases, that in turn, could lead to an increased risk of inventory obsolescence. An
interruption in, termination of, or material change in the purchase terms of any single-source
components could have a material adverse effect on the Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>The Company&#146;s business could suffer if it loses the services of, or fails to attract, key
personnel.</I>



<P align="left" style="font-size: 10pt">The Company is highly dependent upon the management and leadership of Robert J. Shillman, Chief
Executive Officer and Chairman of the Board of Directors of the Company, as well as other members
of the Company&#146;s senior management team, including James Hoffmaster who was promoted to President
of Cognex Corporation during 2004 with full responsibility for running the day-to-day operations of
the Company. Although the Company has retained many experienced and qualified senior managers, the
loss of certain key personnel could have a material adverse effect on the Company. The Company&#146;s
continued growth and success also depends upon its ability to attract and retain skilled employees
and on the ability of its officers and key employees to effectively manage the growth of the
Company through the implementation of appropriate management information systems and internal
controls.



<P align="left" style="font-size: 10pt"><I>Products that the Company manufactures may contain design or manufacturing defects, which could
result in reduced demand, significant delays, or substantial costs.</I>



<P align="left" style="font-size: 10pt">If flaws in either the design or manufacture of the Company&#146;s products were to occur, the Company
could experience a rate of failure in its products that could result in significant delays in
shipment and material repair or replacement costs. While the Company engages in extensive product
quality programs and




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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">processes, including actively monitoring and evaluating the quality of its component suppliers and
contract manufacturers, there can be no assurance that these actions will be sufficient to avoid a
product failure rate that results in substantial delays in shipment, significant repair or
replacement costs, or potential damage to the Company&#146;s reputation, any of which could have a
material adverse effect on the Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>The Company&#146;s failure to accurately forecast customer demand could result in inventory obsolescence
and resulting charges.</I>



<P align="left" style="font-size: 10pt">In recent years, the Company has expanded its presence in the end-user marketplace. The Company&#146;s
end-user business typically operates with a relatively short backlog and production plans are based
on internal forecasts of customer demand. Due to these factors, the Company has in the past, and
may again in the future, fail to accurately forecast demand, in terms of both volume and
configuration for either its legacy or next-generation products. This has led to, and may again in
the future lead to, an increased risk of inventory obsolescence and resulting charges.



<P align="left" style="font-size: 10pt"><I>Failure to develop new products and to respond to technological changes could result in the loss of
market share and a decrease in the Company&#146;s revenues.</I>



<P align="left" style="font-size: 10pt">The market for the Company&#146;s products is characterized by rapidly changing technology.
Accordingly, the Company believes that its future success will depend upon its ability to develop
or acquire new products with improved price/performance and introduce them to the marketplace in a
timely manner. There can be no assurance that the Company will be able to introduce and market new
products successfully and respond effectively to technological changes or new product introductions
by competitors. The inability to keep pace with the rapid rate of technological change in the
high-technology marketplace could have a material adverse effect on the Company&#146;s operating
results.



<P align="left" style="font-size: 10pt"><I>If the Company fails to successfully defend its intellectual property, its competitive position and
operating results could suffer.</I>



<P align="left" style="font-size: 10pt">The Company relies heavily on its proprietary software technology and hardware designs, as well as
the technical expertise, creativity, and knowledge of its personnel. Although the Company uses a
variety of methods to protect its intellectual property, it relies most heavily on patent,
trademark, copyright, and trade secret protection, as well as non-disclosure agreements with
customers, suppliers, employees, and consultants. The Company attempts to protect its intellectual
property by restricting access to its proprietary information by a combination of technical and
internal security measures. There can be no assurance, however, that any of these measures will be
adequate to protect the proprietary technology of the Company, that any patents issued to the
Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. Any such adverse circumstances could have a
material effect on the Company&#146;s operating results. Readers should refer to the section captioned
&#147;Intellectual Property,&#148; appearing in Part I &#151; Item&nbsp;I of this Annual Report on Form&nbsp;10-K.



<P align="left" style="font-size: 10pt"><I>The Company may be subject to costly litigation.</I>



<P align="left" style="font-size: 10pt">From time to time, the Company may be subject to various claims and lawsuits by competitors,
customers, or other parties arising in the ordinary course of business, including lawsuits charging
patent infringement. Such matters can be time-consuming, divert management&#146;s attention and
resources, and cause the Company to incur significant expenses. Furthermore, there can be no
assurance that the results of any of these actions will not have a material adverse effect on the
Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>Increased competition may result in decreased demand or prices for the Company&#146;s products and
services.</I>



<P align="left" style="font-size: 10pt">The Company competes with other vendors of machine vision systems, the internal engineering
efforts of the Company&#146;s current or prospective customers, and the manufacturers of image
processing systems. Any of these competitors may have greater financial and other resources than
the Company. In recent




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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">years, ease-of-use and product price have become significant competitive factors in the end-user
marketplace. There can be no assurance that the Company will be able to compete successfully in
the future or that the Company&#146;s investments in research and development, sales and marketing, and
service activities will prove sufficient to enable the Company to maintain its competitive
advantage. In addition, competitive pressures could lead to price erosion that could materially
and adversely affect the Company&#146;s operating results. Readers should refer to the section
captioned &#147;Competition,&#148; appearing in Part I &#151; Item&nbsp;1 of this Annual Report on Form&nbsp;10-K.



<P align="left" style="font-size: 10pt"><I>Implementation of the Company&#146;s acquisition strategy may not be successful, which could affect the
Company&#146;s ability to increase its revenue or profitability.</I>



<P align="left" style="font-size: 10pt">The Company&#146;s business strategy includes selective expansion into other machine vision applications
through the acquisition of businesses and technologies. Since 1995, the Company has completed nine
business and technology acquisitions. The Company plans to continue to seek opportunities to
expand its product line, customer base, and technical talent through acquisitions in the machine
vision industry. Acquisitions involve numerous risks, including, but not limited to, diversion of
management&#146;s attention from other operational matters, the inability to realize expected synergies
resulting from the acquisition, failure to commercialize purchased technology, and the impairment
of acquired intangible assets resulting from technological obsolescence or lower-than-expected cash
flows from the acquired assets. Acquisitions are inherently risky and the inability to effectively
manage these risks could have a material adverse effect on the Company&#146;s operating results.



<P align="left" style="font-size: 10pt"><I>The trading price of the Company&#146;s common stock may be volatile.</I>



<P align="left" style="font-size: 10pt">The price of the Company&#146;s common stock has historically experienced significant volatility due to
fluctuations in the Company&#146;s revenue and earnings, changes in the market&#146;s expectations for the
Company&#146;s growth, overall equity market conditions, conditions relating to the market for
technology stocks, general economic conditions, and other factors unrelated to the Company&#146;s
operations. The stock markets have experienced extreme price volatility in recent years. This
volatility has had a substantial effect on the market prices of securities issued by many
technology companies, often for reasons unrelated to the operating results of the specific company.



<P align="left" style="font-size: 10pt"><B>Available Information</B>



<P align="left" style="font-size: 10pt">The Company maintains a website on the World Wide Web at <U>www.cognex.com</U>. The Company makes
available, free of charge, on its website in the section captioned &#147;Investors &#150; SEC FiIings&#148; its
Annual Report on Form&nbsp;10-K, Quarterly Reports on Form&nbsp;10-Q, Current Reports on Form&nbsp;8-K, and
amendments to those reports filed or furnished pursuant to Section&nbsp;13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the SEC. The Company&#146;s reports filed with, or
furnished to, the SEC are also available at the SEC&#146;s website at
<U>www.sec.gov</U>. Information
contained on the Company&#146;s website is not a part of, or incorporated by reference into, this Annual
Report on Form&nbsp;10-K.


<DIV align="left">
<A name="103"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 2: </B><B><I>PROPERTIES</I></B>



<P align="left" style="font-size: 10pt">In 1994, the Company purchased and renovated a 100,000 square-foot building located in Natick,
Massachusetts that serves as its corporate headquarters. In 1997, the Company completed
construction of a 50,000 square-foot addition to this building.



<P align="left" style="font-size: 10pt">In 1995, the Company purchased an 83,000 square-foot office building adjacent to its corporate
headquarters. The building is currently largely occupied with tenants who have lease agreements
that expire at various dates through 2007. The Company uses a portion of the space for storage.



<P align="center" style="font-size: 10pt">11
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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">In 1997, the Company purchased a three and one-half acre parcel of land situated on Vision Drive,
adjacent to the Company&#146;s corporate headquarters. This land is being held for future expansion.


<DIV align="left">
<A name="104"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 3: </B><B><I>LEGAL PROCEEDINGS</I></B>



<P align="left" style="font-size: 10pt">To the Company&#146;s knowledge, there are no pending legal proceedings, other than as described in the
section captioned &#147;Intellectual Property,&#148; appearing in Part I &#151; Item&nbsp;I of this Annual Report on
Form&nbsp;10-K, which are material to the Company. From time to time, however, the Company may be
subject to various claims and lawsuits by competitors, customers, or other parties arising in the
ordinary course of business, including lawsuits charging patent infringement. There can be no
assurance as to the outcome of any of this litigation.


<DIV align="left">
<A name="105"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 4: </B><B><I>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</I></B>



<P align="left" style="font-size: 10pt">There were no matters submitted during the fourth quarter of the year ended December&nbsp;31, 2004 to a
vote of security holders through solicitation of proxies or otherwise.


<DIV align="left">
<A name="106"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 4A</B><B><I>: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANT</I></B>



<P align="left" style="font-size: 10pt">The following table sets forth the names, ages, and titles of the Company&#146;s executive officers at
December&nbsp;31, 2004:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert J. Shillman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Chairman of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Patrick Alias
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James Hoffmaster
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Operating Officer</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Richard Morin
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">55</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Finance and Administration, Chief Financial
Officer, and Treasurer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Messrs.&nbsp;Shillman, Alias, and Morin have been employed by the Company in their present or other
capacities for no less than the past five years.



<P align="left" style="font-size: 10pt">Mr.&nbsp;Hoffmaster joined the Company in 2001 as Chief Operating Officer and President, MVSD, and was
promoted to President of Cognex Corporation in 2004. Prior to joining the Company, Mr.&nbsp;Hoffmaster
was the Chief Executive Officer of Fibersense, a Massachusetts-based company specializing in the
application of fiber optic technology to gyroscopes and other sensors. Prior to that, Mr.
Hoffmaster served as President of Fisher-Rosemount Systems, a division of Emerson Electric. He
holds a Masters of Computer and Information Science degree and a Bachelor of Arts degree in
Economics from Cleveland State University.



<P align="left" style="font-size: 10pt">Executive officers are elected annually by the Board of Directors. There are no family
relationships among the directors and executive officers of the Company.



<P align="left" style="font-size: 10pt">Other members of the senior management team include the following individuals:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Eric Ceyrolle
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Cognex International</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Markku Jaaskelainen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and General Manager, SISD</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Marilyn Matz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President, PC Vision</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">E. John McGarry
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President, In-Sight</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Akira Nakamura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Cognex K.K.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kris Nelson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">57</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Sales, North America</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">William Silver
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of R&#038;D and Chief Technology Officer, MVSD</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Justin Testa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President, ID Products</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<P align="left" style="font-size: 10pt">Messrs.&nbsp;Ceyrolle, Jaaskelainen, McGarry, Nelson, Silver, and Testa and Ms.&nbsp;Matz have been employed
by the Company in their present or other capacities for no less than the past five years.



<P align="left" style="font-size: 10pt">Mr.&nbsp;Nakamura joined the Company in 2000 after having served as President of Intergraph Japan, K.K.,
a worldwide provider of CAD/CAM technology. Prior to that, Mr.&nbsp;Nakamura spent 20&nbsp;years in sales
and sales management at senior levels for IBM Japan. Mr.&nbsp;Nakamura holds a Bachelor of Science
degree in Electronic Communication from Tohoku University.



<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">



<DIV align="left">
<A name="107"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>


<DIV align="left">
<A name="108"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 5: </B><B><I>MARKET FOR THE REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES</I></B>



<P align="left" style="font-size: 10pt">Information with respect to this item may be found in the sections captioned &#147;Selected Quarterly
Financial Data (Unaudited)&#148; and &#147;Company Information,&#148; appearing on pages 73 through 75 of the
Annual Report to Shareholders for the year ended December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13
hereto, and is incorporated herein by reference.


<DIV align="left">
<A name="109"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 6: </B><B><I>SELECTED FINANCIAL DATA</I></B>



<P align="left" style="font-size: 10pt">Information with respect to this item may be found in the section captioned &#147;Five-Year Summary of
Selected Financial Data,&#148; appearing on page 72 of the Annual Report to Shareholders for the year
ended December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13 hereto, and is incorporated herein by
reference.


<DIV align="left">
<A name="110"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 7: </B><B><I>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</I></B>



<P align="left" style="font-size: 10pt">Information with respect to this item may be found in the section captioned &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations,&#148; appearing on pages 25
through 41 of the Annual Report to Shareholders for the year ended December&nbsp;31, 2004, which is
attached as Exhibit&nbsp;13 hereto, and is incorporated herein by reference.


<DIV align="left">
<A name="111"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 7A: </B><B><I>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</I></B>



<P align="left" style="font-size: 10pt">Information with respect to this item may be found in the section captioned &#147;Quantitative and
Qualitative Disclosures About Market Risk,&#148; appearing on pages 39 through 41 of the Annual Report
to Shareholders for the year ended December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13 hereto, and
is incorporated herein by reference.


<DIV align="left">
<A name="112"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 8: </B><B><I>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</I></B>



<P align="left" style="font-size: 10pt">Information with respect to this item, which includes the consolidated financial statements and
notes thereto, reports of independent registered public accounting firms, and supplementary data,
may be found on pages 42 through 73 of the Annual Report to Shareholders for the year ended
December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13 hereto, and is incorporated herein by reference.


<DIV align="left">
<A name="113"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9: </B><B><I>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</I></B>



<P align="left" style="font-size: 10pt">On June&nbsp;10, 2003, the Company filed a Current Report, dated June&nbsp;5, 2003, on Form&nbsp;8-K regarding the
dismissal of PricewaterhouseCoopers LLP and the engagement of Ernst &#038; Young LLP as their principal
independent accountants.



<P align="left" style="font-size: 10pt">There were no disagreements with accountants on accounting or financial disclosure during 2004 or
2003.




<P align="center" style="font-size: 10pt">14
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">



<DIV align="left">
<A name="114"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9A: </B><B><I>CONTROLS AND PROCEDURES</I></B>



<P align="left" style="font-size: 10pt"><B>Disclosure Controls and Procedures</B>



<P align="left" style="font-size: 10pt">As required by Rules&nbsp;13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has
evaluated with the participation of management, including the Chief Executive Officer and the Chief
Financial Officer, the effectiveness of its disclosure controls and procedures as of the end of the
period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the SEC&#146;s rules and forms. From time to time, the Company reviews the
disclosure controls and procedures, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that the Company&#146;s systems evolve with its business.



<P align="left" style="font-size: 10pt"><B>Management&#146;s Report on Internal Control over Financial Reporting</B>



<P align="left" style="font-size: 10pt">Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Management has evaluated the effectiveness of the Company&#146;s internal control over
financial reporting based upon the framework in Internal Control &#150; Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this
evaluation, management has concluded that the Company&#146;s internal control over financial reporting
was effective as of December&nbsp;31, 2004.



<P align="left" style="font-size: 10pt">Management&#146;s assessment of the effectiveness of the Company&#146;s internal control over financial
reporting as of December&nbsp;31, 2004 has been audited by Ernst &#038; Young LLP, an independent registered
public accounting firm, as stated in their report which is included herein.



<P align="left" style="font-size: 10pt"><B>Changes in Internal Control over Financial Reporting</B>



<P align="left" style="font-size: 10pt">There have been no changes in the Company&#146;s internal control over financial reporting that occurred
during the quarter ended December&nbsp;31, 2004 that have materially affected, or are reasonably likely
to materially affect, the Company&#146;s internal control over financial reporting.




<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<P align="left" style="font-size: 10pt"><B>COGNEX CORPORATION - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROLS OVER FINANCIAL REPORTING</B>


<P align="left" style="font-size: 10pt"><B>To The Board of Directors and Shareholders of Cognex Corporation</B>


<P align="left" style="font-size: 10pt">We have audited management&#146;s assessment, included in the accompanying Report on Internal Controls
over Financial Reporting, that Cognex Corporation and subsidiaries maintained effective internal
control over financial reporting as of December&nbsp;31, 2004, based on criteria established in Internal
Control&#151;Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Cognex Corporation&#146;s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
management&#146;s assessment and an opinion on the effectiveness of the company&#146;s internal control over
financial reporting based on our audit.


<P align="left" style="font-size: 10pt">We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management&#146;s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.


<P align="left" style="font-size: 10pt">A company&#146;s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company&#146;s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)&nbsp;provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3)&nbsp;provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company&#146;s assets that could have a material effect on the
financial statements.


<P align="left" style="font-size: 10pt">Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.


<P align="left" style="font-size: 10pt">In our opinion, management&#146;s assessment that Cognex Corporation and subsidiaries maintained
effective internal control over financial reporting as of December&nbsp;31, 2004, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Cognex Corporation and
subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December&nbsp;31, 2004, based on the COSO criteria<B>.</B>



<P align="left" style="font-size: 10pt">We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Cognex Corporation and subsidiaries as of
December&nbsp;31, 2004 and 2003, and the related consolidated statements of income, shareholders&#146;
equity, and cash flows for each of the two years in the period ended December&nbsp;31, 2004 and our
report dated March&nbsp;4, 2005 expressed an unqualified opinion thereon.


<P align="left" style="font-size: 10pt">/s/ Ernst &#038; Young LLP


<P align="left" style="font-size: 10pt">Boston, Massachusetts<BR>
March&nbsp;4, 2005



<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="left">
<A name="115"></A>
</DIV>



<P align="center" style="font-size: 10pt"><B>PART III</B>


<DIV align="left">
<A name="116"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 10: </B><B><I>DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</I></B>


<P align="left" style="font-size: 10pt">Information with respect to Directors and Executive Officers of the Company required by Item&nbsp;10
shall be included in the Company&#146;s definitive Proxy Statement for the Special Meeting in Lieu
of the 2005 Annual Meeting of Shareholders to be held on April&nbsp;21, 2005 and is incorporated
herein by reference. In addition, certain information with respect to Executive Officers of
the Company may be found in the section captioned &#147;Executive Officers and Other Members of the
Management Team of the Registrant,&#148; appearing in Part&nbsp;I &#151; Item&nbsp;4A of this Annual Report on
Form 10-K.


<P align="left" style="font-size: 10pt">The Company has adopted a Code of Business Conduct and Ethics covering all employees, which is
available, free of charge, on the Company&#146;s website, <U>www.cognex.com,</U> and is included in this
Annual Report on Form 10-K as Exhibit&nbsp;14. The Company intends to disclose any amendments to or
waivers of the Code of Business Conduct and Ethics on behalf of the Company&#146;s Chief Executive
Officer, Chief Financial Officer, Controller, and persons performing similar functions on the
Company&#146;s website.


<DIV align="left">
<A name="117"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 11: </B><B><I>EXECUTIVE COMPENSATION</I></B>


<P align="left" style="font-size: 10pt">Information with respect to executive compensation required by Item&nbsp;11 shall be included in the
Company&#146;s definitive Proxy Statement for the Special Meeting in Lieu of the 2005 Annual
Meeting of Shareholders to be held on April&nbsp;21, 2005 and is incorporated herein by reference.


<DIV align="left">
<A name="118"></A>
</DIV>
<P align="left" style="font-size: 10pt"><B>ITEM 12: </B><B><I>SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS</I></B>


<P align="left" style="font-size: 10pt">Information with respect to security ownership and the other matters required by Item&nbsp;12 shall be
included in the Company&#146;s definitive Proxy Statement for the Special Meeting in Lieu of the 2005
Annual Meeting of Shareholders to be held on April&nbsp;21, 2005 and is incorporated herein by
reference.


<P align="left" style="font-size: 10pt">The following table provides information as of December&nbsp;31, 2004 regarding shares of common stock
that may be issued under the Company&#146;s existing equity compensation plans, including the 1998
Director Plan, the 1998 Stock Incentive Plan, and the 2001 General Stock Option Plan. The Company
also has an Employee Stock Purchase Plan (ESPP).


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Equity Compensation Plan Information</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of securities</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">remaining available for future</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of securities to be</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">issuance under equity</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">issued upon exercise of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-average exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">compensation plans</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options, warrants,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">price of outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(excluding securities reflected</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Plan Category</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and rights</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants, and rights</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">in column (a))</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(c)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans approved by
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10,268,978</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2,040,288</TD>
    <TD nowrap>(2)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans not approved
by shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">350,834</TD>
    <TD nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7,500,000</TD>
    <TD nowrap>(4)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,619,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,540,288</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P>
<HR noshade size="1" width="18%" align="left">
</P>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)&nbsp;&nbsp;</TD>
    <TD>Includes shares issuable upon exercise of outstanding options under the Company&#146;s 1993
Stock Option Plan, 1993 Stock Option Plan for Employee Directors, 1991 Isys Controls, Inc.
Long-Term Equity Incentive Plan, 1998 Director Plan, and 1998 Stock Incentive Plan. Does
not include purchase rights accruing under the ESPP because the purchase price (and
therefore the number of shares to be purchased) will not be determined until the end of the
purchase period.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)&nbsp;&nbsp;</TD>
    <TD>Includes shares remaining available for future issuance under the Company&#146;s 1998
Director Plan and 1998 Stock Incentive Plan. Includes 228,969 shares available for future
issuance under the ESPP.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)&nbsp;&nbsp;</TD>
    <TD>Includes shares issuable upon the exercise of outstanding options under the Company&#146;s
2001 Interim General Stock Incentive Plan.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(4)&nbsp;&nbsp;</TD>
    <TD>Includes shares remaining available for future issuance under the Company&#146;s 2001
General Stock Option Plan.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The 2001 General Stock Option Plan was adopted by the Board of Directors on December&nbsp;11, 2001
without shareholder approval. This plan provides for the granting of nonqualified stock options to
any



<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">



<P align="left" style="font-size: 10pt">employee who is actively employed by the Company and is not an officer or director of the Company.
The maximum number of shares of common stock available for grant under the plan is 7,500,000
shares. All option grants must have an exercise price per share that is no less than the fair
market value per share of the Company&#146;s common stock on the grant date and must have a term that is
no longer than fifteen years from the grant date. No stock options have been granted under the
2001 General Stock Option Plan.


<P align="left" style="font-size: 10pt">The 2001 Interim General Stock Incentive Plan was adopted by the Board of Directors on July&nbsp;17,
2001 without shareholder approval. This plan provides for the granting of nonqualified stock
options to any employee who is actively employed by the Company and is not an officer or director
of the Company. The maximum number of shares of common stock available for grant under the plan is
400,000 shares. All option grants have an exercise price per share that is no less than the fair
market value per share of the Company&#146;s common stock on the grant date and must have a term that is
no longer than fifteen years from the grant date. All 400,000 stock options have been granted
under the 2001 Interim General Stock Incentive Plan.


<DIV align="left">
<A name="119"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 13: </B><B><I>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</I></B>


<P align="left" style="font-size: 10pt">Information with respect to certain relationships and related transactions required by Item&nbsp;13
shall be included in the Company&#146;s definitive Proxy Statement for the Special Meeting in Lieu
of the 2005 Annual Meeting of Shareholders to be held on April&nbsp;21, 2005 and is incorporated
herein by reference.


<DIV align="left">
<A name="120"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 14: </B><B><I>PRINCIPAL ACCOUNTANT FEES AND SERVICES</I></B>


<P align="left" style="font-size: 10pt">Information with respect to principal accountant fees and services required by Item&nbsp;14 shall be
included in the Company&#146;s definitive Proxy Statement for the Special Meeting in Lieu of the
2005 Annual Meeting of Shareholders to be held on April&nbsp;21, 2005 and is incorporated herein by
reference.



<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">



<DIV align="left">
<A name="121"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART IV</B>


<DIV align="left">
<A name="122"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)&nbsp;&nbsp;</TD>
    <TD>Financial Statements</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>The following consolidated financial statements of Cognex Corporation and the reports of
independent public accounting firms relating thereto are included in the Company&#146;s Annual
Report to Shareholders for the year ended December&nbsp;31, 2004, which is attached as Exhibit&nbsp;13
hereto, and are incorporated herein by reference:</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Consolidated Statements of Operations for the years ended December&nbsp;31, 2004, 2003, and
2002


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Consolidated Balance Sheets at December&nbsp;31, 2004 and 2003


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2004, 2003 and
2002


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Consolidated Statements of Shareholders&#146; Equity for the years ended December&nbsp;31, 2004,
2003, and 2002


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Notes to Consolidated Financial Statements


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Reports of Independent Public Accounting Firms


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)&nbsp;&nbsp;</TD>
    <TD>Financial Statement Schedule</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Included at the end of this report are the following:</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Report of Independent Registered Public Accounting Firm on the Financial Statement
Schedule


<P align="left" style="margin-left: 16%; text-indent: -10%; margin-right: 0%; font-size: 10pt">Schedule&nbsp;II &#151; Valuation and Qualifying Accounts


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Other schedules are omitted because of the absence of conditions under which they are
required or because the required information is given in the consolidated financial
statements or notes thereto.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)&nbsp;&nbsp;</TD>
    <TD>Exhibits</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>The Exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit
Index, immediately preceding such Exhibits.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>

<DIV align="left">
<A name="123"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>


<P align="left" style="font-size: 10pt">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">COGNEX CORPORATION<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="right">By:&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert J. Shillman
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Robert J. Shillman<BR>
Chief Executive Officer and Chairman of the Board of Directors&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Signature</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Title</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Robert J. Shillman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board of Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert J. Shillman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(principal executive officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Richard Morin
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Finance, Chief
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Officer, and Treasurer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Richard Morin
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(principal financial and accounting officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Patrick Alias
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Patrick Alias</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Jerald Fishman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jerald Fishman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ William Krivsky
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">William Krivsky</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Anthony Sun
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Anthony Sun</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Reuben Wasserman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;11, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Reuben Wasserman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<P align="left" style="font-size: 10pt"><B>COGNEX CORPORATION - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
STATEMENT SCHEDULE</B>


<P align="left" style="font-size: 10pt"><B>To the Board of Directors and Shareholders of Cognex Corporation:</B>


<P align="left" style="font-size: 10pt">We have audited the consolidated financial statements of Cognex Corporation as of December&nbsp;31, 2004
and 2003, and for the each of the two years then ended, and have issued our report thereon dated
March&nbsp;4, 2005 (incorporated by reference in this Annual Report (Form 10-K)). Our audits also
included the financial statement schedule listed in Item&nbsp;15(2) of this Annual Report (Form 10-K).
This schedule is the responsibility of the Company&#146;s management. Our responsibility is to express
an opinion based on our audits.


