<SUBMISSION>
<ACCESSION-NUMBER>0000912057-00-012144
<TYPE>S-1
<PUBLIC-DOCUMENT-COUNT>23
<FILING-DATE>20000317
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>AUGUST TECHNOLOGY CORP
<CIK>0001063527
<ASSIGNED-SIC>
<IRS-NUMBER>411729485
<STATE-OF-INCORPORATION>MN
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1
<ACT>33
<FILE-NUMBER>333-32692
<FILM-NUMBER>572209
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>4900 WEST 78TH STREET
<CITY>BLOOMINGTON
<STATE>MN
<ZIP>55435
<PHONE>9528200080
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>4900 WEST 78TH STREET
<CITY>BLOOMINGTON
<STATE>MN
<ZIP>55435
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<DESCRIPTION>S-1
<TEXT>

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<P ALIGN="CENTER"><FONT SIZE=2><B>As filed with the Securities and Exchange Commission on March 17, 2000</B></FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2><B>Registration No.&nbsp;33-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>SECURITIES AND EXCHANGE COMMISSION<BR></B></FONT><FONT SIZE=2><B>Washington, D.C. 20549</B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>FORM S-1<BR></B></FONT><FONT SIZE=2><B>REGISTRATION STATEMENT<BR></B></FONT><FONT SIZE=2><B><I>Under the Securities Act of 1933</I></B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>August Technology Corporation<BR></B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter)</FONT></P>

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<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2><B>Minnesota</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2><B>3827</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2><B>41-1729485</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2>(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2>(Primary Standard Industrial<BR>
Classification Code)</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT SIZE=2>(I.R.S. Employer<BR>
Identification Number)</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2><B>August Technology Corporation<BR>
4900 West 78th Street<BR>
Bloomington, Minnesota 55435<BR>
(952)&nbsp;820-0080<BR></B></FONT><FONT SIZE=2>(Address, including zip code, and telephone number,<BR>
including area code, of registrant's principal executive offices)</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>Jeff O'Dell, Chief Executive Officer<BR>
August Technology Corporation<BR>
4900 West 78th Street<BR>
Bloomington, Minnesota 55435<BR>
(952)&nbsp;820-0080<BR></B></FONT><FONT SIZE=2>(Name, address, including zip code, and telephone number,<BR>
including area code, of agent for service)</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B><I>Copies to:</I></B></FONT></P>

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<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Thomas R. King, Esq.</B></FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Douglas P. Long, Esq.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Robert K. Ranum, Esq.</B></FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Richard G. Erstad, Esq.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Fredrikson &amp; Byron, P.A.</B></FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2><B>Faegre &amp; Benson LLP</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>900 Second Avenue South, Suite 1100</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>90 South Seventh Street</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>Minneapolis, Minnesota 55402</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>Minneapolis, Minnesota 55402</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>(612) 347-7000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>(612) 336-3000</FONT></TD>
</TR>
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<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>(612) 347-7077 fax</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>(612) 336-3026 fax</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2><B>Approximate date of commencement of proposed sale to the public:<BR>
As soon as practicable after this Registration Statement becomes effective.</B></FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;If any of the securities being registered on this Form are to be offered on a delayed or continuous basis, pursuant to Rule&nbsp;415 under the Securities Act
of 1933, check the following box: </FONT><FONT SIZE=2><B>/&nbsp;/</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;If this Form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective registration statement for the same offering: </FONT><FONT SIZE=2><B>/&nbsp;/</B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering: </FONT><FONT SIZE=2><B>/&nbsp;/</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;If delivery of the prospectus is expected to be made pursuant to Rule&nbsp;434, please check the following box: </FONT><FONT SIZE=2><B>/&nbsp;/</B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>CALCULATION OF REGISTRATION FEE</B></FONT></P>

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<TD WIDTH="100%" COLSPAN=9><FONT SIZE=2>&nbsp;<BR></FONT>
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<TD WIDTH="48%" ALIGN="CENTER"><FONT SIZE=1><B><BR>
&nbsp;<BR>
&nbsp;<BR>
Title of each class of securities to be registered</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;<BR>
&nbsp;<BR>
Amount to be Registered(1)</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Proposed maximum offering price per share(2)</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Proposed maximum aggregate offering price(2)</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;<BR>
&nbsp;<BR>
Amount of registration fee</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="100%" COLSPAN=9><HR NOSHADE></TD>
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<TD WIDTH="48%"><FONT SIZE=2>Common Stock (no par value)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=2>$45,000,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER"><FONT SIZE=2>$11,880.00</FONT></TD>
</TR>
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<DL compact>
<DT><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Includes&nbsp;&nbsp;&nbsp;shares
purchasable by the Underwriters to cover over-allotments.
<BR><BR></FONT></DD><DT><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Estimated
solely for the purpose of calculating the registration fee in accordance with Rule&nbsp;457(o) under the Securities Act of 1933, as amended.</FONT></DD></DL>
<BR><BR>
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<BR><BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effectiveness until the Registrant shall
file&nbsp;a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a), may determine.</B></FONT></P>

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<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>Subject to completion, dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2000</B></FONT></P>

<P><FONT SIZE=2><B>The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.</B></FONT></P>

<P><FONT SIZE=2><U>PROSPECTUS</U></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B><BR>
[LOGO]</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B>Common Stock</B></FONT></P>

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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We are offering&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock. This is our initial public offering and no public market currently exists for our
common stock. We estimate that the initial public offering price will be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. We have filed an application to qualify our common stock on the
Nasdaq National Market under the symbol "AUGT".</FONT></P>

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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=3><B>Investing in the common stock involves risks. See "Risk Factors" beginning on page 6.</B></FONT></P>

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<BR><BR>

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<TH WIDTH="53%" ALIGN="CENTER"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" ALIGN="CENTER"><FONT SIZE=1><B>Per Share</B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2> Public Price</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Underwriting Discounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Proceeds, before expenses, to August</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="CENTER"><FONT SIZE=2><I>$</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
underwriters have the right to purchase up to an additional&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock to cover over-allotments.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete.
It is illegal for any person to tell you otherwise.</FONT></P>

<HR NOSHADE WIDTH="120">
<BR>

<P><FONT SIZE=4>Needham&nbsp;&amp; Company,&nbsp;Inc.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4>Adams,
Harkness&nbsp;&amp; Hill,&nbsp;Inc.</FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=4>A.G.
Edwards&nbsp;&amp; Sons,&nbsp;Inc.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><I>The date of this prospectus is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2000</I></FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>[INSIDE
FRONT COVER]</FONT></P>

<P><FONT SIZE=2>Providing
information that lets semiconductor device manufacturers bring better and more affordable products to market, faster.</FONT></P>

<P><FONT SIZE=2>August
Technology is a provider of automated visual inspection solutions that provide quality and process information for the semiconductor industry. This information helps the semiconductor device
manufacturers better understand and improve their processes, facilitating faster time-to-market and higher yields. Ultimately, these improvements are part of the continuous evolvement of
semiconductor-dependent products.</FONT></P>

<P><FONT SIZE=2>[A
silicon wafer photo as background, with photos showing semiconductor material, process steps, and end-user products such as computers, communication devices, mobile phone, automobile,
and others]</FONT></P>

<P><FONT SIZE=2>[August
Technology Logo]</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>[INSIDE
FRONT COVER GATEFOLD]</FONT></P>

<P><FONT SIZE=2>[Photo
of our NSX Series Products and August Technology Logo]</FONT></P>

<P><FONT SIZE=2>NSX
Series Automated, Micro Defect Inspection</FONT></P>

<P><FONT SIZE=2>Providing
inspection and information throughout the semiconductor device manufacturing process</FONT></P>

<P><FONT SIZE=2>[Graphic
showing semiconductor process, including the steps of bare wafer manufacturing, fabrication, passivation, bumping, wafer probe, dicing, pick &amp; place, assembly, and packaging.
Photo of six defect examples. Photo of products, including CV system with inspection example, multiple NSX systems, and LV&nbsp;9200 with inspection example. Graphic of circular arrow showing defect
information feedback]</FONT></P>

<P><FONT SIZE=2>CV
Series Automated Inspection of Wafer Carriers</FONT></P>

<P><FONT SIZE=2>Final
inspection of defects created during wafer processing</FONT></P>

<P><FONT SIZE=2>NSX
data shared between wafer processing and test, assembly and packing facilities</FONT></P>


<P><FONT SIZE=2>Pre-
and post-bump inspection for defects related to the bumping process</FONT></P>

<P><FONT SIZE=2>Identification
of defects caused by prober equipment</FONT></P>

<P><FONT SIZE=2>Post-dicing
inspection for defects occuring during dicing</FONT></P>

<P><FONT SIZE=2>Identification
of defects caused by pick &amp; place equipment</FONT></P>

<P><FONT SIZE=2>Final
inspection, prior to packaging</FONT></P>

<P><FONT SIZE=2>LV
9200 Lead and Package Inspection System</FONT></P>

<P><FONT SIZE=2>Process
analysis by customers, leading to improved productivity and yields</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="bg1518_table_of_contents"> </A></FONT> <FONT SIZE=2><B>TABLE OF CONTENTS  </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="92%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Prospectus Summary</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Risk Factors</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Forward-Looking Statements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Use of Proceeds</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Dividend Policy</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Capitalization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Dilution</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Selected Financial Data</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Management's Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>17</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Business</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>23</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Management</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>30</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Principal Shareholders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Description of Capital Stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>38</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Shares Eligible for Future Sale</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Underwriting</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>41</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Legal Matters</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>43</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Experts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>43</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Additional Information</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>43</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="92%"><FONT SIZE=2>Index to Financial Statements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>F-1</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE WIDTH="120">
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;You
should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus.
We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
use the following trademarks of August Technology Corporation in this prospectus: August Technology&reg;, NSX Series, LV&nbsp;9000, LV 9200, and CV Series. All other
trademarks, servicemarks or tradenames referred to in this prospectus are the property of their respective owners.</FONT></P>

<HR NOSHADE WIDTH="120">

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ca1518_prospectus_summary"> </A></FONT> <FONT SIZE=2><B>PROSPECTUS SUMMARY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This summary highlights information contained elsewhere in this prospectus. You should read this prospectus carefully. All references
to "we," "us," "our," "August" or "the company" in this prospectus mean August Technology Corporation. This prospectus contains forward-looking-statements, which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-looking-statements as a result of a variety of factors, including those set forth under "Risk Factors" and elsewhere in
this prospectus.</I></FONT></P>

<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ca1518_august_technology_corporation"> </A></FONT> <FONT SIZE=2><B>August Technology Corporation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We design, manufacture, market and service automated visual inspection equipment for the detection of micro defects, which are defects generally larger than
0.5 microns, in semiconductor devices. Our fully automated inspection systems provide semiconductor manufacturers real-time information that they use to improve their processes and
ultimately their profitability.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
have sold micro defect inspection systems worldwide to many major semiconductor manufacturing companies. Our customers supply semiconductor devices used in a wide range of
high-growth electronic products such as cellular phones, fiber-optic switches, personal digital assistants, cable modems, network switches and personal computers. As the life cycles of
these products decrease, the time needed for semiconductor manufacturers to reach optimal production yields for their new semiconductor devices has become more critical. In addition, the increasing
complexity of semiconductor devices further adds to the difficulty of quickly achieving optimal production yields. As a result of these pressures, semiconductor manufacturers need more useful and
timely data about their processes to increase their yield and productivity.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Using
our expertise in machine vision technology and proprietary inspection software, our NSX series of products automatically identifies micro defects on our customers' semiconductor
devices during the manufacturing process. Our systems enable early identification of faulty devices at multiple process steps, allowing semiconductor manufacturers to take corrective action before
large quantities of defective devices are produced. This solution offers significant advantages over previous inspection methods which typically involved sampling performed at the end of the
manufacturing process by large numbers of people using microscopes.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Specifically,
we help improve our customers' productivity and yield by providing:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>fast,
automated micro defect inspection;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>rapid
data collection and reporting;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>scalable,
modular inspection solutions;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>expert
application development resources; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>worldwide
customer service and support.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
objective is to be the leading supplier of automated micro defect inspection systems. We plan to build upon our expertise in machine vision technology and proprietary software
development to further capitalize on the accelerating demand for our products. Key elements of our strategy are to:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>extend
our technological leadership;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>expand
our product development relationships with customers;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>capitalize
on our applications solutions expertise;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>expand
our global sales and service network;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>leverage
our broad and comprehensive customer base; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>accelerate
growth through strategic acquisitions.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
principal executive offices are at 4900 West 78th Street, Bloomington, Minnesota, 55435, and our telephone number is (952)&nbsp;820-0080. We were incorporated under
the laws of Minnesota in 1992. Our web site address is </FONT><FONT SIZE=2><I>www.augusttech.com</I></FONT><FONT SIZE=2>. The information on our web site is not part of this prospectus.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ca1518_the_offering"> </A></FONT> <FONT SIZE=2><B>The Offering  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment
option.</I></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>Common stock offered</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="49%"><FONT SIZE=2>Common stock outstanding after the offering</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>Use of proceeds</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>For general corporate purposes, including working capital, research and development, capital expenditures, repayment of debt, and for potential acquisitions of complementary products, technologies or businesses. See "Use
of Proceeds."</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="49%"><FONT SIZE=2>Proposed Nasdaq National Market symbol</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>AUGT</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE WIDTH="120">
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
information above is as of March&nbsp;16, 2000, and based on 6,109,307 shares outstanding and excludes:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>outstanding
options to purchase 762,481 shares of common stock;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>737,519
shares of common stock reserved for future issuance under our 1997 Employee Stock Option Plan;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>250,000
shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>6,250
shares issuable under an outstanding warrant.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
<UL>
<BR><BR>
</UL>
</UL>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ca1518_summary_financial_data___ca102270"> </A></FONT> <FONT SIZE=2><B>Summary Financial Data<BR> (in thousands, except per share data)  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We derived the summary financial information below as of and for each of the years ended December&nbsp;31, 1997, 1998, and 1999 from our audited financial
statements included elsewhere in this prospectus. We derived the summary financial information below as of and for each of the years ended December&nbsp;31, 1995 and 1996 from our unaudited
financial statements, which are not included in this prospectus.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
as adjusted information reflects the application of the net proceeds from the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock, based upon an assumed public offering price of
$&nbsp;&nbsp;per share, after deducting the estimated underwriting discounts and estimated offering expenses and after repayment of total outstanding debt.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="51%" COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1995</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1996</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2><B>Statement of Operations Data:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Net revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,798</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,756</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>4,192</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,787</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>12,058</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>711</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,743</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,051</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,101</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Operating income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>338</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>313</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(108</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>44</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>215</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>187</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(132</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Basic net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Shares used in computing:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,791</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,791</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<BR>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31, 1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Actual</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>As Adjusted</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2><B>Balance Sheet Data:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2,494</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6,676</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Total debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1,224</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Total shareholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,347</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1518_risk_factors"> </A></FONT> <FONT SIZE=2><B>RISK FACTORS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>You should consider carefully the risks described below before you decide to buy our common stock. The risks and uncertainties
described below are not the only ones facing us. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case the trading
price of our common stock could fall, and you may lose all or part of the money that you have paid to buy our common stock.</I></FONT></P>

<P><FONT SIZE=2><B>One product line accounts for a significant portion of our sales</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Approximately 85% of our 1999 net revenues came from the sales of one product line, our NSX automated micro defect inspection system. We expect that this
product line will continue to account for an increasing percentage of our net revenues in the future. Continued market acceptance of this product line is critical to our success. Any decline in demand
for or failure to achieve continued market acceptance of this product line or any new version of this product line, would harm our business.</FONT></P>

<P><FONT SIZE=2><B>We expect to incur an operating loss in 2000, and may do so in other future periods.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that our operating expenses will increase substantially in 2000 as we increase spending related to:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>expanding
our research and development efforts;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>enhancing
our sales and marketing operations;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>developing
new distribution channels and strategic relationships;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>improving
our operational and financial systems; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>broadening
our customer service capabilities.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>We
incurred net losses in 1998 and 1999 and we expect to incur a net loss in 2000. We cannot be certain that we will become profitable after 2000 nor that, should we become profitable, we will be able
to sustain or increase our profitability in the future. Failure to achieve and sustain profitability in the future may cause our stock price to decline and make it difficult to raise additional
capital.</FONT></P>

<P><FONT SIZE=2><B>We may not be able to obtain the necessary resources or put in place the appropriate controls to manage our rapid growth effectively.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the last three years, we have experienced rapid growth in our operations, the number of our employees, our product offerings and the geographic area
covered by our operations. Our growth places a significant strain on our management, operations and financial systems. Our future operating results will depend upon our ability to continue to
implement and improve our operating and financial controls and management information systems. To succeed, we must train and manage our employees to cope with growth and change. Failure to manage our
growth effectively could negatively impact our financial condition, results of operations and profitability.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To
manage our growth, we may also need to spend significant amounts of cash to:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>fund
increases in expenses;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>take
advantage of unanticipated opportunities, such as strategic alliances or other special marketing opportunities, acquisitions of complementary
businesses or assets, or the development of new products; or
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>respond
to unanticipated developments, increasing customer demands or competitive pressures.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
<UL>
</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If
our cash, together with cash available under our credit facility, is insufficient to meet these cash requirements, we will need to seek alternative sources of financing to carry
out our growth and operating strategies. We may not be able to raise needed cash on terms acceptable to us, or at all. Financing may be on terms that are dilutive or potentially dilutive. If
alternative sources of financing are required but are insufficient or unavailable, we will be required to modify our growth and operating plans to the extent of available funding.</FONT></P>


<P><FONT SIZE=2><B>If we are unable to develop and introduce successful new products and technologies in a timely manner, our business will be harmed.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Semiconductor equipment and processes are subject to rapid technological changes. We believe that our future success will depend in part upon our ability to
continue to enhance our existing product line to meet customer needs and to develop and introduce new products in a timely manner. We cannot assure you that our product development efforts will be
successful or that we will be able to respond effectively to technological change. If we are unsuccessful, our revenue, operating results or stock price could be negatively impacted.</FONT></P>


<P><FONT SIZE=2><B>Our market is highly competitive, and we may not be able to compete effectively.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The semiconductor defect inspection equipment industry is highly competitive in all areas of the world. Many other domestic and foreign companies participate
in the market for our NSX systems, and the industry is intensely competitive. Our current primary competitors in the market for semiconductor micro defect inspection equipment are Semiconductor
Technologies&nbsp;&amp; Instruments,&nbsp;Inc., Robotic Vision Systems,&nbsp;Inc., and Toray Industries,&nbsp;Inc. In addition, companies such as KLA-Tencor Corporation and Applied
Materials,&nbsp;Inc., that are currently providing automated inspection products for the wafer manufacturing and processing market, may enter our market. Most of these competitors, as well as other
potential competitors, have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer support capabilities than we have. Unless we are able to
invest significant financial resources in developing products and enhancing customer support worldwide, and are able to gain customer acceptance of our products, we may not be able to compete
effectively.</FONT></P>

<P><FONT SIZE=2><B>We may not be able to recruit and retain necessary personnel.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our future success will depend in large part upon our ability to recruit and retain highly skilled technical, manufacturing, managerial, financial and
marketing personnel. The labor market in which we operate is highly competitive and as a result, we may not be able to retain and recruit key personnel. Our failure to hire, retain, or adequately
train key personnel could have a negative impact on our performance.</FONT></P>

<P><FONT SIZE=2><B>Our sole market is in the highly cyclical semiconductor industry, which could cause our financial results to vary greatly.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our business depends heavily upon capital expenditures by semiconductor manufacturers. The semiconductor industry is highly cyclical, with periods of capacity
shortage and periods of excess capacity. In periods of excess capacity, the industry sharply cuts purchases of capital equipment, including our products. Thus, a semiconductor industry downturn or
slowdown could substantially reduce our revenues and operating results and could hurt our financial condition.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During
portions of 1998 and 1999, excess capacity in the semiconductor industry caused semiconductor manufacturers to sharply reduce their capital spending. The excess supply was
caused primarily by a period of over-investment in the industry, as well as by cyclical demand factors. The shift in demand to low-priced personal computers and currency
devaluations in Asia further reduced profits</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>of
semiconductor manufacturers. The downturn in capital spending negatively impacted our sales growth during these periods. Future downturns in the semiconductor industry will likely have an adverse
impact on our financial condition, results of operations and profitability.</FONT></P>

<P><FONT SIZE=2><B>Our future rate of growth is highly dependent on the development and growth of the market for semiconductor test and inspection equipment and the market acceptance of our
products.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We primarily target our products to address the needs of semiconductor manufacturers for micro defect inspection. If for any reason the market for
semiconductor test and inspection equipment fails to grow as we expect, we may be unable to sustain our growth. In addition, our growth depends upon the adoption of our products by semiconductor
manufacturers. If, for any reason, these manufacturers do not find our products to be appropriate for their use, our future growth will be adversely affected.</FONT></P>

<P><FONT SIZE=2><B>Our sales and operating results can fluctuate significantly from period to period.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our quarterly and annual operating results are affected by a wide variety of factors that could adversely affect sales or operating results or lead to
significant variability in our operating results. In addition, because a significant portion of our revenue in any particular quarter has historically come from the sale of a relatively small number
of systems, the loss of any sale could have a significant negative impact. A variety of factors could cause this variability, including the following:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>order
cancellations or delays in orders by customers;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
high selling prices of our NSX product line, which typically result in a long sales cycle;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>decreases
in capital spending by our customers;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>new
product introductions by our competitors and competitive pricing pressures;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>component
shortages resulting in manufacturing delays; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>delays
in the development, introduction and manufacture of our products.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
cannot predict the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore, should not be
considered indicative of the results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below expectations of securities
analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock.</FONT></P>


<P><FONT SIZE=2><B>Our business may be harmed if we fail to protect our intellectual property rights.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our success depends in part upon our ability to obtain intellectual property rights and licenses and to preserve other intellectual property rights covering
our products and our products under development. To protect these rights, we have obtained one domestic patent and intend to continue to seek patents on our inventions when appropriate. We also have
12 pending patent applications in the United States. The process of seeking intellectual property protection can be time-consuming and expensive. We cannot ensure that:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>patents
will issue from currently pending or future applications;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
existing patents or any new patents will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>foreign
intellectual property laws will protect our intellectual property rights; or
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>others
will not independently develop similar products, duplicate our products or design around our technology.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=3,SEQ=11,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=958447,FOLIO=8,FILE='DISK022:[00STP8.00STP1518]DE1518A.;10',USER='KLIND',CD='16-MAR-2000;22:41 -->
<UL>
<UL>
</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If
we do not successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees, consultants, key customers and vendors to protect our
intellectual property. Other parties may not comply with the terms of their agreements with us, and we may not be able to adequately enforce our rights against these people.</FONT></P>

<P><FONT SIZE=2><B>Third parties may claim that we are infringing upon their intellectual property, and we could suffer significant litigation costs, licensing expenses or be prevented from
selling our products.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Intellectual property rights are uncertain and involve complex legal and factual questions. We may be unknowingly infringing upon the intellectual property
rights of others and may be liable for that infringement, which could result in significant liability for us. If we do infringe upon the intellectual property rights of others, we could be forced to
either seek a license to those intellectual property rights or to alter our products so that they no longer infringe. A license could be very expensive to obtain or may not be available at all.
Similarly, changing our products or processes to avoid infringing upon the rights of others may be costly or impractical.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
are responsible for any patent litigation costs. If we were to become involved in a dispute regarding intellectual property, whether ours or that of another company, we may have to
participate in legal proceedings. These types of proceedings may be costly and time-consuming for us, even if we eventually prevail. If we do not prevail, we might be forced to pay significant
damages, obtain licenses, modify our products or processes, stop making products or stop using processes.</FONT></P>

<P><FONT SIZE=2><B>We rely heavily on a few customers for a large majority of our sales.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sales to our 10 largest customers accounted for 72% of revenues in fiscal 1999, 60% of revenues in fiscal 1998, and 70% of revenues in fiscal 1997. Our
customers are able to cancel orders with few or no penalties. If a significant customer reduces orders for any reason, our revenues, operating results, and financial condition will be negatively
affected. In addition, our ability to increase our sales will depend in part upon our ability to obtain orders from new customers for whom there is intense competition.</FONT></P>

