
<PAGE>   1
                                                                           10.35

                                    SUBLEASE



This Sublease, dated, for reference purposes only, August 20, 1996, is made by
and between AG Associates, Inc., a California corporation ("Sublessor"), AGI,
Inc., a Delaware corporation ("Sublessee"), and AG Associates (Israel) Ltd., as
the guarantor of Sublessee's obligations to Sublessor (the "Guarantor").

1.       SUBLEASED PREMISES. Sublessor hereby subleases to Sublessee and
         Sublessee hereby subleases from Sublessor for the Term, for the Rent
         (as hereinafter defined), and upon all of the terms and conditions set
         forth herein, that certain real property situated in the County of
         Santa Clara, State of California, commonly known as 4423 Fortran Drive,
         San Jose, California and described as 9,188 sq. feet of the southeast
         corner of Building C (hereinafter, the "Building") from commencement of
         this Sublease until October 1, 1996, and 3,148 square feet located in
         the same area of the Building from October 1, 1996 until this Sublease
         expires or is otherwise terminated. Such 9,188 or 3,148 square foot
         area, as the case may be, will be referred to in this Sublease as the
         "Subleased Premises."

2.       TERM. The term of this Sublease shall be for three (3) years commencing
         on November 30, 1995 and ending on November 30, 1998, unless sooner
         terminated pursuant to any provision of this Sublease. Sublessor grants
         to Sublessee the right and option, exercisable so long as Sublessee is
         not in default of any of its obligations to Sublessor under this
         Sublease, to extend and renew this Sublease upon the same terms and
         conditions and the same rental for consecutive one (1) year additional
         terms (but no longer than the term of the Master Lease, as such term
         may be extended from time to time by Master Lessor and Sublessor). Each
         such extension shall be automatic, unless the Sublessee notifies the
         Sublessor of its intention not to extend the term of the Sublease at
         least ninety (90) days prior to the end of the then current term.

3.       RENT.

         3.1      Initial Rent. Sublessee shall pay to Sublessor as rent for the
                  Subleased Premises (the "Rent") monthly payments, until July
                  1, 1996, equal to $22,500 in the aggregate as full and
                  complete consideration for possession and use of the Subleased
                  Premises, including all expenses such as insurance costs,
                  taxes, utilities and other operating expenses charged with
                  respect to the Subleased Premises and/or the use by Sublessee
                  of all telecommunications equipment, such as fax, telephone
                  (including Sublessee's telephone numbers), switchboard, and so
                  on, in the premises (the "Premises") leased by Sublessor under
                  the Master Lease, and $10,000 in the aggregate each month from
                  July 1, 1996 until October 1, 1997. Such payments shall
                  initially serve as Rent for the Subleased Premises and as full
                  consideration thereof, which includes also all the aforesaid
                  expenses.
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         3.2      Subsequent Rent. Beginning on October 1, 1997, the Rent for
                  the Subleased Premises will be adjusted (upward or downward)
                  on October 1 of each year of the term hereof and any extension
                  of such term according to the following formula:

                  New Monthly Rent =  A(B) + C(D)
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                  Where:  A =     The Sublessor's annual facility department 
                                  budget for the Premises, less depreciation, 
                                  office supplies and miscellaneous expense 
                                  categories;

                          B =     The square footage of the Subleased Premises
                                  divided by the square footage of the Premises
                                  (i.e. the percent of total square feet
                                  occupied by Sublessee);

                          C =     The Sublessor's annual information technology
                                  department budget, less depreciation and
                                  expense associated with the "Dataworks"
                                  system; and

                          D =     The number of Sublessee's employees and full
                                  time consultants divided by the combined
                                  number of such employees and consultants of
                                  Sublessee and Sublessor (i.e. the percent of
                                  total employees and consultants in the
                                  Premises that are Sublessee's).

         3.3      Payment. Rent will be paid by Sublessee, in advance, on the
                  first day of each month of the term hereof and any extension
                  of such term. Rent for any period during the term hereof which
                  is for less than one month shall be a pro rata portion of the
                  monthly installment. Rent shall be payable in lawful money of
                  the United States to Sublessor at the address stated herein or
                  to such other persons or at such other places as Sublessor may
                  designate in writing.