<P align="left" style="font-size: 10pt">In our opinion, the financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.


<P align="left" style="font-size: 10pt">/s/ Ernst &#038; Young LLP



<P align="left" style="font-size: 10pt">Boston, Massachusetts<BR>
March&nbsp;4, 2005


<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">
<P align="left" style="font-size: 10pt"><B>COGNEX CORPORATION -  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
STATEMENT SCHEDULE</B>


<P align="left" style="font-size: 10pt"><B>To the Board of Directors and Shareholders of Cognex Corporation:</B>


<P align="left" style="font-size: 10pt">Our audit of the consolidated financial statements referred to in our report dated January&nbsp;24, 2003
appearing in the 2004 Annual Report to Shareholders of Cognex Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule for the year ended December&nbsp;31, 2002,
listed in Item&nbsp;15(2) of this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in conjunction with
the related consolidated financial statements.


<P align="left" style="font-size: 10pt">/s/ PricewaterhouseCoopers LLP



<P align="left" style="font-size: 10pt">Boston, Massachusetts<BR>
January&nbsp;24, 2003


<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<P align="left" style="font-size: 10pt"><B>COGNEX CORPORATION -
SCHEDULE II -  VALUATION AND QUALIFYING ACCOUNTS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Additions</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Charged</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Charged</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Beginning</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>to Costs and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>to Other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>End of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>of Period</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Expenses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accounts</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Deductions</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="36">(Dollars in thousands)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="9" align="left">Reserve for Uncollectible Accounts:</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(283</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,613</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(213</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="9" align="left">Reserve for Inventory Obsolescence:</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,206</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(805</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(d</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,694</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,290</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(d</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,408</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">1,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(a</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(496</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,790</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(d</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,478</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">(a)&nbsp;Settlement of inventory purchase commitments<BR>
(b)&nbsp;Specific write-offs<BR>
(c)&nbsp;Specific dispositions<BR>
(d)&nbsp;Sale of inventory previously reserved


<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">
<DIV align="left">
<A name="124"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>EXHIBIT INDEX</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000"><B>EXHIBIT NUMBER</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3A
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Restated Articles of Organization of Cognex Corporation effective June&nbsp;27, 1989,
as amended April&nbsp;30, 1991, April&nbsp;21, 1992, April&nbsp;25, 1995, April&nbsp;23, 1996, and
May&nbsp;8, 2000 (incorporated by reference to Exhibit&nbsp;3A of Cognex&#146;s Annual Report
on Form&nbsp;10-K for the year ended December&nbsp;31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3B
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">By-laws of the Company, as amended March&nbsp;16, 1998 (incorporated by reference to
Exhibit&nbsp;3B of Cognex&#146;s Annual Report on Form&nbsp;10-K for the year ended December
31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Specimen Certificate for Shares of Common Stock (incorporated by reference to
Exhibit&nbsp;4 to the Registration Statement on Form&nbsp;S-1 &#091;Registration No.&nbsp;33-29020&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10A
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 1993 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit&nbsp;4A to the Registration Statement on Form
S-8 &#091;Registration No.&nbsp;33-81150&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10B
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 1993 Stock Option Plan, as amended November&nbsp;14, 1995 and
February&nbsp;25, 1996 (incorporated by reference to Exhibit&nbsp;4A to the Registration
Statement on Form&nbsp;S-8 &#091;Registration No.&nbsp;333-04621&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10C
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">1991 Isys Controls, Inc. Long-Term Equity Incentive Plan (incorporated by
reference to Exhibit&nbsp;4A to the Registration Statement on Form&nbsp;S-8 &#091;Registration
No.&nbsp;333-02151&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10D
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Amendment to the Cognex Corporation 1993 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit&nbsp;10E of Cognex&#146;s Annual Report on
Form&nbsp;10-K for the year ended December&nbsp;31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10E
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Amendment to the Cognex Corporation 1993 Stock Option Plan (incorporated by
reference to Exhibit&nbsp;10F of Cognex&#146;s Annual Report on Form&nbsp;10-K for the year
ended December&nbsp;31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10F
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 1998 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit&nbsp;4.1 to the Registration Statement on Form&nbsp;S-8 &#091;Registration
No.&nbsp;333-60807&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10G
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 1998 Stock Incentive Plan (incorporated by reference to
Exhibit&nbsp;4.2 to the Registration Statement on Form&nbsp;S-8 &#091;Registration No.
333-60807&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10H
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">First Amendment to the Cognex Corporation 1998 Stock Incentive Plan
(incorporated by reference to Exhibit&nbsp;4.3 to the Registration Statement on Form
S-8 &#091;Registration No.&nbsp;333-60807&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10I
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 2000 Employee Stock Purchase Plan (incorporated by reference
to Exhibit&nbsp;4 to the Registration Statement on Form&nbsp;S-8 &#091;Registration No.
333-44824&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10J
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 2001 Interim General Stock Incentive Plan (incorporated by
reference to Exhibit&nbsp;4.1 to the Registration Statement on Form&nbsp;S-8 &#091;Registration
No.&nbsp;333-68158&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10K
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Cognex Corporation 2001 General Stock Option Plan (incorporated by reference to
Exhibit&nbsp;4.1 to the Registration Statement on Form&nbsp;S-8 &#091;Registration No.
333-100709&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10L
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Transition Loan Agreement between James F. Hoffmaster and Cognex Corporation,
dated May&nbsp;24, 2001 (incorporated by reference to Exhibit&nbsp;10M of Cognex&#146;s Annual
Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10M
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Termination Agreement between James F. Hoffmaster and Cognex Corporation dated
June&nbsp;4, 2001 (incorporated by reference to Exhibit&nbsp;10N of Cognex&#146;s Annual Report
on Form&nbsp;10-K for the year ended December&nbsp;31, 2002 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10N
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Form of Stock Option Agreement (Non-Qualified) under 1998 Stock Incentive Plan
(incorporated by reference to Exhibit&nbsp;10.1 of Cognex&#146;s Quarterly Report on Form
10-Q for the quarter ended October&nbsp;3, 2004 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="2"  style="border-bottom: 1px solid #000000"><B>EXHIBIT NUMBER</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10O
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Form of Stock Option Agreement (Non-Qualified) under 1998 Non-Employee Director
Stock Plan (incorporated by reference to Exhibit&nbsp;10.2 of Cognex&#146;s Quarterly
Report on Form&nbsp;10-Q for the quarter ended October&nbsp;3, 2004 &#091;File No.&nbsp;0-17869&#093;)</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10P
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Supplemental Retirement and Deferred Compensation Plan effective April&nbsp;1, 1995 *</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Annual Report to Shareholders for the year ended December&nbsp;31, 2004 (which is not
deemed to be &#147;filed&#148; except to the extent that portions thereof are expressly
incorporated by reference in this Annual Report on Form&nbsp;10-K) *</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Code of Business Conduct and
Ethics as amended March&nbsp;12, 2004*</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Subsidiaries of the Registrant *</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Consent of Ernst &#038; Young LLP *</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Consent of PricewaterhouseCoopers LLP *</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Certification of Chief Executive Officer*</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Certification of Chief Financial Officer*</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Certification pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (CEO)**</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Certification pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (CFO)**</TD>
</TR>
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>





<!-- End Table Body -->
</TABLE>
</DIV>
<HR noshade size="1" width="18%" align="left">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
<TR valign="bottom">
    <TD align="left" valign="bottom">* </TD>
    <TD>&nbsp;</TD>
    <TD>Filed herewith</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Furnished herewith</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.P
<SEQUENCE>2
<FILENAME>b53938ccexv10wp.txt
<DESCRIPTION>EX-10P SUPPLEMENTAL RETIREMENT AND DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE>

                                                                     EXHIBIT 10P

                               COGNEX CORPORATION

                           SUPPLEMENTAL RETIREMENT AND
                           DEFERRED COMPENSATION PLAN

                          EFFECTIVE AS OF APRIL 1, 1995

This Cognex Corporation Supplemental Retirement and Deferred Compensation Plan
(the "Plan") is adopted by Cognex Corporation (the "Employer") for certain of
its executive employees. The purpose of the Plan is to provide those employees
with supplement retirement income and to offer those employees an opportunity to
elect to defer the receipt of compensation in order to provide termination of
employment and related benefits taxable pursuant to Section 451 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be a
"top-hat" plan (i.e. an unfunded deferred compensation plan maintained for a
select group management or highly compensated employees) under Sections 201(2),
301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974
("ERISA").

Accordingly, the following Plan is adopted.

                            ARTICLE I -- DEFINITIONS

1.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's Plan
account, including contribution credits and deemed income, gains, and losses (to
the extend realized as determined by the Employer, in its discretion) credited
thereto. A Participant's or Beneficiary's Account shall be determined as of the
date of reference.

1.2 BENEFICIARY means any person or persons so designated in accordance with the
provisions of Article VII.

1.3 CODE means the Internal Revenue Code of 1986 and the regulations thereunder,
as amended from time to time.

1.4 COMPENSATION means the total current cash remuneration paid by the Employer
to an Eligible Employee with respect to his or her service for the Employer (as
determined by the Employer).

1.5 DESIGNATION DATE means the date or dates as of which a designation of deemed
investment directions by an individual pursuant to Section 4.5, or any change in
a prior designation of deemed investment directions by an individual pursuant to
Section 4.5, shall become effective. The Designation Dates in any Plan Year
shall be designated by the Employer.

1.6 EFFECTIVE DATE means the effective date of the Plan, which shall be April 1,
1995.

<PAGE>

1.7 ELIGIBLE EMPLOYEE means, for any Plan Year (or applicable portion thereof),
a person employed by the Employer who is determined by the Employer to be a
member of a select group of management or highly compensated employees and who
is designated by the Employer to be an Eligible Employee under the Plan. By each
November 1, the Employer shall notify those individuals, if any, who will be
Eligible Employees for the next Plan Year. If the Employer determines that an
individual first becomes an Eligible Employee during a Plan Year, the Employer
shall notify such individual of its determination and of the date during the
Plan Year on which the individual shall first become an Eligible Employee.

1.8 EMPLOYER means Cognex Corporation and its successors and assigns unless
otherwise herein provided, or any other corporation or business organization
which, with the consent of Cognex Corporation, or its successors or assigns,
assumes the Employer's obligations hereunder, or any other corporation or
business organization which agrees, with the consent of Cognex Corporation, to
become a party to the Plan.

1.9 ENTRY DATE with respect to an individual means the first day of the pay
period following the date on which the individual first becomes an Eligible
Employee.

1.10 PARTICIPANT means any person so designated in accordance with the
provisions of Article II, including, where appropriate according to the context
of the Plan, any former employee who is or may become (or whose Beneficiaries
may become) eligible to receive a benefit under the Plan.

1.11 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form on which a
Participant elects to defer Compensation hereunder and on which the Participant
makes certain other designations as required thereon.

1.12 PLAN means this Cognex Corporation Supplemental Retirement and Deferred
Compensation Plan, as amended from time to time.

1.13 PLAN YEAR means the twelve (12) month period ending on the December 31 of
each year during which the Plan is in effect.

1.14 TRUST means the trust fund established pursuant to the Plan.

1.15 TRUSTEE means the trustee named in the agreement establishing the Trust and
such successor and/or additional trustees as may be named pursuant to the terms
of the agreement establishing the Trust.

1.16 VALUATION DATE means the December 31 of each Plan Year and any other date
that the Employer, in its sole discretion, designates as a Valuation Date.

1.17 YEAR OF SERVICE shall mean a Plan Year in which the Participant has
completed at least 1,000 hours of service with the Employer.

<PAGE>

                   ARTICLE II -- ELIGIBILITY AND PARTICIPATION

2.1 REQUIREMENTS. Every Eligible Employee on the Effective Date shall be
eligible to become a Participant on the Effective Date. Every other Eligible
Employee shall be eligible to become a Participant on the first Entry Date
occurring on or after the date on which he or she becomes an Eligible Employee.
No individual shall become a Participant, however, if he or she is not an
Eligible Employee on the date his or her participation is to begin.

Participation in the Plan is voluntary. In order to participate, an otherwise
eligible Employee must make written application in such manner as may be
required by Section 3.1 and by the Employer and must agree to make Compensation
Deferrals as provided in Article III.

2.2 RE-EMPLOYMENT. If a Participant whose employment with the Employer is
terminated is subsequently re-employed, he or she shall become a Participant in
accordance with the provisions of Section 2.1.

2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant
remains in the employ of the Employer, but ceases to be an Eligible Employee, he
or she shall not be eligible to make Compensation Deferrals hereunder.

                    ARTICLE III -- CONTRIBUTIONS AND CREDITS

3.1 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules established by
the Employer, a Participant may elect to defer Compensation which is due to be
earned and which would otherwise be paid to the Participant, in a lump sum or in
any fixed periodic dollar amounts designated by the Participant. Amounts so
deferred will be considered a Participant's "Compensation Deferrals."
Ordinarily, a Participant shall make such an election with respect to a coming
twelve (12) month Plan Year during the period beginning on the November 1 and
ending on the November 30 of the prior Plan Year, or during such other period
established by the Employer.

Compensation Deferrals shall be made through regular payroll deductions or
through an election by the Participant to defer the payment of a bonus not yet
payable to him or her at the time of the election. The Participant may reduce
his or her payroll deduction Compensation Deferral amount as of, and by written
notice delivered to the Employer at least thirty (30) days prior to, the
beginning of any regular payroll period, with such reduction being first
effective for Compensation to be earned in that payroll period. Once made, a
Compensation Deferral payroll deduction election shall continue in force
indefinitely, until changed by the Participant on a subsequent Participant
Enrollment and Election Form provided by the Employer. Compensation Deferrals
shall be deducted by the Employer from the pay of a deferring Participant and
shall be credited to the Account of the deferring Participant.

There shall be established and maintained by the Employer a separate Plan
Account in the name of each Participant, which shall at all times be one hundred
percent (100%) vested in the Participant, and to which shall be credited or
debited: (a) amounts equal to the Participant's

<PAGE>

Compensation Deferrals, and (b) amounts equal to any deemed income, gains, or
losses (to the extent realized, based upon deemed fair market value of the
Account's deemed assets, as determined by the Employer, in its discretion)
attributable or allocable to (a). The Employer shall have the discretion to
allocate such deemed income, gains, or losses among Plan Accounts pursuant to
such allocation rules as the Employer deems to be reasonable and
administratively practicable.

Amounts equal to the Compensation Deferrals will be paid by the Employer to the
Trust with reasonable promptness after the total of such Compensation Deferrals
during any month or other period has been determined.

                        ARTICLE IV -- ALLOCATION OF FUNDS

4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Pursuant to Section
4.5, each Participant shall have the right to direct the Employer as to how
amounts in his or her Plan Account shall be deemed to be invested. In such a
case, the Employer shall direct the Trustee to invest the Account maintained in
the Trust on behalf of the Participant pursuant to the direction the Employer
has received from that Participant. The Participant's Plan Account will be
credited or debited with the increase or decrease in the realizable net asset
value or credited interest, as applicable, of the designated deemed investments,
as follows. As of each Valuation Date, an amount equal to the net increase or
decrease in realizable net asset value or credited interest, as applicable (as
determined by the employer), of each deemed investment option within the Trust
since the preceding Valuation Date shall be allocated among all Participant's
Accounts deemed to be invested in that investment option in accordance with the
ratio which the portion of the Account of each Participant which is deemed to be
invested within that investment option, determined as provided herein, bears to
the aggregate of all amounts deemed to be invested that investment option.

4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution hereunder,
the distribution to a Participant or his or her Beneficiary or Beneficiaries
shall be charged to such Participant's Account.


4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be established
and maintained by the Employer to reflect the Account for each Participant with
sub-accounts to show separately the deemed earnings and losses credited or
debited to such Account and the applicable deemed investments of the Account.

4.4 INTERIM VALUATIONS. If it is determined by the Employer that the value of
the Trust as of any date on which distributions are to be made differs
materially from the value of the Trust on the prior Valuation Date upon which
the distribution is to be based, the Employer, in its discretion, shall have the
right to designate any date in the interim as a Valuation Date for the purpose
of revaluing the Trust so that the Account from which the distributions being
made will, prior to the distribution, reflect its share of such material
difference in value.

<PAGE>

4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such limitations
as may from time to time be required by law, imposed by the Employer or the
Trustee, or contained elsewhere in the Plan, and subject to such operating rules
and procedures as may be imposed from time to time by the Employer or the
Trustee, prior to and effective for each Designation Date, each Participant may
communicate to the Employer a direction as to how his or her Account should be
deemed to be invested among such categories as deemed investments as may be made
available by the Employer hereunder. Such direction shall designate the
percentage (in ten percent multiples) of each portion of the Participant's
Account which is requested to be deemed to be invested in such categories as
deemed investments, and shall be subject to the following rules:

      (a)   Any initial or subsequent deemed investment direction shall be in
            writing, or on a form supplied by and filed with the Employer, and
            shall be effective as of the next Designation Date which is at least
            ten (10) business days after such filing.

      (b)   All amounts credited to the Participant's Account shall be deemed
            to be invested in accordance with the then effective deemed
            investment direction, and as of the effective date of any new deemed
            investment direction, all or a portion of the Participant's Account
            at that date shall be reallocated among the designated deemed
            investment funds according to the percentages specified in the new
            deemed investment direction shall be filed and become effective. An
            election concerning deemed investment choices shall continue
            indefinitely as provided in the Participant's most recent
            Participant Enrollment and Election Form, or other form specified by
            the Employer.

      (c)   If the Employer receives an initial or revised deemed investment
            direction which it deems to be incomplete, unclear, or improper, the
            Participant's investment direction then in effect shall remain in
            effect (or, in the case of deficiency in an initial deemed
            investment direction, the Participant shall be deemed to have filed
            no deemed investment direction) until the next Designation Date,
            unless the Employer provides for, and permits the application of,
            corrective action prior thereto.

      (d)   If the Employer possesses at any time directions as to the deemed
            investment of less than all of a Participant's Account, the
            Participant shall be deemed to have directed that the undesignated
            portion of the Account be deemed to be invested in a money market,
            fixed income, or similar fund made available under the Plan as
            determined by the Employer in its discretion.

      (e)   Each Participant hereunder, as a condition to his or her
            participation hereunder agrees to indemnify and hold harmless the
            Employer and its agents and representatives from any losses or
            damages of any kind relating to the deemed investment of the
            Participant's Account hereunder.

<PAGE>

      (f)   Each reference in this Section to a Participant shall be deemed to
            include, where applicable, a reference to a Beneficiary.

                      ARTICLE V -- ENTITLEMENT TO BENEFITS

5.1 TERMINATION OF EMPLOYMENT. If a Participant terminates employment with the
Employer for any reason, the Participant's Plan Account at the date of
termination shall be valued and payable according to the provisions of Article
VI.

5.2 CHANGE OF CONTROL. If a Change of Control of the Employer occurs, the
participant's Plan Account at the date of the Change of Control shall be valued
and payable according to the provisions of Article VI. For purposes of this
Section, a "Change of Control" shall occur when there is a purchase or other
acquisition by any person, entity or group of persons, within the meaning of
section 13(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions, or beneficial ownership (within the meaning of Rule 13d-3.
promulgated under the Act) of 30 percent or more of either the outstanding
shares of common stock or the combined voting power of Employer's then
outstanding voting securities entitled to vote generally, or the approval by the
stockholders of Employer of a reorganization, merger, or consolidation, in each
case, with respect to which persons who were stockholders of Employer
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Employer's then outstanding securities, or a liquidation
or dissolution of Employer or of the sale of all or substantially all of
Employer's assets.

5.3 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her Account. The Employer
shall consider the circumstances of each such case, and the best interests of
the Participant and his or her family, and shall have the best interests of the
Participant and his or her family, and shall have the right, in its sole
discretion, if applicable, to allow such distribution, or, if applicable, to
direct a distribution of part of the amount requested, or to refuse to allow any
distribution. Upon a finding of financial hardship, the Employer shall instruct
the Trustee to make the appropriate distribution to the Participant from amounts
contributed to the Trust by the Employer in respect of the Participant's
Account. In no event shall the aggregate amount of the distribution exceed
either the full value of the Participant's Account or the amount determined by
the Employer to be necessary to alleviate the Participant's financial hardship
(which financial hardship may be considered to include any taxes due because of
the distribution occurring because of this Section), and which is not reasonably
available from other resources of the Participant. For purposes of this Section,
the value of the Participant's Account shall be determined as of the date of
the distribution. "Financial hardship" means (a) a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident of
the Participant or of a dependent (as defined in Code Section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the

<PAGE>

Participant, each as determined to exist by the Employer. A distribution may be
made under Section 5.3 only with the consent of the Employer's board of
directors.

5.4 DISABILITY. In the event that the Participant incurs a Disability, as
hereinafter defined, the Participant may apply to the Employer for the
distribution of all or any part of his or her Account. Upon a finding of a
Disability, the Employer shall instruct the Trustee to make the appropriate
distribution to the Participant from amounts contributed to the Trust by the
Employer in respect of the Participant's Account. For purposes of this Section
5.4, a "Disability" means a physical impairment which would be expected to
prevent the Participant from performing the duties of his job with the Employer
for a period of at least six months as determined by a physican which is
selected by the Employer. A distribution may be made under this Section 5.4 only
with the consent of the Employer's board of directors.

5.5 RETIREMENT. A Participant who has attained his or her Retirement Date, as
hereinafter defined, may apply to the Employer for the distribution of all or
any part of his or her Account. For purposes of this Section 5.5, "Retirement
Date," shall mean the date on which the Participant has attained age fifty (50)
and has completed at least five Years of Service with the Employer.

5.6 RE-EMPLOYMENT OF RECIPIENT. If a Participant receiving installment
distributions pursuant to Section 6.2 is re-employed by the Employer, the
remaining distributions due to the Participant shall be suspended until such
time as the Participant (or his or her Beneficiary) once again becomes eligible
for benefits under Article V, at which time such distribution shall commence,
subject to the limitations and conditions contained in this Plan.

                     ARTICLE VI -- DISTRIBUTION OF BENEFITS

6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become entitled to
receive, on or about the date of the Participant's termination of employment
with the Employer, a distribution in an aggregate amount equal to the
Participant's Account, which amount, depending on (a) the performance of the
deemed investments elected from time to time by the Participant, the
Beneficiary, and/or the Employer, as applicable, and (b) the extent to which the
investments of the Trust relating to the Participant's deemed investments under
Sections 4.1 and 4.5 actually are realized by the Trust, may be less than, equal
to, or greater than the aggregate amount of the Participant's Compensation
Deferrals. Any payment due hereunder from the Trust which is not paid by the
Trust will be paid by the Employer from its general assets.

6.2 METHOD OF PAYMENT.

      (a)   Cash Payments. All payments under the Plan shall be made in cash.

      (b)   Timing and Manner of Payment. In the case of distributions to a
            Participant or his or her Beneficiary by virtue of an entitlement
            pursuant to Section 5.1, 5.2, 5.3, or 5.4 an aggregate amount equal
            to the Participant's Account will be paid by the Trust or the
            Employer, as provided by Section 6.1, in a single lump sum. In the

<PAGE>

            event a Participant becomes entitled to benefits under Section 5.5,
            an aggregate amount equal to the Participant's Account will be paid
            by the Trust or the Employer, as provided by Section 6.1, in a lump
            sum, on or about the date of the Participant's termination, or in
            annual installments made over a period elected by the Participant
            but not to exceed five years, provided such election is made at
            least 12 months prior to his Retirement Date or termination of
            employment. If such election is not made in accordance with the
            preceding sentence, the Participant's Account will be paid in a lump
            sum. If a Participant fails to designate properly the manner of
            payment of the Participant's benefit under the Plan, such payment
            will be in a lump sum on or about the date of the Participant's
            termination of employment with the Employer.

If the whole or any part of a payment hereunder by the Trust of the Employer is
to be in installments, the total to be so paid shall continue to be deemed to be
invested pursuant to Sections 4.1 and 4.5 under such procedures as the Employer
may establish, in which case, subject to limitations of Section 6.1, any deemed
income, gain, or loss attributable thereto (to the extent realized, as
determined by the Employer, in its discretion) shall be reflected in the
installment payments, in such equitable manner as the Employer shall determine.