<P><FONT SIZE=2><B>Our dependence on subcontractors and sole or limited source suppliers may prevent us from delivering an acceptable product on a timely basis.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We rely on subcontractors to manufacture many of the components and subassemblies for our products, and we depend on single or limited source suppliers for
some of our components. Our reliance on subcontractors gives us little control over the manufacturing process and exposes us to significant risks such as inadequate capacity, late delivery,
substandard quality and high costs.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If
a supplier were to become unable to provide parts in the volumes needed or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative
sources of supply, or manufacture the components internally. The process of qualifying subcontractors and suppliers is lengthy. We have no written supply agreements with any of our single or limited
source suppliers and purchase our custom components through individual purchase orders. If we were unable to obtain these components in a timely fashion, we may not be able to meet demands for future
shipments. We rely on sole suppliers for several of our components, including an image processing component. We believe that we would be able to find alternative solutions if supplies were unavailable
from any of our sole source suppliers. This may take time and the disruption would adversely affect our results of operations.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B>Our dependence upon international customers and suppliers may reduce our revenues or impede our ability to supply products.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;International sales have accounted for a significant portion of our revenues in recent years, and we expect that the percentage of sales from international
customers will continue to increase. Sales outside of North America accounted for 37% of our revenues in 1999, 27% of our revenues in 1998, and 45% of our revenues in 1997. In addition, we rely on
non-U.S. suppliers for several components of the systems we sell. As a result, a major part of our revenues and the ability to manufacture our products are subject to the risks associated
with international commerce. International sales and our relationships with suppliers may be hurt by many factors, including:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in law or policy resulting in burdensome government controls, tariffs, restrictions, embargoes or export license requirements;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>political
or economic instability in our target international markets;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>longer
payment cycles common in foreign markets;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>difficulties
in staffing and managing our international operations;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>less
favorable foreign intellectual property laws making it harder to protect our technology from appropriation by competitors; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>difficulties
in collecting our accounts receivable because of the geographic distance and different legal rules.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If
our international sales or relationships with international suppliers are adversely affected by any of these factors, our financial condition could be adversely affected.</FONT></P>

<P><FONT SIZE=2><B>Our dependence upon international sales exposes us to currency risks.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our foreign sales are made in U.S. dollars. A strengthening in the dollar relative to the currencies of those countries where we do business would increase the
prices of our products as stated in those currencies and hurt our sales in those countries. If we lower our prices to reflect a change in exchange rates, our profitability in those markets will
decrease. In the past, there have been significant fluctuations in the exchange rates between the dollar and the currencies in the countries where we do business. We have not historically tried to
reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. We may not be able to do so successfully. Accordingly, we may experience
economic loss and a negative impact on earnings and equity as a result of foreign currency exchange rate fluctuations.</FONT></P>

<P><FONT SIZE=2><B>Failure to increase our sales in Asia will negatively impact our financial performance.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Asia is an important region for the markets we serve. We expect our dependence upon the Asian market to increase. In recent years, Asia has experienced serious
economic problems including currency devaluations, debt defaults, lack of liquidity and recessions. Our revenues depend upon the capital expenditures of semiconductor manufacturers, many of whom have
operations and customers in Asia. Serious economic problems in Asia would likely result in a significant decrease in the sale of equipment to the semiconductor industry. If we are unable to increase
our sales in Asia, our future financial condition, revenues and operating results will be negatively affected.</FONT></P>

<P><FONT SIZE=2><B>We will rely upon distributors for a significant portion of our future sales, and a disruption in our relationships with these distributors could have a negative impact on our
international sales.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of our sales have been made through independent distributors. We expect that sales through independent distributors will represent a
material portion of our sales for the next</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>several
years. In particular, all of our sales in Asia, Japan, and Europe are made through independent distributors. In 1999, sales to our exclusive distributor in Asia accounted for 14% of our net
revenues, sales to our exclusive distributors in Japan accounted for 5% of our net revenues and sales to our distributors in Europe accounted for 14% of our net revenues. In 1999, we terminated our
relationship with our distributor in Asia, including Japan, and we now rely on new distributors for sales to these markets. These new distributors have limited experience with our products. Our
independent distributors also provide field service to our customers. The activities of these distributors are not within our control. Although we believe that we maintain good relations with our
independent distributors, the relationships may nevertheless deteriorate in the future. A reduction in the sales or service efforts or financial viability of any of our independent distributors, or a
termination of our relationships with them, could harm our sales, our financial results and our ability to support our customers.</FONT></P>

<P><FONT SIZE=2><B>You will be relying on the judgment of our management regarding our use of proceeds.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Other than repayment of debt, we have not designated any specific use for the net proceeds from our sale of common stock described in this prospectus. Rather,
we expect to use the net proceeds for general corporate purposes, including working capital, research and development, capital expenditures, and for potential acquisitions of complementary products,
technologies or businesses. Consequently, our management will have significant flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management
regarding the application of the proceeds. Our management will have the ability to apply the proceeds of this offering as it deems appropriate without shareholder approval.</FONT></P>

<P><FONT SIZE=2><B>Our business may be harmed by acquisitions we complete in the future.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We plan to pursue acquisitions of related businesses. Our identification of suitable acquisition candidates involves risks inherent in assessing the values,
strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of the possible acquisition on our business, diversion of our management's attention and risks
associated with unanticipated problems or latent liabilities. If we are successful in pursuing acquisitions, we may be required to expend significant funds, incur additional debt or issue additional
securities, which may negatively affect our results of operations and be dilutive to our shareholders. If we spend significant funds or incur additional debt, our ability to obtain financing for
working capital or other purposes could decline and we may be more vulnerable to economic downturns and competitive pressures. We cannot guarantee that we will be able to finance acquisitions or that
we will realize any anticipated benefits from acquisitions that we complete. Should we successfully acquire another business, the process of integrating acquired operations into our existing
operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing
business.</FONT></P>

<P><FONT SIZE=2><B>Because of the high cost of displacing incumbent suppliers in our markets, it is sometimes difficult for us to win customers from our competitors, even if our systems are
superior to theirs.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We believe that once a semiconductor device manufacturer has selected one vendor's capital equipment for a production line application, the manufacturer
generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor's equipment, for the life of the application. Once a vendor's equipment has been
installed in a production line, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to switch to
another vendor's equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh a customer's expense of</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>switching
to our systems, it will be difficult for us to achieve significant sales to that customer once it has selected another vendor's capital equipment for an application.</FONT></P>

<P><FONT SIZE=2><B>We are effectively controlled by our principal shareholders and management, which may limit your ability to influence shareholder matters or to receive a premium for your
shares through a change in control.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of this offering, our executive officers, directors and principal shareholders and their affiliates will own 5,009,230 shares, or
&nbsp;&nbsp;&nbsp;%, of the outstanding shares of common stock, or&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, or&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%, if the underwriters' over-allotment option is exercised in full. As a
result, they will effectively control us and direct our affairs, and have significant influence in the election of directors and approval of significant corporate transactions. The interests of these
shareholders may conflict with those of other
shareholders. This concentration of ownership may also delay, defer or prevent a change in control of our company and some transactions may be more difficult or impossible without the support of these
shareholders.</FONT></P>

<P><FONT SIZE=2><B>Provisions of our articles of incorporation, our bylaws and Minnesota law could discourage potential acquisition proposals and delay or prevent a change in control.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Anti-takeover provisions of our Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and Minnesota law could diminish the
opportunity for shareholders to participate in acquisition proposals at a price above the then current market price of our common stock. The provisions may also inhibit increases in the market price
of our stock that could result from takeover attempts. For example, while we have no present plans to issue any additional series or classes of capital stock, our board of directors, without further
shareholder approval, may issue additional series or classes that could have the effect of delaying, deterring or preventing a change in control. The issuance of additional series or classes could
adversely affect the voting power of your shares. In addition, our Bylaws provide for a classified board of directors consisting of three classes as well as require a 75% vote for removal of
directors. These provisions could also have the effect of delaying, deterring or preventing a change in control.</FONT></P>

<P><FONT SIZE=2><B>Future sales of our common stock may depress our stock price.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sales of substantial amounts of our stock in the public market, or the perception that these sales may occur, could adversely affect the market price of our
stock. After this offering, the shares offered under this prospectus will be freely tradable. The remaining 6,109,307 shares outstanding will be available for sale at various times, with
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares available for sale after their 180-day lock-up period. See "Shares Eligible for Future Sale" for a discussion of potential future sales of our common
stock.</FONT></P>

<P><FONT SIZE=2><B>Our stock price may be volatile and our stock may be thinly traded, which could cause you to lose a substantial part of your investment in our stock.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility that has often been unrelated to
the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline regardless of our actual operating performance and
you could lose a substantial part of your investment. In addition, prior to this offering, our stock could not be bought or sold on a public market. If an active public market for our stock does not
develop, or if a market is not sustained after this offering, it may be difficult to resell our stock. The market price of our common stock will likely fluctuate in response to a number of factors
including the following:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
failure to meet the performance estimates of securities analysts;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in financial estimates of our revenues and operating results by securities analysts;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
timing of announcements by us or our competitors of significant contracts or acquisitions; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>general
stock market conditions.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
<UL>
</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1518_forward-looking_statements"> </A></FONT> <FONT SIZE=2><B>FORWARD-LOOKING STATEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Statements contained in this prospectus may be forward-looking statements concerning our business, operations, financial performance and financial condition.
Forward-looking statements are included, for example, in the discussions about: the market for micro defect inspection systems; anticipated increases in sales of our NSX product line as a percentage
of total revenues; potential future acquisitions; gross profit and operating expenses; variations in operating results; and strategy. The forward-looking statements involve risks and uncertainties and
actual results may differ materially from those expressed or implied in those statements. Factors that could cause differences, include, but are not limited to, those discussed under "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of Operations."</FONT></P>

<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1518_use_of_proceeds"> </A></FONT> <FONT SIZE=2><B>USE OF PROCEEDS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We estimate that the net proceeds from the sale of the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock that we are offering at an assumed public offering price of
$&nbsp;&nbsp;will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million after deducting underwriting discounts, repayment of approximately $2.4&nbsp;million in indebtedness outstanding under our
revolving line of credit as of March&nbsp;15, 2000, and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate the net
proceeds from this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
expect to use the net proceeds from this offering for general corporate purposes, including working capital, research and development, capital expenditures, repayment of
$2.4&nbsp;million of debt, and for potential acquisitions of complementary products, technologies or businesses; however, we currently have no commitments or agreements with respect to any
acquisitions. As of the date of this prospectus, except for repayment of $2.4&nbsp;million of debt, we cannot specify with certainty the particular uses for the net proceeds we will receive in this
offering. Accordingly, our management will have broad discretion in applying our net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds in investment
grade, interest-bearing instruments.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
interest rate on borrowings under our revolving line of credit, which expires in May&nbsp;2000, was 9.2% at December&nbsp;31, 1999.</FONT></P>

<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1518_dividend_policy"> </A></FONT> <FONT SIZE=2><B>DIVIDEND POLICY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account
various factors, including our financial condition, operating results and current and anticipated cash needs. In addition, our current credit facility prohibits us from paying any cash dividends
without our lender's consent.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dg1518_capitalization"> </A></FONT> <FONT SIZE=2><B>CAPITALIZATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table presents our capitalization as of December&nbsp;31, 1999, on an actual basis and as adjusted to give effect to the receipt by us of the
net proceeds, after deducting underwriting discounts and estimated offering expenses payable by us, from the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock in this offering at an assumed initial
public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and the repayment of all outstanding short-term bank debt.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31, 1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Actual</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>As Adjusted</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR></B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Short-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1,224</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Shareholders' equity:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Common stock, $.01 par value, 12,000,000 shares authorized, 6,109,307 shares issued and outstanding, actual and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares as adjusted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>61</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,531</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Deferred compensation related to stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(427</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Retained earnings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>182</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Total shareholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,347</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%"><FONT SIZE=2>Total capitalization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,347</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE WIDTH="120">
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
information in the table above excludes:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>outstanding
options to purchase 762,481 shares of common stock;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>737,519
shares of common stock reserved for future issuance under our 1997 Employee Stock Option Plan;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>250,000
shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>6,250
shares issuable under an outstanding warrant.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
<UL>
</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dg1518_dilution"> </A></FONT> <FONT SIZE=2><B>DILUTION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our net tangible book value as of December&nbsp;31, 1999, was $3,347,030, or $0.55 per common share. Net tangible book value represents our total tangible
assets less total liabilities, divided by the total number of shares of our common stock outstanding. After giving effect to the sale of the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock at an assumed
initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and deducting the underwriting discounts and estimated offering expenses payable by us, our pro forma net tangible book value as of
December&nbsp;31, 1999, would have been $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. This represents an immediate increase in pro forma net book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to
existing shareholders and an immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to new investors purchasing shares of our common stock in this offering. The following table illustrates the per share
dilution to the new investors.&nbsp;</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="82%"><FONT SIZE=2>Assumed initial public offering price per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="2%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="82%"><FONT SIZE=2>Net tangible book value per share as of December 31, 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="82%"><FONT SIZE=2>Pro forma increase in net tangible book value per share attributable<BR>
to new investors</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="82%"><FONT SIZE=2>Pro forma net tangible book value per share after this offering</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="82%"><FONT SIZE=2>Dilution per share to new investors</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="2%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes, on a pro forma basis as of December&nbsp;31, 1999, the differences between the existing shareholders and the new investors with respect to the number
of shares of common stock purchased, the total consideration paid and the average price paid per share:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="59%" COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>As of December 31, 1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Shares Purchased</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total Consideration</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Average Price<BR>
Per Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Existing shareholders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,109,307</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,168,834</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.52</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>New investors</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE WIDTH="120">
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
information in the table above excludes:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>outstanding
options to purchase 762,481 shares of common stock;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>737,519
shares of common stock reserved for future issuance under our 1997 Employee Stock Option Plan;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>250,000
shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>6,250
shares issuable under an outstanding warrant.</FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=18,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=823852,FOLIO=15,FILE='DISK022:[00STP8.00STP1518]DG1518A.;14',USER='JKEENE',CD='17-MAR-2000;09:39 -->
<UL>
<UL>
</UL>
</UL>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dg1518_selected_financial_information"> </A></FONT> <FONT SIZE=2><B>SELECTED FINANCIAL INFORMATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We derived the selected financial information below as of and for each of the years ended December&nbsp;31, 1997, 1998, and 1999 from our audited financial
statements included elsewhere in this prospectus. We derived the selected financial information below as of and for each of the years ended December&nbsp;31, 1995 and 1996 from our unaudited
financial statements, which are not included in this prospectus. You should read this data in conjunction with our financial statements appearing elsewhere in this prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="51%" COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1995</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1996</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="51%" COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands, except per share data)<BR></B></FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2><B>Statement of Operations Data:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Net revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,798</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,756</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>4,192</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,787</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>12,058</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,087</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,013</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,141</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,686</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,110</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>711</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,743</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,051</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,101</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>462</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>986</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,004</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,174</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4,738</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>419</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>734</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>924</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,318</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Operating income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>338</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>313</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(108</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Interest income (expense), net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(41</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Income (loss) before provision for (benefit from)<BR>
income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>339</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>312</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(149</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>124</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>125</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(17</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>44</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>215</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>187</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(132</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Shares used in computing:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,303</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,791</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="46%"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,003</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5,303</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,791</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<BR>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="50%" COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1995</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1996</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="50%" COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR></B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2><B>Balance Sheet Data:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>281</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>287</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>260</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>38</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>161</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>289</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,125</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,494</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>974</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,352</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,794</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,686</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6,676</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Total debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>190</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,224</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Total shareholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>123</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>338</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>465</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1,411</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,347</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=3,SEQ=19,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=708009,FOLIO=16,FILE='DISK022:[00STP8.00STP1518]DG1518B.;9',USER='JKEENE',CD='17-MAR-2000;09:39 -->
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di1518_management_s_discussion_and_an__man03466"> </A></FONT> <FONT SIZE=2><B>MANAGEMENT'S DISCUSSION AND ANALYSIS OF<BR> FINANCIAL CONDITION AND RESULTS OF OPERATIONS  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>You should read the following discussion of our results of operations and financial condition in conjunction with the financial
statements and other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may be
materially different from those anticipated in these forward-looking statements resulting from a variety of factors, including, but not limited to, those under "Risk Factors" and elsewhere in this
prospectus.</I></FONT></P>

<P><FONT SIZE=2><B>Overview</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We design, manufacture, market and service automated micro defect inspection systems for the semiconductor industry. We began operations in 1992, and in 1993
we shipped our first product, the CV wafer cassette inspection system. In 1994, we introduced the LV 9000, a semi-automatic semiconductor lead and package inspection system. Our most
recent product series, the NSX, was introduced in 1997 with the NSX-80. Due to favorable market response, we continued to advance the NSX product line and introduced the NSX-70
and the NSX-90 in the second quarter of 1998. The fourth product in the NSX series, the NSX-100, was introduced in the third quarter of 1999, with anticipated shipments to
begin in the second half of 2000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Since
1998, we have derived a substantial majority of our revenues from our NSX systems, with remaining sales coming from our CV and LV systems, services and spare parts. Shipments of
NSX systems represented approximately 85% of revenues in 1999, 71% of revenues in 1998 and 5% of revenues in 1997. NSX system sales were the principal reason our revenues increased approximately 188%
between 1997 and 1999. In addition, during 1998 and 1999 we incurred significant research and development costs and operating expenses related to developing our NSX systems and in creating the
infrastructure necessary to manufacture, market and service NSX systems.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
demand for our systems depends upon growth in the semiconductor industry and the need to automate current manual inspection processes. Primary trends driving demand for our
systems are:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>increases
in the complexity of semiconductor devices;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>increases
in unit production of semiconductor devices;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>shortened
product life cycles necessitating faster time to market; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
emergence of next-generation materials, processing and packaging technologies.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
recognize revenue from sales of our systems upon shipment to the customer, which generally occurs after the customer has tested and approved the system in our facility. We
recognize installation and training revenue after the services are performed. We recognize maintenance contract revenue ratably over the period of the contract.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
purchase of our systems may involve a significant commitment of our customers' personnel and financial resources to conduct technical evaluations and fund purchases. Therefore,
our sales cycle generally varies from three to nine months depending upon how quickly customers perform these tasks. This uncertainty makes the timing of sales difficult to predict and may cause
fluctuations in our revenues and profits from period to period.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
NSX systems range in price from approximately $150,000 to $900,000 per system depending on configuration and options included. This range of prices may also cause significant
fluctuations in our period-to-period revenues depending on the timing, configuration and/or quantity of systems sold. Therefore, results of any prior period may not necessarily
be indicative of our future performance.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;A
significant portion of our revenues has been derived from customers outside North America, and we expect this to continue. In 1999, approximately 37% of our revenues were derived
from customers outside North America, consisting of 22% from customers in Asia and 15% from customers in Europe. In 1998, approximately 27% of our revenues were derived from customers outside North
America, consisting of 10% from customers in Asia and 17% from customers in Europe. All of our revenues to date have been denominated in United States dollars.</FONT></P>

<P><FONT SIZE=2><B>Results of Operations</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, for the periods indicated, our financial data expressed as a percentage of net revenues:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="83%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="27%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Years ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Net revenues</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>51.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>46.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>42.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Gross margin</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>48.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>53.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>24.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>39.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>17.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>19.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Operating income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Income (loss) before provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2><B>Year ended December&nbsp;31, 1999 compared to year ended December&nbsp;31, 1998</B></FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Net Revenues.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Net revenues increased $6.3&nbsp;million, or 108.3%, to $12.1&nbsp;million in
1999 from $5.8&nbsp;million in 1998. The increase in net revenues was primarily due to the continued growth in sales of our NSX systems, which increased 149% over 1998.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Gross Profit.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Gross profit was $6.9&nbsp;million, or 57.6% of net revenues, in 1999, up from
$3.1&nbsp;million, or 53.6% of net revenues, in 1998. The primary reason for the improvement in margin percentage is due to the increase in the number of NSX systems shipped in 1999, which have a
higher gross margin than
our other product lines. We do not expect our gross profit margins to increase at the same rate in the future.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Selling, General and Administrative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Selling, general and administrative expenses primarily
consist of salaries, commissions, employee benefits and facilities costs. Selling, general and administrative expenses increased $2.6&nbsp;million, or 117.9%, to $4.7&nbsp;million, or 39.3% of net
revenues, in 1999 from $2.2&nbsp;million, or 37.6% of net revenues, in 1998. The increased expense was primarily due to the hiring of additional sales and field service employees to support our
domestic and international growth. The increase as a percentage of revenue is primarily due to increased compensation, travel costs to support international market opportunities in Asia and Europe and
higher advertising costs related to the continued promotion of the NSX series. We also recorded a lease obligation in 1999 of $129,500 associated with lease commitments on our previous facility. We
expect our selling, general and administrative expenses to decrease as a percentage of net revenues in the future.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Research and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Research and development expenses consist primarily of salaries and
related expenses of employees engaged in research, design and development activities. They also</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>include
consulting fees, prototype equipment expenses and the cost of related supplies. Research and development expenses increased $1.4&nbsp;million, or 150.9%, to $2.3&nbsp;million, or 19.2% of
net revenues, in 1999 from $924,000, or 16.0% of net revenues, in 1998. The increase in expense resulted from the hiring of additional engineers and the use of outside services as we continued to
pursue new product initiatives. We expect research and development expenses to continue to increase in dollars in future periods as we invest in product development, hire additional engineers and
continue to use outside services to support our new product initiatives.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;The provision for income taxes changed to an income tax benefit of $17,500 in
1999 from income tax expense of $2,300 in 1998 as a result of a pre-tax loss in 1999 compared to a pre-tax income in 1998. We have recorded deferred tax assets based upon taxes
paid in prior years that are available for carryback. We have established a valuation allowance of $22,500 related to these deferred tax assets and will continue to evaluate the recoverability of
these assets. See note&nbsp;5 to the financial statements.</FONT></P>


<P><FONT SIZE=2><B>Year ended December&nbsp;31, 1998 compared to year ended December&nbsp;31, 1997</B></FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Net Revenues.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Net revenues increased $1.6&nbsp;million, or 38.1%, to $5.8&nbsp;million in
1998 from $4.2&nbsp;million in 1997. The increase was due to the introduction of the NSX system during the second half of 1997 and the commercialization of the system throughout 1998.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Gross Profit.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Gross profit was $3.1&nbsp;million, or 53.6% of net revenues in 1998, compared
to gross profit of $2.1&nbsp;million in 1997, or 48.9% of net revenues. The primary reason for the improvement in gross margin percentage was due to the increase in the number of NSX systems shipped
in 1998, which had a higher gross margin than our other product lines.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Selling, General and Administrative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Selling, general and administrative expenses increased
$1.2&nbsp;million, or 116.5%, to $2.2&nbsp;million, or 37.6% of net revenues, in 1998 from $1.0&nbsp;million, or 24.0% of net revenues, in 1997. The increased expense was due to the use of
outside consultants to support administrative functions and the hiring of additional customer service representatives to support our customers. The increase as a percentage of revenue was primarily
due to higher advertising and trade show costs related to the promotion of the NSX series.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Research and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Research and development expenses increased $190,000, or 25.9%, to
$924,000, or 16.0% of net revenues, in 1998 from $734,000, or 17.5% of net revenues, in 1997. This increase resulted primarily from the hiring of additional engineers and the use of outside services
associated with the development of the NSX series.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;The provision for income taxes decreased to $2,300 in 1998 from $125,100 in 1997.
The decrease was due primarily to the lower income before income taxes in 1998. See note&nbsp;5 to the financial statements.</FONT></P>

<P><FONT SIZE=2><B>Quarterly Results of Operations</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth our unaudited quarterly results of operations data for the eight quarters ended December&nbsp;31, 1999, and the data expressed
as percentages of our net revenues for the same periods. This information has been prepared on the same basis as the audited financial statements appearing elsewhere in this prospectus and, in our
opinion, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>quarterly
results of operations set forth below. Results of operations for any previous quarter are not necessarily indicative of the results you can expect for the entire year or any future period.</FONT></P>