4.       NO LIABILITY FOR SUBLESSOR'S ACTIONS. It is hereby clarified that
         Sublessee shall not be obligated to pay any taxes, assessments, license
         fees or other charges to governmental entities with respect to any
         alterations or additions made to the Premises (other than changes made
         to the Subleased Premises at the request of Sublessee) at Sublessor's
         election, nor to pay any portion of any penalty or other payment under
         the Master Lease that resulted from Sublessor's default, omission or
         failure to comply with the terms of the Master Lease (other than the
         obligations assumed by Sublessee hereunder), including, but not limited
         to Late Charges and interest and penalties accruing thereon.

5.       USE.

         5.1      Use. The Subleased Premises shall be used and occupied only
                  for the uses permitted in the Master Lease and for no other
                  purpose. During the term of this Sublease and any extensions
                  hereof and so long as no default by Sublessee has occurred and
                  is continuing under this Sublease, Sublessee will be entitled
                  to use the conference rooms located on the Premises on a first
                  come first served basis 

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                  and, although Sublessee will maintain its own telephone
                  number(s), Sublessor and Sublessee will share the use of
                  Sublessor's switchboard.

         5.2      Compliance with Law. Sublessee shall at Sublessee's expense
                  comply promptly with all applicable statutes, ordinances,
                  rules, regulation, orders, restrictions of record and
                  requirements in effect during the term or any part of the term
                  of this Sublease regulating the use by Sublessee of the
                  Premises.

         5.3      Waste. Neither Sublessee nor Sublessor shall use, or permit
                  the use of, the Subleased Premises or the Premises,
                  respectively, in any manner that will tend to create waste or
                  a nuisance or which shall tend to disturb such other tenants.

         5.3      Condition of Subleased Premises. Sublessee hereby accepts the
                  Subleased Premises in its condition existing as of the date of
                  commencement of this Sublease, subject to all applicable
                  zoning, municipal, county and state laws, ordinances and
                  regulations governing and regulation the use of the Subleased
                  Premises, and accepts this Sublease subject to such laws,
                  ordinances and regulations. Sublessee acknowledges that
                  neither Sublessor nor Sublessor's agents have made any
                  representation or warranty as to the suitability of the
                  Subleased Premises for the conduct of Sublessee's business.

6.       MASTER LEASE.

         6.1      Master Lease and Master Lessor. Sublessor is the lessee of the
                  Premises by virtue of a Lease Agreement referred to in this
                  Sublease as the "Master Lease," a copy of which is attached
                  hereto, marked Exhibit 1 and dated July 21, 1995, wherein
                  South Bay Construction & Development Company, Inc., a
                  California corporation is the lessor referred to in this
                  Sublease as the "Master Lessor."

         6.2      Subordination. This Sublease is and shall be at all times
                  subject and subordinate to the Master Lease.

         6.3      Terms Applicable. With respect to the Subleased Premises only,
                  the terms conditions and respective obligations of Sublessor
                  and Sublessee to each other under this Sublease shall be,
                  mutatis mutandis, the terms and conditions of the Master
                  Lease, except for those provisions of the Master Lease which
                  are directly contradicted by this Sublease in which event the
                  terms of this Sublease shall control over the Master Lease, or
                  are excluded or modified as provided in Section 6.4 below.
                  Therefore, for that purpose, wherever in the Master Lease the
                  word "Landlord" is used it shall be deemed to mean the
                  Sublessor herein and wherever in the Master Lease the word
                  "Tenant" is used it shall be deemed to mean the Sublessee
                  herein.

         6.4      Obligation to Perform. During the term of this Sublease and
                  for all periods subsequent for obligations which have arisen
                  prior to the termination of this Sublease 

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                  it is specifically agreed that, as between Sublessee and
                  Sublessor, the following sections of the Master Lease are
                  modified or excluded herefrom:

                  (a)      Sections 1, 2, 3, 4A, 4B, 4D, 4E, 4F, 5, 7B through
                           7E, 8B, 8C, 9, the 4th and 5th sentences of Section
                           10B, 12, the last sentence of Section 14, Sections
                           23, 25, 27, 31B, 37, 38, 40 and 41 and Exhibit C are
                           excluded;