6.3 DEATH BENEFITS. If a Participant dies before terminating his or her
employment with the Employer and before the commencement of payments to the
Participant hereunder, the Participant's Account shall be distributed in a
single lump sum payment, as provided in Section 6.2, to the person or persons
designated in accordance with Section 7.1.

Upon the death of a Participant after payments hereunder have begun but before
he or she has received all payments to which he or she is entitled under the
Plan, the remaining benefit payments shall be paid to the person or persons
designated in accordance with Section 7.1, in the form of a single lump sum.

                 ARTICLE VII -- BENEFICIARIES; PARTICIPANT DATA

7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may
designate any person or persons (who may be named contingently or successively)
to receive such benefits as may be payable under the Plan upon or after the
Participant's death, and such designation may be changed from time to time by
the Participant by filing a new designation. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Employer, and will be effective only when filed in writing with the Employer
during the Participant's lifetime.

In the absence of a valid Beneficiary designation, or if, at the time any
benefit payment is due to a Beneficiary, there is no living Beneficiary validly
named by the Participant, the Employer shall pay any such benefit payment to the
Participant's spouse, if then living, but otherwise to the Participant's living
descendants, if any, per stripes, but, if none, to the Participant's estate. In
determining the existence or identity of anyone entitled to a benefit payment,
the Employer may rely conclusively upon information supplied by the
Participant's personal representative,

<PAGE>

executor, or administrator. If a question arises as to the existence or identity
of anyone entitled to receive a benefit payment as aforesaid, or if a dispute
arises with respect to any such payment, then notwithstanding the foregoing, the
Employer, in its sole discretion, may distribute such payment to the
Participant's estate without liability for any tax or other consequences which
might flow therefrom, or may take such other action as the Employer deems to be
appropriate.

7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES; INABILITY TO
LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement, or notice
addressed to a Participant or to a Beneficiary at his or her last post office
address as down on the Employer's records shall be binding on the Participant or
Beneficiary for all purposes of the Plan. The Employer shall not be obliged to
search for any Participant or Beneficiary beyond the sending of a registered
letter to such last known address. If the Employer notifies any Participant or
Beneficiary that he or she is entitled to an amount under the Plan and the
Participant or Beneficiary fails to claim such amount or make his or her
location known to the Employer within three (3) years thereafter, then, except
as otherwise required by law, if the location of one or more of the next of kin
of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture, except that the
dollar amount of the forfeiture, unadjusted for deemed gains or losses in the
interim, shall be paid by the Employer if a claim for the benefit subsequently
is made by the Participant or the Beneficiary to whom it was payable. If a
benefit payable to an unlocated Participant or Beneficiary is subject to escheat
pursuant to applicable state law, the Employer shall not be liable to any person
for any payment made in accordance with such law.

                            ARTICLE VIII -- THE TRUST

8.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with the
Trustee, pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Employer and the Trustee. The Trust is
intended to be treated as a "grantor" trust under the Code, and the
establishment of the Trust is not intended to cause Participants to realize
current income on amounts contributed thereto, and the Trust shall be so
interpreted.

                          ARTICLE IX -- ADMINISTRATION

9.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided herein,
the Employer shall have the sole responsibility for and the sole control of the
operation and administration of the Plan, and shall have the power and authority
to take all action and to make all decisions and interpretations which may be
necessary or appropriate in order to administer and operate the Plan, including,
without limiting the generality of the foregoing, the power, duty, and
responsibility to:

<PAGE>

      (a)   Resolve and determine all disputes or questions arising under the
            Plan, including the power to determine the rights of Eligible
            Employees, Participants, and Beneficiaries, and their respective
            benefits, and to remedy any ambiguities, inconsistencies, or
            omissions in the Plan.

      (b)   Adopt such rules of procedure and regulations as in its opinion may
            be necessary for the proper and efficient administration of the Plan
            and as are consistent with the Plan.

      (c)   Implement the Plan in accordance with its terms and the rules and
            regulations adopted as above.

      (d)   Make determinations with respect to the eligibility of any Eligible
            Employee as a Participant and make determinations concerning the
            crediting and distribution of Plan Accounts.

      (e)   Appoint any persons or firms, or otherwise act to secure specialized
            advice or assistance, as it deems necessary or desirable in
            connection with the administration and operation of the Plan, and
            the Employer shall be entitled to rely conclusively upon, and shall
            be fully protected in any action or omission taken by it in good
            faith reliance upon, the advice or opinion of such firms or persons.
            The Employer shall have the power and authority to delegate from
            time to time by written instrument all or any part of its duties,
            powers, or responsibilities under the Plan, both ministerial and
            discretionary, as it deems appropriate, to any person or committee,
            and in the same manner to revoke any such delegation of duties,
            powers, or responsibilities. Any action of such person or committee
            in the exercise of such delegated duties, powers, or
            responsibilities shall have the same force and effect for all
            purposes hereunder as if such action had been taken by the Employer.
            Further, the Employer may authorize one or more persons to execute
            any certificate or document on behalf of the Employer, in which
            event any person notified by the Employer of such authorization
            shall be entitled to accept and conclusively rely upon any such
            certificate or document executed by such person as representing
            action by the Employer until such third person shall have been
            notified of the revocation of such authority.

9.2 MUTUAL EXCLUSION OF RESPONSIBILITY. Neither the Trustee nor the Employer
shall be obliged to inquire into or be responsible for any act or failure to
act, or the authority therefor, on the part of the other.

9.3 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.

<PAGE>

9.4 LITIGATION. Except as may be otherwise required by law, in any action or
judicial proceeding affecting the Plan, no Participant or Beneficiary shall be
entitled to any notice or service of process, and any final judgment entered in
such action shall be binding on all persons interested in, or claiming under,
the Plan.

9.5 PAYMENT OF ADMINISTRATION EXPENSES. All expenses incurred in the
administration and operation of the Plan and the Trust, including any taxes
payable by the Employer in respect of the Plan or Trust or payable by or from
the Trust pursuant to its terms, shall be paid by the Employer.

9.6 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan
(a "Claimant") shall present the claim, in writing, to the Employer, and the
Employer shall respond in writing. If the claim is denied, the written notice of
denial shall state, in a manner calculated to be understood by the Claimant:

      (a)   The specific reason or reasons for the denial, with specific
            references to the Plan provisions on which the denial is based;

      (b)   A description of any additional material or information for the
            Claimant to perfect his or her claim and an explanation of why such
            material or information is necessary; and

      (c)   An explanation of the Plan's claims review procedure.

The written notice denying or granting the Claimant's claim shall be provided to
the Claimant within ninety (90) days after the Employer's receipt of the claim,
unless special circumstances require an extension of time for processing the
claim. If such an extension is required, written notice of the extension shall
be furnished by the Employer to the Claimant within the initial ninety (90) day
period and in no event shall such an extension exceed a period of ninety(90)
days from the end of the initial ninety (90) day period. Any extension notice
shall indicate the special circumstances requiring the extension and the date on
which the Employer expects to render decision on the claim. Any claim not
granted or denied within the period noted above shall be deemed to have been
denied.

Any Claimant whose claim is denied, or deemed to have been denied under the
preceding sentences (or such Claimant's authorized representative), may, within
sixty (60) days after the Claimant's receipt of notice of the denial, or after
the date of the deemed denial, request a review of the denial by notice given,
in writing, to the Employer. Upon such a request for review, the claim shall be
reviewed by the Employer (or its designated representative), which may, but
shall not be required to, grant the Claimant a hearing. In connection with the
review, the Claimant may have representation, may examine pertinent documents,
and may submit issues and comments in writing.

The decision on review normally shall be made within sixty (60) days of the
Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer, and the time limit for the decision on review shall be
extended to one hundred twenty (120) days. The decision on review shall be in
writing and shall state, in a manner calculated to be understood by the
Claimant, the specific

<PAGE>

reasons for the decision and shall include references to the relevant Plan
provisions on which the decision is based. The written decision on review shall
be given to the Claimant within the sixty (60) day (or, if applicable, the one
hundred twenty (120) day) time limit discussed above. If the decision on review
is not communicated to the Claimant within the sixty (60) day (or, if
applicable, the one hundred twenty (120) day) period discussed above, the claim
shall be deemed to have been denied upon review. All decisions on review shall
be final and binding with respect to all concerned parties.

                             ARTICLE X -- AMENDMENT

10.1 RIGHT TO AMEND. The Employer, by written instrument executed by the
Employer, shall have the right to amend the Plan, at any time and with respect
to any provisions hereof, and all parties hereto or claiming any interest
hereunder shall be bound by such amendment; provided, however, that no such
amendment shall deprive a Participant or a Beneficiary of a right accrued
hereunder prior to the date of the amendment.

10.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding the
provisions of Section 10.1, the Plan and the Trust agreement may be amended by
the Employer at any time, retroactively if required, if found necessary, in the
opinion of the Employer, in order to ensure that the Plan is characterized as
"top-hat" plan of deferred compensation maintained for a select group of
management or highly compensated employees as described under ERISA Sections
201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to the provisions and
requirements of any applicable law (including ERISA and the Code). No such
amendment shall be considered prejudicial to any interest of a Participant or a
Beneficiary hereunder.

                            ARTICLE XI -- TERMINATION

11.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves the
right, at any time, to terminate the Plan and/or its obligation to make further
credits to Plan accounts. The Employer also reserves the right, at any time, to
suspend the operation of the Plan for a fixed or indeterminate period of time.

11.2 AUTOMATIC TERMINATION OF PLAN. The Plan, but not the Trust, automatically
shall terminate upon the dissolution of the Employer, or upon its merger into or
consolidation with any other corporation or business organization if there is a
failure by the surviving corporation or business organization to adopt
specifically and agree to continue the Plan.

11.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the
Employer shall continue all aspects of the Plan, other than Compensation
Deferrals under Section 3.1 during the period of the suspension, in which event
payments hereunder will continue to be made during the period of the suspension
in accordance with Articles V and VI.

11.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative upon a
complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
<PAGE>
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is applicable.
Upon the effective date of any such event, notwithstanding any other provisions
of the Plan, no persons who were not theretofore Participants shall be eligible
to become Participants, the value of the interest of all Participants and
Beneficiaries shall be determined and, after deduction of estimated expenses in
liquidating and, if applicable, paying Plan benefits, paid to them as soon as is
practicable after such termination.

11.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization which
is a successor to the Employer by reason of a consolidation, merger, or purchase
of substantially all of the assets of the Employer shall have the right to
become a party to the Plan by adopting the same resolution of the entity's board
of directors or other appropriate governing body. If, within ninety (90) days
from the effective date of such consolidation, merger, or sale of assets, such
new entity does not become a party hereto, as above provided, the Plan
automatically shall be terminated, and the provisions of Section 10.4 shall
become operative.

                          ARTICLE XII -- MISCELLANEOUS

12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the Plan
nor any modification thereof, not the creation of any account under the Plan,
not the payment of any benefits under the Plan shall be construed as giving to
any Participant or other person any legal or equitable right against the
Employer, or any officer or employer thereof except as provided by law or by any
Plan provision. The Employer does not in any way guarantee any Participant's
Account from loss or depreciation, whether caused by poor investment performance
of a deemed investment or the inability to realize upon an investment due to an
insolvency affecting an investment vehicle or any other reason. In no event
shall the Employer, or any successor, employee, officer, director, or
stockholder of the Employer, be liable to any person on account of any claim
arising by reason of the provisions of the Plan or of any instrument or
instruments implementing its provisions, or for the failure of any Participant,
Beneficiary, or other person to be entitled to any particular tax consequences
with respect to the Plan, or any credit or distribution hereunder.

12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or void,
such illegality or invalidity shall not affect the remaining provisions of the
Plan, but shall be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provision had never been inserted herein. For all
purposes of the Plan, where the context admits, the singular shall include the
plural, and the plural shall include the singular. Headings of Articles and
Sections herein are inserted only for convenience of reference and are not to be
considered in the construction of the Plan. The laws of the Commonwealth of
Massachusetts shall govern, control, and determine all questions of law arising
with respect to the Plan and interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give any Participant the right to
be retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
<PAGE>
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a Beneficiary
under the Plan will, except as otherwise specifically provided by law, be
subject in any manner to anticipation, alienation, attachment, garnish, sale,
transfer, assignment (either at law or in equity), levy, execution, pledge,
encumbrance, charge, or any other legal or equitable process, and any attempt to
do so will be void; nor will any benefit be in any manner liable for or subject
to the debts, contracts, liabilities, engagements, or torts of the person
entitled thereto. Further (i) the withholding of taxes from Plan benefit
payments, (ii) the recovery under the Plan of overpayments of benefits
previously made to a Participant or Beneficiary, (iii) if applicable, the
transfer of benefit rights from the Plan to another plan, or (iv) the direct
deposit of benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.

In the event that any Participant's or Beneficiary's benefits hereunder are
garnished or attached by order of the court, the Employer may bring action or a
declaratory judgment in a court of competent jurisdiction to determine the
proper recipient of the benefits to be paid under the Plan. During the pendency
of said action, any benefits that become payable shall be held as credits to the
Participant's or Beneficiary's Account or, if the Employer prefers, paid into
the court as they become payable, to be distributed by the court to the
recipient as the court deems proper at close of said action.

IN WITNESS THEREOF, the Employer has caused the Plan to be executed and its seal
to be affixed hereto, effective as of the 1st day of the April, 1995.

ATTEST/WITNESS                              Cognex Corporation


/s/ JoAnn Woodyard                          By: /s/ John J. Roger Jr.
- --------------------------                      -------------------------

Print Name: JoAnn Woodyard                  Print Name: John J. Roger Jr.
            --------------                              -----------------

                                            Date: June 1, 1995
                                                  ------------

[SEAL]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>b53938ccexv13.txt
<DESCRIPTION>EX-13 ANNUAL REPORT TO SHAREHOLDERS
<TEXT>
<PAGE>

                                                                      EXHIBIT 13

                                                          COGNEX CORPORATION: 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements made in this report, as well as oral statements made by the
Company from time to time, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Readers can identify
these forward-looking statements by the Company's use of the words "expects,"
"anticipates," "estimates," "believes," "projects," "intends," "plans," "will,"
"may," "shall," and similar words and other statements of a similar sense. These
statements are based upon the Company's current estimates and expectations as to
prospective events and circumstances, which may or may not be in the Company's
control and as to which there can be no firm assurances given. These
forward-looking statements involve known and unknown risks and uncertainties
that could cause actual results to differ materially from those projected. Such
risks and uncertainties include: (1) global economic conditions that impact the
capital spending trends of manufacturers in a variety of industries; (2) the
cyclicality of the semiconductor and electronics industries; (3) the inability
to achieve significant international revenue; (4) fluctuations in foreign
exchange rates; (5) the loss of, or a significant curtailment of purchases by,
any one or more principal customers; (6) the reliance upon certain sole-source
suppliers to manufacture and deliver critical components for the Company's
products; (7) the inability to attract and retain skilled employees; (8) the
inability to design and manufacture high-quality products; (9) inaccurate
forecasts of customer demand; (10) the technological obsolescence of current
products and the inability to develop new products; (11) the inability to
protect the Company's proprietary technology and intellectual property; (12) the
Company's involvement in time-consuming and costly litigation; (13) the impact
of competitive pressures; and (14) the inability to achieve expected results
from acquisitions. The foregoing list should not be construed as exhaustive and
the Company encourages readers to refer to the detailed discussion of risk
factors included in Part I - Item 1 of the Company's Annual Report on Form 10-K.
The Company cautions readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made. The Company
disclaims any obligation to subsequently revise forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or circumstances
after the date such statements are made.

<PAGE>

26 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

EXECUTIVE OVERVIEW

Cognex Corporation (the "Company") designs, develops, manufactures, and markets
machine vision systems, or computers that can "see," which are used to automate
a wide range of manufacturing processes where vision is required. The Company's
Modular Vision Systems Division (MVSD) specializes in machine vision systems
that are used to automate the manufacture of discrete items, while the Company's
Surface Inspection Systems Division (SISD) specializes in machine vision systems
that are used to inspect the surfaces of materials processed in a continuous
fashion.

      In addition to product revenue derived from the sale of machine vision
systems, the Company also generates revenue by providing maintenance and
support, education, consulting, and installation services to its customers. The
Company's customers can be classified into three categories: semiconductor and
electronics capital equipment manufacturers, discrete manufacturing customers,
and surface inspection customers. Semiconductor and electronics capital
equipment manufacturers purchase Cognex machine vision systems and integrate
them into the capital equipment that they manufacture and then sell to their
customers in the semiconductor and electronics industries that either make
computer chips or make printed circuit boards containing computer chips.
Although the Company sells to original equipment manufacturers (OEMs) in a
number of industries, these semiconductor and electronics OEMs have historically
been large consumers of the Company's products. The discrete manufacturing
category includes a wide array of manufacturers who use machine vision for
applications in a variety of industries, including the packaging, automotive,
consumer electronics, food and beverage, and personal care industries. The
majority of these customers are end users who purchase Cognex machine vision
systems and install them directly on their production lines. The last category,
surface inspection customers, includes manufacturers of materials processed in a
continuous fashion, such as paper and steel.

      Over the past few years, the Company has been successful in diversifying
its customer base beyond semiconductor and electronics capital equipment
manufacturers. Demand from these capital equipment manufacturers is highly
cyclical, with periods of investment followed by temporary downturns. During the
first half of 2004, the Company experienced an increase in orders from these
customers, resulting in a 64% increase in sales to this sector for the full year
2004 over the prior year. Despite the rebound in this business, the Company
generated 58% of its total revenue in 2004 from customers outside of the
semiconductor and electronics capital equipment sector. Sales to customers in
the discrete manufacturing category increased from the prior year by 29%, while
surface inspection sales were down slightly from the prior year.

      The Company's total revenue for 2004 increased 35% from the prior year to
$202 million, and because the Company was able to focus increased spending in
strategic areas that help drive revenue growth and in employee incentive
programs, earnings increased at an even faster rate than revenue. Net income
more than doubled from $0.36 per share in 2003 to $0.80 per share in 2004 and
grew from 11% of revenue in 2003 to 19% of revenue in 2004.

<PAGE>

                                                          COGNEX CORPORATION: 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      The following table sets forth certain consolidated financial data as a
percentage of revenue:

<TABLE>
<CAPTION>
Year ended December 31,                     2004      2003       2002
- -----------------------                     ----      ----       ----
<S>                                         <C>       <C>        <C>
Revenue                                      100%      100%       100%
Cost of revenue                               28        33         35
                                            ----      ----       ----
Gross margin                                  72        67         65
Research, development, and
  engineering expenses                        14        17         23
Selling, general, and
  administrative expenses                     35        37         51
                                            ----      ----       ----
Operating income (loss)                       23        13         (9)
Nonoperating income                            3         3          2
                                            ----      ----       ----
Income (loss) before taxes                    26        16         (7)
Income tax provision (benefit)                 7         5         (2)
                                            ----      ----       ----
Net income (loss)                             19%       11%        (5)%
                                            ====      ====       ====
</TABLE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

REVENUE

Revenue for the year ended December 31, 2004 increased 35% to $201,957,000 from
$150,092,000 for the year ended December 31, 2003. The majority of this growth
came from sales to semiconductor and electronics capital equipment
manufacturers, which increased $33,001,000, or 64%, from the prior year. While
sales to these customers contributed most significantly to the Company's revenue
growth in 2004, sales to discrete manufacturing customers also increased by
$19,872,000, or 29%, from 2003. Surface inspection sales, however, decreased
$1,008,000, or 3%, from the prior year. Although sales to customers outside of
the semiconductor and electronics capital equipment sector grew from the prior
year and represented the majority of the company's total revenue in 2004, they
decreased as a percentage of total revenue to 58% in 2004 from 66% in 2003 due
to the significant increase in sales to semiconductor and electronics capital
equipment manufacturers. Geographically, revenue increased from the prior year
in all of the Company's major regions, but most significantly in Japan, where
many of the Company's semiconductor and electronics capital equipment customers
are located.

      Product revenue for the year ended December 31, 2004 increased 35% to
$176,569,000 from $130,670,000 for the year ended December 31, 2003. The
increase in product revenue was due to a higher volume of machine vision systems
sold to customers in the semiconductor, electronics, automotive, and other
industries. Service revenue, which is derived from the sale of maintenance and
support, education, consulting, and installation services, increased 31% to
$25,388,000 from $19,422,000 due principally to higher revenue generated by
maintenance and support programs that are sold bundled with product offerings.
Service revenue remained constant as a percentage of total revenue at 13% in
both 2003 and 2004.

<PAGE>

28 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      MVSD revenue for the year ended December 31, 2004 increased 44% to
$173,889,000 from $121,016,000 for the year ended December 31, 2003. The
increase in MVSD revenue was due to a higher volume of modular vision systems
sold to customers in the semiconductor, electronics, automotive, and other
industries. Although surface inspection orders increased from the prior year,
the timing of shipments and installations resulted in a 3% decline in SISD
revenue to $28,068,000 in 2004 from $29,076,000 in 2003. As a result of the
increase in MVSD revenue, SISD revenue decreased as a percentage of total
revenue to 14% in 2004 compared to 19% in 2003.

GROSS MARGIN

Gross margin as a percentage of revenue was 72% for 2004 compared to 67% for
2003. The increase in gross margin was primarily due to the impact of the higher
sales volume without a proportional increase in manufacturing overhead costs, as
well as a greater percentage of total revenue from the sale of modular vision
systems, which have higher margins than the sale of services and surface
inspection systems.

      Product gross margin as a percentage of revenue was 76% for 2004 compared
to 71% for 2003. The increase in product margin was primarily due to the
increased sales volume, as well as the shift in product mix to higher-margin
modular vision systems. Service gross margin as a percentage of revenue was 43%
for 2004 compared to 37% for 2003. Many of the Company's products are sold with
bundled maintenance and support programs for which the revenue is recognized
over the program period. The increasing volume of product sales in 2003 and 2004
has resulted in higher service revenue derived from these maintenance and
support programs. Although service costs increased to support the additional
revenue, the increase in revenue was greater than the increase in costs.

      MVSD gross margin as a percentage of revenue was 76% for 2004 compared to
71% for 2003. The increase in MVSD margin was primarily due to the higher sales
volume of modular vision systems. SISD gross margin as a percentage of revenue
was 45% for 2004 compared to 48% for 2003. The decrease in SISD margin was due
principally to the impact of the lower revenue, while costs increased slightly.

OPERATING EXPENSES

Research, development, and engineering (R,D&E) expenses for the year ended
December 31, 2004 increased 9% to $27,063,000 from $24,719,000 for the year
ended December 31, 2003. MVSD R,D&E expenses increased $2,156,000, or 10%, from
the prior year primarily due to higher personnel-related costs, including the
additional engineering personnel resulting from the acquisition of the machine
vision business of Gavitec AG on December 1, 2003 and the accrual of company
bonuses for 2004. SISD R,D&E expenses increased $188,000, or 7%, from the prior
year due principally to the accrual of company bonuses for 2004.

      Selling, general, and administrative (S,G&A) expenses for the year ended
December 31, 2004 increased 27% to $70,674,000 from $55,724,000 for the year
ended December 31, 2003. MVSD S,G&A expenses increased $11,577,000, or 27%,

<PAGE>

                                                          COGNEX CORPORATION: 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

from the prior year, while SISD S,G&A expenses increased $1,031,000, or 14%,
from 2003. Corporate expenses that are not allocated to a division increased
$2,342,000, or 41%, from the prior year. The increase in MVSD expenses was
primarily due to the hiring of additional sales personnel and increased
marketing spending to grow the Company's base of discrete manufacturing
customers, higher commissions related to the increased sales volume, and the
accrual of company bonuses for 2004, as well as the unfavorable impact of
foreign exchange rates on the Company's international operations. A significant
amount of the Company's sales and marketing costs are denominated in currencies
other than the U.S. Dollar, primarily the Euro Dollar and Japanese Yen. During
2004, the Euro Dollar and Japanese Yen strengthened versus the U.S. Dollar,
resulting in a higher level of expenses when these amounts were translated into
U.S. Dollars. The increase in SISD expenses was primarily due to higher
personnel-related costs, as well as the accrual of company bonuses for 2004. The
increase in corporate expenses was principally due to the accrual of company
bonuses for 2004, as well as higher professional fees related to services
required to ensure the Company's compliance with the Sarbanes-Oxley Act of 2002.

NONOPERATING INCOME

Investment and other income for the year ended December 31, 2004 decreased 14%
to $4,670,000 from $5,450,000 for the year ended December 31, 2003. This
decrease was due principally to lower average interest rates on the Company's
portfolio of debt securities.

      The foreign currency gain for the year ended December 31, 2004 was
$1,641,000 compared to a loss of $1,712,000 for the year ended December 31,
2003. The loss in 2003 was primarily due to the revaluation and settlement of
the Company's Irish subsidiary's accounts receivable denominated in U.S. Dollars
and Japanese Yen. During 2003, the Euro Dollar strengthened versus the U.S.
Dollar and Japanese Yen, resulting in foreign currency losses on the Irish
subsidiary's books when these receivables were revalued and collected. Although
the Company experienced similar losses in 2004, they were offset by gains on the
revaluation and settlement of intercompany balances and gains on forward
contracts.