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<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="30%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="68%" COLSPAN=23 ALIGN="CENTER"><FONT SIZE=1><B>Quarters Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="30%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Mar. 31<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>June 30<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Sep. 30<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Dec. 31<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Mar. 31<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>June 30<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Sep. 30<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Dec. 31<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="30%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="68%" COLSPAN=23 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR></B></FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Net revenues</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>794</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,065</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,650</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>2,279</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>2,143</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>3,080</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>3,501</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>3,334</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Cost of revenues</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>390</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>464</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>773</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,059</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>865</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,381</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,428</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,436</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Gross profit</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>404</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>601</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>877</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,220</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,278</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,699</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>2,073</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,898</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;<BR>
Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
456</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
496</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
587</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
635</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
681</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
989</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
1,349</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
1,718</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Research and development expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>194</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>211</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>250</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>270</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>357</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>483</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>628</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>850</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Total operating expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>650</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>707</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>837</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>905</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,038</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,472</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,977</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>2,568</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Operating income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(246</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(106</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>40</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>315</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>240</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>227</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>96</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(670</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Interest expense</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(19</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(13</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Interest income</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Income (loss) before provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(246</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(106</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>40</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>314</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>232</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>208</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>83</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(673</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;<BR>
Provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(93</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(40</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
16</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
119</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
86</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
72</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
22</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(198</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="30%"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(153</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(66</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>24</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>195</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>146</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>136</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>61</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(475</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<BR>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="99%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="64%" COLSPAN=15 ALIGN="CENTER"><FONT SIZE=1><B>Percentage of Net Revenues</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="64%" COLSPAN=15 ALIGN="CENTER"><FONT SIZE=1><B>Quarters Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Mar. 31<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>June 30<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Sep. 30<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Dec. 31<BR>
1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Mar. 31<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>June 30<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Sep. 30<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Dec. 31<BR>
1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Net revenues</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Cost of revenues</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>49.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>43.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>46.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>46.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>40.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>44.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>40.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>43.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Gross profit</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>50.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>56.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>53.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>53.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>59.6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>55.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>59.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>56.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;<BR>
Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
57.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
46.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
35.6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
27.9</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
31.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
32.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
38.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
51.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Research and development expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>24.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>19.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>15.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>11.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>16.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>15.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>17.9</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>25.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Total operating expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>81.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>66.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>50.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>39.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>48.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>47.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>56.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>77.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Operating income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(30.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(10.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>13.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>11.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(20.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Interest expense</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Interest income</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>0.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>0.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Income (loss) before provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(30.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(10.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>13.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>10.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>6.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(20.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;<BR>
Provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(11.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(3.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
1.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
5.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
4.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
2.3</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
0.6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;<BR>
(5.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;<BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(19.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(6.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>8.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>6.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>4.5</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(14.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our operating results have historically been subject to significant quarterly and annual fluctuations. We anticipate that factors affecting our
future operating results will include the timing of significant orders,
the timing of new product announcements and releases by us or our competitors, patterns of capital spending by customers, market acceptance of new or enhanced versions of our products and changes in
the pricing of our products. In addition, the timing and level of our research and development expenditures could cause quarterly results to fluctuate. A substantial portion of our annual revenues
comes from sales to a relatively small number of customers. Our revenues and operating results for a period may be affected by the timing of orders received or orders shipped</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>

<P><FONT SIZE=2>during
a period. See "Risk Factors&#151;Our sales and operating results can fluctuate significantly from period to period."</FONT></P>

<P><FONT SIZE=2><B>Liquidity and Capital Resources</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 1999, we had working capital of $2.5&nbsp;million, compared to $1.1&nbsp;million as of December&nbsp;31, 1998. The improvement
in our working capital position was due primarily to higher levels of accounts receivable and inventory, partially offset by increased borrowings on our line of credit and accounts payable. As of
December&nbsp;31, 1999, we had $1.2&nbsp;million outstanding and $1.6&nbsp;million available on our line of credit.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Cash
used in operating activities was $2.4&nbsp;million in 1999, $1.3&nbsp;million in 1998 and cash provided by operating activities was $22,000 in 1997. Net cash used in
operating activities in 1999 was due to increased accounts receivable and inventory levels related to the growth in our business in the second half of 1999, partially offset by increased accounts
payable and accrued liabilities. Net cash used in operating activities in 1998 was due to increased accounts receivable and inventory levels and a decrease in customer deposits. Net cash provided by
operating activities in 1997 was due to our net income of $186,000 and increases in accounts payable and customer deposits, partially offset by increases in accounts receivable and inventory.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used in investing activities was $747,000 in 1999, $202,000 in 1998 and $49,000 in 1997. Net cash used in investing activities in 1999 was for capital expenditures made to
upgrade our internal network infrastructure and purchasing new business automation software and personal computers. Net cash used in investing activities in 1998 was for capital expenditures for
internal network infrastructure and personal computers.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by financing activities was $3.2&nbsp;million in 1999 and $1.2&nbsp;million in 1998. Net cash provided by financing activities in 1999 was from increased net
borrowings under our line of credit of $1.0&nbsp;million and the net proceeds of $2.0&nbsp;million received from the sale of 549,674 shares of common stock to investors. Net cash provided by
financing activities in 1998 was from increased net borrowings under our line of credit of $190,000 and the net proceeds of $947,000 received from the sale of 548,667 shares of common stock to
investors.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During
1999, we entered into a revolving credit line with our lender that expires in May&nbsp;2000 and allows borrowings of up to $2.8&nbsp;million subject to availability based
on accounts receivable and inventory balances. Interest is payable monthly at the 30-day London Interbank Offered Rate, or LIBOR, plus 2.8%. The revolving credit line contains financial
covenants regarding our tangible net worth, capital expenditures and earnings before interest, taxes, depreciation and amortization and default provisions, including provisions related to
non-payment of principal and interest, bankruptcy and default under other debt agreements. One of our directors provided our lender with a personal guarantee of up to $500,000 plus accrued
interest in the event of default. We were not in compliance with one of our financial covenants as of December&nbsp;31, 1999, however, we obtained a waiver of this covenant default. As of
December&nbsp;31, 1999, the balance outstanding under our revolving credit line was $1.2&nbsp;million at an effective interest rate of 9.2%.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
believe the proceeds from this offering, together with available funds, anticipated cash flows from operations and our line of credit, will satisfy our projected working capital
and capital expenditure requirements at least through the next twelve months. To the extent that we grow more rapidly than expected, we may need additional cash to finance our operating and investing
activities.</FONT></P>

<P><FONT SIZE=2><B>Year 2000 Issues</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have devoted appropriate resources to minimize the risk of potential disruption from year 2000 issues. Our approach centered on components of our
information system and on other impacts such as</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>third
parties. We are dependent on third parties that provide goods or services. The failure of one or more of these third parties to address any lingering year 2000 issues could have a material
adverse effect on our business, financial condition, or operating results. To date, we have experienced no significant systems or other year 2000 problems in connection with the transition to the year
2000. We will continue to monitor for any year 2000 issues.</FONT></P>

<P><FONT SIZE=2><B>Qualitative and Quantitative Disclosure About Market Risks</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to market risk from changes in interest rates on borrowings under our revolving line of credit. We have no derivative financial instruments in
our cash and cash equivalents and generally use cash to pay down our revolving line of credit. We are not exposed to market risk from fluctuations in foreign currency exchange rates because our
systems are sold in U.S. dollars.</FONT></P>

<P><FONT SIZE=2><B>Impact of Accounting Standards</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;1999, the SEC staff issued Staff Accounting Bulletin (SAB) No.&nbsp;101, </FONT><FONT SIZE=2><I>Revenue Recognition in Financial
Statements</I></FONT><FONT SIZE=2>. SAB No.&nbsp;101 summarizes the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We will
implement SAB No.&nbsp;101 in the first quarter of 2000 and do not expect its implementation to have a significant effect on our revenue recognition policy.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;1998, the Financial Accounting Standards Board issued SFAS No.&nbsp;133, </FONT><FONT SIZE=2><I>Accounting for Derivative Instruments and Hedging
Activities</I></FONT><FONT SIZE=2> (as amended by SFAS No.&nbsp;137 with respect to the effective date) will be effective for us in January&nbsp;2001. SFAS No.&nbsp;133 requires us to recognize
all derivatives as assets or liabilities on the balance sheet and to measure them at fair value on a marked-to-market basis. This applies whether the derivatives are
stand-alone instruments, such as forward currency exchange contracts and interest rate swaps or collars, or embedded derivatives, such as call options contained in convertible debt investments. Along
with the derivatives, the underlying hedged items are also to be marked-to-market on an ongoing basis. These market value adjustments are to be included either in net earnings in the Statement of
Operations or in other comprehensive income (and accumulated in stockholders' equity), depending on the nature of the transaction. We do not expect SFAS No.&nbsp;133 to have a significant effect on
the results of operations or financial position of the Company.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di1518_our_business"> </A></FONT> <FONT SIZE=2><B>OUR BUSINESS  </B></FONT></P>

<P><FONT SIZE=2><B>Introduction</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We are a worldwide leader in the design, manufacture, marketing and service of automated micro defect inspection systems used in the manufacture of
semiconductor devices. Our NSX series,
incorporating our proprietary software, automated materials handling capabilities and expertise in machine vision technology automates one of the last remaining manually performed tasks in
semiconductor manufacturing. Typically, manufacturers rely on people using microscopes to detect defects in sample lots which is an inefficient and error-prone inspection process. Our systems automate
the inspection process, allowing manufacturers to inspect 100% of their wafers or die, as well as providing powerful information that manufacturers can use to increase yield and productivity. We have
sold these systems worldwide to many major semiconductor manufacturing companies.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;According
to the Semiconductor Industry Association, the overall market for semiconductor devices is expected to have a compound annual growth rate of 17.5% from $144.0&nbsp;billion
in 1999 to $233.6&nbsp;billion in 2002. This compares to a historical compound annual growth rate of 15.7% from 1985 through 1999. According to the SEMI Consensus Forecast, the overall market for
semiconductor device manufacturing equipment is expected to grow with a compound annual growth rate of 17.6% from $23.4&nbsp;billion 1999 to $38.1&nbsp;billion in 2002. Based on the fact that
automated micro defect inspection equipment has been generally unavailable until 1997, we believe that this market has been underserved and is likely to outpace the growth rate of the overall
semiconductor device manufacturing equipment market.</FONT></P>

<P><FONT SIZE=2><B>Our Market</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The manufacture of semiconductor devices, commonly known as integrated circuits or chips, requires a number of increasingly complex steps and processes. As
in-process wafers contain increasing quantities of smaller, more complex multi-level circuitry, they have become more expensive to produce. Yield, or the percentage of good die that can be
realized from a wafer, and productivity are critical to the profitability of a production line, and often of semiconductor manufacturers as a whole. Therefore, the rapid detection of defects during
multiple stages of the semiconductor production process has become critical.</FONT></P>

<P><FONT SIZE=2>[Semiconductor Manufacturing Process]</FONT></P>

<P><FONT SIZE=2>[Graphic
depicting stages of the Semiconductor manufacturing process. The Graphic indicates that the process includes two major phases; Wafer Manufacturing and
Process&#151;consisting of Bare Wafer, Processing and Passivation and Bumping Stages, and Test, Assembly and Packaging&#151;consisting of Bumping, Probe, Dicing, Pick &amp; Place, Assembly
and Final Test. The Graphic also indicates that Micro Defect Inspection may occur at all stages, except Packaging and Final Test.]</FONT></P>

<P><FONT SIZE=2>[Inspection
for visual defects generally larger than 0.5 microns throughout the semiconductor manufacturing process.]</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If
practical and cost-effective, manufacturers would inspect every wafer and die after each process step. However, historical inspection and testing methods, particularly
during the test, assembly and</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>packaging
process, have not permitted this kind of extensive, real-time inspection. Instead, manufacturers, to a large extent, have relied on people using microscopes to manually inspect
sample batches of wafers to detect defects during the test assembly and packaging process. In addition, this
limited manual inspection has primarily occurred at the end of the production process. These manual inspection limitations lead to:</FONT></P>

<UL>

<P><FONT SIZE=2><B><I>Yield loss due to a lack of process data.</I></B></FONT><FONT SIZE=2> Because manual inspection is infrequent and generally occurs at the end of the process, it fails to quickly
identify where in the process the defects were introduced. The inability to capture data prevents semiconductor manufacturers from locating problems on a timely basis and taking corrective action.
Timely corrective action could prevent costly disruptions in the manufacturing process, eliminate the scrapping of valuable wafers and improve the process for future products.</FONT></P>

<P><FONT SIZE=2><B><I>Productivity reductions.</I></B></FONT><FONT SIZE=2> As semiconductor devices have become more complex and the throughput of semiconductor manufacturing equipment has increased,
manual inspection has become a constraint. Given this throughput limitation, manufacturers are faced with the decision of whether to add more people or reduce the frequency and volume of inspections.
Further, if defects are found during manual inspection sampling, manufacturers may be forced to inspect 100% of wafer output, further decreasing throughput.</FONT></P>


<P><FONT SIZE=2><B><I>Defective product shipments.</I></B></FONT><FONT SIZE=2> By inspecting less than 100% of their products, manual inspection requires manufacturers to assume a greater risk of
shipping defective products to end users.</FONT></P>

<P><FONT SIZE=2><B><I>Increased labor and facility requirements.</I></B></FONT><FONT SIZE=2> The large number of people and microscopes needed to manually inspect semiconductor devices requires valuable
floor space and significant capital commitments. In addition, attracting and retaining qualified operators have become increasingly difficult.</FONT></P>

<P><FONT SIZE=2><B><I>Slower time to market.</I></B></FONT><FONT SIZE=2> As semiconductor device and product life cycles decrease, the time needed for semiconductor manufacturers to reach optimal
production yields has become increasingly critical. This pressure to minimize time-to-market requires manufacturers to reduce the amount of time spent training operators,
re-tooling production equipment and managing the logistics of a manual inspection process.</FONT></P>

</UL>

<P><FONT SIZE=2><B>Our Solution</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We deliver completely automated micro defect inspection systems for the semiconductor manufacturing markets. Our systems provide manufacturers with valuable
information about their products and processes, at a speed that makes it practical to inspect each device rather than a small sample lot. We accomplish this by combining our core competencies in
machine vision technology, optics, lighting, and precision motion control with our proprietary software and extensive semiconductor-specific applications experience. Our systems merge proprietary
inspection algorithms with automated material handling to provide cost-effective solutions. A scalable technology platform enables us to offer systems at several price/performance levels
which satisfy our customers' diverse requirements. We design our systems to be modular, allowing our customers to upgrade and add enhancements as needs arise or capital funding becomes available.
Specifically, we enable our customers to achieve significant benefits by providing:</FONT></P>

<UL>

<P><FONT SIZE=2><B><I>Fast, automated visual wafer inspection.</I></B></FONT><FONT SIZE=2> Our systems are specifically designed to address our customers' need for fast, automated visual inspection
tools. Our NSX series systems are able to inspect as many as 97 wafers-per-hour depending upon the wafer/die size and the size of the defects being detected. Depending on the
application, our systems can operate approximately 100 times faster than a human operator could inspect a complex die. We believe that this speed allows our customers to inspect 100% of their
production without decreasing wafer throughput.</FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>

<P><FONT SIZE=2><B><I>Data collection as an enabler to higher productivity and yields.</I></B></FONT><FONT SIZE=2> Our systems enable semiconductor manufacturers to cost-effectively collect
and process defect data at multiple key points in the production process and provide manufacturers with the information required to improve their production processes and yields. Integrated reporting
and analysis tools allow manufacturers to extract critical information about product defects, including location, size and other important defect characteristics.</FONT></P>

<P><FONT SIZE=2><B><I>Scalable, modular inspection solutions.</I></B></FONT><FONT SIZE=2> Our NSX series is a common platform that allows us to configure flexible systems to meet our customers' product
mix and throughput requirements. We provide an easy upgrade path for customers as they grow.</FONT></P>

<P><FONT SIZE=2><B><I>Access to expert application development resources.</I></B></FONT><FONT SIZE=2> We provide our customers with access to advanced application engineers and design experts who work
collaboratively with our customers to advance their product development efforts. Our customers may draw upon our core capabilities to optimize their system performance, thus reducing their product
development costs. We have also begun placing field application engineers in each of our locations around the world to work with our customers on-site and provide the knowledge and
expertise to deliver a total solution.</FONT></P>

<P><FONT SIZE=2><B><I>Worldwide customer service and support.</I></B></FONT><FONT SIZE=2> We can provide our customers with service and support 24&nbsp;hours a day, 7&nbsp;days a week. Our customer
service engineers and independent distributors generally install, document, maintain and repair all of our products worldwide. We also provide our customers with equipment operation and application
training.</FONT></P>

</UL>

<P><FONT SIZE=2><B>Strategy</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our objective is to be the leading supplier of automated micro defect inspection systems. We plan to build upon our expertise in machine vision technology and
our proprietary software to further capitalize on the accelerating demand for our technology. We believe that our largest opportunity for revenue growth lies with the existing semiconductor
manufacturing and test and assembly facilities seeking to improve their productivity, yields and data collection. The construction of future 200mm and 300mm wafer manufacturing and processing
facilities and new advanced test, assembly and packaging facilities may also provide additional growth opportunities. Key elements of our strategy are:</FONT></P>

<UL>

<P><FONT SIZE=2><B><I>Extending our technological leadership.</I></B></FONT><FONT SIZE=2> We are committed to developing advanced automated micro defect inspection systems that meet or exceed customer
requirements for semiconductor device production technology. We believe that our proprietary technology and our extensive expertise in machine vision technology, optics, software, and systems
integration, provide us with an advantage over competing inspection system manufacturers. In an industry characterized by continuous semiconductor performance gains, we believe that our technical
innovation will lead to increasing market acceptance of our automated micro defect inspection systems. Accordingly, we intend to continue aggressive investment in research and development to extend
our technology leadership position.</FONT></P>

<P><FONT SIZE=2><B><I>Expanding our product development relationships with customers.</I></B></FONT><FONT SIZE=2> We will continue to strengthen our existing customer relationships by seeking
opportunities for collaborative development with our customers. Customers recognize our ability and willingness to solve their particular problems through specific customizations of our products.
These special projects can be customer-funded development projects that lead to further enhancements of our system capabilities. These relationships allow us to focus development efforts on challenges
brought forth from our expansive customer base, assuring that solutions are targeted to demonstrated needs and potentially sizable markets, rather than to theoretical or perceived opportunities.
Further, we believe that pursuing cooperative development arrangements with these leading manufacturers will provide us with critical insight into semiconductor industry trends,
and may lead to the development of new systems or technologies with broad market appeal.</FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
<BR>

<P><FONT SIZE=2><B><I>Capitalizing on our applications solutions expertise.</I></B></FONT><FONT SIZE=2> We will continue to develop our advanced application solutions expertise. As part of this strategy
we plan to strengthen and enhance our Advanced Applications Development Team, which focuses on solving customer specific micro defect inspection applications. We have significant expertise solving
application challenges involving wafers and devices of a variety of materials, sizes and forms that allows us to offer customers significant flexibility in the use of our tools. Our applications
expertise spans the entire production process, from wafer production to test, assembly and packaging, enabling our customers to position our systems at several critical locations in their
manufacturing process depending on their specific requirements.</FONT></P>

<P><FONT SIZE=2><B><I>Expanding our global sales and service network.</I></B></FONT><FONT SIZE=2> Together with our independent distributors, we maintain a worldwide network of sales, service, and
application centers. We are continuing to strengthen these centers through increased regional staffing, expanded infrastructure, and improved information management capabilities to better communicate
with and serve our customers. The strengthening of our global infrastructure provides local support to our international customers and a platform for expanding international sales. This global
infrastructure assures our customers that they will receive consistent service and support regardless of their location.</FONT></P>

<P><FONT SIZE=2><B><I>Leveraging our broad and comprehensive customer base.</I></B></FONT><FONT SIZE=2> Many of our customers have purchased one or a limited number of our NSX systems as they begin to
move from manual to automated micro defect inspection systems. We believe that as these customers experience the benefits of this limited introduction of our NSX systems, they will elect to automate
additional facilities, process steps and production lines, providing the opportunity for significant follow-on sales to these customers. In addition, we believe that most major
semiconductor manufacturers previously have purchased our CV wafer cassette inspection systems and as part of the purchase process have qualified us as an approved vendor. This access to such a broad
base of potential purchasers provides us with opportunities to sell additional NSX systems without the extensive efforts required when approaching new customers.</FONT></P>

<P><FONT SIZE=2><B><I>Accelerating our growth through strategic acquisitions.</I></B></FONT><FONT SIZE=2> We intend to pursue selective strategic acquisitions of technologies, product lines and
companies, particularly those with closely related technologies in high-growth markets. These acquisitions may come in the form of technology partnerships, such as licenses, business or
technology acquisitions, joint ventures, or other development related activities. To help identify these opportunities, we have formed our Advanced Technology and Business Development Group. This
group will focus exclusively on strategic business and technology opportunities that will help us to achieve our long-term growth objectives.</FONT></P>

</UL>

<P><FONT SIZE=2><B>Products</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We believe that we have been pioneers in the fields of automated wafer cassette verification and automated micro defect inspection. Our first product was an
automated inspection system designed to measure critical dimensions on wafer carriers used by semiconductor manufacturers. In 1997, we introduced our first NSX automated micro defect inspection
system. This introduction marked a shift in our focus towards the micro defect inspection market. In 1999, revenues from the NSX product line represented over 85% of our total revenues. The NSX series
is driven by advanced proprietary software and includes integrated yield enhancement tools including automated data collection and reporting, extensive communication options and fast, easy setup using
Windows&reg;-based menus.</FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Automated micro defect inspection systems&#151;NSX Series.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;Our automated micro defect
inspection systems deliver high-speed, consistent, reliable defect detection to semiconductor manufacturers. These systems
assess the quality of products at several steps in the manufacturing process, and immediately feed critical information about process integrity to yield management or factory automation systems. This
data allows for enhanced process control, and ultimately leads to improved yields. The NSX series</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>

<P><FONT SIZE=2>allows
for the sharing of process knowledge and inspection results within wafer production and test, assembly and packaging facilities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
first introduced the NSX-80 micro defect inspection system in 1997. Subsequently, we have continued to advance the product line, introducing the NSX-70 and
NSX-90 in 1998 to accommodate additional throughput ranges. We introduced the NSX-B series in 1999 to focus on the emerging wafer bumping process, which offers specialized
software to inspect critical features of a variety of bumped devices. The NSX-100, announced in 1999 and expected to begin shipping in 2000, will deliver greater processing speed to
customers demanding more throughput. While individual inspection speeds will vary, our NSX-100 series systems are able to inspect as many as 97 wafers-per-hour.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
NSX systems range in price from approximately $150,000 to $900,000, depending upon the complexity of the configuration. Customers may tailor systems towards their specific
application, process, or budget, by choosing from a range of system capabilities including:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>application
specific software such as bump inspection and three-dimensional, or 3D, height measurement;
<BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>various
material handling abilities including whole wafers, sawn wafers on film frames, and other device carriers including Auer boats;
<BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>selectable
defect resolution down to 0.5 microns;
<BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>capability
to inspect components made from materials other than silicon such as gallium arsenide, copper and glass;
<BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>ability
to inspect samples ranging from individual integrated circuits to next generation 300mm wafers; and
<BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>communications
and network options, including the industry-standard protocol SECS/GEM.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;Other Products.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;We offer a series of cassette verification systems, referred to as the CV
series, designed to automatically verify critical wafer carrier dimensions. Using advanced machine vision technology and proprietary software, our CV systems identify
out-of-tolerance cassettes, allowing semiconductor device manufacturers to remove dimensionally defective cassettes and thereby decrease wafer damage and improve yield. Systems
within the CV series range in price from $85,000 to $140,000 depending upon the configuration of the system.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
also offer the LV 9200, a semi-automatic lead and package inspection system. The LV 9200 allows semiconductor manufacturers to identify sources of
in-process lead damage and allows device purchasers to verify incoming shipments for lead damage prior to acceptance. The LV 9200 ranges in price from $30,000 to $40,000.</FONT></P>

<P><FONT SIZE=2><B>Research and Development</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our success depends upon our ability to effectively develop and commercialize new technologies and products. Our research and development activities emphasize
application development and new product
introductions in collaboration with our customers. Our engineering teams support these efforts with software development, machine vision technology, optics, lighting, and precision motion control
expertise. We work closely with our customers to define new product features and to identify emerging applications for our products. Our research and development efforts during 1998 and 1999 focused
on developing new applications solutions and automation modules for the NSX product line. We spent 19.2% of our revenue on research and development during 1999, 16.0% during 1998 and 17.5% during
1997.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To
maintain technical leadership in the automated micro defect inspection market and continue our pace of new product development, we plan to spend aggressively in research and
development and add additional capabilities and options to our systems.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B>Customers</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have sold our NSX systems to many of the leading semiconductor manufacturers throughout the world. During 1999, Motorola and Quasys AG, our European
distributor, each accounted for approximately 11% of revenues. No other customers accounted for more than 10% of our revenues.</FONT></P>