                  (b)      For purposes of this Sublease, Tenant's Pro Rata
                           Share, when referred to in the Master Lease and where
                           applicable, will refer to the ratio that the square
                           footage constituting the Subleased Premises bears to
                           the square footage of the Premises;

                  (c)      The maintenance and repair obligations of Landlord in
                           Sections 10A, 11, 13 and 16 will remain the
                           obligations of Master Lessor; the word "Landlord" as
                           used in Section 19 will apply both to Sublessor and
                           Master Lessor; the provisions of Section 39D will be
                           the direct obligation of Sublessee to Master Lessor;
                           and the last sentence of Section 39G, will apply only
                           to Master Lessor.

         6.5      Definitions and Clarification. The obligations of the Tenant
                  under the Master Lease that Sublessee has assumed under
                  Sections 6.3 and 6.4 above are referred to in this Sublease as
                  the "Sublessee's Assumed Obligations." The obligations of the
                  Tenant under the Master Lease that Sublessee has not so
                  assumed are referred to in this Sublease as the "Sublessor's
                  Remaining Obligations." It is clarified that the obligations
                  of the Tenant that the Sublessee has assumed under Section 6.3
                  and 6.4 are not applicable to any portion of the Premises that
                  are not the Subleased Premises and that Sublessor remains
                  responsible for performance of these and the other obligations
                  that comprise the Sublessor's Remaining Obligations.

         6.6      Indemnity of Sublessee. Sublessee will hold Sublessor free and
                  harmless of and from all liability, judgments, costs, damages,
                  claims or demands, including reasonable attorneys fees,
                  arising out of Sublessee's failure to comply with or perform
                  Sublessee's Assumed Obligations.

         6.7      Sublessor to Maintain Master Lease. Sublessor agrees to
                  maintain the Master Lease during the entire Lease Term under
                  the Master Lease, or until this Sublease expires or otherwise
                  is terminated, whichever occurs first, subject, however, to
                  any earlier termination of the Master Lease without the fault
                  of the Sublessor and to comply with or perform Sublessor's
                  Remaining Obligations and to hold Sublessee free and harmless
                  of and from all liability, judgments, costs, damages, claims
                  or demands arising out of Sublessor's failure to comply with
                  or perform Sublessor's Remaining Obligations. Sublessor will
                  use reasonable commercial efforts to endure and enforce
                  compliance and performance by the Master Lessor of its
                  obligations under the Master Lease that remain on Master
                  Lessor's part to perform.

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         6.8      Indemnification Procedure. With respect to any claim for
                  indemnity arising under Section 6.6 or 6.7 above resulting
                  from a third party claim or demand, the indemnified party
                  shall, after receipt of notice of the commencement of any
                  action or the presentation or other assertion of any claim
                  which could result in any indemnification claim pursuant to
                  Section 6.6 or 6.7, give prompt written notice thereof to
                  indemnifying party (although failure to give prompt notice
                  shall not mitigate the indemnification obligations hereunder
                  unless and to the extent the indemnifying party is prejudiced
                  by such failure or delay).

                  (a)      The indemnifying party shall be entitled to
                           participate in the defense of any such claim or
                           action. The indemnifying party may also, to the
                           extent that it may desire, assume the defense thereof
                           with its own counsel, unless the indemnified party
                           reasonably objects to such assumption on the grounds
                           that representation of all entities by the same
                           counsel would be prohibited under any rule of
                           professional conduct applicable to such counsel, then
                           the indemnified party may participate in its own
                           defense with counsel of its own choosing at the cost
                           of the indemnifying party. Except as specified in the
                           preceding sentence, the indemnifying party shall not
                           be liable to indemnified party for any fees of other
                           counsel or any other expenses, in each case, incurred
                           by the indemnified party in connection with the
                           defense thereof.

                  (b)      The indemnifying party shall be authorized, without
                           the consent of indemnified party being required, to
                           settle or compromise any such action or claim,
                           provided that such settlement or compromise includes
                           an unconditional release of the indemnified party
                           from all liability arising out of such action or
                           claim. The indemnifying party shall not be liable for
                           any compromise or settlement of any such action
                           effected by indemnified party without the
                           indemnifying party's written consent.