INCOME TAXES

The Company's effective tax rate for 2004 was 29% compared to 31% for 2003. The
decrease in the effective tax rate was primarily due to more of the Company's
profits being earned and taxed in lower tax jurisdictions.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

REVENUE

Revenue for the year ended December 31, 2003 increased 32% to $150,092,000 from
$114,107,000 for the year ended December 31, 2002. During the year, the Company
experienced an increase in demand as its business rebounded from a slowdown in
capital spending by manufacturers worldwide. Sales to OEM customers, most of
whom make capital equipment used in the semiconductor and electronics
industries,

<PAGE>

30 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

increased $19,076,000, or 51%, from the prior year. Sales to end-user customers
increased from the prior year by $16,909,000, or 22%, due to higher demand from
customers across a variety of industries. Sales to end-user customers continued
to comprise the majority of the Company's revenue despite the rebound in the OEM
business, representing 62% of total revenue in 2003 compared to 67% in 2002.
Geographically, revenue increased from the prior year in all of the Company's
major regions, but most significantly in Japan, where many of the Company's OEM
customers are located.

      Product revenue for the year ended December 31, 2003 increased 36% to
$130,670,000 from $96,202,000 for the year ended December 31, 2002. The increase
in product revenue was due to a higher volume of machine vision systems sold to
customers in the semiconductor, electronics, automotive, paper, metals, and
other industries. Service revenue, which is derived from the sale of maintenance
and support, education, consulting, and installation services, increased 8% to
$19,422,000 from $17,905,000. Many of the Company's products that were sold
during 2003 included bundled maintenance and support programs for which a
portion of the revenue will be recognized in future quarters over the program
period. As a result, service revenue did not increase as dramatically as product
revenue, and it decreased as a percentage of total revenue from 16% in 2002 to
13% in 2003.

      MVSD revenue for the year ended December 31, 2003 increased 34% to
$121,016,000 from $90,358,000 for the year ended December 31, 2002. The increase
in MVSD revenue was due to a higher volume of modular vision systems sold to
customers in the semiconductor, electronics, automotive, and other industries.
SISD revenue for the year ended December 31, 2003 increased 22% to $29,076,000
from $23,749,000 for the year ended December 31, 2002. The increase in SISD
revenue was due principally to a higher volume of SmartView, systems sold to
customers in the paper and metals industries. The markets served by SISD had not
been as severely impacted by the worldwide slowdown in capital spending. As a
result, SISD revenue did not increase as dramatically as MVSD revenue, and it
decreased as a percentage of total revenue to 19% in 2003 compared to 21% in
2002.

GROSS MARGIN

Gross margin as a percentage of revenue was 67% for 2003 compared to 65% for
2002. The increase in gross margin was primarily due to the impact of the higher
sales volume with relatively flat manufacturing overhead costs, as well as a
greater percentage of revenue from the sale of modular vision systems, which
have higher margins than the sale of services and surface inspection systems.
This increase was partially offset by a lower amount of benefits recorded to
"Cost of product revenue" in 2003 from the sale of previously reserved inventory
and the favorable resolution of inventory purchase commitments, both of which
had been reserved in 2001. These benefits amounted to $1,290,000 in 2003
compared to $2,684,000 in 2002.

      Product gross margin as a percentage of revenue was 71% for 2003 compared
to 70% for 2002. The increase in product margin was primarily due to the
increased sales volume, as well as the shift in product mix to higher-margin
modular vision

<PAGE>

                                                          COGNEX CORPORATION: 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

systems. This increase was partially offset by the decreased benefit from the
sale of previously reserved inventory. Service gross margin as a percentage of
revenue remained consistent with the prior year at 37%.

      MVSD gross margin as a percentage of revenue was 71% for 2003 compared to
70% for 2002. The increase in MVSD margin was primarily due to the impact of the
higher sales volume, as well as a greater percentage of revenue from the sale of
products, which carry higher margins than the service business. This increase
was partially offset by the decreased benefit from the sale of previously
reserved inventory. SISD gross margin as a percentage of revenue was 48% for
2003 compared to 45% for 2002. The increase in SISD margin was due principally
to the increased sales volume.

OPERATING EXPENSES

Research, development, and engineering (R,D&E) expenses for the year ended
December 31, 2003 decreased 4% to $24,719,000 from $25,630,000 for the year
ended December 31, 2002. MVSD R,D&E expenses decreased $1,245,000, or 5%, from
the prior year primarily due to a headcount reduction in the third quarter of
2002. SISD R,D&E expenses increased $334,000, or 15%, from the prior year due
principally to an increase in spending on software translation services and
other activities related to the SmartView product line.

      Selling, general, and administrative (S,G&A) expenses for the year ended
December 31, 2003 decreased 5% to $55,724,000 from $58,376,000 for the year
ended December 31, 2002. MVSD S,G&A expenses increased $1,674,000, or 4%, from
the prior year, while SISD S,G&A expenses increased $587,000, or 8%, from 2002.
Corporate expenses that are not allocated to a division decreased $4,913,000, or
46%, from the prior year. The increase in MVSD and SISD expenses was primarily
due to higher spending in sales and marketing undertaken to increase sales
opportunities, as well as the unfavorable impact of foreign exchange rate
changes on the Company's international operations. A significant amount of the
Company's sales and marketing costs are denominated in currencies other than the
U.S. Dollar, primarily the Euro Dollar and Japanese Yen. During 2003, the Euro
Dollar and Japanese Yen strengthened versus the U.S. Dollar, resulting in a
higher level of expenses when these amounts were translated into U.S. Dollars.
The decrease in corporate expenses was due principally to lower legal expenses
associated with patent infringement lawsuits initiated by the Company to protect
its intellectual property.

NONOPERATING INCOME

Investment and other income for the year ended December 31, 2003 decreased 40%
to $5,450,000 from $9,156,000 for the year ended December 31, 2002. This
decrease was due principally to lower average interest rates on the Company's
portfolio of debt securities. In addition, during 2003, the Company reduced the
carrying value of its investment in a limited partnership by $1,031,000 compared
to $680,000 during 2002, representing realized investment losses and fund
expenses that were not offset by realized investment gains.

<PAGE>

32 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      During the fourth quarter of 2002, based upon the estimated fair value of
the Company's investment in a limited partnership, the Company determined that
it may be unable to recover its full carrying value. As a result, the Company
recorded a charge of $1,768,000, representing an other-than-temporary impairment
in the carrying value of this investment. In addition, during 2002, the Company
recorded losses from the sale of equity securities totaling $6,184,000.

      The foreign currency loss for the year ended December 31, 2003 was
$1,712,000 compared to a gain of $350,000 for the year ended December 31, 2002.
The loss in 2003 was primarily due to the revaluation and settlement of the
Company's Irish subsidiary's accounts receivable denominated in U.S. Dollars and
Japanese Yen. During 2003, the Euro Dollar strengthened versus the U.S. Dollar
and Japanese Yen, resulting in foreign currency losses on the Irish subsidiary's
books when these receivables were revalued and collected. Although the Company
experienced similar losses in 2002, they were offset by gains on the revaluation
of intercompany balances that were not fully hedged. In addition, a smaller
percentage of the Company's Irish subsidiary's accounts receivable were
denominated in currencies other than the Euro Dollar in 2002.

INCOME TAXES

The Company's effective tax rate for 2003 was a provision of 31% compared to a
benefit of 27% for 2002. The change in the effective tax rate was primarily due
to lower tax-exempt investment income generated from the Company's municipal
bond portfolio.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically been able to generate positive cash flow from
operations, which has funded the Company's operating activities and other cash
requirements and has resulted in an accumulated cash, cash equivalent, and
investment balance of $391,076,000 at December 31, 2004, representing 85% of
shareholders' equity. The Company has established guidelines relative to credit
ratings, diversification, and maturities of its investments that maintain
liquidity.

      The Company's cash requirements during the year ended December 31, 2004
were met with positive cash flow from operations and the proceeds from the
issuance of common stock under stock option and stock purchase plans. Cash
requirements primarily consisted of operating activities, capital expenditures,
and the payment of dividends. Capital expenditures in 2004 totaled $3,120,000
and consisted primarily of expenditures for computer hardware and software.

      The Company believes that its existing cash, cash equivalent, and
investment balance, together with continued positive cash flow from operations,
will be sufficient to meet its operating, investing, and financing activities in
2005 and the foreseeable future.

<PAGE>

                                                          COGNEX CORPORATION: 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      The following table summarizes the Company's material contractual
obligations, both fixed and contingent (in thousands):

<TABLE>
<CAPTION>
                    Limited
Year Ended        Partnership
December 31,        Interest    Acquisitions    Leases     Total
- ------------      -----------   ------------   --------  --------
<S>               <C>           <C>            <C>       <C>
2005                $  6,625      $   2,577    $  3,878   $ 13,080
2006                       -              -         977        977
2007                       -              -         349        349
2008                       -              -         192        192
2009                       -              -         190        190
Thereafter                 -              -         445        445
                    --------      ---------    --------   --------
                    $  6,625      $   2,577    $  6,031   $ 15,233
                    ========      =========    ========   ========
</TABLE>

LIMITED PARTNERSHIP INTEREST

On June 30, 2000, Cognex Corporation became a Limited Partner in Venrock
Associates III L.P. (Venrock), a venture capital fund. A director of the Company
is a Managing General Partner of Venrock Associates. In the original agreement
with Venrock, the Company committed to a total investment in the limited
partnership of up to $25,000,000, with the commitment period expiring on January
1, 2005. In January 2005, the Company signed an amendment to the original
agreement with Venrock, which reduces its commitment to $22,500,000 and extends
the commitment period through December 31, 2010. The Company does not have the
right to withdraw from the partnership prior to December 31, 2010. As of
December 31, 2004, the Company had contributed $15,875,000 to the partnership,
including $2,250,000 during 2004. The remaining commitment of $6,625,000 can be
called by Venrock in any period through 2010.

ACQUISITIONS

On March 31, 2003, the Company acquired the wafer identification business of
Siemens Dematic AG for 7,000,000 Euros in cash (or approximately $7,630,000)
paid at closing, with the potential for an additional cash payment in 2005 of up
to 1,700,000 Euros (or approximately $2,306,000) depending upon the achievement
of certain performance criteria.

      On December 1, 2003, the Company acquired the machine vision business of
Gavitec AG for 3,777,000 Euros in cash (or approximately$4,516,000), including
3,477,000 Euros paid at closing, 100,000 Euros (or approximately $123,000) paid
on December 1, 2004, and 200,000 Euros (or approximately $271,000) to be paid on
December 1, 2005. There was the potential for two additional cash payments of up
to 250,000 Euros (or approximately $339,000) each in the third quarter of 2004
and the first quarter of 2005 depending upon the achievement of certain
performance criteria. These criteria were not met, and therefore, these
contingent payments were not made.

<PAGE>

34 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      In addition to the obligations described above, the following items may
also result in future material uses of cash:

DERIVATIVE INSTRUMENTS

In certain instances, the Company enters into forward contracts and currency
swaps to hedge against foreign currency fluctuations. Because the terms of the
derivative instrument and underlying exposure are generally matched at
inception, changes in foreign currency exchange rates should not expose the
Company to significant net cash outflows.

STANDBY LETTERS OF CREDIT

On March 25, 2004, the Company provided standby letters of credit totaling
3,146,280,000 Yen (or approximately $30,722,000) to taxing authorities in Japan
that are collateralized by investments on the Consolidated Balance Sheet. The
Tokyo Regional Taxation Bureau (TRTB) has asserted that Cognex Corporation has a
permanent establishment in Japan that would require certain income, previously
reported on U.S. tax returns for the years ended December 31, 1997 through
December 31, 2001, to be subject instead to taxation in Japan. The Company
disagrees with this position and is contesting the TRTB's assertion. Until this
matter is resolved, the Company is required to provide collateral for these tax
assessments. Should the TRTB prevail in its assertion, the income in question
would be taxable in Japan and the Company would be required to pay approximately
$30,722,000 in taxes, interest, and penalties to Japanese taxing authorities.
The Company would then be entitled to recoup the majority of this amount from
taxing authorities in the U.S.

STOCK REPURCHASE PROGRAM

On December 12, 2000, the Company's Board of Directors authorized the repurchase
of up to $100,000,000 of the Company's common stock. During 2002, a total of
1,768,452 shares were repurchased at a cost of $26,425,000. There have been no
other shares repurchased under this program. The Company may repurchase
additional shares under this program in future periods depending upon a variety
of factors, including the market value of the Company's common stock and the
average return on the Company's invested balances.

DIVIDENDS

Beginning in the third quarter of 2003, the Company's Board of Directors has
declared and paid a cash dividend in each quarter, including the first quarter
of 2005. During the third quarter of 2004, the Company's Board of Directors
voted to increase the quarterly cash dividend from $0.06 per share to $0.08 per
share. Dividend payments amounted to $12,756,000 during 2004 and $3,698,000 in
the first quarter of 2005. Future dividends will be declared at the discretion
of the Board of Directors and will depend upon such factors as the Board of
Directors deems relevant. The Board of Directors may modify the Company's
dividend policy from time to time.

<PAGE>

                                                          COGNEX CORPORATION: 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue, and expenses, and related disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and
various other assumptions believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates under different assumptions or
circumstances resulting in charges that could be material in future reporting
periods. The Company believes the following critical accounting policies require
the use of significant estimates and judgments in the preparation of its
consolidated financial statements.

REVENUE RECOGNITION

The Company recognizes revenue from product sales upon delivery if a signed
customer contract or purchase order has been received, the fee is fixed or
determinable, and collection of the resulting receivable is probable. If the
arrangement contains customer-specified acceptance criteria, then revenue is
deferred until the Company can demonstrate that the customer's criteria have
been met. The Company maintains reserves against revenue for potential product
returns. Revenue from maintenance and support programs is deferred and
recognized ratably over the program period. Revenue from education and
consulting services is recognized over the period the services are provided.
Revenue from installation services is recognized when the customer has signed
off that the installation is complete.

      While the Company applies the guidance of Statement of Position (SOP) No.
97-2, "Software Revenue Recognition," as amended by SOP No. 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions," management exercises judgment in connection with the
determination of the amount of revenue to be recognized each period. Such
judgments include, but are not limited to, assessing the probability of
collecting the receivable, assessing whether the fee is fixed or determinable,
and assessing whether customer-specified acceptance criteria are substantive in
nature.

INVESTMENTS

At December 31, 2004, the Company's investment balance totaled $336,806,000, of
which $325,094,000 consisted of municipal bonds. Investments in municipal bonds
are reported at fair value, with unrealized gains and losses, net of tax,
recorded in shareholders' equity as other comprehensive income (loss). The
remaining investment balance of $11,712,000 represents a limited partnership
interest in Venrock

<PAGE>

36 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Associates III, L.P., a venture capital fund. A director of the Company is a
Managing General Partner of Venrock Associates. The Company's limited
partnership interest is accounted for using the cost method because the
Company's investment is less than 5% of the partnership and the Company has no
influence over the partnership's operating and financial policies.

      The fair value of the Company's limited partnership interest is based upon
valuations of the partnership's investments as determined by the General
Partner. The Company understands that the General Partner adjusts the investment
valuations at least quarterly to reflect both realized and unrealized gains and
losses on partnership investments. Securities of public companies are valued at
market, subject to appropriate discounts to reflect limitations on liquidity.
Securities of private companies are valued at an estimated fair value, which
initially is at cost, adjusted for subsequent transactions that indicate a
higher or lower value is warranted. The value of private securities may be
discounted when, in the General Partner's judgment, the carrying value of such
private securities has been impaired by specific events.

      The Company monitors the carrying value of its investment compared to its
fair value to determine whether an other-than-temporary impairment in its
interest in the limited partnership has occurred. In considering whether a
decline in fair value is other than temporary, the Company considers many
factors, both qualitative and quantitative in nature. Some of these factors
include the duration and extent of the fair value decline, the length of the
Company's contractual commitment to the partnership, general economic and stock
market trends, and specific communications from the General Partner.

      In 2002, the Company determined that it may be unable to recover the full
carrying value of this investment, and as a result, recorded an
other-than-temporary impairment charge of $1,768,000 to reduce the carrying
value of this investment to its then estimated fair value. Given the nature of
the partnership's portfolio and the difficulty inherent in valuing these
investments, there is a great deal of uncertainty surrounding the future value
of the Company's interest in the limited partnership and future impairment
charges may be required.

ACCOUNTS RECEIVABLE

The Company maintains reserves against its accounts receivable for potential
credit losses. Ongoing credit evaluations of customers are performed and the
Company has historically not experienced significant losses related to the
collection of its accounts receivable. Allowances for uncollectible accounts are
estimated by management taking into account the length of time receivables have
been outstanding, specific accounts determined to be at risk for collection, the
risks associated with selling to smaller customers, and the economic conditions
of the primary regions and industries sold to, as well as general economic
conditions. An adverse change in any of these factors may result in the need for
additional bad debt provisions.

<PAGE>

                                                          COGNEX CORPORATION: 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

INVENTORIES

Inventories are stated at the lower of cost or market. The Company estimates
excess and obsolescence exposures based upon assumptions about future demand,
product transitions, and market conditions and records reserves to reduce the
carrying value of inventories to their net realizable value. The failure to
accurately forecast demand, in terms of both volume and configuration, and
adjust material requirement plans in a timely manner may lead to additional
excess and obsolete inventory and future charges.

      In 2001, the Company recorded a $16,300,000 charge for excess inventories
and purchase commitments resulting from an extended slowdown in the
semiconductor and electronics industries, as well as the expected transition to
newer Cognex hardware platforms by the Company's OEM customers. The Company has
been able to subsequently sell $3,885,000 of this inventory to customers as a
result of actual demand being higher than the demand that was forecasted at the
time of the charge. In addition, the Company has negotiated the favorable
resolution of $894,000 of the inventory purchase commitments. The Company did
not record significant excess and obsolete inventory provisions in 2002, 2003,
or 2004.

LONG-LIVED ASSETS

The Company has long-lived assets including property, plant, and equipment, as
well as acquired goodwill and other intangible assets. These assets are
susceptible to shortened estimated useful lives and changes in fair value due to
changes in their use, market or economic changes, or other events or
circumstances. In addition, the fair value of goodwill is susceptible to changes
in the fair value of the reporting units in which the goodwill resides, which
are also reportable segments. The Company evaluates the potential impairment of
its long-lived assets annually, as required, or whenever events or circumstances
indicate their carrying value may not be recoverable. If events or circumstances
occur which would require a significant reduction in the estimated useful lives
of these assets or a significant decrease in fair value below their carrying
value, an adjustment to the lives or carrying values would result in a charge to
income in the period of determination.

WARRANTY OBLIGATIONS

The Company records the estimated cost of fulfilling product warranties at the
time of sale based upon historical costs to fulfill warranty obligations.
Provisions may also be recorded subsequent to the time of sale whenever specific
events or circumstances impacting product quality become known that would not
have been taken into account using historical data. While the Company engages in
extensive product quality programs and processes, including actively monitoring
and evaluating the quality of its component suppliers and third-party contract
manufacturers, the Company's warranty obligation is affected by product failure
rates, material usage, and service delivery costs incurred in correcting a
product failure. An adverse change in any of these factors may result in the
need for additional warranty provisions.

<PAGE>

38 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

CONTINGENCIES

Estimated losses from contingencies are accrued by management based upon the
likelihood of a loss and the ability to reasonably estimate the amount of the
loss. Estimating potential losses, or even a range of losses, is difficult and
involves a great deal of judgment. The Company relies primarily on assessments
made by its internal and external legal counsel to make its determination as to
whether a loss contingency arising from litigation should be recorded or
disclosed. Should the resolution of a contingency result in a loss that the
Company did not accrue because management did not believe that the loss was
probable or capable of being reasonably estimated, then this loss would result
in a charge to income in the period the contingency was resolved.

INCOME TAXES

As part of the process of preparing consolidated financial statements,
management is required to estimate income taxes in each of the jurisdictions in
which the Company operates. This process involves estimating the current tax
liability, as well as assessing temporary differences arising from the different
treatment of items for financial statement and tax purposes. These differences
result in deferred tax assets and liabilities, which are recorded on the
Consolidated Balance Sheet.

      At December 31, 2004, the Company had net deferred tax assets of
$31,020,000, primarily resulting from temporary differences between the
financial statement and tax bases of assets and liabilities. Management has
evaluated the realizability of these deferred tax assets and has determined that
it is more likely than not that these assets will be realized. In reaching this
conclusion, management has evaluated relevant criteria, including the Company's
historical profitability, current projections of future profitability, and the
lives of tax credits, net operating and capital losses, and other carryforwards,
certain of which have indefinite lives. Should the Company fail to generate
sufficient pre-tax profits in future periods, the Company may be required to
record material adjustments to these deferred tax assets, resulting in a charge
to income in the period of determination.

      Significant judgment is required in determining worldwide income tax
expense based upon tax laws in the various jurisdictions in which the Company
operates. The Company is subject to audits by various tax authorities, which may
result in future charges or credits.

DERIVATIVE INSTRUMENTS

In certain instances, the Company enters into forward contracts and currency
swaps to hedge against foreign currency fluctuations. These contracts are used
to reduce the Company's risk associated with foreign currency exchange rate
changes, as the gains or losses on these contracts are intended to offset the
losses or gains on the underlying exposures. The Company does not engage in
foreign currency speculation.

      The Company recorded foreign currency gains of $1,641,000 in 2004, foreign
currency losses of $1,712,000 in 2003, and foreign currency gains of $350,000 in
2002. The Company's exposure to foreign currency gains and losses has increased

<PAGE>

                                                          COGNEX CORPORATION: 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

in recent years as a greater portion of its revenues, expenses, assets, and
liabilities are denominated in currencies other than the functional currencies
of the Company or its subsidiaries. In addition, foreign exchange rates have
fluctuated more significantly in the past few years.

      Administering the Company's foreign currency risk management program
requires the use of estimates and the application of judgment, including
compiling forecasts of transaction activity denominated in various currencies.
The failure to identify foreign currency exposures and construct effective
hedges may result in material foreign currency gains or losses.

NEW PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123R, "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123R requires companies to recognize compensation cost for all share-based
payments to employees (including stock option and employee stock purchase plans)
at fair value. SFAS 123R will be effective for public companies for interim or
annual periods beginning after June 15 , 2005. The Company will adopt SFAS No.
123R beginning in the third quarter of 2005 using the modified prospective
method in which compensation cost is recognized beginning on the effective date.

      The Company currently recognizes compensation costs using the intrinsic
value based method and, as such, generally recognizes no compensation cost.
Accordingly, the adoption of SFAS No. 123R's fair value based method will have a
significant impact on the Company's results of operations, although it will have
no impact on its overall financial position. The impact of adoption of SFAS No.
123R cannot be predicted at this time because it will depend upon levels of
share-based payments granted in the future. However, had the Company adopted
SFAS No. 123R in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income (loss) and net income (loss) per share in Note 1 to the
Company's consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

The Company faces exposure to adverse movements in foreign currency exchange
rates as a significant portion of its revenues, expenses, assets, and
liabilities are denominated in currencies other than the functional currencies
of the Company or its subsidiaries. These exposures may change over time as
business practices evolve. The Company evaluates its foreign currency exposures
on an ongoing basis and makes adjustments to its foreign currency risk
management program as circumstances change.

      In certain instances, the Company enters into forward contracts and
currency swaps to hedge against foreign currency fluctuations. Currency swaps
are used to hedge long-term transactions between the Company and its
subsidiaries. Forward contracts are used to provide an economic hedge against
transactions denominated in currencies other than the functional currencies of
the Company or its subsidiaries.

<PAGE>

40 COGNEX CORPORATION:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

These forward contracts and currency swaps are used to reduce the Company's risk
associated with foreign currency exchange rate changes, as the gains or losses
on these contracts are intended to offset the losses or gains on the underlying
exposures. The Company does not engage in foreign currency speculation.

      The success of the Company's foreign currency risk management program
depends upon forecasts of transaction activity denominated in various
currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, the Company could experience
unanticipated foreign currency gains or losses that could have a material impact
on the Company's results of operations. In addition, the failure to identify new
exposures and hedge them in a timely manner may result in material foreign
currency gains or losses.

      The Company enters into currency swaps to hedge the foreign currency
exposure of its long-term intercompany loans between the parent and certain of
its European subsidiaries. Currency swaps to exchange a total of 48,340,000 Euro
Dollars for U.S. Dollars at a weighted-average settlement price of 1.02
USD/Euro, with original terms of two to five years, were outstanding at December
31, 2004. These instruments had a fair value of $68,565,000 at December 31,
2004. The Company also enters into forward contracts to hedge the foreign
currency exposure of a portion of its intercompany transactions between its
subsidiaries. In addition, the Company enters into forward contracts to hedge
the foreign currency exposure of its Irish subsidiary's accounts receivable
denominated in U.S. dollars and Japanese Yen. Forward contracts to exchange
1,421,000,000 Japanese Yen for Euro Dollars at a weighted-average settlement
price of 135.55 Yen/Euro and contracts to exchange 2,945,000 U.S. dollars for
Euro Dollars at a weighted-average settlement price of 1.34 USD/Euro, both with
terms of one to four months, were outstanding at December 31, 2004. These
instruments had a fair value of $17,112,000 at December 31, 2004.

      While the contract amounts of derivative instruments provide one measure
of the volume of these transactions, they do not represent the amount of the
Company's exposure to changes in foreign currency exchange rates. Because the
terms of the derivative instrument and underlying exposure are generally matched
at inception, changes in foreign currency exchange rates should not expose the
Company to significant losses in earnings or net cash outflows when exposures
are properly hedged.

INTEREST RATE RISK

The Company's investment portfolio includes municipal bonds. Debt securities
with original maturities greater than three months are designated as
available-for-sale and are reported at fair value. At December 31, 2004, the
fair value of the Company's bond portfolio amounted to $325,094,000, with
principal amounts totaling $321,120,000, maturities that do not exceed three
years, and a yield to maturity of 1.77%. Differences between the fair value and
principal amounts of the Company's bond portfolio are primarily attributable to
discounts and premiums arising at the acquisition date, as well as unrealized
gains and losses at the balance sheet date.