<P><FONT SIZE=2><B>Sales, Marketing and Distribution</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We sell directly to customers in the U.S. and intend to continue providing direct sales, service and field application support through strategically placed
offices. We currently have domestic sales and service offices in Silicon Valley, California; Phoenix, Arizona; Raleigh, North Carolina; and at our corporate headquarters in Bloomington, Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
experienced independent distributors provide sales and service to key customers in their respective geographic regions. Our primary distributors are Metron Technology B.V. in
Asia, excluding Japan, Marubeni Solutions Corporation in Japan, and Quasys AG and Firfax Systems in Europe. For maximum effectiveness, we plan to complement our distributors' staffs at these offices
with highly trained field applications engineers.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During
1999, sales to customers in North America constituted approximately 63% of our total revenues, sales to customers in Europe constituted approximately 15% and sales to customers
in Asia constituted approximately 22%. We believe that the Asian semiconductor device market represents significant future sales opportunities. According to SEMI, sales of semiconductor capital
equipment in Asia represented approximately 57% of worldwide semiconductor equipment sales during 1999. To increase sales in Asia, we formed new distribution relationships with Metron and Marubeni in
1999. In addition, we plan to hire local field application engineers, increase our Asian sales presence and expand our marketing campaigns.</FONT></P>


<P><FONT SIZE=2><B>Backlog</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our backlog was $3.1&nbsp;million as of December&nbsp;31, 1999, as compared to $874,000 as of December&nbsp;31, 1998. Our backlog consists of orders for
which we have accepted purchase orders and assigned shipment dates within the next twelve months. Orders from our customers are subject to cancellation or delay by the customer without penalty.
Historically, order cancellations and order rescheduling have not been significant. However, orders presently in backlog could be cancelled or rescheduled. Since only a portion of our revenues for any
fiscal quarter represents systems in backlog, we do not believe that backlog is a meaningful or accurate indication of our future revenues and performance.</FONT></P>


<P><FONT SIZE=2><B>Competition</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;While we believe that we currently have a significant lead in the commercialization of solutions for the micro defect inspection market, several other firms
also manufacture similar products. Our primary competitors are Semiconductor Technologies&nbsp;&amp; Instruments,&nbsp;Inc., Robotic Vision Systems,&nbsp;Inc., and Toray Industries,&nbsp;Inc. In
addition, a number of other companies are active in the semiconductor capital equipment market, particularly in the automated inspection for sub-micron defects in the wafer processing
portion of the semiconductor manufacturing process, and could become competitors in the future. Many of our competitors and potential competitors have substantially greater financial, engineering,
manufacturing and marketing resources than we do.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Significant
competitive factors in our market include performance, ease of use, development of new technologies, established customer base, application support, customer service,
product flexibility, price and ability to deliver products on a timely basis. We believe we compete favorably with respect to these factors, but must continue to develop and design new and improved
products in order to maintain our competitive position.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B>Manufacturing</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We manufacture our products at our headquarters in Bloomington, Minnesota. We combine proprietary software and components developed in our facilities with
components and subassemblies obtained from outside suppliers. To meet specific customer requirements, we often manufacture products that include custom system engineering and software development. Our
manufacturing operations do not require a major investment in capital equipment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
obtain certain components, subassemblies and services necessary for the manufacture of our systems from a sole supplier or limited group of suppliers. We do not maintain any
long-term supply agreement with any of our suppliers. We are relying increasingly on outside vendors to manufacture many components and subassemblies.</FONT></P>


<P><FONT SIZE=2><B>Intellectual Property</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proprietary information plays a significant role in the development of our products. We rely upon a combination of contract provisions, copyright, trademark
and trade secret laws to protect our proprietary rights in products. We also have a policy of seeking U.S. and foreign patents on technology considered of particular strategic importance. Currently we
have one issued U.S. patent and 12 pending U.S. patent applications. We have also applied for foreign patent rights. The technological focus of these issued and pending applications includes general
semiconductor inspection techniques as well as devices, systems and processes in the following areas: lighting, focusing, material handling, imaging, inspecting and data manipulating.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Although
we believe that the copyrights, trademarks and U.S. patents we own are of value, we do not believe that they will determine our success, which depends principally upon our
engineering, manufacturing, marketing and service skills. However, we intend to protect our rights when, in our view, others infringe upon these rights. We license some of our
non-exclusive software programs from third party developers and incorporate them in our products.</FONT></P>

<P><FONT SIZE=2><B>Employees</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As of February&nbsp;29, 2000, we employed 100 people, including 34 in engineering, 17 in manufacturing and quality assurance, 14 in service, technical
support and training, 19 in sales and marketing, and 16 in administration. We also employ independent contractors and temporary employees. None of our employees is represented by a labor union, and we
consider our employee relations to be good.</FONT></P>

<P><FONT SIZE=2><B>Facilities</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All of our facilities are leased. Our headquarters is located in Bloomington, Minnesota, where corporate administration, sales and customer support and
manufacturing and engineering are located in a 42,818 square foot facility. The lease on the facility provides for increases in the total available square feet to approximately 80,000 square feet
throughout the term of the lease to meet our anticipated growth needs. The lease expires on November&nbsp;30, 2004, but may be renewed by us for an additional three-year term.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dk1518_management"> </A></FONT> <FONT SIZE=2><B>MANAGEMENT  </B></FONT></P>


<P><FONT SIZE=2><B>Executive Officers, Key Employees and Directors</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our executive officers, directors and key employees, and their ages as of March 15, 2000, were as follows:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="37%" ALIGN="LEFT"><FONT SIZE=1><B>Name<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Age</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="54%" ALIGN="LEFT"><FONT SIZE=1><B>Position<BR></B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Jeff L. O'Dell(1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>38</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>President, Chief Executive Officer and Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Thomas C. Velin</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>38</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Chief Financial Officer</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>David L. Klenk</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Chief Operating Officer</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Thomas C. Verburgt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Chief Technical Officer and Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Mark R. Harless</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Chief Engineer and Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Donald M. Nutzmann</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Vice President of Engineering</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>D. Mayson Brooks</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>41</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Vice President of Sales and Marketing</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Wayne J. Hubin</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Vice President of Manufacturing</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>James A. Bernards(1)(2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>53</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Roger E. Gower(1)(2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>59</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Brad D. Slye(2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>Michael W. Wright</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>53</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2>Director</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE ALIGN=LEFT WIDTH="48">
<BR>
<DL compact>
<DT><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Member
of our Audit Commitee.
<BR><BR></FONT></DD><DT><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Member
of our Compensation Committee.</FONT></DD></DL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Jeff L. 0'Dell</I></FONT><FONT SIZE=2> co-founded August Technology Corporation in 1992 and has served as our president and chief executive officer
since 1992, and chairman of our board since 1994. From August&nbsp;1987 to August&nbsp;1992, Mr. O'Dell was director of sales and marketing for MicroVision Corporation, which develops and
manufactures robotic and inspection systems. From February&nbsp;1985 to August&nbsp;1987, Mr.&nbsp;O'Dell was a field applications engineer for Cognex Corporation, which designs, develops and
markets machine vision systems that are used to automate a wide range of manufacturing processes. From March&nbsp;1984 to February&nbsp;1985, Mr.&nbsp;O'Dell served as a systems analyst for
Control Data Corporation. Mr.&nbsp;O'Dell received a B.S. in mechanical engineering from the University of Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Thomas C. Velin</I></FONT><FONT SIZE=2> became our chief financial officer in September&nbsp;1998. Prior to joining us, Mr.&nbsp;Velin was chief financial
officer for Lloyd's Food Products,&nbsp;Inc., a producer of specialty food products, from May&nbsp;1996 to June&nbsp;1998. From November&nbsp;1989 to May&nbsp;1996, Mr.&nbsp;Velin was
corporate controller for Telex Communications,&nbsp;Inc., a provider of sophisticated audio, wireless and multimedia communications equipment for commercial, professional and industrial customers.
Mr.&nbsp;Velin received a B.S. in accounting from the University of Minnesota and is a licensed certified public accountant.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>David L. Klenk</I></FONT><FONT SIZE=2> has been with us since April&nbsp;1993, most recently as chief operating officer, and served on our board of directors
from 1994 to March&nbsp;2000. Mr.&nbsp;Klenk oversees the engineering, manufacturing, customer service, and human resources groups. Prior to becoming our chief operating officer in April 1999,
Mr.&nbsp;Klenk served as our director of operations, where he managed finance, purchasing, facilities, and human resources. Mr.&nbsp;Klenk holds a B.S. in business administration from Northern
Arizona University and a M.B.A. in finance and entrepreneurship from the University of Arizona.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Thomas C. Verburgt</I></FONT><FONT SIZE=2> has been with us since April&nbsp;1993, most recently as chief technology officer, and has served on our board of
directors since 1994. Prior to becoming our chief technology officer in September&nbsp;1999, Mr.&nbsp;Verburgt served as our director of software engineering since joining us in April&nbsp;1993.
Prior to joining us, Mr.&nbsp;Verburgt held a senior software engineering position at MTS Systems Corporation, from January&nbsp;1992 to April&nbsp;1993. MTS Systems is a technology based
company</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>providing
engineering services, equipment and software for applications in research product development, quality control and production. From June&nbsp;1984 to January&nbsp;1992,
Mr.&nbsp;Verburgt was senior software engineer for the Perkin Elmer Corporation, a manufacturer of instrument systems and software for the pharmaceutical, biotechnology, agricultural and chemical
industries. Mr.&nbsp;Verburgt received a B.S. in software engineering from the University of Wisconsin.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Mark R. Harless</I></FONT><FONT SIZE=2> co-founded August Technology Corporation in 1992 and has been a member of our board of directors since
1994. Mr.&nbsp;Harless has held various positions with us, most recently serving as our chief engineering officer. From 1988 to 1992, Mr.&nbsp;Harless was a systems engineer at MicroVision
Corporation, where he developed custom robotic and inspection systems. From 1985 to 1988, Mr.&nbsp;Harless worked as a development engineer at Honeywell,&nbsp;Inc. Mr.&nbsp;Harless received his
B.S. in mechanical engineering from the University of Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Donald M. Nutzmann</I></FONT><FONT SIZE=2> became our vice president of engineering in September&nbsp;1999. Prior to joining us, Mr.&nbsp;Nutzman served in
various capacities for Secure Computing,&nbsp;Inc., from August&nbsp;1995 to June&nbsp;1999, most recently as vice president and general manager of their advanced technology division. Secure
Computing makes and sells a comprehensive line of products designed to control access to and provide
security for computer networks. Prior to that, he held various project management and systems engineering management positions at Alliant Techsystems, a supplier of aerospace and defense technologies
to the U.S. government, from September&nbsp;1990 to July&nbsp;1995. Mr.&nbsp;Nutzmann received a B.S. in electrical engineering from the University of Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>D. Mayson Brooks</I></FONT><FONT SIZE=2> became our vice president of sales and marketing in July&nbsp;1999. Prior to joining us, from June&nbsp;1987
through June&nbsp;1999, Mr.&nbsp;Brooks worked in various managerial capacities for Air Products and Chemicals, Inc., most recently as commercial manager, European electronics division.
Mr.&nbsp;Brooks served from June&nbsp;1981 to May&nbsp;1987 in the United States Navy and was awarded two achievement medals. Mr.&nbsp;Brooks holds a B.S. in engineering from the United States
Naval Academy and a M.B.A. from the University of North Carolina.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Wayne J. Hubin</I></FONT><FONT SIZE=2> has been our director of manufacturing since November&nbsp;1999. Before joining us, Mr.&nbsp;Hubin was manufacturing
operations manager for BOC Edwards, Inc. from August&nbsp;1999 to November&nbsp;1999. From 1984 to August&nbsp;1999, Mr.&nbsp;Hubin worked in various managerial capacities for FSI
International,&nbsp;Inc., a supplier of micro-lithography, surface conditioning and chemical arrangement equipment used in the fabrication of microelectronics, most recently as manufacturing
operations manager.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>James A. Bernards</I></FONT><FONT SIZE=2> became a member of our board of directors in 1998. Mr.&nbsp;Bernards is currently president of
Facilitation,&nbsp;Inc., a business consulting services company, and president of Brightstone Capital,&nbsp;Ltd., a venture capital fund manager. Mr.&nbsp;Bernards was co-founder and
president of the accounting firm of Stirtz, Bernards&nbsp;&amp; Co. from May&nbsp;1981 to June&nbsp;1993. He currently serves as a director of three public companies, Health Fitness Corporation,
Fieldworks,&nbsp;Inc. and FSI International,&nbsp;Inc., and several private companies. Mr.&nbsp;Bernards received a B.S. in business from the University of Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Roger E. Gower</I></FONT><FONT SIZE=2> became a member of our board of directors in 1998. Since April&nbsp;1995, Mr.&nbsp;Gower has been chairman of the
board, president, chief executive officer and director of Micro Component Technology,&nbsp;Inc. Prior to that time, Mr.&nbsp;Gower was employed by Datamedia Corporation of Nashua, New Hampshire, a
network and PC security software development company, where he served as president and chief executive officer since 1991. Prior to 1991, he was president and chief executive officer of
Intelledex,&nbsp;Inc., a Corvallis, Oregon-based manufacturer of robotic and automation systems for the semiconductor and disk drive manufacturing industries. He currently serves as a director for
Quad Systems Corporation. Mr.&nbsp;Gower holds a BS in electrical engineering from the University of Mississipi.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=34,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=638084,FOLIO=31,FILE='DISK022:[00STP8.00STP1518]DK1518A.;23',USER='JKEENE',CD='17-MAR-2000;09:31 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Brad D. Slye</I></FONT><FONT SIZE=2> became a member of our board of directors in 1994. Since January&nbsp;1997, Mr.&nbsp;Slye has been chairman of the
board and president of Electro Sensors,&nbsp;Inc. Prior to that time, he served in various engineering management positions with Electro Sensors,&nbsp;Inc., since 1987. Mr.&nbsp;Slye holds a
B.S. in electrical engineering from the University of Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Michael W. Wright</I></FONT><FONT SIZE=2> has been a member of our board of directors since March&nbsp;2000. Since 1998, he has been senior vice president of
corporate marketing of Entegris,&nbsp;Inc., a supplier to semiconductor manufacturers. From 1996 to 1998, Mr.&nbsp;Wright was vice president and general manager of Integrated
Solutions,&nbsp;Inc., a lithography supplier. From 1995 to 1996, he was director of International Design Corporation. Mr.&nbsp;Wright is also the founder of Wright Williams and Kelly, and a
graduate of the U.S. Navy Nuclear Power Program.</FONT></P>

<P><FONT SIZE=2><B>Compensation of Directors</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has adopted the 1998 Board of Directors Compensation Plan, under which the board or its committees has broad power to award directors
compensation in the form of options or cash payments. Our directors currently receive a grant of 15,000 shares of our common stock upon election to our board. In addition, our non-employee
directors receive an option to purchase 5,000 shares of common stock during each year of service.</FONT></P>


<P><FONT SIZE=2><B>Executive Compensation</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information with respect to compensation we paid in 1999 for services to us by our chief executive officer and our four other
highest-paid executive officers whose total salary and bonus for the fiscal year exceeded $100,000.</FONT></P>

<P><FONT SIZE=2><B><I>1999 Summary Compensation Table</I></B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="24%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Annual Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Long Term Compensation</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=1><B>Name and<BR>
Principal Position<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Salary</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Bonus</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Securities Underlying Options</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="58%"><FONT SIZE=2>Jeff L. O'Dell<BR>
President, Chief Executive Officer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>109,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>52,200</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="58%"><FONT SIZE=2>Thomas C. Velin<BR>
Chief Financial Officer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>103,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="58%"><FONT SIZE=2>David L. Klenk<BR>
Chief Operating Officer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>85,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>40,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>141,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="58%"><FONT SIZE=2>Thomas C. Verburgt<BR>
Chief Technology Officer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>114,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="58%"><FONT SIZE=2>Mark R. Harless<BR>
Chief Engineer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>105,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=3,SEQ=35,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=104021,FOLIO=32,FILE='DISK022:[00STP8.00STP1518]DK1518A.;23',USER='JKEENE',CD='17-MAR-2000;09:31 -->

<P><FONT SIZE=2><B><I>Option Grants During 1999</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information related to stock options granted to the named executive officers during 1999.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="44%" COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Individual Grants</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=4><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares Underlying Options Granted</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" COLSPAN=5 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Potential Realizable Value at<BR>
Assumed Annual Rates of<BR>
Stock Price Appreciation<BR>
for Option Term(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Percentage of Total<BR>
Options<BR>
Granted to<BR>
Employees in 1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Name<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Exercise<BR>
Price<BR>
per Share(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Expiration<BR>
Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>5%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>10%</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Jeff L. O'Dell</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Thomas C. Velin</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3.56</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12/31/06</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>21,739</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,661</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>David L. Klenk</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>40,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3.56</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12/31/06</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57,971</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>135,097</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Thomas C. Verburgt</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Mark R. Harless</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE ALIGN=LEFT WIDTH="48">
<DL compact>
<DT><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>The
option exercise price may be paid in shares of common stock owned by the executive officer, in cash, unless the board or one of its committees, in its sole discretion, rejects
the optionee's election to pay in cash.
<BR><BR></FONT></DD><DT><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>The
potential realizable value portion of the foregoing table illustrates value the officer might realize upon exercise of the options immediately prior to the expiration of their
term, assuming the specified compounded rates of appreciation on our common stock over the term of the options. These numbers do not take into account provisions of some options providing for
termination of the option following termination of employment, nontransferability or vesting over periods of up to three years.</FONT></DD></DL>
<BR><BR>

<P><FONT SIZE=2><B><I>Year-End Option Values</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information related to the number and value of options held at year-end. We do not have any outstanding stock
appreciation rights, or "SARs".</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="26%" COLSPAN=3 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Value of Unexercised<BR>
In-the-Money<BR>
Options at<BR>
December 31, 1999(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="26%" COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares Underlying Unexercised Options at<BR>
December 31, 1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Name<BR></B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Jeff L. O'Dell</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Thomas C. Velin</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>17,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>83,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>David L. Klenk</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>61,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>80,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Thomas C. Verburgt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Mark R. Harless</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE ALIGN=LEFT WIDTH="48">
<DL compact>
<DT><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>There
was no public trading market for the common stock as of December&nbsp;31, 1999. Accordingly, these values have been calculated on the basis of an assumed initial public
offering price per share of $&nbsp;&nbsp;&nbsp;&nbsp;minus the applicable exercise price per share.</FONT></DD></DL>
<BR>

<P><FONT SIZE=2><B>Benefit Plans</B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Stock Options.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our board of directors and shareholders adopted our 1997 Stock Option Plan to provide for the granting
of stock options to key employees and other key service providers. Our stock option plan permits the granting of incentive stock options meeting the requirements of Section&nbsp;422 of the Internal
Revenue Code of 1986, and also nonqualified stock options that do not meet the</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=4,SEQ=36,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=195400,FOLIO=33,FILE='DISK022:[00STP8.00STP1518]DK1518A.;23',USER='JKEENE',CD='17-MAR-2000;09:31 -->

<P><FONT SIZE=2>requirements
of Section&nbsp;422. We have reserved 1,500,000 shares of our common stock for issuance upon exercise of options granted under our stock option plan, subject to shareholder approval. As
of December&nbsp;31, 1999, we had outstanding options to purchase an aggregate of 762,481 shares under our stock option plan. The plan terminates on July&nbsp;30, 2007.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
may not grant incentive options at exercise prices less than the fair-market value of our common stock on the date of grant, or, for an option granted to a person
holding more than 10% of our voting stock, at less than 110% of fair-market value and we may not grant non-qualified options at an exercise price less than 85% of
fair-market value on the date of grant. An optionee who leaves us because of death, disability or retirement will have all of his or her options outstanding vest immediately, and have
three months to exercise his or her options in the case of retirement and one year to exercise his or her options in the case of death or disability. If an optionee's employment or service with us is
terminated for any reason other than death, disability or retirement, all of his or her options will immediately terminate. Options may not be transferred other than by will or the laws of descent and
distribution and may be exercised during the lifetime of an optionee only by the optionee. The term of each incentive option, which is fixed at the date of grant, may not exceed ten years from the
date the option is granted, except that an incentive option granted to a person holding more than 10% of our voting stock may be exercisable only for five years. The term of each
non-qualified option, which is fixed at the date of grant, may not exceed ten years and one month from the date the option is granted. Options may be made exercisable in whole or in
installments.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employee Stock Purchase Plan.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;On March 10, 2000, our board of directors authorized our officers to adopt our 2000
Employee Stock Purchase Plan. Our shareholders will also be asked to approve the adoption of the plan. We adopted the employee stock purchase plan to provide a means for employees to purchase our
common stock at a favorable price and without incurring brokers' fees. We intend that our employee stock purchase plan will qualify as an "employee stock purchase plan" under Section&nbsp;423 of the
Internal Revenue Code of 1986. Under our employee stock purchase plan, all employees will be permitted to purchase our common stock through payroll deductions during each of two six-month
phases, with one phase beginning on January&nbsp;1 and ending on June&nbsp;30 of each year and the second phase beginning on July&nbsp;1 and ending on December&nbsp;31 of each year. Our
employee stock purchase plan permits our employees to purchase shares at 85% of the lesser of market value at the commencement or termination of each phase. Market value is the closing Nasdaq quoted
price on the first day or last day of each six-month phase. During each phase, an employee may not purchase more than the number of shares purchasable with 10% of the employee's salary for
the six-month phase. We have reserved 250,000 shares for issuance pursuant to our employee stock purchase plan.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;401(k) Plan.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Effective June 1996, our board of directors adopted an employee savings and retirement plan covering
certain of our employees. Pursuant to the 401(k) plan, eligible employees may elect to reduce their current compensation by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit, which was $10,000 in 1999, and have the amount of such reduction contributed to the plan. We may make contributions equal to 50% of the first 4% of the total of an employee's elective
contribution and/or their after-tax employee contribution up to a maximum of $10,000 to the plan on behalf of eligible employees. Additionally, we may make an additional
non-matching contribution on a discretionary basis on behalf of all eligible employees. The plan is intended to qualify under Section&nbsp;401 of the Internal Revenue Code so that
contributions by employees or by us to the plan, and income earned on the plan contributions, and so that contributions by us, if any, will be deductible by us when made. The trustees under the plan,
at the direction of each participant, invest the employee salary deferrals in selected investment options. We made monthly contributions to the plan in 1999. We expect to continue to make monthly
contributions at least through 2000.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;August Technology 2000 Annual Award Plan.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our compensation committee has adopted, pending approval of our board of
directors, our 2000 Annual Award Plan. The plan provides awards to our executive officers and other key employees who meet specified annual corporate performance goals. Under the plan, the value of
award can range up to 78% of the executive officer's base salary.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employment Agreement.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Mr.&nbsp;Velin is employed as our Chief Financial Officer under an agreement dated September
21, 1998, that provides a base salary of $121,000 per year, subject to adjustment at least annually by our board of directors. The employment agreement also provides that if a business combination
occurs prior to September&nbsp;21, 2000, and Mr.&nbsp;Velin is terminated, he will receive six months salary and a bonus equal to six months salary. Mr. Velin is also eligible for incentive
compensation at
the discretion of our board. The agreement also contains certain fringe benefits and confidentiality provisions.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dk1518_principal_shareholders"> </A></FONT> <FONT SIZE=2><B>PRINCIPAL SHAREHOLDERS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock by (1)&nbsp;each director;
(2)&nbsp;our executive officers; (3)&nbsp;all of our directors and executive officers as a group; and (4)&nbsp;all those known by us to be beneficial owners of more than 5% of our common stock.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Unless
otherwise specified, the business address of the shareholder is our address as set forth in this prospectus.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Beneficial
ownership is determined in accordance with the rules of the SEC and generally means sole or shared power to vote or direct the voting or to dispose or direct the
disposition of any common stock. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based upon 6,109,307 shares of common stock outstanding as of March 15, 2000,
and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock outstanding after completion of this offering assuming no exercise of the underwriters' over-allotment option.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="85%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Beneficial Ownership<BR>
Prior to Offering</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Beneficial Ownership<BR>
After Offering(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT"><FONT SIZE=1><B>Beneficial Owner<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Jeff L. O'Dell (2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,126,366</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>18.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,126,366</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Mark R. Harless (3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,403,398</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>23.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,403,398</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Thomas C. Verburgt (4)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>844,883</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>844,883</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Thomas C. Velin (5)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>55,712</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>55,712</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>David L. Klenk (6)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>65,225</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>65,225</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>James A. Bernards (7)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>442,146</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>442,146</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Roger E. Gower (8)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>20,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>20,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Brad D. Slye (9)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,051,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>17.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,051,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Wayne J. Hubin</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Michael W. Wright</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Donald M. Nutzmann</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>D. Mayson Brooks</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>ESI Investment Company (10)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,051,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>17.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,051,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>Brightstone Capital (11)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>442,146</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>442,146</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%"><FONT SIZE=2>All directors and executive officers as a group (12&nbsp;persons) (12)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,009,230</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>79.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,009,230</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE ALIGN=LEFT WIDTH="48">
<DL compact>
<DT><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Less
than one percent.
<BR></FONT></DD><DT><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Assumes
no shares are purchased in this offering by the persons identified above.
<BR></FONT></DD><DT><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Includes
1,500 shares subject to a stock option held by Mr.&nbsp;O'Dell exercisable within 60&nbsp;days.
<BR></FONT></DD><DT><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Includes
1,500 shares subject to a stock option held by Mr.&nbsp;Harless exercisable within 60&nbsp;days.
<BR></FONT></DD><DT><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Includes
1,500 shares subject to a stock option held by Mr.&nbsp;Verburgt exercisable within 60&nbsp;days.
<BR></FONT></DD><DT><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Includes
17,000 shares subject to a stock option held by Mr.&nbsp;Velin exercisable within 60&nbsp;days and 31,646 shares held jointly by Mr.
Velin and his wife.
<BR></FONT></DD><DT><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Includes
61,500 shares subject to stock options held by Mr.&nbsp;Klenk exercisable within 60&nbsp;days.
<BR></FONT></DD><DT><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Represents
20,000 shares subject to stock options held by Mr.&nbsp;Bernards exercisable within 60 days, 250,000 shares owned by Fund 8 LP, and
172,146 shares owned by Dougherty Summit Opportunity Fund I.
<BR></FONT></DD><DT><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Represents
20,000 shares subject to stock options held by Mr.&nbsp;Gower exercisable within 60 days.</FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
</UL>
<DL compact>
<DT><FONT SIZE=2>(9)</FONT></DT><DD><FONT SIZE=2>Represents
51,500 shares subject to stock options held by Mr.&nbsp;Slye exercisable within 60&nbsp;days and 1,000,000 shares owned by ESI
Investment Company.
<BR></FONT></DD><DT><FONT SIZE=2>(10)</FONT></DT><DD><FONT SIZE=2>Represents
51,500 shares subject to stock options held by Brad D. Slye exercisable within 60 days, and 1,000,000 shares owned by ESI Investment
Company. ESI Investment Company is located at 6111 Blue Circle Drive, Minnetonka, Minnesota.
<BR></FONT></DD><DT><FONT SIZE=2>(11)</FONT></DT><DD><FONT SIZE=2>Represents
20,000 shares subject to stock options held by James A. Bernards exercisable within 60 days, 250,000 shares owned by Fund 8 LP and
172,146 shares owned by Dougherty Summit Opportunity Fund I. Brightstone is located at 7200 Metro Boulevard, Edina, Minnesota.
<BR></FONT></DD><DT><FONT SIZE=2>(12)</FONT></DT><DD><FONT SIZE=2>Includes
174,500 shares subject to stock options held by officers and directors exercisable within 60&nbsp;days.</FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
</UL>
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_description_of_capital_stock"> </A></FONT> <FONT SIZE=2><B>DESCRIPTION OF CAPITAL STOCK  </B></FONT></P>