                  (c)      The parties agree to cooperate to the fullest extent
                           possible in connection with any claim for which
                           indemnification is or may be sought under this
                           Agreement.

7.       INSURANCE. During the term of this Sublease and any extension thereof,
         Sublessor shall include Sublessee as an additional named insured, or at
         Sublessor's election, a co-insured party, under the insurance policies
         it carries pursuant to Section 8B of the Master Lease.

8.       DEFAULT UNDER MASTER LEASE. Sublessor hereby represents and warrants to
         Sublessee that, to Sublessor's knowledge, no default presently exists
         under the Master Lease of obligations to be performed by Sublessor and
         that the Master Lease is in full force and effect. In the event that
         Sublessor defaults in its obligations to be performed by it under the
         Master Lease, Sublessee shall have the right to cure any default of
         Sublessor, if such cure is accepted by the Master Lessor. If such
         default is cured by Sublessee, then Sublessee shall have a right of
         reimbursement and offset from and against Sublessor.

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9.       GUARANTY. Guarantor hereby unconditionally and irrevocably guarantees
         to Sublessor, and does hereby become surety for, the punctual payment,
         when due whether by reason of acceleration or otherwise, of all rent,
         interest, fees and any other amounts payable to Sublessor, to Master
         Lessor or to any other person or entity as a result of this Sublease,
         whether the obligation for payment is now existing or hereafter arising
         (the "Obligations"). The Obligations of Guarantor are absolute,
         unconditional and continuing whether or not this Sublease expires or is
         terminated. Guarantor hereby consents that, from time to time, without
         notice to, or further consent of the Guarantor, the performance or
         observance of any provision of the Master Lease or of any Obligation
         may be waived by Sublessor and/or Master Lessor, or the time of
         performance thereof extended or accelerated or may be renewed in whole
         or in part or otherwise amended, changed, released or compromised, all
         without affecting the liability of Guarantor hereunder. Guarantor
         hereby waives notice of acceptance of this guaranty, all set-offs and
         counterclaims of Guarantor and presentment, demand, protest, notice of
         protest and notice of dishonor of any Obligation guaranteed hereby.

10.      GENERAL PROVISIONS.

         10.1     Attorney's fees. If any party named herein brings an action to
                  enforce the terms hereof or to declare rights hereunder, the
                  prevailing party in any such action, on trial and appeal,
                  shall be entitled to his reasonable attorney's fees to be paid
                  by the losing party as fixed by the court.

         10.2     Entire Agreement. This Sublease and the Master Lease contain
                  the entire agreement among the parties hereto concerning
                  sublease by Sublessee of the Subleased Premises and replace
                  any other prior or contemporaneous discussions concerning such
                  subject matter.

         10.3     Notices. All notices or other communications under this
                  Sublease shall be in writing and shall be effective when
                  personally delivered or when deposited in the postal service,
                  certified mail (return receipt requested), postage prepaid, to
                  the address of the receiving party specified on the signature
                  page(s) to this Sublease or to such other address as the
                  receiving party may hereafter have given 10 days advance
                  notice to the sending party in the manner specified above.

         10.4     Governing Law. This Sublease will be governed by, and
                  interpreted in accordance with, the laws of the State of
                  California without regard to the principles of conflict of
                  laws.

         10.5     Counterparts. This Sublease may be executed in any number of
                  counterparts, each of which will be deemed an original but all
                  of which together shall constitute one and the same agreement.

THIS SUBLEASE WILL NOT BE EFFECTIVE AGAINST ANY PARTY UNLESS SIGNED BY GUARANTOR
WITHIN TEN (10) DAYS AFTER EXECUTION BY SUBLESSOR AND SUBLESSEE.

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Executed at________________________   AG ASSOCIATES, INC.

on_________________________________   By_______________________________________

address____________________________   By_______________________________________

___________________________________   "Sublessor"


Executed at________________________   AGI, INC.

on_________________________________   By_______________________________________

address____________________________   By_______________________________________

___________________________________   "Sublessee"


Executed at________________________   AG ASSOCIATES (ISRAEL) LTD.

on_________________________________   By_______________________________________

address____________________________   By_______________________________________

___________________________________   "Guarantor"

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