<PAGE>

                                                          COGNEX CORPORATION: 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      Given the relatively short maturities and investment-grade quality of the
Company's bond portfolio at December 31, 2004, a sharp rise in interest rates
should not have a material adverse effect on the fair value of these
instruments. As a result, the Company does not currently hedge these interest
rate exposures.

      The following table presents hypothetical changes in the fair value of the
Company's bond portfolio at December 31, 2004 arising from selected potential
changes in interest rates (in thousands):

<TABLE>
<CAPTION>
                             Valuation                                   Valuation
                           of securities           No change           of securities
                         given an interest        in interest         given an interest
Type of security           rate decrease             rates              rate increase
- ----------------       -------------------------------------------------------------------
                       (100 BP)     (50 BP)                          50 BP        100 BP
                       -------------------------------------------------------------------
<S>                    <C>         <C>            <C>              <C>           <C>
Municipal bonds        $ 327,363   $ 326,185      $   325,094      $ 324,041     $ 323,014
</TABLE>

      A 50 basis point (BP) movement in the Federal Funds Rate has occurred in
      15 of the last 56 quarters. There has not been a 100 BP movement in the
      Federal Funds Rate in any of the last 56 quarters.

      OTHER MARKET RISKS

      The Company's investment portfolio also includes a limited partnership
      interest in Venrock Associates III, L.P., a venture capital fund with an
      investment focus on Information Technology and Health Care and Life
      Sciences. The majority of the partnership's portfolio consists of
      investments in early stage, private companies characterized by a high
      degree of risk, volatility, and illiquidity. A director of the Company is
      a Managing General Partner of Venrock Associates.

            The fair value of the Company's limited partnership interest is
      based upon valuations of the partnership's investments as determined by
      the General Partner. The Company understands that the General Partner
      adjusts the investment valuations at least quarterly to reflect both
      realized and unrealized gains and losses on partnership investments.
      Securities of public companies are valued at market, subject to
      appropriate discounts to reflect limitations on liquidity. Securities of
      private companies are valued at an estimated fair value, which initially
      is at cost, adjusted for subsequent transactions that indicate a higher or
      lower value is warranted. The value of private securities may be
      discounted when, in the General Partner's judgment, the carrying value of
      such private securities has been impaired by specific events.

            Given the nature of the partnership's portfolio and the difficulty
      inherent in valuing these investments, there is a great deal of
      uncertainty surrounding the future value of the Company's interest in the
      limited partnership and future impairment charges may be required.
<PAGE>

42  COGNEX CORPORATION: CONSOLIDATED STATEMENTS OF OPERATIONS
    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
      Year Ended December 31,           2004           2003           2002
- ----------------------------------   ---------      ---------       --------
<S>                                  <C>            <C>             <C>
Revenue
   Product                           $ 176,569      $ 130,670       $ 96,202
   Service                              25,388         19,422         17,905
                                     ---------      ---------       --------
                                       201,957        150,092        114,107

Cost of revenue
   Product                              42,788         37,870         28,499
   Service                              14,583         12,269         11,360
                                     ---------      ---------       --------
                                        57,371         50,139         39,859

Gross margin
   Product                             133,781         92,800         67,703
   Service                              10,805          7,153          6,545
                                     ---------      ---------       --------
                                       144,586         99,953         74,248

Research, development, and
   engineering expenses                 27,063         24,719         25,630
Selling, general, and
   administrative expenses              70,674         55,724         58,376
                                     ---------      ---------       --------
Operating income (loss)                 46,849         19,510         (9,758)
Investment and other income              4,670          5,450          9,156
Loss on sale of equity securities
   and impairment of investment
   in limited partnership                    -              -         (7,952)
Foreign currency gain (loss)             1,641         (1,712)           350
                                     ---------      ---------       --------
Income (loss) before taxes              53,160         23,248         (8,204)
Income tax provision (benefit)          15,416          7,297         (2,177)
                                     ---------      ---------       --------
Net income (loss)                    $  37,744      $  15,951       $ (6,027)
                                     =========      =========       ========
Net income (loss) per common
      and common equivalent share:
   Basic                             $    0.83      $    0.37       $  (0.14)
                                     =========      =========       ========
   Diluted                           $    0.80      $    0.36       $  (0.14)
                                     =========      =========       ========
Weighted-average common and
     common equivalent shares
     outstanding:
   Basic                                45,480         43,173         43,503
                                     =========      =========       ========
   Diluted                              47,358         44,466         43,503
                                     =========      =========       ========
Cash dividends per common share      $    0.28      $    0.12       $      -
                                     =========      =========       ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                             COGNEX CORPORATION: CONSOLIDATED BALANCE SHEETS  43
                                                              (in thousands)

<TABLE>
<CAPTION>
                     December 31,                               2004           2003
- ----------------------------------------------------         ---------      ---------
<S>                                                          <C>            <C>
ASSETS

Current assets:
   Cash and cash equivalents                                 $  54,270      $  49,980
   Short-term investments                                      180,409         82,653
   Accounts receivable, less reserves of $2,596 and
      $2,613 in 2004 and 2003, respectively                     33,816         26,697
   Inventories, net                                             20,091         15,519
   Deferred income taxes                                         9,504          8,223
   Prepaid expenses and other current assets                    14,871         14,526
                                                             ---------      ---------
      Total current assets                                     312,961        197,598
Long-term investments                                          156,397        170,869
Property, plant, and equipment, net                             23,995         24,980
Deferred income taxes                                           21,516         19,428
Intangible assets, net                                           7,506          8,582
Goodwill                                                         7,033          7,222
Other assets                                                     3,900          3,854
                                                             ---------      ---------
                                                             $ 533,308      $ 432,533
                                                             =========      =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                          $   5,563      $   5,555
   Accrued expenses                                             55,779         32,098
   Customer deposits                                             3,445          3,932
   Deferred revenue                                              5,714          5,702
                                                             ---------      ---------
      Total current liabilities                                 70,501         47,287
Other liabilities                                                    -            252
Commitments (Notes 4, 9, 10, 11, 12, and 18)
Shareholders' equity:
   Common stock, $.002 par value -
      Authorized: 140,000 shares, issued: 46,155 and
      48,186 shares in 2004 and 2003, respectively                  92             96
   Additional paid-in capital                                  192,860        209,679
   Treasury stock, at cost, 0 and 4,253 shares
      in 2004 and 2003, respectively                                 -        (72,445)
   Retained earnings                                           283,712        258,724
   Accumulated other comprehensive loss                        (13,857)       (11,060)
                                                             ---------      ---------
      Total shareholders' equity                               462,807        384,994
                                                             ---------      ---------
                                                             $ 533,308      $ 432,533
                                                             =========      =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

44  COGNEX CORPORATION: CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
    (in thousands)

<TABLE>
<CAPTION>
                                                                 Common Stock        Additional
                                                              -------------------     Paid-in
                                                              Shares    Par Value     Capital
                                                              -------   ---------    ---------
<S>                                                           <C>       <C>          <C>
Balance at December 31, 2001                                   46,289     $ 93       $ 173,675
                                                               ======     ====       =========
   Issuance of common stock under stock option,
      stock purchase, and other plans                             588        1           7,470
   Tax benefit from exercise of stock options                       -        -           3,450
   Repurchase of common stock                                       -        -               -
   Common stock received for payment
      of stock option exercises                                     -        -               -
   Comprehensive loss:
      Net loss                                                      -        -               -
      Recognition of accumulated gains on equity securities
         in current operations, net of tax of $2,506                -        -               -
      Losses on currency swaps, net of gains on long-term
         intercompany loans, net of tax of $21                      -        -               -
      Foreign currency translation adjustment                       -        -               -
      Comprehensive loss                                       ------     ----       ---------
Balance at December 31, 2002                                   46,877     $ 94       $ 184,595
                                                               ======     ====       =========
   Issuance of common stock under stock option,
      stock purchase, and other plans                           1,309        2          20,782
   Tax benefit from exercise of stock options                       -        -           4,302
   Payment of dividends                                             -        -               -
   Common stock received for payment of
         stock option exercises                                     -        -               -
   Comprehensive income:
      Net income                                                    -        -               -
      Losses on currency swaps, net of gains on long-term
         intercompany loans, net of tax of $367                     -        -               -
      Net unrealized gain on available-for-sale
         investments, net of tax of $299                            -        -               -
      Foreign currency translation adjustment                       -        -               -
      Comprehensive income                                     ------     ----       ---------
Balance at December 31, 2003                                   48,186     $ 96       $ 209,679
                                                               ======     ====       =========
   Issuance of common stock under stock option,
      stock purchase, and other plans                           2,232        4          44,213
   Tax benefit from exercise of stock options                       -        -          11,722
   Payment of dividends                                             -        -               -
   Common stock received for payment of
      stock option exercises                                        -        -              -
   Retirement of treasury stock                                (4,263)      (8)        (72,754)
   Comprehensive income:
      Net income                                                    -        -               -
      Losses on currency swaps, net of gains on long-term
         intercompany loans, net of tax of $1,016                   -        -               -
      Net unrealized loss on available-for-sale
         investments, net of tax of $696                            -        -               -
      Foreign currency translation adjustment                       -        -               -
      Comprehensive income                                     ------     ----       ---------
Balance at December 31, 2004                                   46,155     $ 92       $ 192,860
                                                               ======     ====       =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

         COGNEX CORPORATION: CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY  45

<TABLE>
<CAPTION>
    Treasury Stock                           Accumulated                          Total
- ---------------------        Retained           Other         Comprehensive    Shareholders'
Shares         Cost          Earnings    Comprehensive Loss    Income(Loss)       Equity
- ------      ---------       ---------    ------------------   -------------    -------------
<S>         <C>             <C>          <C>                  <C>              <C>
 2,390      $ (43,419)      $ 254,037         $  (6,342)                         $  378,044
======      =========       =========         =========                          ==========

     -              -               -                 -                -              7,471
     -              -               -                 -                -              3,450
 1,768        (26,425)              -                 -                -            (26,425)

    91         (2,467)              -                 -                -             (2,467)

     -              -          (6,027)                -           (6,027)            (6,027)

     -              -               -             4,269            4,269              4,269

     -              -               -               (35)             (35)               (35)
     -              -               -            (3,760)          (3,760)            (3,760)

- ------      ---------       ---------         ---------         --------         ----------
 4,249      $ (72,311)      $ 248,010         $  (5,868)        $ (5,553)        $  354,520
======      =========       =========         =========         ========         ==========

     -              -               -                 -                -             20,784
     -              -               -                 -                -              4,302
     -              -          (5,237)                -                -             (5,237)

     4           (134)              -                 -                -               (134)

     -              -          15,951                 -           15,951             15,951

     -              -               -              (625)            (625)              (625)

     -              -               -               509              509                509
     -              -               -            (5,076)          (5,076)            (5,076)

- ------      ---------       ---------         ---------         --------         ----------
 4,253      $ (72,445)      $ 258,724         $ (11,060)        $ 10,759         $  384,994
======      =========       =========         =========         ========         ==========

     -              -               -                 -                -             44,217
     -              -               -                 -                -             11,722
     -              -         (12,756)                -                -            (12,756)

    10           (317)              -                 -                -               (317)
(4,263)        72,762               -                 -                -                  -

     -              -          37,744                 -           37,744             37,744

     -              -               -            (1,730)          (1,730)            (1,730)

     -              -               -            (1,185)          (1,185)            (1,185)
     -              -               -               118              118                118

- ------      ---------       ---------         ---------         --------         ----------
     -      $       -       $ 283,712         $ (13,857)        $ 34,947         $  462,807
======      =========       =========         =========         ========         ==========
</TABLE>

<PAGE>

46  COGNEX CORPORATION: CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)

<TABLE>
<CAPTION>
Year Ended December 31,                                     2004            2003           2002
- -------------------------------------------------------  ---------       ---------      ---------
<S>                                                      <C>             <C>            <C>
Cash flows from operating activities:
   Net income (loss)                                     $  37,744       $  15,951      $  (6,027)
   Adjustments to reconcile net income (loss) to
         net cash provided by operating activities:
      Depreciation of property, plant, and equipment         4,548           5,422          6,534
      Amortization of intangible assets                      1,526           1,012            543
      Amortization of investments                            3,896           3,728          2,447
      Tax benefit from exercise of stock options            11,722           4,302          3,450
      Deferred income tax benefit                           (2,568)           (432)        (2,196)
      Net loss (gain) on investment in
         limited partnership                                  (154)          1,031            680
      Impairment on investment in
         limited partnership                                     -               -          1,768
      Loss on sale of equity securities                          -               -          6,184
   Changes in current assets and current liabilities:
      Accounts receivable                                   (5,417)         (4,775)          (348)
      Inventories                                           (3,642)          5,833          5,010
      Accounts payable                                        (290)          1,482         (2,569)
      Accrued expenses                                      15,785             148         (1,411)
      Other current assets and current liabilities             (49)         (2,783)         1,979
   Other operating activities                                   75              45            402
                                                         ---------       ---------      ---------
Net cash provided by operating activities                   63,176          30,964         16,446
                                                         ---------       ---------      ---------
Cash flows from investing activities:
   Purchase of investments                                (805,621)       (316,481)      (137,922)
   Maturity and sale of investments                        716,714         276,529        184,453
   Purchase of property, plant, and equipment               (3,120)         (2,462)        (2,227)
   Cash paid for business acquisitions                        (123)        (11,787)          (349)
                                                         ---------       ---------      ---------
Net cash provided by (used in)
   investing activities                                    (92,150)        (54,201)        43,955
                                                         ---------       ---------      ---------
Cash flows from financing activities:
   Issuance of common stock under stock
      option, stock purchase, and other plans               43,900          20,650          5,004
   Repurchase of common stock                                    -               -        (26,425)
   Payment of dividends                                    (12,756)         (5,237)             -
                                                         ---------       ---------      ---------
Net cash provided by (used in) financing activities         31,144          15,413        (21,421)
                                                         ---------       ---------      ---------
Effect of exchange rate changes on cash                      2,120            (660)        (4,875)
                                                         ---------       ---------      ---------
Net increase (decrease) in cash and
   cash equivalents                                          4,290          (8,484)        34,105
Cash and cash equivalents at beginning of year              49,980          58,464         24,359
                                                         ---------       ---------      ---------
Cash and cash equivalents at end of year                 $  54,270       $  49,980      $  58,464
                                                         =========       =========      =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 47

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application of
the significant accounting policies described below.

NATURE OF OPERATIONS

Cognex Corporation (the "Company") designs, develops, manufactures, and markets
machine vision systems, or computers that can "see." The Company's products are
used to automate a wide range of manufacturing processes where vision is
required.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities at the balance sheet date
and the reported amounts of revenue and expenses during the year. Actual results
could differ from those estimates.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of Cognex Corporation
and its subsidiaries, all of which are wholly-owned. All intercompany accounts
and transactions have been eliminated. Certain amounts reported in prior years
have been reclassified to be consistent with the current year presentation.

FOREIGN CURRENCY

The financial statements of the Company's foreign subsidiaries, where the local
currency is the functional currency, are translated using exchange rates in
effect at the end of the year for assets and liabilities and average exchange
rates during the year for results of operations. The resulting foreign currency
translation adjustment is recorded in shareholders' equity as other
comprehensive income (loss).

CASH, CASH EQUIVALENTS, AND INVESTMENTS

Debt securities purchased with original maturities of three months or less are
classified as cash equivalents and are stated at amortized cost. Debt securities
with original maturities greater than three months and remaining maturities of
one year or less, as well as auction rate securities for which interest rates
reset in less than 90 days but for which the maturity date is greater than 90
days, are classified as short-term investments. Despite the long-term nature of
their contractual maturities, the Company has the ability to quickly liquidate
auction rate securities. Debt securities with remaining maturities greater than
one year, as well as a limited partnership interest, are classified as long-term
investments. It is the Company's policy to invest in debt securities with
contractual maturities that do not exceed three years.

      Debt securities with original maturities greater than three months are
designated as available-for-sale and are reported at fair value, with unrealized
gains and losses, net of tax, recorded in shareholders' equity as other
comprehensive income (loss). Realized gains and losses are included in current
operations, along with the amortization of the discount or premium arising at
acquisition and are calculated using the specific identification method.

<PAGE>

48 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company's limited partnership interest is accounted for using the cost
method because the Company's investment is less than 5% of the partnership and
the Company has no influence over the partnership's operating and financial
policies. The Company monitors the carrying value of its investment compared to
its fair value to determine whether an other-than-temporary impairment in its
interest in the limited partnership has occurred. If the decline in fair value
is determined to be other-than-temporary, an impairment charge is recorded in
current operations.

ACCOUNTS RECEIVABLE

The Company establishes reserves against its accounts receivable for potential
credit losses when it determines receivables are at risk for collection based
upon the length of time receivables have been outstanding, as well as various
other factors. Receivables are written off against these reserves in the period
they are determined to be uncollectible.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined using
standard costs, which approximate the first in, first out (FIFO) method. The
Company estimates excess and obsolescence exposures based upon assumptions about
future demand, product transitions, and market conditions and records reserves
to reduce the carrying value of inventories to their net realizable value.

      The Company generally disposes of obsolete inventory upon determination of
obsolescence. The Company does not dispose of excess inventory immediately, due
to the possibility that some of this inventory could be sold to customers as a
result of differences between actual and forecasted demand.

      When inventory has been written down below cost, such reduced amount is
considered the new cost basis for subsequent accounting purposes. As a result,
the Company would recognize a higher than normal gross margin if the reserved
inventory were subsequently sold.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost and depreciated using the
straight-line method over the assets' estimated useful lives. Buildings' useful
lives are 39 years, building improvements' useful lives are 10 years, and the
useful lives of computer hardware, computer software, and furniture and fixtures
range from two to five years. Leasehold improvements are depreciated over the
shorter of the estimated useful lives or the remaining terms of the leases.
Maintenance and repairs are expensed when incurred; additions and improvements
are capitalized. Upon retirement or disposition, the cost and related
accumulated depreciation of the assets disposed of are removed from the
accounts, with any resulting gain or loss included in current operations.

INTANGIBLE ASSETS

Intangible assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives, which range from two to ten
years. The Company evaluates the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate the
carrying value of the assets may not be recoverable. At the occurrence of a
certain event or change in circumstances, the

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 49

Company evaluates the potential impairment of an asset based upon the estimated
future undiscounted cash flows. If an impairment exists, the Company determines
the amount of such impairment based upon the present value of the estimated
future cash flows using a discount rate commensurate with the risks involved.

GOODWILL

Goodwill is stated at cost. The Company evaluates the possible impairment of
goodwill annually each fourth quarter, and whenever events or circumstances
indicate the carrying value of the goodwill may not be recoverable. The Company
evaluates the potential impairment of goodwill by comparing the fair value of
the reporting unit to its carrying value, including goodwill. If the fair value
is less than the carrying value, the Company determines the amount of such
impairment by comparing the implied fair value of the goodwill to its carrying
value.

WARRANTY OBLIGATIONS

The Company warrants its hardware products to be free from defects in material
and workmanship for periods ranging from six months to two years from the time
of sale based upon the product being purchased and the terms of the customer
arrangement. Warranty obligations are accounted for in accordance with Statement
of Financial Accounting Standards No. 5, "Accounting for Contingencies," since
it is probable that customers will make claims under warranties related to
products that have been sold and the amount of these claims can be reasonably
estimated based upon experience. Estimated warranty obligations are evaluated
and recorded at the time of sale based upon historical costs to fulfill warranty
obligations. Provisions may also be recorded subsequent to the time of sale
whenever specific events or circumstances impacting product quality become known
that would not have been taken into account using historical data.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with Statement of Position (SOP)
No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions," since the software is not incidental to the arrangement and the
services in the arrangement do not involve significant production, modification,
or customization of the software. The Company recognizes revenue from product
sales upon delivery if a signed customer contract or purchase order has been
received, the fee is fixed or determinable, and collection of the resulting
receivable is probable. If the arrangement contains customer-specified
acceptance criteria, then revenue is deferred until the Company can demonstrate
that the customer's criteria have been met.

      Certain of the Company's products are sold with multiple elements, such as
maintenance and support programs, education services, and installation services.
The Company accounts for each element separately. The amount allocated to each
undelivered element is the price charged when the item is sold separately, with
the residual value from the arrangement allocated to the delivered element. In
addition, the Company also provides consulting services. Revenue from
maintenance and support programs is deferred and recognized ratably over the
program period.

<PAGE>

50 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue from education and consulting services are recognized over the period
the services are provided. Revenue from installation services is recognized when
the customer has signed off that the installation is complete.

      The Company's products are sold directly to end users, as well as to
resellers including original equipment manufacturers (OEMs), system integrators,
and distributors. Revenue is recognized upon delivery of the product to the
reseller, assuming all other revenue recognition criteria have been met. The
Company establishes reserves against revenue for potential product returns in
accordance with Statement of Financial Accounting Standards No. 48, "Revenue
Recognition When Right of Return Exists," since the amount of future returns can
be reasonably estimated based upon experience.

      Amounts billed to customers related to shipping and handling, as well as
reimbursements received from customers for out-of-pocket expenses, are
classified as revenue, with the associated costs included in cost of revenue.

RESEARCH AND DEVELOPMENT

Research and development costs for internally-developed products are expensed
when incurred until technological feasibility has been established for the
product. Thereafter, all software costs are capitalized until the product is
available for general release to customers. The Company determines technological
feasibility at the time the product reaches beta in its stage of development.
Historically, the time incurred between beta and general release to customers
has been short, and therefore, the costs have been insignificant. As a result,
the Company has not capitalized software costs associated with
internally-developed products.

      The cost of acquired software for products determined to have reached
technological feasibility is capitalized; otherwise the cost is expensed.
Capitalized software costs are amortized using the straight-line method over the
economic life of the product, which is typically two to five years.

INCOME TAXES

The Company accounts for income taxes under the liability method. Under this
method, a deferred tax asset or liability is determined based upon the
differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates that will be in effect when
these differences reverse. Tax credits are recorded as a reduction in income
taxes. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted net income (loss) per share is computed by
dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding for the period plus
potential dilutive common shares. All potential dilutive common shares are
excluded from the computation of net loss per share because they are
antidilutive. Dilutive common equivalent shares consist of stock options and are
calculated using the treasury stock method.

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 51

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a company
during a period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
Other comprehensive income (loss) consists of foreign currency translation
adjustments, unrealized gains and losses on available-for-sale investments, net
of tax, and gains and losses on long-term intercompany loans and their
associated currency swaps, net of tax.

CONCENTRATIONS OF RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents, investments, and trade
receivables. The Company primarily invests in municipal obligations of state and
local government entities. The Company has established guidelines relative to
credit ratings, diversification, and maturities of its debt securities that
maintain safety and liquidity. The Company has not experienced any significant
realized losses on its debt securities.

      A significant portion of the Company's sales and receivables are from
customers who are either in or who serve the semiconductor and electronics
industries. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses. The Company has not
experienced any significant losses related to the collection of its accounts
receivable.

      A significant portion of the Company's MVSD inventory is manufactured by a
third-party contractor. The Company is dependent upon this contractor to provide
quality product and meet delivery schedules. The Company engages in extensive
product quality programs and processes, including actively monitoring the
performance of its third-party manufacturers.

DERIVATIVE INSTRUMENTS

The Company has adopted the accounting and disclosure requirements of Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current operations or in
shareholders' equity as other comprehensive income (loss), depending upon
whether the derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. Hedges of underlying exposures are designated
and documented at the inception of the hedge and are evaluated for effectiveness
at least quarterly. As the terms of the derivative are generally matched at
inception with the underlying exposure, hedging effectiveness is calculated by
comparing the change in fair value of the derivative to the change in fair value
of the underlying exposure.

      In certain instances, the Company enters into forward contracts and
currency swaps to hedge against foreign currency fluctuations. Currency swaps
are used to hedge long-term transactions between the Company and its
subsidiaries. Forward contracts are used to provide an economic hedge against
transactions denominated in currencies other than the functional currencies of
the Company or its subsidiaries.

<PAGE>

52 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These forward contracts and currency swaps are used to reduce the Company's risk
associated with exchange rate changes, as the gains or losses on these contracts
are intended to offset the losses or gains on the underlying exposures. The
Company does not engage in foreign currency speculation.

STOCK-BASED COMPENSATION PLANS

The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123." The Company continues to
recognize compensation costs using the intrinsic value based method described in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." No compensation costs were recognized in 2004, 2003, or 2002.

    Net income (loss) and net income (loss) per share as reported in these
consolidated financial statements and on a pro forma basis, as if the fair value
based method described in SFAS No. 123 had been adopted, are as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
Year Ended December 31,                  2004           2003           2002
- -----------------------                --------       --------      ---------
<S>                                    <C>            <C>           <C>
Net income (loss), as reported         $ 37,744       $ 15,951      $  (6,027)
Less: Total stock-based
   compensation costs determined
   under fair value based method,
   net of tax                           (13,183)       (14,092)       (17,235)
Net income (loss), pro forma           $ 24,561       $  1,859      $ (23,262)
                                       ========       ========      =========
Basic net income (loss) per share,
   as reported                         $   0.83       $   0.37      $   (0.14)
                                       ========       ========      =========
Basic net income (loss) per share,
   pro forma                           $   0.54       $   0.04      $   (0.53)
                                       ========       ========      =========
Diluted net income (loss) per share,
   as reported                         $   0.80       $   0.36      $   (0.14)
                                       ========       ========      =========
Diluted net income (loss) per share,
   pro forma                           $   0.49       $   0.04      $   (0.53)
                                       ========       ========      =========
</TABLE>

For the purpose of providing pro forma disclosures, the fair values of stock
options granted were estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants:

<TABLE>
<CAPTION>
Year Ended December 31,              2004     2003      2002
- -----------------------              ----     ----      ----
<S>                                  <C>      <C>       <C>
Risk-free interest rate               2.5%     2.1%      3.5%
Expected life (in years)              3.1      2.9       2.9
Expected volatility                    45%      58%       57%
Expected annualized dividend yield    .73%     .85%        -
</TABLE>

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53

TREASURY STOCK

Effective July 1, 2004, the Massachusetts Business Corporation Act (the "Act")
eliminated the concept of treasury shares. Under the Act, shares previously
classified as treasury shares are to be treated as authorized but unissued
shares of common stock. As a result of this change, the Company reclassified its
treasury shares to authorized but unissued shares of common stock on the
Consolidated Balance Sheet.