<P><FONT SIZE=2><B>General</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Subject to the approval of our shareholders, our authorized capital stock consists of 30,000,000 shares of capital stock, no par value, of which 28,000,000
shares are common stock and 2,000,000 shares are undesignated as to class or series. As of March&nbsp;15, 2000, we had 6,109,307 shares of common stock issued and outstanding.</FONT></P>


<P><FONT SIZE=2><B>Common Stock</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The holders of our common stock:</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>have
equal ratable rights to dividends from funds legally available, when, as and if declared by our board of directors;
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>are
entitled to share ratably in all our assets available for distribution to holders of our common stock upon liquidation, dissolution or winding up of
our affairs; and
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>are
entitled to one vote per share on all matters that shareholders may vote on at all meetings of shareholders.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>All
of the shares of our common stock now outstanding are fully paid and nonassessable and the shares of our common stock to be issued upon completion of this offering will be fully paid and
nonassessable. We have no redemption, sinking fund, conversion or preemptive rights with respect to the shares of our common stock. The holders of our common stock do not have cumulative voting
rights. Subject to the rights of any future series or classes of capital stock, the holders of more than 50% of our outstanding shares voting for the election of directors can elect all of our
directors to be elected, if they so choose. In that event, the holders of the remaining shares will not be able to elect any of our directors.</FONT></P>

<P><FONT SIZE=2><B>Undesignated Stock</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Under Minnesota law and our amended and restated Articles of Incorporation, no action by our shareholders is necessary, and only action of the board of
directors is required, to authorize the issuance of any of our undesignated stock. Our board of directors is empowered to establish, and to designate the name of, each class or series of the
undesignated shares and to set the terms of the shares, including terms with respect to redemption, sinking fund, dividend, liquidation, preemptive, conversion and voting rights and preferences.
Accordingly, our board of directors, without shareholder approval, may issue preferred stock having rights, preferences, privileges or restrictions, including voting rights, that may be greater than
the rights of holders of common stock.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;It
is not possible to state the actual effect of the issuance of any shares of an additional designated class or series or capital stock upon the rights of holders of the common stock
until our board of directors determines the specific rights of the holders of any additional series or class. However, the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock and delaying or preventing a change in control without further action by our
shareholders. We have no present plans to designate any additional class or series of capital stock.</FONT></P>

<P><FONT SIZE=2><B>Warrants</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We issued a warrant dated July&nbsp;24, 1998, which expires on July&nbsp;23, 2005, to purchase 6,250 shares of our common stock at an exercise price of
$1.80 per share to III-D Capital, LLC, in connection with a private placement of our common stock.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B>Potential Anti-Takeover Effect of Provisions of Charter Documents and Minnesota Law</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to be effective upon the closing of this offering and of
Minnesota law described below could have an anti-takeover effect. These provisions are intended to provide management flexibility to enhance the likelihood of continuity and stability in
the composition of our board of directors and in the policies formulated by the board and to discourage an unsolicited takeover of the company, if the board determines that such a takeover is not in
the best interests of the company and our shareholders. However, these provisions could have the effect of discouraging attempts to acquire us which could deprive our shareholders of opportunities to
sell their shares of common stock at prices higher than prevailing market prices.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Under
our Bylaws, the board of directors will be classified into three classes of directors, and directors may be removed by shareholders only by a vote of holders of at least 75% of
the voting power. For the shareholders to call a special meeting, our Bylaws require that holders of at least 10% of the voting power must join in the request. Our Bylaws establish procedures,
including advance notice procedures, with regard to shareholder proposals and the nomination of candidates for election as directors.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;302A.671
of the Minnesota Statutes applies, with certain exceptions, to any acquisitions of our voting stock from a person other than us, and other than in connection
with certain mergers and exchanges to which we are party resulting in the beneficial ownership of 20% or more of the voting stock then outstanding. Section&nbsp;302A.671 requires approval of the
granting of voting rights for the shares received pursuant to any such acquisitions by a majority of our shareholders. In general, shares acquired without this approval are denied voting rights and
can be called for redemption at their then fair market value by us within 30&nbsp;days after the acquiring person has failed to deliver a timely information statement to us or the date the
shareholders voted not to grant voting rights to the acquiring person's shares.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;302A.673
of the Minnesota Statutes generally prohibits any business combination by us, or any subsidiary of us, with any shareholder that purchases 10% or more of our
voting shares (an "interested shareholder") within four years following the interested shareholder's share acquisition date, unless the business combination is approved by a committee of all of the
disinterested members of our board of directors before the interested shareholder's share acquisition date.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;302A.675
of the Minnesota Statutes generally prohibits an offeror from acquiring shares of a publicly held Minnesota corporation within two years following the
offeror's last purchase of the corporation's shares pursuant to a takeover offer with respect to that class, unless the corporation's shareholders are able to sell their shares to the offeror upon
substantially equivalent terms as those provided in the earlier takeover offer. This statute will not apply if the acquisition of shares is approved by a committee of all of the disinterested members
of our board of directors before the purchase of any shares by the offeror pursuant to a takeover offer.</FONT></P>


<P><FONT SIZE=2><B>Transfer Agent and Registrar</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our transfer agent and registrar with respect to our common stock will be Norwest Bank Minnesota, National Association.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_shares_eligible_for_future_sale"> </A></FONT> <FONT SIZE=2><B>SHARES ELIGIBLE FOR FUTURE SALE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Upon consummation of this offering, and assuming no exercise of the underwriters' over-allotment option, we will have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock
outstanding. Of these shares, the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares sold in this offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradable without
restriction under the Securities Act. The remaining&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding shares will be eligible for sale in the public market following this offering, subject to lock-up
agreements and either registration under the Securities Act or compliance with the volume and manner of sale limitations and other requirements of Rule&nbsp;144 under the Securities Act, or pursuant
to another exemption from the registration requirements of the Securities Act. Our executive officers, directors and some of our existing shareholders have agreed with the underwriters not to offer,
sell, contract to sell or otherwise dispose of any shares, without the consent of Needham&nbsp;&amp; Company,&nbsp;Inc. for a period of 180&nbsp;days after the date of this prospectus. These
executive officers, directors and shareholders will own a total of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares following this offering. In addition, as of the date of this prospectus, we have 1,500,000 shares
reserved
for issuance upon exercise of options granted or to be granted under our 1997 Stock Option Plan and 250,000 shares reserved for issuance under our 2000 Employee Stock Purchase Plan. We intend to
file&nbsp;a registration statement on Form&nbsp;S-8 under the Securities Act covering all shares issuable upon the exercise of options under our 1997 Stock Option Plan and shares
purchased under our 2000 Employee Stock Purchase Plan. Upon the effectiveness of the registration statement on Form&nbsp;S-8, the shares will be immediately available for sale in the
public market, subject to the terms of the related options and any applicable lock-up agreements. Sales of substantial amounts of our shares, or the prospect of such sales, could
materially adversely affect the market price of our shares and our ability to raise capital through an offering of securities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Under
Rule&nbsp;144, as in effect on the date of this prospectus, once we have been a public company for at least 90&nbsp;days, a person who has beneficially owned restricted
securities, as that term is defined under Rule&nbsp;144, for at least one year, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of</FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>1%
of the then outstanding number of shares, or
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
average weekly trading volume of our shares on Nasdaq during the four calendar weeks immediately preceding the date on which notice of the sale is
filed with the SEC.</FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sales
pursuant to Rule&nbsp;144 are also subject to requirements relating to manner of sale, notice and availability of current public information about us. Under
Rule&nbsp;144(k), if at least two years have elapsed since the restricted securities were acquired from us or an affiliate of ours, the holder of those shares is permitted to sell the shares without
restriction, so long as the holder is not an affiliate of ours and has not been an affiliate for at least 90&nbsp;days prior to the date of sale.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any
of our employees, directors or consultants who purchased, or were awarded shares or options to purchase, shares pursuant to a written compensatory plan or contract is entitled to
rely on the resale provisions of Rule&nbsp;701 under the Securities Act, which permits stockholders to sell their Rule&nbsp;701 shares without having to comply with Rule&nbsp;144's holding
period restrictions, in each case commencing 90&nbsp;days
after the date of this prospectus. In addition, holders who are not affiliates may sell Rule&nbsp;701 shares without complying with the public information, volume and notice provisions of
Rule&nbsp;144.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_underwriting"> </A></FONT> <FONT SIZE=2><B>UNDERWRITING  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms and conditions contained in an underwriting agreement dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2000, the underwriters named below, for whom
Needham&nbsp;&amp; Company,&nbsp;Inc., Adams, Harkness&nbsp;&amp; Hill,&nbsp;Inc., and A.G. Edwards&nbsp;&amp; Sons,&nbsp;Inc., are acting as representatives, have severally agreed to purchase, and we
have agreed to sell to them the number of shares of common stock that is set forth opposite their names below.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares<BR>
to be Purchased</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Needham &amp; Company, Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Adams, Harkness &amp; Hill, Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>A.G. Edwards &amp; Sons, Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="23%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
underwriters are offering the common stock subject to their acceptance of the common stock and subject to prior sale. The underwriting agreement provides that the obligations of
the underwriters to purchase shares of common stock are subject to the approval of certain legal matters by counsel and to certain other conditions. If the underwriters purchase any of the shares of
common stock pursuant to the underwriting agreement, they must purchase all of the shares, other than the shares of common stock covered by the over-allotment option described below.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to dealers at the
price less a concession not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. The underwriters may allow, and dealers may reallow, a concession not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to other dealers.
After the initial public offering of the common stock, the underwriters may change the offering price and other selling terms may from time to time.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Of
the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock offered by us, up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares were reserved for sale to persons designated by us. Shares not sold to these persons will
be reoffered immediately by the underwriters to the public at the initial offering price.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows the per share and total underwriting discount to be paid by us in connection with this offering. These amounts are shown assuming both no exercise and full
exercise of the over-allotment option.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="68%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>No exercise</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Full exercise</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Per share</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
underwriters have been granted an option to purchase up to an additional&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, at the same price to the public, and with the same underwriting
discount, as set forth in the table above. The underwriters may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover
over-allotments, if any. To the extent the underwriters exercise the option, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the purchase agreement.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>41</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;On
August&nbsp;6, 1999, Needham Capital SBIC II, L.P., an entity controlled by affiliates of Needham&nbsp;&amp; Company,&nbsp;Inc., purchased a total of 140,500 shares of our common
stock at a price of $3.56 per share. The purchases were made directly from us in a private placement. The price paid was the same as the price paid by other investors purchasing our common stock in
the period June&nbsp;14, 1999, to August&nbsp;17, 1999.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;3, 1999, Needham Capital Partners II, L.P. and Needham Capital Partners (Bermuda) L.P., both entities controlled by affiliates of Needham&nbsp;&amp;
Company,&nbsp;Inc., purchased a total of 158,228 shares of our common stock at a price of $3.16 per share. The purchases were made from Tom Verburgt, our chief technical officer and a member of our
board of directors, and Mark Harless, our chief engineer and a member of our board of directors. The price paid was the same as that paid by the other investors buying common stock from Messrs.
Verburgt and Harless, and other of our affiliates.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be
required to make in connection with the liabilities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our
executive officers, directors and some of our principal shareholders, who will collectively own approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock after this offering,
have agreed that they will not, without the prior written consent of Needham &amp; Company, Inc. offer, sell or otherwise dispose of any shares of capital stock, options or warrants to acquire shares of
capital stock or securities exchangeable for or convertible into shares of capital stock owned by them for a period of 180 days following the date of this prospectus. We have agreed that we will not,
without the prior written consent of Needham &amp; Company, Inc., offer, sell or otherwise dispose of any shares of capital stock, options or warrants to acquire shares of capital stock or securities
exchangeable for or convertible into shares of capital stock for a period of 180 days following the date of this prospectus, except that we may grant options under out stock option plans and we may
issue shares of common stock upon exercise of options.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters
may over-allow the offering, creating a syndicate short position. In addition, the underwriters may bid for, and purchase, shares of common stock in the open market to cover syndicate
short positions or to stabilize the price of the common stock. Finally, the underwriting syndicate may reclaim selling concessions allowed for distributing the common stock in the offering, if the
syndicate repurchases previously distributed common stock in syndicate covering transactions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Prior
to this offering, there has been no public market for our common stock. The initial public offering price for the shares of common stock offered in this offering was determined
by negotiation
among August Technology, the selling stockholders and the underwriters. Among the factors considered in determining the initial public offering price are our revenues and earnings, market valuations
of other companies engaged in activities similar to ours, estimates of our business potential and prospects, the present state of our business operations, our management, the general condition of the
securities markets at the time of the offering and other factors deemed relevant. There can be no assurance that an active trading market will develop for our common stock or that our common stock
will trade in the public market at or above the initial offering price.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>42</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_legal_matters"> </A></FONT> <FONT SIZE=2><B>LEGAL MATTERS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fredrikson&nbsp;&amp; Byron, P.A., Minneapolis, Minnesota.
John Drawz, an officer and shareholder of Fredrikson&nbsp;&amp; Byron, P.A., owns 15,822 of our common shares. Certain legal matters for the underwriters will be passed upon by Faegre&nbsp;&amp; Benson
LLP, Minneapolis, Minnesota.</FONT></P>

<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_experts"> </A></FONT> <FONT SIZE=2><B>EXPERTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our financial statements as of December&nbsp;31, 1998 and December&nbsp;31, 1999, and for each of the years in the three-year period ended
December&nbsp;31, 1999, have been included in this prospectus and elsewhere in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, and upon
the authority of said firm as experts in accounting and auditing.</FONT></P>

<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dm1518_available_information"> </A></FONT> <FONT SIZE=2><B>AVAILABLE INFORMATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have filed a registration statement on Form&nbsp;S-1 with the SEC for the stock we are offering by this prospectus. This prospectus does not
include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of
the actual contract, agreement or other document. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with
the SEC.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;You
can read our SEC filings, including the registration statement, over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file with
the SEC at its public reference facilities at 450 Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, NW,
Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Our SEC filings are also
available at the office of the Nasdaq National Market. For further information on obtaining copies of our public filings at the Nasdaq National Market you should call
(212)&nbsp;656-5060.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>43</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>Index to Financial Statements</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>Independent Auditors' Report</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>F-2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>&nbsp;<BR>
Balance Sheets as of December&nbsp;31, 1998 and 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;<BR>
F-3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>&nbsp;<BR>
Statements of Operations for the Years Ended December&nbsp;31, 1997, 1998 and 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;<BR>
F-4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>&nbsp;<BR>
Statements of Shareholders' Equity for the Years Ended December&nbsp;31, 1997, 1998 and 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;<BR>
F-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>&nbsp;<BR>
Statements of Cash Flows for the Years Ended December&nbsp;31, 1997, 1998 and 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;<BR>
F-6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>&nbsp;<BR>
Notes to Financial Statements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;<BR>
F-7</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>F-1</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=47,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=240678,FOLIO=F-1,FILE='DISK022:[00STP8.00STP1518]FA1518A.;6',USER='TDUNNIG',CD='16-MAR-2000;06:20 -->
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fb1518_independent_auditors__report"> </A></FONT> <FONT SIZE=2><B>INDEPENDENT AUDITORS' REPORT  </B></FONT></P>

<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors and Shareholders<BR>
August Technology Corporation:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying balance sheets of August Technology Corporation (the Company) as of December&nbsp;31, 1998 and 1999, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year period ended December&nbsp;31, 1999. 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of August Technology Corporation as of December&nbsp;31,
1998 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December&nbsp;31, 1999, in conformity with generally accepted
accounting principles.</FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>/s/
KPMG LLP</FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>Minneapolis,
Minnesota<BR>
March&nbsp;10, 2000</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-2</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=48,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=350519,FOLIO=F-2,FILE='DISK022:[00STP8.00STP1518]FB1518A.;8',USER='KSEAMON',CD='16-MAR-2000;13:45 -->
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>BALANCE SHEETS</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="30%" COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%" ALIGN="CENTER"><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,282,395</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,118,318</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,022,549</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,459,485</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Prepaid expenses and other current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>26,803</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>93,409</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Deferred income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>28,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>83,700</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,360,147</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,754,912</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>325,407</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>921,542</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,685,554</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,676,454</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR></FONT> <FONT SIZE=2><B>LIABILITIES AND SHAREHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Checks issued in excess of bank balance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>94,239</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>254,686</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Short-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>190,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,223,500</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>583,074</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>798,112</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Accrued compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>104,397</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>559,347</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Accrued income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>24,072</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>54,921</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Accrued liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>73,777</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>69,513</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Short-term accrued lease obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>89,045</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Customer deposits</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>165,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>212,052</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,235,366</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,261,176</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Deferred income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>39,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>27,800</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Long-term accrued lease obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>40,448</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,274,366</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,329,424</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Commitments (note&nbsp;8)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Shareholders' equity:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Common stock, $.01 par value, 12,000,000 shares authorized, 5,548,667 and 6,109,307 shares issued and outstanding, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>55,487</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>61,093</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,041,330</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,531,173</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Deferred compensation related to stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(427,614</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Retained earnings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>314,371</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>182,378</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total shareholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,411,188</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,347,030</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="67%"><FONT SIZE=2>Total liabilities and shareholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,685,554</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,676,454</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-3</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=49,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=161779,FOLIO=F-3,FILE='DISK022:[00STP8.00STP1518]FC1518A.;14',USER='FWONG',CD='16-MAR-2000;17:49 -->
<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>STATEMENTS OF OPERATIONS</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="52%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="45%" COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>For The Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="52%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Net revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,191,847</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,787,433</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>12,057,822</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,141,236</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,685,764</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,109,770</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,050,611</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,101,669</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,948,052</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;<BR>
Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
1,004,190</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
2,173,980</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
4,737,443</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>733,954</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>924,077</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,318,224</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Operating income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>312,467</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,612</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(107,615</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;<BR>
Interest expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
(1,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
(3,608</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;<BR>
(43,141</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;<BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>566</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,190</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,263</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Income (loss) before provision for (benefit from)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>311,592</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,194</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(149,493</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>125,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(17,500</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Per share amounts:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-4</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=50,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=189699,FOLIO=F-4,FILE='DISK022:[00STP8.00STP1518]FC1518B.;9',USER='FWONG',CD='16-MAR-2000;17:49 -->
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>STATEMENTS OF SHAREHOLDERS' EQUITY</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Deferred<BR>
Compensation<BR>
Related To<BR>
Stock Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Shares<BR>
Issued And<BR>
Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Additional<BR>
Paid-In<BR>
Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Retained<BR>
Earnings</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total<BR>
Shareholders'<BR>
Equity</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Balances at December 31, 1996</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,000,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>100,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>127,985</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>278,185</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Net income</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Balances at December 31, 1997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,000,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>100,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>314,477</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>464,677</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Issuances of common stock for cash, net of offering expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>548,667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5,487</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>941,130</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>946,617</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Balances at December 31, 1998</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,548,667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>55,487</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,041,330</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>314,371</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,411,188</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Issuances of common stock for cash, net of offering expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>549,849</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5,498</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,982,080</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,987,578</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Deferred compensation related to stock option grants</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>427,614</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(427,614</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Issuances of common stock to employees</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,791</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>108</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>74,889</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>74,997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Issuance of stock options to nonemployees</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="26%"><FONT SIZE=2>Balances at December 31, 1999</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,109,307</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>61,093</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,531,173</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(427,614</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>182,378</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,347,030</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-5</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=51,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=795195,FOLIO=F-5,FILE='DISK022:[00STP8.00STP1518]FE1518A.;10',USER='TDUNNIG',CD='16-MAR-2000;06:20 -->
<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>STATEMENTS OF CASH FLOWS</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="44%" COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>For The Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash flows from operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>46,848</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>69,753</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>150,949</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Accrued lease obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>129,493</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Issuances of common stock to employees</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>74,997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Deferred income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>33,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(66,500</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Provision for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Issuance of stock options to nonemployees</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(282,388</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(575,104</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,865,923</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(167,694</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(427,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,436,936</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Prepaid expenses and other current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(10,894</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(8,880</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(66,606</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>173,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(48,454</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>215,038</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Accrued income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(36,365</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(15,304</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>30,849</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(97,192</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>123,532</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>450,686</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Customer deposits</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>171,156</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(413,297</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>46,452</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net cash provided by (used in) operating activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22,263</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,288,901</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(2,434,234</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash flows from investing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Purchases of property and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(49,061</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(202,456</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(747,084</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net cash used in investing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(49,061</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(202,456</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(747,084</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash flows from financing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Checks issued in excess of bank balance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>94,239</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>160,447</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net proceeds from borrowings of short-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>190,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,033,293</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net proceeds from sales of common stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>946,617</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,987,578</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,231,063</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,181,318</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Net decrease in cash</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(26,798</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(260,294</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>287,092</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>260,294</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>260,294</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Supplemental cash flow information:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash paid for interest</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,608</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>43,141</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="53%"><FONT SIZE=2>Cash paid for income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>127,915</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>14,304</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-6</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>AUGUST TECHNOLOGY CORPORATIONS</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>NOTES TO FINANCIAL STATEMENTS</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>DECEMBER&nbsp;31, 1997, 1998 and 1999</B></FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;1&#151;Nature of Business and Summary of Significant Accounting Policies</B></FONT></P>


<P><FONT SIZE=2><B><I>Nature of Business</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;August Technology Corporation (the Company) was incorporated in September of 1992 under the laws of the state of Minnesota. The Company designs, develops,
manufactures and supports automated visual inspection systems used in the manufacture of semiconductor devices.</FONT></P>

<P><FONT SIZE=2><B><I>Use of Estimates</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the
estimates that were used.</FONT></P>

<P><FONT SIZE=2><B><I>Inventories</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost (first-in, first-out) or market.</FONT></P>

<P><FONT SIZE=2><B><I>Property and Equipment</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment is stated at cost and is depreciated over the estimated useful lives of the respective assets. The estimated useful lives range from
three to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of its useful life or its lease term.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.</FONT></P>


<P><FONT SIZE=2><B><I>Capitalized Software Costs</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological
feasibility, are classified as research and development and expensed as incurred. Once technological feasibility has been determined, additional costs incurred in development, including coding,
testing and product quality assurance are capitalized. During the years ended December&nbsp;31, 1997, 1998 and 1999 the Company capitalized software development costs of none, $31,400 and none,
respectively.</FONT></P>

<P><FONT SIZE=2><B><I>Fair Value of Financial Instruments</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The carrying amount of accounts receivable, accounts payable and short-term debt approximate fair value due to the short time to maturity of these
instruments.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-7</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B><I>Income Taxes</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes are recognized for the difference between the financial statement carrying amounts and the tax basis of existing assets and liabilities.
Deferred income taxes are recorded at the tax rates expected to be in effect when amounts are to be included in future taxable income.</FONT></P>

<P><FONT SIZE=2><B><I>Stock-based Compensation</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company applies Accounting Principles Board Opinion (APB) No.&nbsp;25, </FONT><FONT SIZE=2><I>Accounting for Stock Issued to
Employees,</I></FONT><FONT SIZE=2> and related interpretations in accounting for stock-based compensation. The Company has adopted the pro forma disclosure requirements under SFAS No.&nbsp;123,</FONT> <FONT SIZE=2><I>Accounting and Disclosure of
Stock-based Compensation.</I></FONT></P>


<P><FONT SIZE=2><B><I>Revenue Recognition</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Revenues from equipment and parts and related warranty costs are recognized at the time of shipment to the customer, which generally occurs after the customer
has tested and approved such items in the Company's manufacturing facility. Revenues from installation and training services are recognized after the services are performed. Revenues from maintenance
contracts are recognized ratably over the period of the contract. Service revenues were insignificant during the years ended December&nbsp;31, 1997, 1998 and 1999.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Unbilled
revenue represents revenue that has been earned for equipment shipped but not billed due to the terms of the customer order.</FONT></P>

<P><FONT SIZE=2><B><I>Research and Development</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are expensed as incurred.</FONT></P>

<P><FONT SIZE=2><B><I>Advertising Costs</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Advertising costs are expensed as incurred.</FONT></P>

<P><FONT SIZE=2><B><I>Net Income (Loss) Per Share</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share (EPS) excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
When there is a net loss, other potentially dilutive securities are not included in the calculation of net loss per share since their inclusion would be anti-dilutive.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-8</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<P><FONT SIZE=2><B><I>New Accounting Pronouncements</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;1999, the SEC staff issued Staff Accounting Bulletin (SAB) No.&nbsp;101, </FONT><FONT SIZE=2><I>Revenue Recognition in Financial
Statements</I></FONT><FONT SIZE=2>. SAB No.&nbsp;101 summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements.
The Company will implement SAB No.&nbsp;101 in the first quarter of 2000 and does not expect its implementation to have a significant effect on its revenue recognition policy.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;1998, the Financial Accounting Standards Board issued SFAS No.&nbsp;133, </FONT><FONT SIZE=2><I>Accounting for Derivative Instruments and Hedging
Activities</I></FONT><FONT SIZE=2> (as amended by SFAS No.&nbsp;137 with respect to the effective date) will be effective for the Company in January&nbsp;2001. SFAS No.&nbsp;133 requires all
derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value on a mark-to-market basis. This applies whether the derivatives are
stand-alone instruments, such as forward currency exchange contracts and interest rate swaps or collars, or embedded derivatives, such as call options contained in convertible debt investments. Along
with the derivatives, the underlying hedged items are also to be marked to market on an ongoing basis. These market value adjustments are to be included either in net earnings in the statement of
operations or in other comprehensive income (and accumulated in shareholders' equity), depending on the nature of the transaction. The Company does not expect SFAS No.&nbsp;133 to have a significant
effect on the results of operations or financial position of the Company.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;2&#151;Accounts Receivable</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable consisted of the following at December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="61%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>Billed receivables</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,297,395</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,707,727</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>Unbilled revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>455,591</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,297,395</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,163,318</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(15,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(45,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,282,395</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,118,318</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="61%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2><B>Note&nbsp;3&#151;Inventories</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Inventories consisted of the following at December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Raw materials</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>447,816</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>988,147</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Work in process</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>256,482</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>514,786</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Finished goods</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>318,251</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>956,552</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,022,549</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,459,485</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>F-9</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>

<P><FONT SIZE=2><B>Note&nbsp;4&#151;Property and Equipment</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consisted of the following at December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Furniture and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>256,382</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>516,211</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Computer equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>150,850</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>356,728</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Computer software</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>60,172</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>311,551</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Software development costs</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>31,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,261</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>502,065</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,214,490</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Less: accumulated depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(176,658</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(292,948</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>325,407</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>921,542</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
expense for the years ended December&nbsp;31, 1997, 1998 and 1999 was $46,848, $69,753 and $150,949, respectively.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;5&#151;Income Taxes</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The provision for (benefit from) income taxes consists of the following for the years ended December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Current income taxes:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>70,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>44,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>20,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>91,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>49,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Deferred income tax expense (benefit):</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>26,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(3,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(56,200</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>7,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(10,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>33,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(3,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(66,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Total provision for (benefit from) income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>125,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(17,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;A
reconciliation of the expected federal income taxes at the statutory rate of 34% to the actual income tax expense (benefit) is as follows for the years ended December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>Expected federal tax expense (benefit)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>105,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(50,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>State income taxes, net of federal tax effect</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>18,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>Benefit of graduated tax rates</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(9,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>Nondeductible expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>24,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>Change in valuation allowance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>Actual income tax expense (benefit)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>125,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(17,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="54%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>F-10</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=56,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=569306,FOLIO=F-10,FILE='DISK022:[00STP8.00STP1518]FI1518A.;15',USER='KLIND',CD='16-MAR-2000;17:47 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Deferred
taxes consisted of the following at December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Current deferred tax assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Accrued lease obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>32,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Compensation accrual</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>27,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Inventory reserve</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>15,200</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Warranty accrual</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>16,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Total current deferred tax assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>28,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>106,200</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Long-term deferred tax assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Accrued lease obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Alternative minimum tax credits</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Total gross deferred tax assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>28,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>129,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Property and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(39,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(51,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Net deferred tax asset (liability) before valuation allowance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(10,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>78,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(22,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Net deferred tax asset (liability)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(10,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>55,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
valuation allowance for deferred tax assets was none and $22,500 at December&nbsp;31, 1998 and 1999, respectively. In assessing the recoverability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon carry
back to prior periods and upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, carry back potential and projected future taxable income and tax planning strategies in making this assessment. The Company has alternative minimum tax credits of $9,000
which can be carried forward indefinitely.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;6&#151;Short-Term Debt</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During 1998, the Company entered into a revolving credit line agreement with its bank that expired in December&nbsp;1999. This agreement allowed for
borrowings of up to $1,000,000 subject to availability based on accounts receivable and inventory balances. Interest was payable monthly at the 30-day LIBOR rate plus 2.75%. This agreement
required the Company to maintain certain financial statement covenants, which the Company was in compliance with as of December&nbsp;31, 1998. At December&nbsp;31, 1998, the balance outstanding
under this agreement was $190,207 at an effective interest rate of 7.83%.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During
1999, the Company entered into a revolving credit line (the "Credit Facility") agreement with its bank that expires in May&nbsp;2000 and allows borrowings of up to $2,750,000
subject to availability based on accounts receivable and inventory balances. Interest is payable monthly at the 30-day LIBOR rate plus 2.75%. The Credit Facility contains financial
covenants with respect to the Company's tangible net worth, capital expenditures and earnings before interest, taxes, depreciation and amortization and</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-11</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=57,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=171284,FOLIO=F-11,FILE='DISK022:[00STP8.00STP1518]FI1518A.;15',USER='KLIND',CD='16-MAR-2000;17:47 -->

<P><FONT SIZE=2>default
provisions, including provisions related to non-payment of principal and interest, bankruptcy and default under other debt agreements. A director of the Company provided the bank
with a personal guarantee of up to $500,000 plus accrued interest in the event of default by the Company. The Company was not in compliance with one of the financial covenants at December&nbsp;31,
1999. The Company obtained a waiver on such covenant default. At December&nbsp;31, 1999, the balance outstanding under the Credit Facility was $1,223,500 at an effective interest rate of 9.22%.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;7&#151;Shareholders' Equity</B></FONT></P>

<P><FONT SIZE=2><B><I>Earnings Per Share</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following information presents the Company's computation of basic and diluted EPS for the periods presented in the statements of operations.</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="50%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Net<BR>
Income<BR>
(Loss)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Per Share<BR>
Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>1997:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Basic EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,000,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Effect of dilutive stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,222</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Diluted EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,003,222</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>1998:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Basic EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,303,542</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Effect of dilutive stock options and warrants</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Diluted EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,303,542</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>1999:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Basic EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,791,711</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Effect of dilutive stock options and warrants</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Diluted EPS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,791,711</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
basic and diluted EPS amounts for 1998 and 1999 were calculated using the same weighted average number of shares outstanding since, as a result of the net loss during the period,
all of the stock options and warrants outstanding during the periods were anti-dilutive.</FONT></P>

<P><FONT SIZE=2><B><I>Common Stock Sales</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During 1998, the Company sold 548,667 shares of common stock for cash of $987,600 to private investors. The Company incurred expenses of $40,983 that were
netted with the cash proceeds received. In connection with the sales, the Company's placement agent was issued warrants to purchase 6,250 shares of common stock as partial payment for its fees. The
warrants are exercisable at $1.80 and expire in 2005.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-12</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=3,SEQ=58,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=597628,FOLIO=F-12,FILE='DISK022:[00STP8.00STP1518]FI1518B.;13',USER='KLIND',CD='16-MAR-2000;17:47 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During
1999, the Company sold 549,674 shares of common stock for cash of $1,992,502 to private investors. The Company incurred expenses of $5,240 that were netted with the cash
proceeds received.</FONT></P>

<P><FONT SIZE=2><B><I>Deferred Compensation</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In connection with the grant of stock options to employees in 1999, the Company recorded deferred compensation of $427,614, representing the difference between
the estimated deemed value of the common stock for accounting purposes and the exercise price of such options at the date of grant. Such amount is presented as a reduction of shareholders' equity and
will be amortized ratably over the vesting period of the options granted, generally five years. The charge to compensation expense related to this deferred compensation will be approximately $86,000
for each of the next five years.</FONT></P>

<P><FONT SIZE=2><B><I>Stock-based Compensation</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted the 1997 incentive stock option plan (the "1997 Option Plan"), which originally provided for 750,000 shares available for issuance
primarily to officers, directors and key employees. On December&nbsp;27, 1999, the Board of Directors authorized an increase, subject to shareholder approval, in the number of shares available for
issuance to 1,500,000 shares. Shareholder approval is expected since the directors who approved the increase control the necessary votes to ensure such approval. The 1997 Option Plan permits the
granting of incentive stock options meeting the requirements of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended, and also nonqualified stock options which do not meet the
requirements of Section&nbsp;422. The exercise price of incentive stock options may not be less than the fair market value of the stock at the date of grant. The exercise price of nonqualified stock
options may not be less than 85% of the fair market value of the stock at the date of grant. The stock options are exercisable beginning one year from the date of grant in cumulative yearly amounts of
20% of the shares under option and expire seven years from the date of grant.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Information
with respect to option activity is as follows:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Shares<BR>
Subject to<BR>
Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Price<BR>
Per Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Outstanding at December 31, 1996:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>227,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.91</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(25,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.75</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Outstanding at December 31, 1997</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>202,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.94</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>274,178</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.80</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(466</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.80</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Outstanding at December 31, 1998</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>476,212</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.41</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>311,029</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3.26</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(24,760</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.87</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Outstanding at December 31, 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>762,481</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2.16</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>F-13</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=4,SEQ=59,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=114610,FOLIO=F-13,FILE='DISK022:[00STP8.00STP1518]FI1518B.;13',USER='KLIND',CD='16-MAR-2000;17:47 -->
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<BR>

<P><FONT SIZE=2><B>Note&nbsp;7&#151;Shareholders' Equity (Continued)</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information about stock options outstanding at December&nbsp;31, 1999:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" COLSPAN=6 ALIGN="CENTER"><FONT SIZE=1><B>Options Outstanding<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="35%" COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Remaining<BR>
Contractual<BR>
Life (years)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>163,000</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4.83</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.75</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>111,000</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.75</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;&nbsp;4,500</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4.84</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.83</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,500</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.83</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>337,637</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5.63</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1.80</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>119,290</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1.80</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>257,344</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>6.69</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.56</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>20,056</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.56</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>762,481</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5.81</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2.16</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>254,846</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1.46</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Company has adopted the disclosure only provisions of SFAS No.&nbsp;123 for employees and directors, and will continue to account for its stock option and plans issued in
accordance with the provisions of APB No.&nbsp;25, </FONT><FONT SIZE=2><I>Accounting for Stock Issued to Employees</I></FONT><FONT SIZE=2>.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
estimated per share weighted average fair value of all stock options granted during the years ended December&nbsp;31, 1997, 1998 and 1999 was $0.74, $0.50 and $1.29,
respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%"><FONT SIZE=2>Expected life</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7 years</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7 years</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7 years</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="55%"><FONT SIZE=2>Risk free interest rate</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.7</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="55%"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Had
the Company recorded compensation cost based on the estimated fair value on the date of grant, as defined by SFAS&nbsp;123, the Company's pro forma net income (loss) would have
been as follows for the years ended December&nbsp;31:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="50%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Net income (loss):</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>186,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(131,993</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>165,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(37,906</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(197,323</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Basic net income (loss) per share:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Diluted net income (loss) per share:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P ALIGN="CENTER"><FONT SIZE=2>F-14</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=60,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=712848,FOLIO=F-14,FILE='DISK022:[00STP8.00STP1518]FK1518A.;23',USER='JKEENE',CD='17-MAR-2000;09:43 -->

<P><FONT SIZE=2><B>Note&nbsp;8&#151;Leases</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company leases its office and manufacturing facility and certain equipment under noncancelable operating leases. Future minimum lease payments as of
December&nbsp;31, 1999, excluding operating costs, under these leases are as follows:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="54%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=1><B>For the<BR>
Years Ending<BR>
December 31,<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="22%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>2000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>389,167</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>484,425</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>515,770</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>566,478</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>539,821</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="22%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Total minimum lease payments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>2,495,661</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="22%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Rent
expense for all operating leases for the years ended December&nbsp;31, 1997, 1998 and 1999 was $68,700, $76,600 and $88,887, respectively.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Company's commitment in October&nbsp;1999 to relocating to a new facility in early 2000, the Company recorded a lease obligation of $129,493 related to the
estimated net remaining lease obligation on the facility being vacated.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;9&#151;Employee Retirement Plan</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has a 401(k) profit sharing plan (the Plan) that covers all employees who have reached the age of 18 and completed six months of service. Employees
may defer up to 15% of their eligible compensation and the Company matches 50% of the deferrals up to 4% of the employees compensation. The Company made contributions to the Plan for the years ended
December&nbsp;31, 1997, 1998 and 1999 of $19,255, $22,497 and $41,887, respectively.</FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;10&#151;Concentration of Credit Risk and Significant Customer Information</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's credit risk is limited principally to accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does
not require collateral. No additional risk beyond amounts provided for collection losses is believed to be inherent in the Company's accounts receivable.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-15</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=61,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=1015135,FOLIO=F-15,FILE='DISK022:[00STP8.00STP1518]FK1518B.;19',USER='JKEENE',CD='17-MAR-2000;09:43 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
percentage of revenues derived from major customers for the years ended December&nbsp;31, 1997, 1998 and 1999 and accounts receivable related to these customers at
December&nbsp;31, 1998 and 1999 were as follows:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Revenues:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Customer A</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Customer B</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Customer C</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Customer D</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Customer E</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>28</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>30</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="79%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Accounts receivable:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer A</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer B</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer C</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2><B>Note&nbsp;11&#151;Geographic Information</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's revenues are derived primarily in North America, the Asia Pacific region and Europe. Revenues by geographic region for the years ended
December&nbsp;31, 1997, 1998 and 1999 were as follows:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1997</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Revenues:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>North America</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>73</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>63</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Asia Pacific region</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>31</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>22</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Europe</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2><B>Note&nbsp;12&#151;Subsequent Events (Unaudited)</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;10, 2000, the Board of Directors authorized an increase, subject to shareholder approval, the number of authorized shares of capital stock to
30,000,000 shares, no par value, of which 28,000,000 are common stock and 2,000,000 are undesignated.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-16</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->

<P><FONT SIZE=2>[INSIDE
BACK COVER]</FONT></P>

<P><FONT SIZE=2>[August
Technology Logo]</FONT></P>

<P><FONT SIZE=2>[Graphic
of world map showing locations of August Technology regional offices and independent distributor offices]</FONT></P>

<P><FONT SIZE=2>[Photos
of semiconductor wafers under inspection, an NSX training class, and an NSX applications lab]</FONT></P>

<P><FONT SIZE=2>August
Technology: Proven Solutions. Global Reach.</FONT></P>

<P><FONT SIZE=2>With
applications support, sales and service representation in all major semiconductor device manufacturing centers worldwide, August Technology is strategically positioned to capitalize on the
increasing demand for automation and process improvement within the semiconductor industry.</FONT></P>

<P><FONT SIZE=2>Worldwide
Corporate Headquarters</FONT></P>

<P><FONT SIZE=2>4900
West 78th Street<BR>
Bloomington, MN 55435 USA<BR>
Tel: +1 (952) 820-0080 Fax: +1 (952) 820-0060<BR>
Email: service@augusttech.com<BR>
Web site: www.augusttech.com</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<P ALIGN="CENTER"><FONT SIZE=4>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B><BR>
[LOGO]</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B>Common Stock</B></FONT></P>

<HR NOSHADE WIDTH="96">
<BR>
<P ALIGN="CENTER"><FONT SIZE=4>PROSPECTUS</FONT></P>

<HR NOSHADE WIDTH="96">
<BR>
<P ALIGN="CENTER"><FONT SIZE=4>Needham&nbsp;&amp; Company,&nbsp;Inc.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4>Adams,
Harkness&nbsp;&amp; Hill,&nbsp;Inc.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4>A.G.
Edwards&nbsp;&amp; Sons,&nbsp;Inc.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Until&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2000, all dealers that buy, sell or trade our common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments
or subscriptions.</B></FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ja1518_part_ii_information_not_required_in_prospectus"> </A></FONT> <FONT SIZE=2><B>PART II<BR> INFORMATION NOT REQUIRED IN PROSPECTUS  </B></FONT></P>


<P><FONT SIZE=2><I>Item 13. Other Expenses of Issuance and Distribution.</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Company in connection with the sale of the
common stock being registered. All the amounts shown are estimates except for the registration fee and the NASD filing fee:</FONT></P>

<!-- User-specified TAGGED TABLE -->
<CENTER><TABLE WIDTH="60%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Registration fee</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>11,880</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>NASD filing fee</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Nasdaq application fee</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>75,625</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Blue sky qualification fee and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Printing and engraving expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>61,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Legal fees and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>175,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Accounting fees and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>200,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Transfer agent and registrar fees</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>18,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Miscellaneous</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>23,495</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>575,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></CENTER>
<!-- end of user-specified TAGGED TABLE -->
<P><FONT SIZE=2><I>Item 14. Indemnification of Directors and Officers.</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Minnesota Statutes Section&nbsp;302A.521, provides that a Minnesota business corporation shall indemnify a person made or threatened to be made a party to a
proceeding by reason of the former or present official capacity of the person with respect to the Company, against judgments, penalties, fines, including, without limitation, excise taxes assessed
against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding
with respect to the same acts or omissions if such person (1)&nbsp;has not been indemnified by another organization or employee benefit plan for the same judgments, penalties or fines;
(2)&nbsp;acted in good faith; (3)&nbsp;received no improper personal benefit, and statutory procedure has been followed in the case of any conflict of interest by a director; (4)&nbsp;in the
case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and (5)&nbsp;in the case of acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity of officer, board committee member or employee, reasonably believed that the conduct was in the best interests of the
Company, or, in the case of performance by a director, officer or employee of the Company, involving service as a director,
officer, partner, trustee, employee or agent of another organization or employee benefit plan, reasonably believed that the conduct was not opposed to the best interests of the Company.</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;"Proceeding"
means a threatened, pending or completed civil, criminal, administrative, arbitration or investigative proceeding, including one by or in the right of the corporation.
Section&nbsp;302A.521 contains detailed terms regarding such right of indemnification and reference is made thereto for a complete statement of such indemnification rights. In addition,
Section&nbsp;302A.521, subd. 3, requires payment by the Company, upon written request, of reasonable expenses in advance of final disposition of the proceeding in particular instances. A decision as
to required indemnification is made by a disinterested majority of the board of directors present at a meeting at which a disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders, or by a court.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Company's Amended and Restated Articles of Incorporation provide that a director is not liable to the Company or its shareholders for monetary damages resulting from a breach of
fiduciary duty as a director except to the extent provided by the Minnesota Business Corporation Act. As</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>II-1</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=1,SEQ=65,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=427150,FOLIO=II-1,FILE='DISK022:[00STP8.00STP1518]JA1518A.;31',USER='KLIND',CD='16-MAR-2000;21:15 -->

<P><FONT SIZE=2>authorized
by the Minnesota Business Corporation Act, directors are not liable for monetary damages regarding negligence in the performance of their duties, except for liability (i)&nbsp;for any
breach of the director's duty of loyalty to the Company or its shareholders, (ii)&nbsp;for act or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws,
(iii)&nbsp;under the Minnesota statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock repurchases or redemptions, or
(iv)&nbsp;for any transaction for which the director derived an improper personal benefit. This does not affect the availability of equitable remedies such as an injunction to prevent or remedy a
director's breach of the duty of care.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Underwriting Agreement filed as Exhibit&nbsp;1.1 to this registration statement provides for indemnification by the underwriters of the Company and its officers and directors
for certain liabilities arising under the Securities Act or otherwise.</FONT></P>