NOTE 2: NEW PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123R, "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123R requires companies to recognize compensation cost for all share-based
payments to employees (including stock option and employee stock purchase plans)
at fair value. SFAS 123R will be effective for public companies for interim or
annual periods beginning after June 15 , 2005. The Company will adopt SFAS No.
123R beginning in the third quarter of 2005 using the modified prospective
method in which compensation cost is recognized beginning on the effective date.

      The Company currently recognizes compensation costs using the intrinsic
value based method and, as such, generally recognizes no compensation cost.
Accordingly, the adoption of SFAS No. 123R's fair value based method will have a
significant impact on the Company's results of operations, although it will have
no impact on its overall financial position. The impact of adoption of SFAS No.
123R cannot be predicted at this time because it will depend upon levels of
share-based payments granted in the future. However, had the Company adopted
SFAS No. 123R in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income (loss) and net income (loss) per share in Note 1 to the
Company's consolidated financial statements.

NOTE 3: FOREIGN CURRENCY RISK MANAGEMENT

The Company enters into currency swaps to hedge the foreign currency exposure of
its long-term intercompany loans between the parent and certain of its European
subsidiaries. These contracts, which relate to the Euro Dollar, have original
terms of two to five years. These hedges have been designated for hedge
accounting. They are classified as net investment hedges, with the gains or
losses on the currency swaps, along with the associated losses or gains on the
intercompany loans, net of tax, recorded in shareholders' equity as other
comprehensive income (loss) to the extent they are effective as a hedge. The
Company recorded net foreign currency losses of $1,730,000, $625,000, and
$35,000 in other comprehensive income (loss) on the intercompany loans and
associated currency swaps in 2004, 2003, and 2002, respectively.

      The Company enters into forward contracts to hedge the foreign currency
exposure of a portion of its intercompany transactions between its subsidiaries
and to hedge the foreign currency exposure of its Irish subsidiary's accounts
receivable denominated in U.S. Dollars and Japanese Yen. These contracts, which
relate to the Euro Dollar and Japanese Yen, generally have terms of one to four
months. These hedges have been deemed economic hedges and have not been
designated for hedge accounting. They are classified as fair value hedges, with
the gains or losses on the forward contracts, along with the associated losses
or gains on the revaluation and

<PAGE>

54 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

settlement of the intercompany balances and accounts receivable, recorded in
current operations. In addition to the transactions described above that are
included in the Company's hedging program, the Company enters into other
transactions denominated in foreign currencies for which the exchange rate gains
or losses are included in current operations. The Company recorded net foreign
currency gains of $1,641,000 in 2004, net foreign currency losses of $1,712,000
in 2003, and net foreign currency gains of $350,000 in 2002, representing the
total net exchange rate gains or losses that are recognized in current
operations.

NOTE 4: CASH, CASH EQUIVALENTS, AND INVESTMENTS

Cash, cash equivalents, and investments consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31,                                   2004            2003
- ------------                                ----------      ---------
<S>                                         <C>             <C>
Cash                                        $   54,270      $  49,980
                                            ----------      ---------
       Total cash and cash equivalents          54,270         49,980
                                            ==========      =========
Municipal bonds                                180,409         82,653
                                            ----------      ---------
       Total short-term investments            180,409         82,653
                                            ==========      =========
Municipal bonds                                144,685        156,511
Corporate bonds                                      -          4,212
Limited partnership interest                    11,712         10,146
                                            ----------      ---------
       Total long-term investments             156,397        170,869
                                            ==========      =========
                                            $  391,076      $ 303,502
                                            ==========      =========
</TABLE>

In connection with the preparation of the accompanying consolidated financial
statements, the Company concluded that it was appropriate to classify its
auction rate securities as short-term investments. Previously, such securities
were classified as cash and cash equivalents. Accordingly, the Company revised
the classification to exclude from cash and cash equivalents $26,247,000 at
December 31, 2003 and to include such amounts in short-term investments on the
Consolidated Balance Sheets. This revised classification was also reflected in
the Consolidated Statements of Cash Flows for all periods presented to reflect
gross purchases and sales of these investments, which had the impact of
increasing net cash used in investing activities by $23,847,000 in 2003 and
increasing net cash provided by investing activities by $4,901,000 in 2002. This
change in classification did not affect previously reported cash flows from
operations or financing activities, or the results of operations and statements
of shareholders' equity for the periods presented.

      The following is a summary of the Company's available-for-sale investments
at December 31, 2004 (in thousands):

<TABLE>
<CAPTION>
                                                Gross         Gross
                                 Amortized   Unrealized     Unrealized
                                   Cost         Gains         Losses      Fair Value
                                 ---------   ----------     ----------    ----------
<S>                              <C>         <C>            <C>           <C>
Short-term municipal bonds       $ 180,627   $     14       $     (232)   $  180,409
Long-term municipal bonds          145,540          5             (860)      144,685
                                 ---------   --------       ----------    ----------
                                 $ 326,167   $     19       $   (1,092)   $  325,094
                                 =========   ========       ==========    ==========
</TABLE>
<PAGE>

              COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  55

The Company recorded gross realized gains on the sale of debt securities
totaling $392,000 in 2004, $1,222,000 in 2003, and $1,112,000 in 2002. The
Company recorded gross realized losses on the sale of debt securities totaling
$90,000 in 2004, $24,000 in 2003, and $25,000 in 2002.

      On June 30, 2000, Cognex Corporation became a Limited Partner in Venrock
Associates III, L.P. (Venrock), a venture capital fund. A director of the
Company is a Managing General Partner of Venrock Associates. In the original
agreement with Venrock, the Company committed to a total investment in the
limited partnership of up to $25,000,000 with an expiration date of January 1,
2005. In January 2005, the Company signed an amendment to the original agreement
with Venrock, which reduces its total commitment to $22,500,000 and extends the
commitment period through December 31, 2010. The Company does not have the right
to withdraw from the partnership prior to December 31, 2010. As of December 31,
2004, the Company had contributed $15,875,000 to the partnership, including
$2,250,000 during 2004. Venrock returned $838,000 to the Company during 2004
representing realized gains on the sale of certain investments in the portfolio.

      At December 31, 2004, the carrying value of this investment was
$11,712,000 compared to an estimated fair value, as determined by the General
Partner, of $10,730,000. The unrealized loss of $982,000 was determined to be
temporary.

NOTE 5: INVENTORIES

Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
 December 31,                                2004      2003
- ---------------                             -------  --------
<S>                                         <C>      <C>
Raw materials                               $ 6,311  $  7,831
Work-in-process                               6,285     3,323
Finished goods                                7,495     4,365
                                            -------  --------
                                            $20,091  $ 15,519
                                            =======  ========
</TABLE>

In the fourth quarter of 2001, the Company recorded a $16,300,000 charge in
"Cost of product revenue" on the Consolidated Statement of Operations for excess
inventories and purchase commitments resulting from an extended slowdown in the
semiconductor and electronics industries, as well as the expected transition to
newer Cognex hardware platforms by the Company's OEM customers. A total of
$12,500,000 of this charge represented reserves against existing inventories and
was accordingly included in "Inventories" on the Consolidated Balance Sheet at
December 31, 2001. The remaining $3,800,000 of the charge represented
commitments to purchase excess components and systems from various suppliers and
accordingly was included in "Accrued Expenses" on the Consolidated Balance Sheet
at December 31, 2001.

<PAGE>

56  COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following table summarizes the change in the inventory-related reserve
established in the fourth quarter of 2001 (in thousands):

<TABLE>
<CAPTION>
                                                   Balance Sheet
                                             --------------------------     Statement of
                                                               Accrued       Operations
                                             Inventories       Expenses       Benefits
                                             -----------       --------     ------------
<S>                                          <C>               <C>          <C>
Initial charge in the fourth
   quarter of 2001                           $ 12,500          $ 3,800                -
Inventory sold to customers                    (1,790)               -          $ 1,790
Settlement of purchase commitments              1,506           (2,400)             894
                                             --------          -------          -------
Reserve balance at
   December 31, 2002                         $ 12,216          $ 1,400
Benefits to cost of product revenue
   recorded in 2002                                                             $ 2,684
                                             ========          =======          =======
Inventory sold to customers                    (1,290)               -            1,290
Inventory sold to brokers                        (667)               -                -
Write-off and scrap of inventory                 (876)               -                -
                                             --------          -------          -------
Reserve balance at
   December 31, 2003                         $  9,383          $ 1,400
Benefits to cost of product revenue
   recorded in 2003                                                             $ 1,290
                                             ========          =======          =======
Inventory sold to customers                      (805)               -              805
Inventory sold to brokers                        (387)               -                -
Write-off and scrap of inventory                 (743)               -                -
                                             --------          -------          -------
Reserve balance at
   December 31, 2004                         $  7,448          $ 1,400
Benefits to cost of product revenue
   recorded in 2004                                                             $   805
                                             ========          =======          =======
</TABLE>

A favorable settlement of the remaining purchase commitments may result in a
recovery of a portion of the remaining $1,400,000 accrued at December 31, 2004.

<PAGE>

              COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  57

NOTE 6: PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31,                                          2004            2003
- ------------------------------                      --------       ----------
<S>                                                 <C>            <C>
Land                                                $  3,051       $    3,051
Buildings                                             17,571           17,571
Building improvements                                  4,622            4,156
Computer hardware and software                        33,826           32,100
Furniture and fixtures                                 4,183            3,919
Leasehold improvements                                 2,197            2,308
                                                    --------       ----------
                                                      65,450           63,105
Less: accumulated depreciation                        (41,45)         (38,125)
                                                    --------       ----------
                                                    $ 23,995       $   24,980
                                                    ========       ==========
</TABLE>

Buildings include property held for lease with a cost $4,950,000 at December 31,
2004 and 2003 and accumulated depreciation of $1,206,000 and $1,079,000 at
December 31, 2004 and 2003, respectively.

NOTE 7: INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                              Gross                         Net
                                            Carrying       Accumulated    Carrying
                                              Value       Amortization      Value
                                            --------      ------------    --------
<S>                                         <C>           <C>             <C>
December 31, 2004
   Customer contracts and
     relationships                          $  8,349          $  1,522    $  6,827
   Complete technology                         5,440             4,864         576
   Patents                                       122                42          80
   Noncompete agreements                          54                31          23
                                            --------          --------    --------
                                            $ 13,965          $  6,459    $  7,506
                                            ========          ========    ========

December 31, 2003
   Customer contracts and
     relationships                          $  7,832          $    492    $  7,340
   Complete technology                         5,388             4,280       1,108
     Patents                                     113                17          96
   Noncompete agreements                          50                12          38
                                            --------          --------    --------
                                            $ 13,383          $  4,801    $  8,582
                                            ========          ========    ========
</TABLE>

<PAGE>

58 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aggregate amortization expense was $1,526,000 in 2004, $1,012,000 in 2003, and
$543,000 in 2002. Estimated amortization expense for each of the five succeeding
fiscal years and thereafter is as follows (in thousands):

<TABLE>
<CAPTION>
Year ended December 31,              Amount
- -----------------------             --------
<S>                                 <C>
2005                                $ 1,315
2006                                  1,195
2007                                  1,136
2008                                  1,035
2009                                  1,001
Thereafter                            1,824
                                    -------
                                    $ 7,506
                                    =======
</TABLE>

NOTE 8: GOODWILL

The Company has two reporting units with goodwill, the Modular Vision Systems
Division (MVSD) and the Surface Inspection Systems Division (SISD), which are
also reportable segments.

   The changes in the carrying value of goodwill are as follows (in thousands):

<TABLE>
<CAPTION>
                                               MVSD          SISD     Consolidated
                                            ----------    ---------   ------------
<S>                                         <C>           <C>         <C>
Balance at December 31, 2002                   $ 1,488      $ 2,254     $ 3,742
Business acquisitions (Note 18)                  2,753            -       2,753
Foreign exchange rate changes                      281          446         727
                                               -------      -------     -------
Balance at December 31, 2003                   $ 4,522      $ 2,700     $ 7,222
                                               =======      =======     =======
Purchase price adjustment (Note 18)               (514)           -        (514)
Foreign exchange rate changes                      113          212         325
                                               -------      -------     -------
Balance at December 31, 2004                   $ 4,121      $ 2,912     $ 7,033
                                               =======      =======     =======
</TABLE>

NOTE 9: ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31,                                                          2004       2003
- -----------------------------------------                           --------   -------
<S>                                                                 <C>        <C>
Forward contracts and currency swaps                                $ 19,527   $12,971
Income taxes                                                           9,165     3,017
Company bonuses                                                        5,979       423
Consumption taxes                                                      4,900     2,368
Salaries, commissions, and payroll taxes                               3,452     2,340
Vacation                                                               2,775     2,348
Warranty obligations                                                   1,758     2,119
Professional fees                                                      1,698     1,780
Purchase commitments                                                   1,400     1,400
Other                                                                  5,125     3,332
                                                                    --------   -------
                                                                    $ 55,779   $32,098
                                                                    ========   =======
</TABLE>

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 59

The changes in the warranty obligation are as follows (in thousands):

<TABLE>
<S>                                                                        <C>
Balance at December 31, 2002                                               $ 1,523
Provisions for warranties issued during the period                           1,591
Provisions related to pre-existing warranties                                  550
Fulfillment of warranty obligations                                         (1,771)
Foreign exchange rate changes                                                  226
                                                                           -------
Balance at December 31, 2003                                               $ 2,119
                                                                           =======
Provisions for warranties                                                      797
Fulfillment of warranty obligations                                         (1,298)
Foreign exchange rate changes                                                  140
                                                                           -------
Balance at December 31, 2004                                               $ 1,758
                                                                           =======
</TABLE>

NOTE 10: COMMITMENTS

At December 31, 2004, the Company had purchase orders totaling $4,960,000 to
purchase inventory from various vendors. These purchase commitments relate to
expected sales in 2005.

The Company conducts certain of its operations in leased facilities. These lease
agreements expire at various dates through 2014 and are accounted for as
operating leases. Annual rental expense totaled $4,662,000 in 2004, $4,427,000
in 2003, and $4,536,000 in 2002. Future minimum rental payments under these
agreements are as follows (in thousands):

<TABLE>
<CAPTION>
Year ended December 31,            Amount
- -----------------------           --------
<S>                               <C>
2005                              $ 3,878
2006                                  977
2007                                  349
2008                                  192
2009                                  190
Thereafter                            445
                                  -------
                                  $ 6,031
                                  =======
</TABLE>

The Company owns an 83,000 square-foot office building adjacent to its corporate
headquarters. The building is currently occupied with tenants who have lease
agreements that expire at various dates through 2007. Annual rental income
totaled $818,000 in 2004, $1,137,000 in 2003, and $1,224,000 in 2002. Rental
income and related expenses are included in "Investment and other income" on the
Consolidated Statement of Operations. Future minimum rental receipts under
non-cancelable lease agreements are $891,000 in 2005 and 2006, $294,000 in 2007,
$95,000 in 2008, and $40,000 in 2009.
<PAGE>

60 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: INDEMNIFICATION PROVISIONS

Except as limited by Massachusetts law, the by-laws of the Company require it to
indemnify certain current or former directors, officers, and employees of the
Company against expenses incurred by them in connection with each proceeding in
which he or she is involved as a result of serving or having served in certain
capacities. Indemnification is not available with respect to a proceeding as to
which it has been adjudicated that the person did not act in good faith in the
reasonable belief that the action was in the best interests of the Company. The
maximum potential amount of future payments the Company could be required to
make under these provisions is unlimited. The Company has never incurred
significant costs related to these indemnification provisions. As a result, the
Company believes the estimated fair value of these provisions is minimal.

      The Company accepts standard limited indemnification provisions in the
ordinary course of business, whereby it indemnifies its customers for certain
direct damages incurred in connection with third-party patent or other
intellectual property infringement claims with respect to the use of the
Company's products. The term of these indemnification provisions generally
coincides with the customer's use of the Company's products. The maximum
potential amount of future payments the Company could be required to make under
these provisions is always subject to fixed monetary limits. The Company has
never incurred significant costs to defend lawsuits or settle claims related to
these indemnification provisions. As a result, the Company believes the
estimated fair value of these provisions is minimal.

      The Company also accepts limited indemnification provisions from time to
time, whereby it indemnifies customers for certain direct damages incurred in
connection with bodily injury and property damage arising from the installation
of the Company's products. The term of these indemnification provisions
generally coincides with the period of installation. The maximum potential
amount of future payments the Company could be required to make under these
provisions is limited and is likely recoverable under the Company's insurance
policies. As a result of this coverage, and the fact that the Company has never
incurred significant costs to defend lawsuits or settle claims related to these
indemnification provisions, the Company believes the estimated fair value of
these provisions is minimal.

NOTE 12: STANDBY LETTERS OF CREDIT

On March 25, 2004, the Company provided standby letters of credit totaling
3,146,280,000 Yen (or approximately $30,722,000) to taxing authorities in Japan
that are collateralized by investments on the Consolidated Balance Sheet. The
Tokyo Regional Taxation Bureau (TRTB) has asserted that Cognex Corporation has a
permanent establishment in Japan that would require certain income, previously
reported on U.S. tax returns for the years ended December 31, 1997 through
December 31, 2001, to be subject instead to taxation in Japan. The Company
disagrees with this position and believes that this assertion is inconsistent
with principles under the U.S. - Japan income tax treaty. The Company has filed
a notice of objection and request for deferral of tax payment and intends to
contest

<PAGE>

              COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  61

this assessment vigorously, although no assurances can be made that the Company
will prevail in this matter. In September 2003, the Company also filed a request
with the Internal Revenue Service Tax Treaty Division for competent authority
assistance. Until this matter is resolved, the Company is required to provide
collateral for these tax assessments. These letters of credit expire in
approximately one year. Should the TRTB prevail in its assertion, the income in
question would be taxable in Japan and the Company would be required to pay
approximately $30,722,000 in taxes, interest, and penalties to Japanese taxing
authorities. The Company would then be entitled to recoup the majority of this
amount from taxing authorities in the U.S.

NOTE 13: SHAREHOLDERS' EQUITY

PREFERRED STOCK

The Company has 400,000 shares of authorized but unissued $.01 par value
preferred stock.

STOCK REPURCHASE PROGRAM

On December 12, 2000, the Company's Board of Directors authorized the repurchase
of up to $100,000,000 of the Company's common stock. During 2002, a total of
1,768,452 shares were repurchased at a cost of $26,425,000. There have been no
other shares repurchased under this program.

STOCK OPTION PLANS

At December 31, 2004, the Company had 9,311,319 shares available for grant under
the following stock option plans: the 1998 Director Plan, 4,000; the 1998 Stock
Incentive Plan, 1,807,319; no shares under the 2001 Interim General Stock
Incentive Plan; and the 2001 General Stock Option Plan, 7,500,000.

      The 2001 General Stock Option Plan was adopted by the Board of Directors
on December 11, 2001 without shareholder approval. This plan provides for the
granting of nonqualified stock options to any employee who is actively employed
by the Company and is not an officer or director of the Company. The maximum
number of shares of common stock available for grant under the plan is 7,500,000
shares. All option grants must have an exercise price per share that is no less
than the fair market value per share of the Company's common stock on the grant
date and must have a term that is no longer than fifteen years from the grant
date. No stock options have been granted under the 2001 General Stock Option
Plan.

      The 2001 Interim General Stock Incentive Plan was adopted by the Board of
Directors on July 17, 2001 without shareholder approval. This plan provides for
the granting of nonqualified stock options to any employee who is actively
employed by the Company and is not an officer or director of the Company. The
maximum number of shares of common stock available for grant under the plan is
400,000 shares. All option grants have an exercise price per share that is no
less than the fair market value per share of the Company's common stock on the
grant date and must have a term that is no longer than fifteen years from the
grant date. All 400,000 stock options have been granted under the 2001 Interim
General Stock Incentive Plan.

<PAGE>

62 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On April 21, 1998, the shareholders approved the 1998 Stock Incentive
Plan, under which the Company initially was able to grant stock options and
stock awards to purchase up to 1,700,000 shares of common stock. Effective
January 1, 1999 and each January 1st thereafter during the term of the 1998
Stock Incentive Plan, the number of shares of common stock available for grants
of stock options and stock awards is increased automatically by an amount equal
to 4.5% of the total number of issued shares of common stock as of the close of
business on December 31st of the preceding year.

      Stock options generally vest over four years and generally expire no later
than ten years from the date of grant.

      The following table summarizes the status of the Company's stock option
plans at December 31, 2004, 2003, and 2002, and changes during the years then
ended (shares in thousands):

<TABLE>
<CAPTION>
                                2004                     2003                     2002
                       ----------------------    --------------------    ----------------------
                                    Weighted-               Weighted-                 Weighted-
                                     Average                 Average                   Average
                                    Exercise                Exercise                  Exercise
                        Shares       Price        Shares      Price      Shares         Price
                       ---------    ---------    -------    ---------    --------    ----------
<S>                    <C>          <C>          <C>        <C>          <C>         <C>
Outstanding at
   beginning
   of year               10,986     $   22.85     10,381    $   22.40       9,529    $    22.31
  Granted at
   fair market
   value                  2,253         29.31      2,402        21.54       2,211         21.38
  Exercised              (2,210)        19.78     (1,279)       15.84        (550)        12.56
  Forfeited                (409)        26.06       (518)       25.75        (809)        25.26
                       --------     ---------    -------    ---------    --------    ----------
Outstanding at
   end of year           10,620         24.74     10,986        22.85      10,381         22.40
                       ========     =========    =======    =========    ========    ==========
Options
   exercisable at
   year-end               5,074         24.52      5,182        22.37       4,156         19.01
Weighted-average
   grant-date fair
   value of options
   granted during
   the year at fair
   market value        $   9.22                  $  8.32                 $   8.39
</TABLE>

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 63

No stock options were granted above fair market value in 2004, 2003, or 2002.

      The following table summarizes information about stock options outstanding
at December 31, 2004 (shares in thousands):

<TABLE>
<CAPTION>
                                Options Outstanding                    Options Exercisable
                   ---------------------------------------------     ------------------------
                                      Weighted-
                                      Average          Weighted-                    Weighted-
                                     Remaining          Average                      Average
   Range of           Number         Contractual       Exercise        Number       Exercise
Exercise Prices    Outstanding     Life (in years)       Price       Exercisable      Price
- ---------------    -----------     ---------------     ---------     -----------    ---------
<S>                <C>             <C>                 <C>           <C>            <C>
$ 1.00 - 18.13           1,981                 5.2     $   14.00           1,461    $   12.79
 18.19 - 21.73           1,847                 8.3         21.05             353        20.62
 21.74 - 24.45           1,568                 6.8         22.34             864        22.45
 24.49 - 28.51           1,165                 7.3         25.67             700        25.53
 28.67 - 28.90           1,913                 8.8         28.69             316        28.77
 28.95 - 59.69           2,146                 7.6         35.56           1,380        37.76
                   -----------     ---------------     ---------     -----------    ---------
                        10,620                 7.3         24.74           5,074        24.52
                   ===========     ===============     =========     ===========    =========
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

Under the Company's Employee Stock Purchase Plan (ESPP), employees who have
completed six months of continuous employment with the Company may purchase
common stock semi-annually at the lower of 85% of the fair market value of the
stock at the beginning or end of the six-month payment period through
accumulation of payroll deductions. Employees are required to hold common stock
purchased under the ESPP for a period of one year from the date of purchase. The
maximum number of shares of common stock available for issuance under the ESPP
is 250,000 shares. Effective January 1, 2001 and each January 1st thereafter
during the term of the ESPP, 250,000 shares of common stock will always be
available for issuance. Shares purchased under the ESPP totaled 21,031 in 2004,
31,667 in 2003, and 38,105 in 2002. The weighted-average fair value of shares
purchased under the ESPP was $10.61 in 2004, $9.89 in 2003, and $5.73 in 2002.

      For the purpose of providing pro forma disclosures, the fair values of
shares purchased were estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions:

<TABLE>
<CAPTION>
Year Ended December 31,                 2004      2003        2002
- ----------------------------------      -----     -----       -----
<S>                                     <C>       <C>         <C>
Risk-free interest rate                   2.3%      2.0%        1.5%
Expected life (in months)                  12        12           6
Expected volatility                        39%       58%         57%
Expected annualized dividend yield       1.00%      .85%          -
</TABLE>

<PAGE>

64 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14: EMPLOYEE SAVINGS PLAN

Under the Company's Employee Savings Plan, a defined contribution plan,
employees who have attained age 21 may contribute up to 25% of their salary on a
pre-tax basis subject to the annual dollar limitations established by the
Internal Revenue Service. The Company contributes fifty cents for each dollar an
employee contributes, with a maximum contribution of 3% of an employee's pre-tax
salary. Company contributions vest 20%, 40%, 60%, and 100% after two, three,
four, and five years of continuous employment with the Company, respectively.
Company contributions totaled $967,000 in 2004, $917,000 in 2003, and $869,000
in 2002. Cognex stock is not an investment alternative, nor are Company
contributions made in the form of Cognex stock.