<P><FONT SIZE=2><I>Item 15. Recent Sales of Unregistered Securities.</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Since March 15, 1997, we have sold and issued the following unregistered securities:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;On
July&nbsp;31, 1997, we granted options to purchase an aggregate of 160,000 shares of common stock at $0.75 per share to four employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;On
November&nbsp;26, 1997, we granted options to purchase an aggregate of 28,000 shares of common stock at $0.75 per share to three employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;On
November&nbsp;26, 1997, we granted options to purchase an aggregate of 10,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;On
November&nbsp;26, 1997, we granted options to purchase an aggregate of 4,500 shares of common stock at $0.83 per share to one director and two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(5)&nbsp;On
November&nbsp;27, 1997, we granted options to purchase an aggregate of 10,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(6)&nbsp;On
December&nbsp;1, 1997, we granted options to purchase an aggregate of 15,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(7)&nbsp;On
February&nbsp;2, 1998, we granted options to purchase an aggregate of 25,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(8)&nbsp;On
March&nbsp;2, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(9)&nbsp;On
March&nbsp;11, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(10)&nbsp;On
March&nbsp;16, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(11)&nbsp;On
May&nbsp;4, 1998, we sold an aggregate of 250,000 shares of common stock for $450,000 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(12)&nbsp;On
June&nbsp;2, 1998, we sold an aggregate of 90,000 shares of common stock for $162,000 to outside investors.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(13)&nbsp;On
June&nbsp;22, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(14)&nbsp;On
June&nbsp;26, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>II-2</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=2,SEQ=66,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=790295,FOLIO=II-2,FILE='DISK022:[00STP8.00STP1518]JA1518A.;31',USER='KLIND',CD='16-MAR-2000;21:15 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(15)&nbsp;On
July&nbsp;6, 1998, we granted options to purchase an aggregate of 2,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(16)&nbsp;On
July&nbsp;7, 1998, we granted options to purchase an aggregate of 24,173 shares of common stock at $1.80 per share to thirty employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(17)&nbsp;On
July&nbsp;20, 1998, we sold an aggregate of 14,000 shares of common stock for $25,200 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(18)&nbsp;On
July&nbsp;22, 1998, we sold an aggregate of 166,667 shares of common stock for $300,001 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(19)&nbsp;On
July&nbsp;24, 1998, a warrant for 6,250 shares of common stock was issued at $1.80 per share to III-D Capital L.L.C.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(20)&nbsp;On
September&nbsp;8, 1998, we granted options to purchase an aggregate of 3,500 shares of common stock at $1.80 per share to two employees.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(21)&nbsp;On
September&nbsp;21, 1998, we granted options to purchase an aggregate of 85,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(22)&nbsp;On
October&nbsp;3, 1998, we sold an aggregate of 28,000 shares of common stock for $50,400 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(23)&nbsp;On
October&nbsp;14, 1998, we granted options to purchase an aggregate of 75,000 shares of common stock at $1.80 per share to three directors.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(24)&nbsp;On
December&nbsp;8, 1998, we granted options to purchase an aggregate of 1,500 shares of common stock at $1.80 per share to an employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(25)&nbsp;On
December&nbsp;31, 1998, we granted options to purchase an aggregate of 44,999 shares of common stock at $1.80 per share to thirty-six employees and three
directors.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(26)&nbsp;On
January&nbsp;4, 1999, we granted options to purchase an aggregate of 1,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(27)&nbsp;On
January&nbsp;11, 1999, we granted options to purchase an aggregate of 10,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(28)&nbsp;On
January&nbsp;18, 1999, we granted options to purchase an aggregate of 1,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(29)&nbsp;On
February&nbsp;15, 1999, we granted options to purchase an aggregate of 1,500 shares of common stock at $1.80 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(30)&nbsp;On
February&nbsp;22, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(31)&nbsp;On
March&nbsp;8, 1999, we granted options to purchase an aggregate of 36,500 shares of common stock at $1.80 per share to two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(32)&nbsp;On
March&nbsp;15, 1999, we granted options to purchase an aggregate of 500 shares of common stock at $1.80 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(33)&nbsp;On
March&nbsp;22, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $3.56 per share to two employees.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(34)&nbsp;On
April&nbsp;1, 1999, we granted options to purchase an aggregate of 5,056 shares of common stock at $3.56 per share to one director.*</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>II-3</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=3,SEQ=67,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=371598,FOLIO=II-3,FILE='DISK022:[00STP8.00STP1518]JA1518A.;31',USER='KLIND',CD='16-MAR-2000;21:15 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(35)&nbsp;On
April&nbsp;12, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(36)&nbsp;On
April&nbsp;26, 1999, we granted options to purchase an aggregate of 500 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(37)&nbsp;On
May&nbsp;3, 1999, we granted options to purchase an aggregate of 3,500 shares of common stock at $3.56 per share to two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(38)&nbsp;On
June&nbsp;14, 1999, we sold an aggregate of 140,500 shares of common stock for $500,180 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(39)&nbsp;On
June&nbsp;28, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(40)&nbsp;On
July&nbsp;6, 1999, we granted options to purchase an aggregate of 55,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(41)&nbsp;On
July&nbsp;7, 1999, we granted options to purchase an aggregate of 2,500 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(42)&nbsp;On
July&nbsp;22, 1999, we sold an aggregate of 16,458 shares of common stock for $65,009 to outside investors.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(43)&nbsp;On
July&nbsp;29, 1999, we sold an aggregate of 5,000 shares of common stock for $19,750 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(44)&nbsp;On
July&nbsp;30, 1999 we sold an aggregate of 174,891 shares of common stock for $632,619 to outside investors.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(45)&nbsp;On
August&nbsp;2, 1999, we granted options to purchase an aggregate of 2,500 shares of common stock at $3.56 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(46)&nbsp;On
August&nbsp;6, 1999, we sold an aggregate of 140,500 shares of common stock for $500,180 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(47)&nbsp;On
August&nbsp;16, 1999, we sold an aggregate of 28,000 shares of common stock for $99,680 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(48)&nbsp;On
August&nbsp;17, 1999, we sold an aggregate of 44,325 shares of common stock for $175,084 to an outside investor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(49)&nbsp;On
August&nbsp;30, 1999, we granted options to purchase an aggregate of 2,000 shares of common stock at $3.56 per share to two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(50)&nbsp;On
September&nbsp;1, 1999, we granted options to purchase an aggregate of 45,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(51)&nbsp;On
September&nbsp;2, 1999, we granted options to purchase an aggregate of 2,500 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(52)&nbsp;On
September&nbsp;20, 1999, we granted options to purchase an aggregate of 2,500 shares of common stock at $3.56 per share to three employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(53)&nbsp;On
October&nbsp;25, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(54)&nbsp;On
November&nbsp;1, 1999, we granted options to purchase an aggregate of 3,500 shares of common stock at $3.56 per share to two employees.*</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>II-4</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

<!-- ZEQ.=4,SEQ=68,EFW="2007293",CP="AUGUST TECHNOLOGY CORPORATION",DN="1",CHK=357054,FOLIO=II-4,FILE='DISK022:[00STP8.00STP1518]JA1518A.;31',USER='KLIND',CD='16-MAR-2000;21:15 -->

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(55)&nbsp;On
November&nbsp;8, 1999, we granted options to purchase an aggregate of 10,500 shares of common stock at $3.56 per share to two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(56)&nbsp;On
November&nbsp;9, 1999, we granted options to purchase an aggregate of 1,000 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(57)&nbsp;On
November&nbsp;15, 1999, we granted options to purchase an aggregate of 500 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(58)&nbsp;On
November&nbsp;29, 1999, we granted options to purchase an aggregate of 500 shares of common stock at $3.56 per share to one employee.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(59)&nbsp;On
December&nbsp;15, 1999, we granted options to purchase an aggregate of 1,500 shares of common stock at $3.56 per share to one employee.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(60)&nbsp;On
December&nbsp;15, 1999, we issued 175 shares to an employee upon exercise of an option and payment of $315.00.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(61)&nbsp;On
December&nbsp;27, 1999, we granted options to purchase an aggregate of 2,000 shares of common stock at $3.56 per share to two employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(62)&nbsp;On
December&nbsp;28, 1999, we granted options to purchase an aggregate of 4,500 shares of common stock at $3.56 per share to three employees.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(63)&nbsp;On
December&nbsp;31, 1999, we granted options to purchase an aggregate of 109,479 shares of common stock at $3.56 per share to employees and directors.*</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;(64)&nbsp;On
December&nbsp;31, 1999, we issued an aggregate of 10,791 shares to employees pursuant to the 1999 Annual Incentive Compensation Plan in lieu of $38,416 in
bonuses.*</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
sale of the above securities was deemed to be exempt from registration under the Securities Act in reliance upon Section&nbsp;4(2) of the Securities Act or Regulation&nbsp;D
promulgated thereunder, or Rule&nbsp;701 promulgated under Section&nbsp;3(b) of the Securities Act as transactions by an issuer not involving any public offering or transactions under compensation
benefit plans and contracts relating to compensation as provided under Rule&nbsp;701. Issuances pursuant to Rule&nbsp;701 have been marked with an asterisk above; all other issuances are pursuant
to Section&nbsp;4(2). The recipients of securities in each transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection
with any distribution and appropriate legends were affixed to the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to
information about us.</FONT></P>

<P><FONT SIZE=2><I>Item 16. Exhibits and Financial Statement Schedules.</I></FONT></P>

<DL compact>
<DT><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Exhibits</FONT></DD></DL>
<BR>
<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit No.</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="89%" ALIGN="CENTER"><FONT SIZE=1><B>Description of Document</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Form of Underwriting Agreement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Proposed Amended and Restated Articles of Incorporation of the Company</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Proposed Amended and Restated Bylaws of the Company</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Instruments defining the rights of security holders, including indentures (Reference is made to Exhibits&nbsp;3.1 and 3.2)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Opinion of Fredrikson &amp; Byron, P.A., regarding legality*</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>II-5</FONT></P>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<!-- end of table folio -->
<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>1997 Stock Option Plan, as amended, adopted by the Board of Directors on July&nbsp;31, 1997, as amended by Amendment One on January&nbsp;14, 1999, as amended by Amendment Two on December&nbsp;27, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Marubeni Solutions Corporation, dated June&nbsp;14, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Metron Technology B.V., dated September&nbsp;10, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Quasys AG, dated September&nbsp;23, 1996</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Firfax Systems Ltd., dated September&nbsp;3, 1996</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Thomas Velin, Chief Financial Officer, dated September&nbsp;21, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Donald M. Nutzman, Vice President, Engineering, dated August 19, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Mayson Brooks, Vice President, Sales &amp; Marketing, dated May 20, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Office Warehouse Lease Agreement between the Company and West 78th Street, Bloomington Associates, LLC, dated October&nbsp;18, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Letter Agreement between the Company and Marquette Capital Bank, N.A., dated November&nbsp;4, 1999, as amended by Amendment to Letter Agreement dated March&nbsp;10, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Promissory Note between the Company and Marquette Capital Bank, N.A., dated November&nbsp;4, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Lease Agreement between the Company and Duke Realty Minnesota, LLC, dated August&nbsp;18, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Stock Purchase Warrant between the Company and III-D Capital, LLC, dated July&nbsp;24, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>August Technology 2000 Annual Award Plan *</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>OEM Agreement between the Company and Santok Software Solutions Inc., dated January&nbsp;26, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>1998 Board of Directors Compensation Plan, adopted by the Board of Directors on October&nbsp;14, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>August Technology 2000 Employee Stock Purchase Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Guaranty for the benefit of Marquette Capital Bank, N.A., dated November&nbsp;4, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>23.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Independent Auditors' Report and Consent</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>23.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Consent of Fredrikson &amp; Byron, P.A.**</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>24.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Power of Attorney (see signature page)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>27.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Financial Data Schedule</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->
<HR NOSHADE ALIGN=LEFT WIDTH="48">
<DL compact>
<DT><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>To
be filed by amendment
<BR></FONT></DD><DT><FONT SIZE=2>**</FONT></DT><DD><FONT SIZE=2>Included
in Exhibit 5.1</FONT></DD><DT><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Financial
Statement Schedules<BR>
Valuation and Qualifying Accounts for the three years ended December&nbsp;31, 1999</FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>II-6</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
</UL>

<P><FONT SIZE=2><I>Item 17. Undertakings.</I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned Registrant further undertakes that:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule&nbsp;430A and contained in a form of prospectus filed by the registrant pursuant to Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared effective.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>II-7</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc1518_signatures"> </A></FONT> <FONT SIZE=2><B>SIGNATURES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form&nbsp;S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 16th day of March, 2000.</FONT></P>

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<TD WIDTH="48%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%" COLSPAN=2><FONT SIZE=2>AUGUST TECHNOLOGY CORPORATION</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;<BR></FONT> <FONT SIZE=2>By</FONT></TD>
<TD WIDTH="46%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>JEFF L. O'DELL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Jeff L. O'Dell,<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc1518_power_of_attorney"> </A></FONT> <FONT SIZE=2><B>POWER OF ATTORNEY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The undersigned directors and/or officers of August Technology Corporation, a Minnesota corporation, do hereby make, constitute, and appoint Jeff L. O'Dell and
Thomas C. Velin, and each or either of them, the undersigned's true and lawful attorneys-in-fact and agent, with full power of substitution and resubstitution, for the
undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director and/or officer of said Corporation to a Registration Statement on
Form&nbsp;S-1 or other applicable form, and any or all amendments, including post-effective amendments, thereto, and all registration statements for the same offering that
are to be effective upon filing pursuant to Rule&nbsp;462(b) under the Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C. in connection with the registration under the Act of equity securities proposed to be sold by said Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with said Commission, granting unto said attorneys-in-fact and agents, and each or any of them, full
power and authority to do and perform each and every act and thing requisite and necessary or incidental to the performance and execution of the powers herein expressly granted, to be done in and
about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.</FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR></FONT> <FONT SIZE=1><B>Signatures</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1><B>&nbsp;<BR>&nbsp;</B></FONT></TH>
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;<BR>
Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1><B>&nbsp;<BR>&nbsp;</B></FONT></TH>
<TH WIDTH="19%" ALIGN="LEFT"><FONT SIZE=1><B>&nbsp;<BR>
&nbsp;</B></FONT><BR></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;<BR>
&nbsp;<BR></B></FONT><FONT SIZE=2>  /s/&nbsp;</FONT><FONT SIZE=2>JEFF L. O'DELL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Jeff L. O'Dell</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
President, Chief Executive Officer, Chairman of Board of Directors (Principal Executive Officer)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>THOMAS C. VELIN</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Thomas C. Velin</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Chief Financial Officer (Principal Financial and Accounting Officer)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>II-8</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>THOMAS C. VERBURGT</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Thomas C. Verburgt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Chief Technical Officer and Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>MARK R. HARLESS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Mark R. Harless</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Chief Engineer and Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>JAMES A. BERNARDS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> James A. Bernards</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR></FONT>
<HR NOSHADE><FONT SIZE=2> Roger E. Gower</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2000</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>BRAD D. SLYE</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Brad D. Slye</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
/s/&nbsp;</FONT><FONT SIZE=2>MICHAEL W. WRIGHT</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Michael W. Wright</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
Director</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;<BR>&nbsp;<BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;<BR>
&nbsp;<BR>
March 14, 2000</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>II-9</FONT></P>


<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<BR>
<P ALIGN="CENTER"><FONT SIZE=2><B>VALUATION AND QUALIFYING ACCOUNTS<BR>
FOR THE THREE YEARS ENDED DECEMBER 31, 1999</B></FONT></P>

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<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="19%" ALIGN="LEFT"><FONT SIZE=1><B>Description<BR></B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Balance at Beginning of Period</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Charged to Costs and Expenses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Charged to Other Accounts</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Deductions</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Balance at End of Period</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=1>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT"><FONT SIZE=1>Year ended December 31, 1997</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>5,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT"><FONT SIZE=1>Year ended December 31, 1998</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>10,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>15,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT"><FONT SIZE=1>Year ended December 31, 1999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>15,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>30,715</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(715</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)(a)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>45,000</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN=LEFT WIDTH="48">
<DL compact>
<DT><FONT SIZE=1>(a)</FONT></DT><DD><FONT SIZE=1>Represents
write-offs of uncollectible accounts receivable.</FONT></DD></DL>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<UL>
</UL>
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<H2><FONT SIZE=2> </FONT></H2>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ka1518_exhibit_index"> </A></FONT> <FONT SIZE=2><B>EXHIBIT INDEX  </B></FONT></P>

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<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit No.</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="89%" ALIGN="CENTER"><FONT SIZE=1><B>Description of Document</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Form of Underwriting Agreement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Proposed Amended and Restated Articles of Incorporation of the Company</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Proposed Amended and Restated Bylaws of the Company</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Instruments defining the rights of security holders, including indentures (Reference is made to Exhibits&nbsp;3.1 and 3.2)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Opinion of Fredrikson &amp; Byron, P.A., regarding legality*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>1997 Stock Option Plan, as amended, adopted by the Board of Directors on July&nbsp;31, 1997, as amended by Amendment One on January&nbsp;14, 1999, as amended by Amendment Two on December&nbsp;27, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Marubeni Solutions Corporation, dated June&nbsp;14, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Metron Technology B.V., dated September&nbsp;10, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Quasys AG, dated September&nbsp;23, 1996</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>International Distributor Agreement between the Company and Firfax Systems Ltd., dated September&nbsp;3, 1996</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Thomas Velin, Chief Financial Officer, dated September&nbsp;21, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Donald M. Nutzman, Vice President, Engineering, dated August&nbsp;19, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Executive Employment Contract between the Company and Mayson Brooks, Vice President, Sales &amp; Marketing, dated May 20, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Office Warehouse Lease Agreement between the Company and West 78th Street, Bloomington Associates, LLC, dated October&nbsp;18, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Letter Agreement between the Company and Marquette Capital Bank, N.A., dated November&nbsp;4, 1999, as amended by Amendment to Letter Agreement dated March&nbsp;10, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Promissory Note between the Company and Marquette Capital Bank, N.A., dated November&nbsp;4, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Lease Agreement between the Company and Duke Realty Minnesota, LLC, dated August&nbsp;18, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Stock Purchase Warrant between the Company and III-D Capital, LLC, dated July&nbsp;24, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>August Technology 2000 Annual Award Plan*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>OEM Agreement between the Company and Santok Software Solutions Inc., dated January&nbsp;26, 2000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>1998 Board of Directors Compensation Plan, adopted by the Board of Directors on October&nbsp;14, 1998</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>August Technology 2000 Employee Stock Purchase Plan</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Guaranty for the benefit of Marquette Capital Bank, N.A., dated November&nbsp;4, 1999</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>23.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Independent Auditors' Report and Consent</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>23.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Consent of Fredrikson &amp; Byron, P.A.**</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>24.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Power of Attorney (see signature page)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>27.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2>Financial Data Schedule</FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>To
be filed by amendment
<BR><BR></FONT></DD><DT><FONT SIZE=2>**</FONT></DT><DD><FONT SIZE=2>Included
in item 5</FONT></DD></DL>

<P><FONT SIZE=2><HR
NOSHADE></FONT></P>

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<FONT SIZE=2><A HREF="#ca1518_prospectus_summary">PROSPECTUS SUMMARY</A></FONT><BR>
<FONT SIZE=2><A HREF="#ca1518_august_technology_corporation">August Technology Corporation</A></FONT><BR>
<FONT SIZE=2><A HREF="#ca1518_the_offering">The Offering</A></FONT><BR>
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<FONT SIZE=2><A HREF="#jc1518_signatures">SIGNATURES</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-1.1
<SEQUENCE>2
<DESCRIPTION>EXHIBIT 1.1
<TEXT>

<PAGE>

                                                                   Exhibit 1.1

                                 _________ SHARES (*)

                            AUGUST TECHNOLOGY CORPORATION

                                     COMMON STOCK


                                UNDERWRITING AGREEMENT

                                                                          , 2000

NEEDHAM & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
A.G. EDWARDS & SONS, INC.
  As Representatives of the several Underwriters
  c/o Needham & Company, Inc.
  445 Park Avenue
  New York, New York 10022

Ladies and Gentlemen:

     August Technology Corporation, a Minnesota corporation (the "Company"),
proposes to issue and sell ________ shares (the "Firm Shares") of the Company's
Common Stock, $.01 par value per share (the "Common Stock"), to you and to the
several other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives").  The Company and the shareholders of the Company named in
Schedule II hereto (the "Selling Shareholders") have also agreed to grant to you
and the other Underwriters an option (the "Option") to purchase up to an
additional ______ shares of Common Stock (the "Company Option Shares") and
______ shares of Common Stock (the "Selling Shareholder Option Shares"),
respectively, on the terms and for the purposes set forth in Section 1(b).  The
Firm Shares and the Option Shares are referred to collectively herein as the
"Shares."

     The Company and each of the Selling Shareholders confirm as follows their
respective agreements with the Representatives and the several other
Underwriters.

     1.        AGREEMENT TO SELL AND PURCHASE.

     (a)       On the basis of the representations, warranties and agreements of
the Company and the Selling Shareholders herein contained and subject to all the
terms and conditions of this Agreement, the Company agrees to issue and sell the
Firm Shares to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase from the Company the respective number of
Firm Shares set forth opposite that Underwriter's name in Schedule I hereto, at
the purchase price of $____ for each Firm Share.

     (b)       Subject to all the terms and conditions of this Agreement, the
Company and the Selling Shareholders grant the Option to the several
Underwriters to purchase, severally and not jointly, up to the maximum number of
Option Shares set forth in Schedule II hereto at the same price per share as the
Underwriters shall pay for the Firm Shares.  The Option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company and
the Selling Shareholders no later than 12:00 noon, New York City time, at least

--------------------------
(*)  Plus an option to purchase up to an additional _______ shares to cover
over-allotments.

<PAGE>

two and no more than five business days before the date specified for closing in
the Option Shares Notice (the "Option Closing Date"), setting forth the
aggregate number of Option Shares to be purchased and the time and date for such
purchase.  On the Option Closing Date, the Company will issue and sell and the
Selling Shareholders will sell to the Underwriters the number of Option Shares
set forth in the Option Shares Notice, and each Underwriter will purchase such
percentage of the Option Shares as is equal to the percentage of Firm Shares
that such Underwriter is purchasing, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares.  If the Option is
exercised, the obligation of each Underwriter shall be to purchase from the
Company and each of the Selling Shareholders, on a pro rata basis, that number
of Option Shares (to be adjusted by the Representations to avoid fractional
shares) that represents the same proportion that the number of Option Shares
granted by the Company and each Selling Shareholder bears to the total number of
Option Shares granted by the Company and all Selling Shareholders.

     2.        DELIVERY AND PAYMENT.  Delivery of the Firm Shares shall be made
to the Representatives for the accounts of the Underwriters against payment of
the purchase price by certified or official bank checks or by wire transfers
payable in same-day funds to the order of the Company at the office of Needham &
Company, Inc., 445 Park Avenue, New York, New York 10022, at 10:00 a.m., New
York City time, on the third (or, if the purchase price set forth in Section
1(b) hereof is determined after 4:30 p.m., Washington D.C. time, the fourth)
business day following the commencement of the offering contemplated by this
Agreement, or at such time on such other date, not later than seven business
days after the date of this Agreement, as may be agreed upon by the Company and
the Representatives (such date is hereinafter referred to as the "Closing
Date").

     To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters of the purchase price by certified or
official bank checks or by wire transfers payable in same-day funds to the order
of the Company for the Company Option Shares to be sold by it and to
____________, as custodian for the Selling Shareholders (the "Custodian") for
the Option Shares to be sold by the Selling Shareholders at the offices
specified above for the Closing Date at the time and date (which may be the
Closing Date) specified in the Option Shares Notice.

     Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representatives shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company.  For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.

     The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company.  The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Shares.

     3.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company
represents, warrants and covenants to each Underwriter that:

     (a)       A registration statement (Registration No. 333-___) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission.  The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules and
Regulations included at any time as part of the registration statement.  Copies
of such registration statement and amendments and of each related preliminary
prospectus have been delivered to the Representatives.  If such registration
statement has not become effective, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the Company
with the Commission.  If such registration statement has become effective, a
final prospectus containing

                                          2
<PAGE>

information permitted to be omitted at the time of effectiveness by Rule 430A of
the Rules and Regulations will be filed promptly by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations.  The
term "Registration Statement" means the registration statement as amended at the
time it becomes or became effective (the "Effective Date"), including the
financial statements and all exhibits and any information deemed to be included
by Rule 430A and includes any registration statement relating to the offering
contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules
and Regulations.  The term "Prospectus" means the prospectus as first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.

     (b)       No order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission.  On the Effective Date, the date
the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if
required), at all times subsequent to and including the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did and will comply with all applicable
provisions of the Act and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations.  On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement, the Prospectus or any such amendment or supplement did
or will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.  At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.  The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto.  The Company acknowledges
that the statements set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement.

     (c)       The Company does not own, and at the Closing Date and, if later,
the Option Closing Date, will not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity.  The Company is, and at the Closing Date and, if
later, the Option Closing Date, will be, a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.  The Company has, and at the Closing Date and, if later, the
Option Closing Date, will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus.  The Company is, and at the Closing Date and, if later, the Option
Closing Date, will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such license or qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not materially and
adversely affect the Company or its business, properties, business prospects,
condition (financial or other) or results of operations.  The Company is not,
and at the Closing Date and, if later, the Option Closing Date, will not be,
engaged in any discussions or a party to any agreement or understanding, written
or oral, regarding the acquisition of an interest in any corporation, firm,
partnership, joint venture, association or other entity where such discussions,
agreements or understandings would require amendment to the Registration
Statement pursuant to applicable securities laws.  Complete and correct copies
of the Articles of Incorporation and of the by-laws of the Company and all
amendments thereto have been delivered to the Representatives, and no changes
therein will be made subsequent to the date hereof and prior to the Closing Date
or, if later, the Option Closing Date.

     (d)       All of the outstanding shares of capital stock of the Company
(including the Selling Shareholder Option Shares) have been duly authorized,
validly issued and are fully paid and nonassessable and were issued in
compliance with all applicable state and federal securities laws; the Company
Firm Shares and the Company Option

                                          3
<PAGE>

Shares have been duly authorized and when issued and paid for as contemplated
herein will be validly issued, fully paid and nonassessable; no preemptive or
similar rights exist with respect to any of the Shares or the issue and sale
thereof.  The description of the capital stock of the Company in the
Registration Statement and the Prospectus is, and at the Closing Date and, if
later, the Option Closing Date, will be, complete and accurate in all respects.
Except as set forth in the Prospectus, the Company does not have outstanding,
and at the Closing Date and, if later, the Option Closing Date, will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of capital stock, or any such warrants,
convertible securities or obligations.  No further approval or authority of
shareholders or the Board of Directors of the Company will be required for the
transfer and sale of the Selling Shareholder Option Shares or the issuance and
sale of the Company Firm Shares and Option Shares as contemplated herein.

     (e)       The financial statements and schedules included in the
Registration Statement and the Prospectus present fairly the financial condition
of the Company as of the respective dates thereof and the results of operations
and cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus.  No other financial statements or schedules of the Company are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus.  KPMG LLP (the "Accountants"), who
have reported on such financial statements and schedules, are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations.  The summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein.