NOTE 15: INCOME TAXES

Domestic income before taxes was $22,507,000, $24,852,000, and $3,422,000 and
foreign income (loss) before taxes was $30,653,000, $(1,604,000), and
$(11,626,000) in 2004, 2003, and 2002, respectively.

      The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
Year Ended December 31,      2004          2003          2002
- -----------------------    ---------     ---------     --------
<S>                        <C>           <C>           <C>
Current:
  Federal                  $   9,662     $   6,330     $ (1,930)
  State                          758           431           48
  Foreign                        983         2,181        1,040
                           ---------     ---------     --------
                              11,403         8,942         (842)
                           ---------     ---------     --------
Deferred:
  Federal                       (177)         (616)         524
  State                          306            48          (51)
  Foreign                      3,884        (1,077)      (1,808)
                           ---------     ---------     --------
                               4,013        (1,645)      (1,335)
                           ---------     ---------     --------
                           $  15,416     $   7,297     $ (2,177)
                           =========     =========     ========
</TABLE>

A reconciliation of the United States federal statutory corporate tax to the
Company's effective tax is as follows (in thousands):

<TABLE>
<CAPTION>
      Year Ended December 31,              2004           2003          2002
- ------------------------------------     ---------     ----------     ---------
<S>                                      <C>           <C>            <C>
Income tax provision (benefit) at
  federal statutory rate                 $  18,606     $    8,137     $  (2,871)
State income taxes, net of
  federal benefit                            1,070            325            67
Tax-exempt investment income                (1,463)        (1,901)       (2,992)
Foreign tax rate differential               (3,138)         1,023         2,934
Goodwill amortization and
  impairment charges                             -              -           846
Other                                          341           (287)         (161)
                                         ---------     ----------     ----------
Provision (benefit) for income taxes     $  15,416     $    7,297     $  (2,177)
                                         =========     ==========     ==========
</TABLE>
<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 65

Deferred tax assets consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31,                                                      2004         2003
- ------------                                                    ---------    ---------
<S>                                                             <C>          <C>
Current deferred tax assets:
  Inventory and revenue related                                 $   6,321    $   6,494
  Bonus, commission, and other compensation                           937          500
  Other                                                             2,246        1,229
                                                                ---------    ---------
Total net current deferred tax asset                            $   9,504    $   8,223
                                                                =========    =========
Noncurrent deferred tax assets (liabilities):
  Federal and state tax credit carryforwards                    $   8,138    $   6,638
  Net operating loss carryforwards                                  3,989        5,519
  Acquired complete technology and other intangibles                3,180        3,353
  Federal and state capital loss carryforwards                      1,640        1,694
  Unrealized investment gains (losses)                              1,573         (462)
  Depreciation                                                      1,339        1,308
  Acquired in-process technology                                      972        1,021
  Other                                                               685          357
                                                                ---------    ---------
Total net noncurrent deferred tax asset                         $  21,516    $  19,428
                                                                =========    =========
</TABLE>

At December 31, 2004, the Company had federal research and experimentation tax
credit carryforwards of approximately $4,424,000, which may be available to
offset future federal income tax liabilities and will begin to expire in 2015.
The Company also had approximately $2,290,000 of alternative minimum tax credits
and approximately $991,000 of foreign tax credits, which may be available to
offset future regular income tax liabilities. The alternative minimum tax
credits have an unlimited life and the foreign tax credits will begin to expire
in 2007. In addition, the Company had approximately $433,000 of state research
and experimentation tax credit carryforwards, which will begin to expire in
2015.

      At December 31, 2004, the Company's subsidiaries had net operating loss
carryforwards of approximately $15,688,000, of which $9,011,000, representing a
tax benefit of $3,154,000, will expire in 2009. The remaining balance of
$6,677,000, representing a tax benefit of $835,000, has an unlimited life.

      The Company did not establish valuation allowances against its deferred
tax assets at December 31, 2004 and 2003. While these assets are not assured of
realization, the Company has evaluated the realizability of these deferred tax
assets and has determined that it is more likely than not that these assets will
be realized. In reaching this conclusion, the Company has evaluated certain
relevant criteria including the Company's historical profitability, current
projections of future profitability, and the lives of tax credits, net operating
and capital losses, and other carryforwards. Should the Company fail to generate
sufficient pre-tax profits in future periods, the Company may be required to
establish valuation allowances against these deferred tax assets, resulting in a
charge to income in the period of determination.

      The Company files income tax returns in all jurisdictions in which it
operates. The Company has established reserves to provide for additional income
taxes that may be due in future years as these previously filed tax returns are
audited. These

<PAGE>

66 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reserves have been established based upon management's assessment as to the
potential exposure attributable to permanent differences and interest applicable
to both permanent and temporary differences. All tax reserves are analyzed
periodically and adjustments are made as events occur that warrant modification.

      The Company does not provide U.S. taxes on its foreign subsidiaries'
undistributed earnings, as they are deemed to be permanently reinvested outside
the U.S. Non-U.S. income taxes are, however, provided on those foreign
subsidiaries' undistributed earnings. Upon repatriation, the Company would
provide the appropriate U.S. income taxes on these earnings.

      On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act")
was signed into law. The Act creates a temporary incentive for U.S.
multinationals to repatriate accumulated income earned outside the U.S. at an
effective tax rate of 5.25%. On November 15, 2004, the Financial Accounting
Standards Board issued proposed Statement of Financial Accounting Standard
(SFAS) No. 109-2, "Accounting and Disclosure for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004." SFAS No.
109-2 would allow companies additional time to evaluate the effect of the law on
whether unrepatriated foreign earnings continue to qualify for SFAS No. 109's
exception to recognizing deferred tax liabilities and would require explanatory
disclosures from those companies who need the additional time. Through December
31, 2004, the Company had not provided deferred taxes on foreign earnings
because such earnings were intended to be indefinitely reinvested outside the
U.S. Whether the Company will ultimately take advantage of this provision
depends upon a number of factors, including reviewing future Congressional
guidance, before a decision can be made. Until that time, the Company will not
change its current intention to indefinitely reinvest accumulated earnings of
its foreign subsidiaries.

NOTE 16: NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated as follows (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
Year Ended December 31,                         2004          2003          2002
- -----------------------                       ---------     ---------     ---------
<S>                                           <C>           <C>           <C>
Net income (loss)                             $  37,744     $  15,951     $  (6,027)
                                              =========     =========     =========
Basic:
  Weighted-average common
    shares outstanding                           45,480        43,173        43,503
                                              =========     =========     =========
  Net income (loss) per common share          $    0.83     $    0.37     $   (0.14)
                                              =========     =========     =========
Diluted:
  Weighted-average common
    shares outstanding                           45,480        43,173        43,503
  Effect of dilutive stock options                1,878         1,293             -
                                              ---------     ---------     ---------
Weighted-average common and
     common equivalent shares
     outstanding                                 47,358        44,466        43,503
                                              =========     =========     =========
Net income (loss) per common and
     common equivalent share                  $    0.80     $    0.36     $   (0.14)
                                              =========     =========     =========
</TABLE>

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 67

Stock options to purchase 1,656,927, 2,934,936, and 6,347,233 shares of common
stock were outstanding in 2004, 2003, and 2002, respectively, but were not
included in the calculation of diluted net income (loss) per share because the
options' exercise prices were greater than the average market price of the
Company's common stock during those years. Additionally, stock options to
purchase 939,961 shares of common stock were not included in the calculation of
diluted net loss per share in 2002 because they were antidilutive.

NOTE 17: SEGMENT AND GEOGRAPHIC INFORMATION

The Company has two reportable segments: the Modular Vision Systems Division
(MVSD) and the Surface Inspections Systems Division (SISD). MVSD designs,
develops, manufactures, and markets modular vision systems that are used to
control the manufacturing of discrete items by locating, identifying,
inspecting, and measuring them during the manufacturing process. SISD designs,
develops, manufactures, and markets surface inspection vision systems that are
used to inspect surfaces of materials that are processed in a continuous fashion
to ensure there are no flaws or defects in the surfaces. Segments are determined
based upon the way that management organizes its business for making operating
decisions and assessing performance. The Company evaluates segment performance
based upon income or loss from operations, excluding unusual items.

      The following table summarizes information about the Company's segments
(in thousands):

<TABLE>
<CAPTION>
                                                         Reconciling
                                         MVSD         SISD        Items      Consolidated
                                      ----------   ----------   ----------   ------------
<S>                                   <C>          <C>          <C>          <C>
YEAR ENDED DECEMBER 31, 2004
  Product revenue                     $  155,966   $   20,603            -   $    176,569
  Service revenue                         17,923        7,465            -         25,388
  Depreciation and amortization            5,526          341   $      207          6,074
  Operating income (loss)                 53,572        1,336       (8,059)        46,849
Year Ended December 31, 2003
  Product revenue                     $  108,170   $   22,500            -   $    130,670
  Service revenue                         12,846        6,576            -         19,422
  Depreciation and amortization            5,863          392   $      179          6,434
  Operating income (loss)                 21,397        3,830       (5,717)        19,510
Year Ended December 31, 2002
  Product revenue                     $   78,270   $   17,932            -   $     96,202
  Service revenue                         12,088        5,817            -         17,905
  Depreciation and amortization            6,487          388   $      202          7,077
  Operating income (loss)                   (497)       1,369      (10,630)        (9,758)
</TABLE>

<PAGE>

68 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciling items consist of unallocated corporate expenses, which primarily
include corporate headquarters costs, professional fees, and patent infringement
litigation. Asset information by segment is not produced internally for use by
the chief operating decision maker, and therefore, is not presented. Asset
information is not provided because the cash and investments are commingled and
the divisions share assets and resources in a number of locations around the
world.

No customer accounted for greater than 10% of revenue in 2004, 2003, or 2002.

The following table summarizes information about geographic areas (in
thousands):

<TABLE>
<CAPTION>
                                         United
                                         States        Japan        Ireland       Other     Consolidated
                                       ----------    ----------   -----------   ---------   ------------
<S>                                    <C>           <C>          <C>           <C>         <C>
YEAR ENDED DECEMBER 31, 2004
  Product revenue                      $   50,548             -   $   126,021           -   $    176,569
  Service revenue                          16,254             -         9,134           -         25,388
  Long-lived assets                        26,217    $    2,396        12,797   $   1,024         42,434
Year Ended December 31, 2003
  Product revenue                      $   43,001             -   $    87,669           -   $    130,670
  Service revenue                          12,792             -         6,630           -         19,422
  Long-lived assets                        27,921    $    2,434        13,358   $     925         44,638
Year Ended December 31, 2002
  Product revenue                      $   44,292    $   14,355   $    37,555           -   $     96,202
  Service revenue                          13,263         2,119         2,523           -         17,905
  Long-lived assets                        28,891         3,077         2,744   $   1,040         35,752
</TABLE>

Revenue is presented geographically based upon the country in which the sale is
recorded. The "Other" column represents all long-lived assets in other
countries, none of which were individually significant.

NOTE 18: ACQUISITIONS

ACQUISITION OF SIEMENS DEMATIC AG WAFER IDENTIFICATION BUSINESS

On March 31, 2003, the Company acquired the wafer identification business of
Siemens Dematic AG, a subsidiary of Siemens AG. Siemens Dematic is a leading
supplier of logistics and factory automation equipment and has been a leading
supplier of wafer identification systems to semiconductor manufacturers in
Europe. Under the terms of the agreement, the Company acquired the rights to all
of Siemens' patented and unpatented wafer identification technology, as well as
substantially all of the assets related to its wafer identification business.
This acquisition enhances the Company's position as a leading provider of wafer
identification systems worldwide. The results of operations of the acquired
business have been included in the Company's consolidated results of operations
since the date of the acquisition. The historical results of operations of the
acquired business were not material compared to the consolidated results of
operations, and therefore, pro forma results are not presented.

<PAGE>

               COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 69

      The original purchase price consisted of 7,000,000 Euros in cash (or
approximately $7,630,000) paid on March 31, 2003, with the potential for an
additional cash payment in 2005 of up to 1,700,000 Euros (or approximately
$2,306,000) depending upon the achievement of certain performance criteria. Any
contingent consideration will be recorded as purchase price when paid and will
be allocated to goodwill. The March 31, 2003 cash payment of 7,000,000 Euros was
based upon an estimated balance sheet for the wafer identification business as
of March 31, 2003. After receipt of a final March 31, 2003 balance sheet and
resolution of certain items in dispute, Siemens reimbursed Cognex 796,000 Euros
(or $868,000), of which $354,000 was allocated to receivables and $514,000 was
allocated to goodwill.

      The final purchase price of 6,204,000 Euros (or approximately $6,762,000)
was allocated as follows: $616,000 to inventories; $274,000 to receivables;
$25,000 to accrued expenses; $4,469,000 to customer contracts and relationships,
to be amortized over eight years; $447,000 to complete technology, to be
amortized over five years; $98,000 to patents, to be amortized over five years;
$44,000 to non-compete agreements, to be amortized over three years; and
$839,000 to goodwill, which is assigned to the MVSD segment and is not
deductible for tax purposes.

ACQUISITION OF GAVITEC AG MACHINE VISION BUSINESS

On December 1, 2003, the Company acquired the machine vision business of Gavitec
AG. Gavitec produces machine vision products for direct part mark identification
(or Industrial ID), which can read markings on the surfaces of manufactured
items to collect data about product components during the manufacturing process
and trace the manufacturing history of the components during the product's
lifetime. Under the terms of the agreement, the Company acquired all of the
tangible and intangible assets and assumed certain liabilities associated with
Gavitec's machine vision business. This acquisition strengthens the Company's
overall market position in Germany and combines Gavitec's experience in the
design of easy-to-use Industrial ID products with Cognex's global sales force
and engineering support to enable the Company to provide additional products for
the growing Industrial ID market. The results of operations of the acquired
business have been included in the Company's consolidated results of operations
since the date of the acquisition. The historical results of operations of the
acquired business were not material compared to the consolidated results of
operations, and therefore, pro forma results are not presented.

      The net purchase price consisted of 3,777,000 Euros in cash (or
approximately $4,516,000), including 3,477,000 Euros paid at closing, 100,000
Euros (or approximately $123,000) paid on December 1, 2004, and 200,000 Euros
(or approximately $271,000) to be paid on December 1, 2005. There was the
potential for two additional cash payments of up to 250,000 Euros (or
approximately $339,000) each in the third quarter of 2004 and first quarter of
2005 depending upon the achievement of certain performance criteria. These
criteria were not met, and therefore, these contingent payments were not made.

<PAGE>

70 COGNEX CORPORATION: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The purchase price was allocated as follows: $213,000 to inventories;
$76,000 to receivables; $60,000 to fixed assets; $114,000 to accrued expenses;
$2,726,000 to customer contracts and relationships, to be amortized over nine
years; $155,000 to complete technology, to be amortized over three years; and
$1,400,000 to goodwill, which is assigned to the MVSD segment and is not
deductible for tax purposes.

NOTE 19: DIVIDENDS

Beginning in the third quarter of 2003, the Company's Board of Directors has
declared and paid a cash dividend in each quarter. During the third quarter of
2004, the Company's Board of Directors voted to increase the quarterly cash
dividend from $0.06 per share to $0.08 per share. Dividend payments amounted to
$12,756,000 in 2004 and $5,237,000 in 2003.

NOTE 20: SUBSEQUENT EVENTS

On January 28, 2005, the Company's Board of Directors declared a cash
dividend of $0.08 per share. The dividend was paid on February 25, 2005 to all
shareholders of record at the close of business on February 11, 2005 and
amounted to $3,698,000.

      On January 19, 2005, the Company signed an amendment to its agreement with
Venrock Associates III L.P., a venture capital fund in which the Company is a
limited partner. The amendment reduced the Company's commitment to $22,500,000
from $25,000,000 and extended the commitment period through December 31, 2010.

NOTE 21: SUPPLEMENTAL DISCLOSURES

Cash paid for income taxes totaled $2,327,000 in 2004, $4,169,000 in 2003, and
$1,180,000 in 2002.

      Common stock received as payment for stock option exercises totaled
$317,000 in 2004, $134,000 in 2003 and $2,467,000 in 2002.

      The Company retired certain fully depreciated property, plant, and
equipment totaling $1,824,000 in 2004, $2,497,000 in 2003, and $5,407,000 in
2002.

      Advertising costs are expensed as incurred and totaled $2,000,000 in
2004, $1,684,000 in 2003, and $1,753,000 in 2002.

<PAGE>

COGNEX CORPORATION: REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRMS                                                                        71

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COGNEX CORPORATION:

We have audited the accompanying consolidated balance sheets of Cognex
Corporation and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with the standards of the Public
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cognex
Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.

      We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Cognex
Corporation and subsidiaries internal control over financial reporting as of
December 31 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 4, 2005 expressed an unqualified opinion
thereon.

Boston, Massachusetts                                        ERNST & YOUNG LLP
March 4, 2005

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COGNEX CORPORATION:

In our opinion, the accompanying consolidated statements of operations, of
shareholders' equity and cash flows for the year ended December 31, 2002 present
fairly, in all material respects, the results of operations and cash flows of
Cognex Corporation and its subsidiaries for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

Boston, Massachusetts                                 PRICEWATERHOUSECOOPERS LLP
January 24, 2003
<PAGE>

72 COGNEX CORPORATION: FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
   (in thousands, except per share amounts)

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
    Year Ended December 31,           2004          2003          2002            2001           2000
- ------------------------------     ---------     ---------     ----------      ----------      ---------
<S>                                <C>           <C>           <C>             <C>             <C>
Revenue                            $ 201,957     $ 150,092     $  114,107      $  140,729      $ 250,726
Cost of revenue                       57,371        50,139         39,859          62,345         63,820
                                   ---------     ---------     ----------      ----------      ---------
Gross margin                         144,586        99,953         74,248          78,384        186,906
Research, development,
  and engineering expenses            27,063        24,719         25,630          30,094         33,341
Selling, general, and
  administrative expenses             70,674        55,724         58,376          61,262         62,015
Amortization of goodwill                   -             -              -           3,108          1,964
Charge for intangible
  asset impairment                         -             -              -          10,932              -
                                   ---------     ---------     ----------      ----------      ---------
Operating income (loss)               46,849        19,510         (9,758)        (27,012)        89,586
Nonoperating income                    6,311         3,738          1,554          11,341         10,632
                                   ---------     ---------     ----------      ----------      ---------
Income (loss) before taxes            53,160        23,248         (8,204)        (15,671)       100,218
Income tax provision (benefit)        15,416         7,297         (2,177)         (4,544)        32,070
                                   ---------     ---------     ----------      ----------      ---------
Net income (loss)                  $  37,744     $  15,951     $   (6,027)     $  (11,127)     $  68,148
                                   =========     =========     ==========      ==========      =========
Basic net income (loss)
  per share                        $    0.83     $    0.37     $    (0.14)     $    (0.25)     $    1.58
                                   =========     =========     ==========      ==========      =========
Diluted net income (loss)
  per share                        $    0.80     $    0.36     $    (0.14)     $    (0.25)     $    1.49
                                   =========     =========     ==========      ==========      =========
Basic weighted-average
  common shares outstanding           45,480        43,173         43,503          43,639         43,043
                                   =========     =========     ==========      ==========      =========
Diluted weighted-average
  common shares outstanding           47,358        44,466         43,503          43,639         45,698
                                   =========     =========     ==========      ==========      =========
Cash dividends per
  common share                     $    0.28     $    0.12     $        -      $        -      $       -
                                   =========     =========     ==========      ==========      =========
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
         December 31,                 2004          2003          2002            2001            2000
- ------------------------------     ---------     ---------     ----------      ----------      ---------
<S>                                <C>           <C>           <C>             <C>             <C>
Working capital                    $ 242,460     $ 150,311     $  162,808      $  143,712      $ 167,913
Total assets                         533,308       432,533        385,934         406,904        436,141
Long-term debt                             -             -              -               -              -
Shareholders' equity                 462,807       384,994        354,520         378,044        383,949
</TABLE>

<PAGE>

                 COGNEX CORPORATION: SELECTED QUARTERLY FINANCIAL (UNAUDITED) 73
                    (in thousands, except per share amounts and stock prices)
<TABLE>
<CAPTION>
     2004 Quarter Ended            April 4         July 4         October 3      December 31
- ----------------------------     -----------     -----------     -----------     -----------
<S>                              <C>             <C>             <C>             <C>
Revenue                          $    48,169     $    54,467     $    55,412     $    43,909
Gross margin                          33,380          38,562          40,526          32,118
Operating income                      10,168          14,339          15,875           6,467
Net income                             8,567          10,878          11,655           6,644
Basic net income per share              0.19            0.24            0.26            0.15
Diluted net income per share            0.18            0.23            0.25            0.14
Cash dividends per
  common share                          0.06            0.06            0.08            0.08
Common stock prices:
  High                                 35.05           38.48           37.06           29.90
  Low                                  28.24           30.09           23.50           23.14
</TABLE>

<TABLE>
<CAPTION>
     2003 Quarter Ended            March 30        June 29       September 28    December 31
- ----------------------------     -----------     -----------     ------------    -----------
<S>                              <C>             <C>             <C>             <C>
Revenue                          $    32,888     $    36,622     $    38,704     $    41,878
Gross margin                          21,172          24,623          25,514          28,644
Operating income                       1,945           4,411           5,507           7,647
Net income                             1,793           3,306           5,138           5,714
Basic net income per share              0.04            0.08            0.12            0.13
Diluted net income per share            0.04            0.08            0.11            0.13
Cash dividends per
  common share                             -               -            0.06            0.06
Common stock prices:
  High                                 24.40           24.00           31.79           31.11
  Low                                  18.17           17.91           20.55           25.00
</TABLE>

<PAGE>

74 COGNEX CORPORATION: COMPANY INFORMATION

TRANSFER AGENT
National City Bank
Corporate Trust Operations
3rd Floor, North Annex
4100 West 150th Street
Cleveland, OH 44135-1385
Telephone: (216) 257-8663
Toll free: (800) 622-6757

GENERAL COUNSEL
Goodwin Procter LLP
Boston, Massachusetts

INDEPENDENT AUDITORS
Ernst & Young LLP
Boston, Massachusetts

FORM 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and Exchange
Commission is available to shareholders, without charge, upon request to:

Department of Investor Relations
Cognex Corporation
One Vision Drive
Natick, MA 01760

Additional copies of this annual report are also available, without charge, upon
request to the above address, or on-line at http://www.cognex.com

The Company's report on internal controls over financial reporting and the
report of the Company's independent registered accounting firm is included in
Item 9A of the Annual Report on Form 10-K.

The Company's common stock is traded on the NASDAQ Stock Market, under the
symbol CGNX. As of February 11, 2005, there were approximately 600 shareholders
of record of the Company's common stock. The Company believes the number of
beneficial owners of the Company's common stock on that date was substantially
greater.

The Company declared and paid a cash dividend of $0.06 per share in the first
and second quarters of 2004, and a cash dividend of $0.08 per share in the third
and fourth quarters of 2004. Any future declaration and payment of cash divi-
dends will be subject to the discretion of the Board of Directors and will
depend upon such factors as the Board of Directors deems relevant. The Board of
Directors may modify the Company's dividend policy from time to time.

<PAGE>

                                      COGNEX CORPORATION: COMPANY INFORMATION 75

BOARD OF DIRECTORS

Robert J. Shillman
Chairman and Chief Executive Officer
Cognex Corporation

Patrick A. Alias
Executive Vice President
Cognex Corporation

Jerald G. Fishman
President and Chief Executive Officer
Analog Devices, Inc.

William A. Krivsky
Chairman and CEO
Keyson Airways Corporation

Anthony Sun
Managing General Partner
Venrock Associates

Reuben Wasserman
Business Consultant

OFFICERS

Robert J. Shillman
Chairman and Chief Executive Officer

James F. Hoffmaster
President and Chief Operating Officer

Patrick A. Alias
Executive Vice President

Richard A. Morin
Senior Vice President of Finance and
Administration, Chief Financial Officer,
and Treasurer

John McGarry
Senior Vice President,
In-Sight Products

William Silver
Senior Vice President and
Chief Technology Officer, MVSD

This annual report, including the letter to shareholders, contains
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934. Please see the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Forward-looking Statements" in this report for a discussion
regarding risks associated with these statements.

Cognex(R) Corporation has no connection, association, or affiliation to the
Dummies Books or their publisher. The similarity of this report to the Dummies
series of books is intentional; it's a parody! The Dummies trademark is owned by
IDG Books Worldwide, Inc., from International Data Group, Inc.

Copyright (C) 2005 by Cognex Corporation. All rights reserved. Any part of this
work may be reproduced or transmitted in any form or by any means without
written consent of Cognex Corporation, under the condition that the source of
the excerpted material is given.

Cognex, Cognex Vision for Industry, In-Sight, SmartView, and PatMax are
registered trademarks, and DataMan, IDMax, ProofRead, CPS 1000 and Checker are
trademarks of Cognex.

Design: PointOne Marketing & Design, Danvers, MA www.pointonemarketing.com

Printed in the United States of America

<PAGE>

76 COGNEX CORPORATION: OFFICES

UNITED STATES
Corporate Headquarters
One Vision Drive
Natick, MA 01760
Telephone: (508) 650-3000
Fax: (508) 650-3333

2060 Challenger Drive
Alameda, CA 94501
Telephone: (510) 749-4000
Fax: (510) 865-9927

1001 Rengstorff Avenue
Mountain View, CA 94043
Telephone: (650) 969-4812
Fax: (650) 969-4818

800 East Diehl Road, Suite 125
Naperville, IL 60563
Telephone: (630) 649-6312
Fax: (630) 955-0661

46850 Magellan Drive, Suite 150
Novi, MI 48377
Telephone: (248) 668-5100
Fax: (248) 624-2964

15865 SW 74th Street, Suite 105
Portland, OR 97224
Telephone: (503) 620-6601
Fax: (503) 620-6093

318 Seaboard Lane
Suite 314
Franklin, TN 37067
Telephone: (615) 844-6158
Fax: (615) 844-6159

10150 West National Avenue, Suite 202
West Allis, WI 53227
Telephone: (414) 604-7000
Fax: (414) 604-2342

FINLAND
Cognex Finland, Oy
Kellonkierto 7
70460 Kuopio, Finland
Telephone: +358-17-3893 200
Fax: +###-##-#### 232

FRANCE
Cognex International Inc., France
104 Avenue Albert 1er
F-92563 Rueil Malmaison cedex, France
Telephone: +33-1-47-77-15-50
Fax: +33-1-47-77-15-55

GERMANY
Cognex Germany, Inc.
Emmy Noether Strasse 11
D-76131 Karlsruhe, Germany
Telephone: + 49-721-6639-0
Fax: + 49-721-6639-599

IRELAND
Cognex Ltd,
1, South Mall,
Cork, Ireland
Telephone: +353 (0)21 230 0271
Fax: +353 (0)21 230 0133

ITALY
Cognex International Inc., Italy
Via Gasparotto, 1
I-20124 Milano, Italy
Telephone: + 39-02-67471200
Fax: +39-02-67471300

NETHERLANDS
Cognex Benelux
Fellenoord, 130
NL-5611 ZB Eindhoven, Netherlands
Telephone: +31-402668565
Fax: +31-402668567

<PAGE>

                                                  COGNEX CORPORATION: OFFICES 77

SWEDEN
Cognex International Inc.
Skrapan 1830
Kopparbergsvagen 10
S-722 10 Vasteras, Sweden
Telephone: +46-21-145588
Fax: +46-21-144080

UNITED KINGDOM
Cognex UK, Ltd.
Sunningdale House
43 Caldecotte Lake Drive
Caldecotte Lake Business Park
Milton Keynes MK7 8LF, UK
Telephone: +44-1908-206000
Fax: +44-1908-392463

Cognex UK, Ltd., Epsom Branch
Units 7-9, First Quarter
Blenheim Road, Epsom
Surrey, KT19 9QN, UK
Telephone: +44-1372-754 100
Fax: +44-1372-754 150

JAPAN
Cognex KK-Headquarters
23F Bunkyo Green Court
2-28-8 Honkomagome,
Bunkyo-ku
Tokyo 113-6591, Japan
Telephone: +81-3-5977-5400
Fax: +81-3-5977-5401

Cognex KK-Osaka
3F Central Shin-Osaka Building
4-5-36 Miyahara,
Yodogawa-ku
Osaka-shi, Osaka 532-0003 Japan
Telephone: +81-6-4807-8201
Fax: +81-6-4807-8202

Cognex KK-Fukuoka
5F, Dai 5 Hakata Kaisei Building
1-18-25 Hakataeki-Higashi,
Hakata-ku
Fukuoka-shi, Fukuoka-ken
812-0013, Japan
Telephone: +81-92-432-7741
Fax: +81-92-412-3590

Cognex KK-Nagoya
4F, IT Meieki Building
3-11-22 Meieki
Nakamura-ku, Nagoya-shi
Aichi-ken
450-0002 Japan
Telephone: + 81-52-569-5900
Fax: +81-52-581-7760

Cognex KK-Sendai
10F, Sendai-Hashimoto Building
27-21 Tachimachi
Aoba-ku, Sendai-shi, Miyagi-ken
980-0822, Japan
Telephone: +81-22-711-1971
Fax: +81-22-711-1982

SINGAPORE
10 Anson Road
#26-06A International Plaza
Singapore 079903
Telephone: +65-632-55-700
Fax: +65-632-55-703

<PAGE>

78 COGNEX CORPORATION: OFFICES

TAIWAN
10F-1, No. 25
Puding Road
Hsin-Chu City
300 Taiwan, R.O.C.
Telephone: +886-3-5780060
Fax: +886-3-5781520

KOREA
8Fl., Dongkyung Bldg. 824-19
Yuksam-dong, Kangnam-Ku
Seoul, 135-080, Korea
Telephone: +82-2-539-9047
Fax: +82-2-569-9823

CHINA
Cognex China
CIIC Business Center
Unit B, 22/F Jian Hui Building,
922 Heng Shan Road
Shanghai 200030 PRC
Telephone: +86 21 6407-5835
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14
<SEQUENCE>4
<FILENAME>b53938ccexv14.txt
<DESCRIPTION>EX-14 CODE OF BUSINESS CONDUCT AND ETHICS
<TEXT>
<PAGE>
                                                                      EXHIBIT 14

                               COGNEX CORPORATION
                       CODE OF BUSINESS CONDUCT AND ETHICS

                                  INTRODUCTION

PURPOSE AND SCOPE

      The Board of Directors of Cognex Corporation (together with its
subsidiaries, branches and affiliates, "Cognex") has adopted this Code of
Business Conduct and Ethics to aid Cognex's directors, officers and employees in
making ethical and legal decisions when conducting Cognex's business and
performing their day-to-day duties.

      Cognex's Board of Directors or a committee of the Board is responsible for
administering the Code. The Board of Directors has delegated day-to-day
responsibility for administering and interpreting the Code to a Compliance
Officer. The highest ranking employee in the Cognex Human Resources Department
(currently, the Vice President, Corporate Employee Services) has been appointed
Cognex's Compliance Officer under this Code.

      Cognex expects its directors, officers and employees to exercise
reasonable judgment when conducting Cognex's business. Cognex encourages its
directors, officers and employees to refer to this Code frequently to ensure
that they are acting within both the letter and the spirit of this Code. Cognex
also understands that this Code will not specifically address every situation
you may encounter or every concern you may have about conducting Cognex's
business ethically and legally. In these situations, or if you otherwise have
questions or concerns about this Code, Cognex encourages each director, officer
and employee to speak with his or her supervisor (if applicable) or, if you are
uncomfortable doing that, with our Compliance Officer.

CONTENTS OF THIS CODE

      This Code has two sections which follow this Introduction. The first
section, "Standards of Conduct," contains the actual guidelines that our
directors, officers and employees are expected to adhere to in the conduct of
Cognex's business. The second section, "Compliance Procedures," contains
specific information about how this Code functions, including who administers
the Code, who can provide guidance under the Code and how violations may be
reported, investigated and enforced. This section also contains a discussion
about waivers of and amendments to this Code.

A NOTE ABOUT OTHER OBLIGATIONS

      Cognex's directors, officers and employees generally have other legal and
contractual obligations to Cognex, including without limitation Cognex's
Invention, Non-Disclosure and Non-Competition Agreement and/or other employee
agreements that may be applicable. This Code is not intended to reduce or limit
the other obligations that you may have to Cognex. Instead, the standards in
this Code should be viewed as the minimum standards that Cognex expects from its
directors, officers and employees in the conduct of Cognex's business.

                              STANDARDS OF CONDUCT

CONFLICTS OF INTEREST

      Cognex recognizes and respects the right of its directors, officers and
employees to engage in outside activities which they may deem proper and
desirable, provided that these activities do not impair or interfere with the
performance of their duties to the Company or their ability to act in Cognex's
best

<PAGE>

interests. In most, if not all cases, this will mean that our directors,
officers and employees must avoid situations that present a potential or actual
conflict between their personal interests and Cognex's interests.

      A "conflict of interest" occurs when a director's, officer's or employee's
personal interest interferes with Cognex's interests. Conflicts of interest may
arise in many situations. Each individual's situation is different and, in
evaluating his or her own situation, a director, officer or employee will have
to consider many factors. By way of example, to avoid even the appearance of
impropriety:

  -   No director, officer or employee may take an action or have an outside
      interest, responsibility or obligation that would have a high likelihood
      of affecting his/her ability to perform the responsibilities of his or her
      position objectively and/or effectively in Cognex's best interests.

  -   Employees may only accept personal favors, loans, meals, entertainment,
      transportation or services worth a nominal value from Cognex's customers,
      contractors, suppliers, vendors or anyone else doing business with Cognex.
      Such payments likely to improperly influence decisions to the non-Cognex
      party's benefit are considered improper, whether or not that purpose was
      intended. Similarly, under no circumstances are personal, intimate,
      romantic or sexual relationships between any Cognex employee and any
      Cognex customer, contractor, supplier, vendor or anyone else doing
      business with Cognex (whether actual or potential) allowed to influence a
      decision pertaining to that outside party. If there is any reason to
      believe a gift, entertainment, or other item of value offered to, or
      received from, a customer, purchasing agent, supplier, provider of
      services, or other person, creates the appearance of impropriety, the
      employee considering making/receiving the gift or providing the
      entertainment or other item, should discuss the proposal/item with his/her
      manager or the highest ranking employee in the Human Resources Department.

  -   Employees are not permitted to become employed by, or retained as a
      consultant by, or otherwise provide services to any customer, contractor,
      supplier, vendor or competitor of Cognex. Before accepting any consulting
      or freelance work, employees should discuss the work with Cognex's Human
      Resources Department to ensure that it does not conflict with Cognex's
      interests.

      Any transaction or relationship that reasonably could be expected to give
rise to a conflict of interest should be reported promptly to the Compliance
Officer. The Compliance Officer may notify the Board of Directors or a committee
thereof as he or she deems appropriate. Actual or potential conflicts of
interest involving a director or executive officer should be disclosed directly
to the Chairman of the Board of Directors.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

      Cognex seeks to conduct its business in compliance with both the letter
and the spirit of applicable laws, rules and regulations. No director, officer
or employee shall engage in any unlawful activity in conducting Cognex's
business or in performing his or her day-to-day company duties, nor shall any
director, officer or employee instruct others to do so.

PROTECTION AND PROPER USE OF COGNEX'S ASSETS

      Loss, theft and misuse of Cognex's assets has a direct impact on Cognex's
business and its profitability. Employees, officers and directors are expected
to protect Cognex's assets that are entrusted to them and to protect Cognex's
assets in general. Employees, officers and directors are also expected to take
steps to ensure that Cognex's assets are used only for legitimate business
purposes.

CORPORATE OPPORTUNITIES

      Employees, officers and directors owe a duty to Cognex to advance its
legitimate business interests when the opportunity to do so arises. Each
employee, officer and director is prohibited from:

<PAGE>

      -     diverting to himself or herself or to others any opportunities that
            are discovered through the use of Cognex's property or information
            or as a result of his or her position with Cognex,

      -     using Cognex's property or information or his or her position for
            improper personal gain, or

      -     competing with the Company.

CONFIDENTIALITY

      Confidential Information (see below) generated and gathered in Cognex's
business plays a vital role in Cognex's business, prospects and ability to
compete. Directors, officers and employees shall use Confidential Information
solely for legitimate company purposes. Directors, officers and employees may
not disclose or distribute Cognex's Confidential Information, except when
disclosure is authorized by Cognex or required by applicable law, rule or
regulation or pursuant to an applicable legal proceeding. If any Cognex
director, officer or employee believes he or she has a need, duty or obligation
to divulge a Cognex trade secret or other confidential or proprietary
information to a third party, that employee must first contact the Legal
Department to discuss the matter, which may result in the need to execute a
non-disclosure agreement with said third party. Directors, officers and
employees must return all of Cognex's Confidential Information in their
possession to Cognex when they cease to be employed by or to otherwise serve
Cognex.

      "Confidential Information" includes all non-public information that might
be of use to competitors or harmful to the Company or its customers if
disclosed. Examples of Cognex trade secrets include, but are not limited to:
software algorithms, software source code, designs of Cognex boards and chips,
vision technology, "how" Cognex vision software tools work, new product
developments, customer identification and lists, customer contract prices, sales
data, business strategies, marketing plans and studies, cost reports and
bookkeeping methods.

      Further, Cognex considers the components of each employee's compensation
package as Confidential Information. Any employee found to be discussing, with
anyone other than his/her manager or Human Resources Representative, his or her
salary, stock option agreements, performance bonuses, commission plans, and/or
profit-sharing contributions - or that of any other employee other than for an
official company purpose - may be subject to disciplinary action, up to and
including termination of employment.

      Employees should also refer to their Employee Invention, Non-Disclosure
and Non-Competition Agreement regarding the protection of Cognex's Confidential
Information.

FAIR DEALING

      Competing vigorously, yet lawfully, with competitors and establishing
advantageous, but fair, business relationships with customers and suppliers is a
part of the foundation for long-term success. However, unlawful and unethical
conduct, which may lead to short-term gains, may damage a company's reputation
and long-term business prospects. Accordingly, it is Cognex's policy that
directors, officers and employees must endeavor to deal ethically and lawfully
with Cognex's customers, suppliers, competitors and employees in all business
dealings on Cognex's behalf. No director, officer or employee should take unfair
advantage of another person in business dealings on Cognex's behalf through the
abuse of privileged or confidential information or through improper
manipulation, concealment or misrepresentation of material facts.

ACCURACY OF RECORDS

      The integrity, reliability and accuracy in all material respects of
Cognex's books, records and financial statements is fundamental to Cognex's
continued and future business success. No director, officer or employee may
cause Cognex to enter into a transaction with the intent to document or record
it in a deceptive or unlawful manner. In addition, no director, officer or
employee may create any false or artificial documentation or book entry for any
transaction entered into by Cognex. Similarly, officers and

<PAGE>

employees who have responsibility for accounting and financial reporting matters
have a responsibility to accurately record all funds, assets and transactions on
Cognex's books and records.

QUALITY OF PUBLIC DISCLOSURES

      Cognex is committed to providing its shareholders with complete and
accurate information about its financial condition and results of operations in
accordance with the securities laws of the United States. It is Cognex's policy
that the reports and documents it files with or submits to the Securities and
Exchange Commission, and its earnings releases and similar public communications
made by Cognex, include fair, timely and understandable disclosures. Officers
and employees who are responsible for these filings and disclosures, including
Cognex's principal executive, financial and accounting officers, must use
reasonable judgment and perform their responsibilities honestly, ethically and
objectively in order to ensure that this disclosure policy is fulfilled.

                              COMPLIANCE PROCEDURES

COMMUNICATION OF CODE

      All directors and employees will be supplied with a copy of the Code upon
beginning service at Cognex. Updates of the Code will be provided from time to
time. A copy of the Code is also available to all directors and employees by
requesting one from the Human Resources Department, and may be accessed by all
employees and the general public by accessing the company's website at
www.cognex.com.

MONITORING COMPLIANCE AND DISCIPLINARY ACTION

      Cognex's management, under the supervision of its Board of Directors or a
committee thereof or, in the case of accounting, internal accounting controls or
auditing matters, the Audit Committee, shall take reasonable steps from time to
time to (i) monitor compliance with the Code, and (ii) when appropriate, impose
and enforce appropriate disciplinary measures for violations of the Code.

      Disciplinary measures for violations of the Code may include, but are not
limited to, counseling, oral or written reprimands, warnings, probation or
suspension with or without pay, demotions, reductions in salary, termination of
employment or service and restitution.

      Cognex's management shall periodically report to the Board of Directors or
a committee thereof on these compliance efforts including, without limitation,
periodic reporting of alleged violations of the Code and the actions taken with
respect to any such violation.

REPORTING CONCERNS/RECEIVING ADVICE

      COMMUNICATION CHANNELS

      Be Proactive. Every employee is required to act proactively by asking
questions, seeking guidance and reporting suspected violations of the Code and
other policies and procedures of Cognex, as well as any violation or suspected
violation of applicable law, rule or regulation arising in the conduct of
Cognex's business or occurring on Cognex's property. IF ANY EMPLOYEE BELIEVES
THAT ACTIONS HAVE TAKEN PLACE, MAY BE TAKING PLACE, OR MAY BE ABOUT TO TAKE
PLACE THAT VIOLATE OR WOULD VIOLATE THE CODE, HE OR SHE IS OBLIGATED TO BRING
THE MATTER TO COGNEX'S ATTENTION.

      Seeking Guidance. The best starting point for an employee seeking advice
on ethics-related issues or reporting potential violations of the Code will
usually be his or her manager. However, if the conduct in question involves his
or her manager, if the employee has reported the conduct in question to his or
her manager and does not believe that he or she has dealt with it properly, or
if the employee does not feel that he or she can discuss the matter with his or
her manager, the employee may raise the matter with the Compliance Officer.

<PAGE>

      Communication Alternatives. Any employee may communicate with the
Compliance Officer by any of the following methods:

   a) In writing (which may be done anonymously as set forth below under
      "Reporting; Anonymity; Retaliation"), addressed to the Compliance Officer,
      by U.S. mail to P.O. Box 2232, Natick, MA 01760;

   b) By e-mail to feedback@cognex.com; or

   c) Through Cognex's intranet site; or

   d) By leaving a voice mail message at (508) 652-3777. This voice mailbox
      will only be accessible by the Compliance Officer and the Chair of the
      Audit Committee.

   Please note that anonymity may not be completely maintained through options
b, c and d.

   Reporting Accounting and Similar Concerns. Any concerns or questions
regarding potential violations of the Code, any other company policy or
procedure or applicable law, rules or regulations involving accounting, internal
accounting controls or auditing matters should be directed to the Audit
Committee or the Compliance Officer. Such communication may be made by any of
the methods listed above, or by writing directly to the Chair of the Audit
Committee.

      Misuse of Reporting Channels. Employees should only use these reporting
channels for complaints that he/she reasonably believes, in good faith, may be
valid. Any use by an employee of these reporting channels in bad faith or in a
false or frivolous manner, will be considered a material breach of his/her
employment and such employee would be subject to disciplinary action, including
termination.

      REPORTING; ANONYMITY; RETALIATION

      When reporting suspected violations of the Code, Cognex prefers that
employees identify themselves in order to facilitate Cognex's ability to take
appropriate steps to address the report, including conducting any appropriate
investigation. However, Cognex also recognizes that some people may feel more
comfortable reporting a suspected violation anonymously.

      If an employee wishes to remain anonymous, he or she may do so, and Cognex
will use reasonable efforts to protect the confidentiality of the reporting
person subject to applicable law, rule or regulation or to any applicable legal
proceedings. In the event the report is made anonymously, however, Cognex may
not have sufficient information to look into or otherwise investigate or
evaluate the allegations. Accordingly, persons who make reports anonymously
should provide as much detail as is reasonably necessary to permit Cognex to
evaluate the matter(s) set forth in the anonymous report and, if appropriate,
commence and conduct an appropriate investigation.

      NO RETALIATION

      Cognex expressly forbids any retaliation against any employee who, acting
in good faith, reports suspected misconduct. Any person who participates in any
such retaliation is subject to disciplinary action, including termination.

WAIVERS AND AMENDMENTS

      No waiver of any provisions of the Code for the benefit of a director or
an executive officer (which includes without limitation, for purposes of this
Code, Cognex's principal executive, financial and accounting officers) shall be
effective unless (i) approved by the Board of Directors or, if permitted, a
committee thereof, and (ii) if applicable, such waiver is promptly disclosed to
Cognex's shareholders in accordance with applicable United States securities
laws and/or the rules and regulations of the exchange or system on which the
Company's shares are traded or quoted, as the case may be.

<PAGE>

      Any waivers of the Code for other employees may be made by the Compliance
Officer, the Board of Directors or, if permitted, a committee thereof.

      All amendments to the Code must be approved by the Board of Directors or a
committee thereof and, if applicable, must be promptly disclosed to Cognex's
shareholders in accordance with applicable United States securities laws and/or
the rules and regulations of the exchange or system on which the Company's
shares are traded or quoted, as the case may be.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>b53938ccexv21.txt
<DESCRIPTION>EX-21 SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>

                                                                      EXHIBIT 21

                               COGNEX CORPORATION
                         SUBSIDIARIES OF THE REGISTRANT

At December 31, 2004, the registrant had the following subsidiaries, the
financial statements of which are all included in the consolidated financial
statements of the registrant:

<TABLE>
<CAPTION>
            NAME OF                           STATE/COUNTRY OF         PERCENT
          SUBSIDIARY                           INCORPORATION          OWNERSHIP
          ----------                          ----------------        ---------
<S>                                           <C>                     <C>
Cognex Technology and Investment
  Corporation                                  California                100%
Cognex Canada Technology, Inc.                 California                100%
Cognex Foreign Sales Corporation               Barbados                  100%
Vision Drive, Inc.                             Delaware                  100%
Cognex Canada, Inc.                            Delaware                  100%
Cognex K.K.                                    Japan                     100%
Cognex International, Inc.                     Delaware                  100%
Cognex Europe, Inc.                            Delaware                  100%
Cognex Europe, b.v.                            Netherlands               100%
Cognex Germany, Inc.                           Massachusetts             100%
Cognex, Ltd.                                   Ireland                   100%
Cognex UK Ltd.                                 United Kingdom            100%
Cognex Finland Oy                              Finland                   100%
Cognex Singapore, Inc.                         Delaware                  100%
Cognex Korea, Inc.                             Delaware                  100%
Cognex Taiwan, Inc.                            Delaware                  100%
Cognex Asia, Inc.
(formerly Cognex China, Inc.)                  Delaware                  100%
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>b53938ccexv23w1.txt
<DESCRIPTION>EX-23.1 CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cognex Corporation of our report dated March 4, 2005, included in the 2004
Annual Report to Shareholders of Cognex Corporation.

We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-81150, 333-04621, 333-02151, 333-60807, 33-32815,
333-44824, 333-68158, 333-96961, and 333-100709) of Cognex Corporation of our
report dated March 4, 2005, with respect to the consolidated financial
statements of Cognex Corporation incorporated by reference in this Annual Report
(Form 10-K) for the years ended December 31, 2004 and 2003, our report dated
March 4, 2005 with respect to Cognex Corporation management's assessment of the
effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting included in this Annual Report
(Form 10-K), and our report dated March 4, 2005 with respect to the financial
statement schedule of Cognex Corporation and subsidiaries for the years ended
December 31, 2004 and 2003 included in this Annual Report (Form 10-K).

/s/ Ernst & Young LLP

Boston, Massachusetts
March 4, 2005

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>b53938ccexv23w2.txt
<DESCRIPTION>EX-23.2 CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.2

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-81150, 333-04621, 333-02151, 333-60807,
33-32815, 333-44824, 333-68158, 333-96961, and 333-100709) of Cognex Corporation
of our report dated January 24, 2003 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated January 24, 2003 relating to the financial statement schedule,
which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 4, 2005

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>b53938ccexv31w1.txt
<DESCRIPTION>EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>

                                  CERTIFICATION

                                                                    EXHIBIT 31.1

I, Robert J. Shillman, Chief Executive Officer and Chairman of the Board of
Directors of Cognex Corporation, certify that:

      1.    I have reviewed this Annual Report on Form 10-K of Cognex
            Corporation;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
            internal control over financial reporting (as defined in Exchange
            Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

            (c)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (d)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: March 11, 2005

                                            /s/ Robert J. Shillman
                                            ------------------------------------
                                            Robert J. Shillman
                                            Chief Executive Officer and
                                            Chairman of the Board of Directors

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>b53938ccexv31w2.txt
<DESCRIPTION>EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>

                                  CERTIFICATION

                                                                    EXHIBIT 31.2

I, Richard A. Morin, Senior Vice President of Finance, Chief Financial Officer,
and Treasurer of Cognex Corporation, certify that:

      1.    I have reviewed this Annual Report on Form 10-K of Cognex
            Corporation;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
            internal control over financial reporting (as defined in Exchange
            Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

            (c)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (d)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: March 11, 2005

                                          /s/ Richard A. Morin
                                          --------------------------------------
                                          Richard A. Morin
                                          Senior Vice President of Finance,
                                          Chief Financial Officer, and Treasurer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>b53938ccexv32w1.txt
<DESCRIPTION>EX-32.1 SECT. 906 CERTIFICATION OF C.E.O.
<TEXT>
<PAGE>

                                                                   EXHIBIT 32.1*

                            CERTIFICATION PURSUANT TO
                                 18 U.S.C. 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of Cognex Corporation (the "Company") hereby certifies
that the Company's Annual Report on Form 10-K for the year ended December 31,
2004 (the "Report"), as filed with the Securities and Exchange Commission on the
date hereof, fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended, and that the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

      Date: March 11, 2005

                                            /s/ Robert J. Shillman
                                            ------------------------------------
                                            Robert J. Shillman
                                            Chief Executive Officer and
                                            Chairman of the Board of Directors
                                            (principal executive officer)

* This certification shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, or otherwise subject to the liability of
that section, nor shall it be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>11
<FILENAME>b53938ccexv32w2.txt
<DESCRIPTION>EX-32.2 SECT. 906 CERTIFICATION OF THE C.F.O.
<TEXT>
<PAGE>

                                                                   EXHIBIT 32.2*

                            CERTIFICATION PURSUANT TO
                                 18 U.S.C. 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of Cognex Corporation (the "Company") hereby certifies
that the Company's Annual Report on Form 10-K for the year ended December 31,
2004 (the "Report"), as filed with the Securities and Exchange Commission on the
date hereof, fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended, and that the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

   Date:  March 11, 2005

                                          /s/ Richard A. Morin
                                          ------------------------------------
                                          Richard A. Morin
                                          Senior Vice President of Finance,
                                          Chief Financial Officer, and Treasurer
                                          (principal financial officer)

* This certification shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, or otherwise subject to the liability of
that section, nor shall it be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