     (f)       Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) there has not
been and will not have been any change in the capitalization of the Company
(other than in connection with the exercise of options to purchase the Company's
Common Stock granted pursuant to the Company's stock option plan from the shares
reserved therefor as described in the Registration Statement), or any material
adverse change in the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company, arising for
any reason whatsoever, (ii) the Company has not incurred nor will it incur,
except in the ordinary course of business as described in the Prospectus, any
material liabilities or obligations, direct or contingent, nor has the Company
entered into nor will it enter into, except in the ordinary course of business
as described in the Prospectus, any material transactions other than pursuant to
this Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.

     (g)       The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its business in
a manner that would cause it to become, an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.

     (h)       Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its officers in their capacity as such, nor any basis therefor, before or by any
federal or state court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding might materially and adversely affect the Company or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company.

     (i)       The Company has, and at the Closing Date and, if later, the
Option Closing Date, will have, performed all the obligations required to be
performed by it, and is not, and at the Closing Date, and, if later, the Option
Closing Date, will not be, in default, under any contract or other instrument to
which it is a party or by which its property is bound or affected, which default
might materially and adversely affect the Company or the business, properties,
business prospects, condition (financial or other) or results of operations of
the Company.  To the best knowledge of the Company, no other party under any
contract or other instrument to which it is a party is in default in any respect
thereunder, which default might materially and adversely affect the Company or
the business, properties, business prospects, condition (financial or other) or
results of operations of the Company.  The Company is not, and at the

                                          4
<PAGE>

Closing Date and, if later, the Option Closing Date, will not be, in violation
of any provision of its Articles of Incorporation or by-laws or other
organizational documents.

     (j)       No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriters of the
Shares.

     (k)       The Company has full corporate power and authority to enter into
this Agreement.  This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with the terms hereof.  The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate or Articles of Incorporation or by-laws of the
Company, any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which the Company is a party
or by which the Company or any of its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to the
business or properties of the Company.

     (l)       The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company.  The Company has
valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it.  The Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted,
except where the failure to so own or lease would not materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.

     (m)       There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.  All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against and by the Company in
accordance with the terms thereof.

     (n)       No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 6 of this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect.

     (o)       Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.

     (p)       No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, which rights have not been waived by the holder thereof
as of the date hereof.

     (q)       The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to register the Common Stock, has filed an application to list the Shares
on the Nasdaq National Market ("NNM"), and has received notification that the
listing has been approved, subject to notice of issuance of such Shares.

                                          5
<PAGE>

     (r)       Except as disclosed in or specifically contemplated by the
Prospectus (i) the Company has sufficient trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals and governmental
authorizations to conduct its business as now conducted, (ii) the Company has no
knowledge of any infringement by it of trademarks, trade name rights, patent
rights, mask work rights, copyrights, licenses, trade secrets or other similar
rights of others, where such infringement could have a material and adverse
effect on the Company or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company, and (iii)
there is no claim being made against the Company, or to the best of the
Company's knowledge, any employee of the Company, regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other infringement
which could have a material and adverse effect on the Company or the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company.

     (s)       The Company has filed all federal, state, local and foreign
income tax returns which have been required to be filed and has paid all taxes
and assessments received by it to the extent that such taxes or assessments have
become due.  The Company has no tax deficiency which has been or, to the best
knowledge of the Company, might be asserted or threatened against it which could
have a material and adverse effect on the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company.

     (t)       The Company owns or possesses all authorizations, approvals,
orders, licenses, registrations, other certificates and permits of and from all
governmental regulatory officials and bodies, necessary to conduct its business
as contemplated in the Prospectus, except where the failure to own or possess
all such authorizations, approvals, orders, licenses, registrations, other
certificates and permits would not materially and adversely affect the Company
or the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.  There is no proceeding
pending or threatened (or any basis therefor known to the Company) which may
cause any such authorization, approval, order, license, registration,
certificate or permit to be revoked, withdrawn, cancelled, suspended or not
renewed; and the Company is conducting its business in compliance with all laws,
rules and regulations applicable thereto (including, without limitation, all
applicable federal, state and local environmental laws and regulations) except
where such noncompliance would not materially and adversely affect the Company
or the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.

     (u)       The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.

     (v)       Neither the Company nor, to the best of the Company's knowledge,
any of its employees or agents at any time, has during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.

     (w)  There are no business relationships or related-party transactions
involving the Company or any other person required to be described in the
Prospectus which have not been described as required.

     (x)  The Company maintains a system of accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles as applied in the
United States and to maintain accountability for assets; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

     (y)  All disclosure regarding year 2000 compliance that is required to be
described under the Act (including disclosures required by Staff Legal Bulletin
No. 5) has been included in the Prospectus.  The Company will not incur

                                          6
<PAGE>

significant operating expenses or costs to ensure that its information systems
will be year 2000 compliant, other than as disclosed in the Prospectus.

     4.        REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
SHAREHOLDERS.  Each Selling Shareholder, severally and not jointly, represents,
warrants and covenants to each Underwriter that:

     (a)       All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Shareholder of this Agreement and the
Power-of-Attorney and the Custody Agreement (hereinafter referred to as the
"Shareholders' Agreements") hereinafter referred to, and for the sale and
delivery of the Selling Shareholder Option Shares to be sold by such Selling
Shareholder hereunder, have been obtained; and such Selling Shareholder has full
right, power and authority to enter into this Agreement and the Shareholders'
Agreements, to make the representations, warranties and agreements hereunder and
thereunder, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder hereunder.

     (b)       Certificates in negotiable form representing all of the Selling
Shareholder Option Shares to be sold by such Selling Shareholder have been
placed in custody under the Shareholders' Agreement, in the form heretofore
furnished to you, duly executed and delivered by such Selling Shareholder to the
Custodian, and such Selling Shareholder has duly appointed _________ and
___________, and each of them, as such Selling Shareholder's attorney-in-fact
(the "Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Shareholder, to determine (subject to the provisions
of the Shareholders' Agreements) the purchase price to be paid by the
Underwriters to the Selling Shareholders as provided in Section 2 hereof, to
authorize the delivery of the Selling Shareholder Option Shares to be sold by
such Selling Shareholder hereunder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated by this
Agreement and the Shareholders' Agreements.

     (c)       Such Selling Shareholder specifically agrees that the Selling
Shareholder Option Shares represented by the certificates held in custody for
such Selling Shareholder under the Shareholders' Agreement are for the benefit
of and coupled with and subject to the interests of the Underwriters, the
Custodian, the Attorneys-in-Fact, each other Selling Shareholder and the
Company, that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the
Attorneys-in-Fact by the Power-of-Attorney, are to that extent irrevocable, and
that the obligations of such Selling Shareholder hereunder shall not be
terminated by operation of law, whether by the death, disability, incapacity,
liquidation or dissolution of any Selling Shareholder or by the occurrence of
any other event.  If any individual Selling Shareholder or any executor or
trustee for a Selling Shareholder should die or become incapacitated, or if any
Selling Shareholder that is an estate or trust should be terminated, or if any
Selling Shareholder that is a partnership or corporation should be dissolved, or
if any other such event should occur, before the delivery of the Selling
Shareholder Option Shares hereunder, certificates representing the Selling
Shareholder Option Shares shall be delivered by or on behalf of the Selling
Shareholders in accordance with the terms and conditions of this Agreement and
of the Shareholders' Agreements, and actions taken by the Attorneys-in-Fact
pursuant to the Powers-of-Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred, regardless
of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.

     (d)       This Agreement and the Shareholders' Agreements have each been
duly authorized, executed and delivered by such Selling Shareholder and each
such document constitutes a valid and binding obligation of such Selling
Shareholder, enforceable in accordance with its terms.

     (e)       No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the sale of the Selling Shareholder Option Shares by such
Selling Shareholder or the consummation by such Selling Shareholder of the
transactions on its part contemplated by this Agreement and the Shareholders'
Agreements, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Shareholder.

                                          7
<PAGE>

     (f)       The sale of the Selling Shareholder Option Shares to be sold by
such Selling Shareholder hereunder and the performance by such Selling
Shareholder of this Agreement and the Shareholders' Agreements and the
consummation of the transactions contemplated hereby and thereby will not result
in the creation or imposition of any lien, charge or encumbrance upon any of the
assets of such Selling Shareholder pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to such Selling Shareholder or, if such Selling Shareholder is a
corporation, partnership or other entity, the organizational documents of such
Selling Shareholder.

     (g)       Such Selling Shareholder has, and at the Option Closing Date,
will have, good and marketable title to the Selling Shareholder Option Shares to
be sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances, equities or claims whatsoever; and, upon delivery of such Selling
Shareholder Option Shares and payment therefor pursuant hereto, good and
marketable title to such Selling Shareholder Option Shares, free and clear of
all liens, encumbrances, equities or claims whatsoever, will be delivered to the
Underwriters.

     (h)       On the Option Closing Date, all stock transfer or other taxes
(other than income taxes) that are required to be paid in connection with the
sale and transfer of the Shares to be sold by such Selling Shareholder to the
several Underwriters hereunder will be have been fully paid or provided for by
such Selling Shareholder and all laws imposing such taxes will have been fully
complied with.

     (i)       Other than as permitted by the Act and the Rules and Regulations,
such Selling Shareholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares.  Such Selling Shareholder
has not taken and will not at any time take, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or result in, or which
will constitute, stabilization of the price of shares of Common Stock to
facilitate the sale or resale of any of the Shares.

     (j)       All information with respect to such Selling Shareholder
contained in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto complied or will comply in all
material respects with all applicable requirements of the Act and the Rules and
Regulations and does not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

     (k)       Such Selling Shareholder has no knowledge of any material fact or
condition not set forth in the Registration Statement or the Prospectus that has
adversely affected, or may adversely affect, the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company, and the sale of the Shares proposed to be sold by such Selling
Shareholder is not prompted by any such knowledge.

     (l)       Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 3 hereof are
not true and correct.

     (m)       In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Shareholder agrees to deliver to you prior to or at the Option Closing Date a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).

     5.        AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.  Each of
the Company and the Selling Shareholders respectively covenants and agrees with
the several Underwriters as follows:

                                          8
<PAGE>

     (a)       The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.

     (b)       The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (iv) of the happening of any event
during the period mentioned in the second sentence of Section 5(e) that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in the light of the circumstances in which they are made, not
misleading and (v) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus.  If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment.  If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will comply with the provisions of and make all requisite filings with
the Commission pursuant to said Rule 430A and notify the Representatives
promptly of all such filings.

     (c)       The Company will furnish to each Representative, without charge,
one signed copy of each of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto and will furnish to the Representatives, without charge, for
transmittal to each of the other Underwriters, a copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules but without exhibits.

     (d)       The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.

     (e)       On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives
may reasonably request.  The Company consents to the use of the Prospectus or
any amendment or supplement thereto by the several Underwriters and by all
dealers to whom the Shares may be sold, both in connection with the offering or
sale of the Shares and for any period of time thereafter during which the
Prospectus is required by law to be delivered in connection therewith.  If
during such period of time any event shall occur which in the judgment of the
Company or counsel to the Underwriters should be set forth in the Prospectus in
order to make any statement therein, in the light of the circumstances under
which it was made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with law, the Company will forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto, and
will deliver to each of the Underwriters, without charge, such number of copies
of such supplement or amendment to the Prospectus as the Representatives may
reasonably request.

     (f)       Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Representatives may
request; provided, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.

     (g)       The Company will, so long as required under the Rules and
Regulations, furnish to its shareholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, Shareholders' equity and cash flow of the Company and its consolidated
subsidiaries, if any, certified by

                                          9
<PAGE>

independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its Subsidiaries,
if any, for such quarter in reasonable detail.

     (h)       During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.

     (i)       The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).

     (j)       Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company and, unless
otherwise paid by the Company, the Selling Shareholders will pay or reimburse if
paid by the Representatives, in such proportions as they may agree upon
themselves, all costs and expenses incident to the performance of the
obligations of the Company and the Selling Shareholders under this Agreement and
in connection with the transactions contemplated hereby, including but not
limited to costs and expenses of or relating to (i) the preparation, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, Prospectus and any amendment or supplement to the Registration
Statement or Prospectus, (ii) the preparation and delivery of certificates
representing the Shares, (iii) the printing of this Agreement, the Agreement
Among Underwriters, any Selected Dealer Agreements, any Underwriters'
Questionnaires, the Shareholders' Agreements, any Underwriters' Powers of
Attorney, and any invitation letters to prospective Underwriters,
(iv) furnishing (including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (v) the listing of the Shares on the NNM, (vi) any
filings required to be made by the Underwriters with the NASD, and the fees,
disbursements and other charges of counsel for the Underwriters in connection
therewith, (vii) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions designated
pursuant to Section 5(f), including the fees, disbursements and other charges of
counsel to the Underwriters in connection therewith, and the preparation and
printing of preliminary, supplemental and final Blue Sky memoranda, (viii) fees,
disbursements and other charges of counsel to the Company (but not those of
counsel for the Underwriters, except as otherwise provided herein) and (ix) the
transfer agent for the Shares.  The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the
Company and by the Selling Shareholders.  The Selling Shareholders will pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement that are not otherwise specifically
provided for herein, including but not limited to any fees and expenses of
counsel for such Selling Shareholders, any fees and expenses of the
Attorneys-in-Fact and the Custodian, and all expenses and taxes incident to the
sale and delivery of the Shares to be sold by such Selling Shareholders to the
Underwriters hereunder.

     (k)       The Company will not at any time, directly or indirectly, take
any action designed or which might reasonably be expected to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.

     (l)       The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.

     (m)       During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, without the
prior written consent of Needham & Company, Inc., the Company will

                                          10
<PAGE>

not offer, sell, contract to sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities of the Company or any other
securities convertible into or exchangeable with its Common Stock or other
equity security (other than pursuant to employee stock option plans or the
conversion of convertible securities or the exercise of warrants outstanding on
the date of this Agreement).

     (n)       During the period of 180 days after the date of the Prospectus,
the Company will not, without the prior written consent of Needham & Company,
Inc., grant options to purchase shares of Common Stock at a price less than the
initial public offering price.  During the period of 180 days after the date of
the Prospectus, the Company will not file with the Commission or cause to become
effective any registration statement relating to any securities of the Company
without the prior written consent of Needham & Company, Inc.

     (o)       The Selling Shareholders will, and the Company will cause each of
its officers, directors and certain Shareholders designated by the
Representatives to, enter into lock-up agreements with the Representatives to
the effect that they will not, without the prior written consent of Needham &
Company, Inc., sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares according to the terms set forth
in Schedule III hereto.

     (p)       The Company will not file with the Commission any registration
statement on Form S-8 relating to shares of its Common Stock prior to 90 days
after the effective date of the Registration Statement.

     6.        CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.  The
obligations of each Underwriter hereunder are subject to the following
conditions:

     (a)       Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made.

     (b)       (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives do
not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and, if later, the Option Closing Date and
signed by the Chief Executive Officer and the Chief Financial Officer of the
Company (who may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii) of this
paragraph.

     (c)       Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as described in or
contemplated by the Registration Statement and the Prospectus, and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not described in the
Registration Statement and the Prospectus, if in the judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.

     (d)       Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state or local court, commission, regulatory

                                          11
<PAGE>

body, administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding would,
in the judgment of the Representatives, materially and adversely affect the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company.

     (e)       Each of the representations and warranties of the Company and the
Selling Shareholders contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company or the Selling Shareholders and all
conditions contained herein to be fulfilled or complied with by the Company or
the Selling Shareholders at or prior to the Closing Date and, with respect to
the Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.

     (f)       The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from Fredrikson & Byron, P.A., counsel to the Company and the
Selling Shareholders, with respect to the following matters:

          (i)    The Company is a corporation duly organized, validly
     existing and in good standing under the laws of its jurisdiction of
     incorporation; has full corporate power and authority to conduct all
     the activities conducted by it, to own or lease all the assets owed or
     leased by it and to conduct its business as described in the
     Registration Statement and Prospectus; and is duly licensed or
     qualified to do business and is in good standing as a foreign
     corporation in all jurisdictions in which the nature of the activities
     conducted by it or the character of the assets owned or leased by it
     makes such license or qualification necessary and where the failure to
     be licensed or qualified would have a material and adverse effect on
     the business or financial condition of the Company.

          (ii)   All of the outstanding shares of capital stock of the
     Company (including the Selling Shareholder Option Shares) have been
     duly authorized, validly issued and are fully paid and nonassessable,
     to such counsel's knowledge, were issued pursuant to exemptions from
     the registration and qualification requirements of federal and
     applicable state securities laws, and were not issued in violation of
     or subject to any preemptive or, to such counsel's knowledge, similar
     rights;

          (iii)  The specimen certificate evidencing the Common Stock filed
     as an exhibit to the Registration Statement is in due and proper form
     under Minnesota law, the Shares to be sold by the Company hereunder
     have been duly authorized and, when issued and paid for as
     contemplated by this Agreement, will be validly issued, fully paid and
     nonassessable; and no preemptive or similar rights exist with respect
     to any of the Shares or the issue and sale thereof.

          (iv)   To such counsel's knowledge, the Company does not own or
     control, directly or indirectly, any shares of stock or any other
     equity or long-term debt securities of any corporation or have any
     equity interest in any corporation, firm, partnership, joint venture,
     association or other entity.

          (v)    The authorized and outstanding capital stock of the
     Company is as set forth in the Registration Statement and the
     Prospectus in the column entitled "Actual" under the caption
     "Capitalization" (except for subsequent issuances, if any, pursuant to
     this Agreement or pursuant to reservations, agreements, employee
     benefit plans or the exercise of convertible securities, options or
     warrants referred to in the Prospectus).  To such counsel's knowledge,
     except as disclosed in or specifically contemplated by the Prospectus,
     there are no outstanding options, warrants of other rights calling for
     the issuance of, and no commitments, plans or arrangements to issue,
     any shares of capital stock of the Company or any security convertible
     into or exchangeable or exercisable for capital stock of the Company.
     The description of the capital stock of the Company in the
     Registration Statement and the Prospectus conforms in all material
     respects to the terms thereof.

                                          12
<PAGE>

          (vi)   To such counsel's knowledge, there are no legal or
     governmental proceedings pending or threatened to which the Company is
     a party or to which any of its properties is subject that are required
     to be described in the Registration Statement or the Prospectus but
     are not so described.

          (vii)  No consent, approval, authorization or order of, or any
     filing or declaration with, any court or governmental agency or body
     is required for the consummation by the Company of the transactions on
     its part contemplated under this Agreement, except such as have been
     obtained or made under the Act or the Rules and Regulations and such
     as may be required under state securities or Blue Sky laws or the
     by-laws and rules of the NASD in connection with the purchase and
     distribution by the Underwriters of the Shares.

          (viii) The Company has full corporate power and authority to
     enter into this Agreement.  This Agreement has been duly authorized,
     executed and delivered by the Company.

          (ix)   The execution and delivery of this Agreement, the
     compliance by the Company with all of the terms hereof and the
     consummation of the transactions contemplated hereby does not
     contravene any provision of applicable law or the Articles of
     Incorporation or by-laws of the Company [or any of its Subsidiaries],
     and to such counsel's knowledge will not result in the creation or
     imposition of any lien, charge or encumbrance upon any of the assets
     of the Company pursuant to the terms and provisions of, result in a
     breach or violation of any of the terms or provisions of, or
     constitute a default under, or give any party a right to terminate any
     of its obligations under, or result in the acceleration of any
     obligation under, any indenture, mortgage, deed of trust, voting trust
     agreement, loan agreement, bond, debenture, note agreement or other
     evidence of indebtedness, lease, contract or other agreement or
     instrument known to such counsel to which the Company is a party or by
     which the Company or any of its properties is bound or affected, or
     violate or conflict with (i) any judgment, ruling, decree or order
     known to such counsel or (ii) any statute, rule or regulation of any
     court or other governmental agency or body, applicable to the business
     or properties of the Company.

          (x)    To such counsel's knowledge, there is no document or
     contract of a character required to be described in the Registration
     Statement or the Prospectus or to be filed as an exhibit to the
     Registration Statement which is not described or filed as required,
     and each description of such contracts and documents that is contained
     in the Registration Statement and Prospectus fairly presents in all
     material respects the information required under the Act and the Rules
     and Regulations.

          (xi)   The statements under the captions "Risk Factors
     Provisions of our articles of incorporation, our by-laws and Minnesota
     law could discourage potential acquisition proposals and delay or
     prevent a change in control," "Management   Benefit Plans,"
     "Management   Employment Contracts," "Certain Transactions,"
     "Description of Capital Stock," and "Shares Eligible for Future Sale"
     in the Prospectus, insofar as the statements constitute a summary of
     documents referred to therein or matters of law, are accurate
     summaries and fairly and correctly present, in all material respects,
     the information called for with respect to such documents and matters
     (provided, however, that such counsel may rely on representations of
     the Company with respect to the factual matters contained in such
     statements, and provided further that such counsel shall state that
     nothing has come to the attention of such counsel which leads them to
     believe that such representations are not true and correct in all
     material respects).

          (xii)  The Company is not an "investment company" or an
     "affiliated person" of, or "promoter" or "principal underwriter" for,
     an "investment company," as such terms are defined in the Investment
     Company Act of 1940, as amended.

          The Shares have been duly authorized for listing on the NNM, subject
to notice of issuance.

          (xiii) To such counsel's knowledge, no holder of securities of
     the Company has rights, which have not been waived, to require the
     registration with the Commission shares of Common Stock or other
     securities, as part of the offering contemplated hereby.

                                          13
<PAGE>

          (xiv)  The Registration Statement has become effective under the
     Act, and to such counsel's knowledge, no stop order suspending the
     effectiveness of the Registration Statement has been issued and no
     proceeding for that purpose has been instituted or is pending,
     threatened or contemplated.

          (xv)   The Registration Statement and the Prospectus comply as to
     form in all material respects with the requirement of the Act and the
     Rules and Regulations (other than the financial statements, schedules
     and other financial data contained in the Registration Statement or
     the Prospectus, as to which such counsel need express no opinion).

          (xvi)  Such counsel has participated in the preparation of the
     Registration Statement and Prospectus and has no reason to believe
     that, as of the Effective Date the Registration Statement, or any
     amendment or supplement thereto, (other than the financial statements,
     schedules and other financial data contained therein, as to which such
     counsel need express no opinion) contained any untrue statement of a
     material fact or omitted to state a material fact required to be
     stated therein or necessary to make the statements therein not
     misleading or that the Prospectus, or any amendment or supplement
     thereto, as of its date and the Closing Date and, if later, the Option
     Closing Date, contained or contains any untrue statement of a material
     fact or omitted or omits to state a material fact necessary to make
     the statements therein, in the light of the circumstances under which
     they were made, not misleading (other than the financial statements,
     schedules and other financial data contained therein, as to which such
     counsel need express no opinion).

          (xvii) This Agreement and the Shareholders' Agreements have each
     been duly executed and delivered by or on behalf of each Selling
     Shareholder; the Shareholders' Agreements each constitutes a valid and
     binding agreement of such Selling Shareholder in accordance with its
     terms, except as enforceability may be limited by the application of
     bankruptcy, insolvency or other laws affecting creditors' rights
     generally or by general principles of equity; the Attorneys-in-Fact
     and the Custodian have been duly authorized by such Selling
     Shareholder to deliver the Shares on behalf of such Selling
     Shareholder in accordance with the terms of this Agreement; and the
     sale of the Shares to be sold by such Selling Shareholder hereunder,
     the performance by such Selling Shareholder of this Agreement and the
     Shareholders' Agreements and the consummation of the transactions
     contemplated hereby and thereby will not result in a breach or
     violation of any of the terms or provisions of, or constitute a
     default under, or give any party a right to terminate any of its
     obligations under, or result in the acceleration of any obligation
     under any indenture, mortgage, deed of trust, voting trust agreement,
     loan agreement, bond, debenture, note agreement or other evidence of
     indebtedness, lease, contract or other agreement or instrument to
     which such Selling Shareholder is a party or by which such Selling
     Shareholder or any of its properties is bound or affected, or violate
     or conflict with any judgment, ruling, decree, order, statute, rule or
     regulation of any court or other governmental agency or body
     applicable to such Selling Shareholder or, if such Selling Shareholder
     is a corporation, partnership or other entity, the organizational
     documents of such Selling Shareholder.

          (xviii) No consent, approval, authorization or order of, or any
     filing or declaration with, any court or governmental agency or body
     is required for the consummation by the Selling Shareholders of the
     transactions on their part contemplated by this Agreement, except such
     as have been obtained or made under the Act or the Rules and
     Regulations and such as may be required under state securities or Blue
     Sky laws or the by-laws and rules of the NASD in connection with the
     purchase and distribution by the Underwriters of the Shares.

          (xix)  Each Selling Shareholder has full legal right, power and
     authority to enter into this Agreement and the Shareholders'
     Agreements and to sell, assign, transfer and deliver the Shares to be
     sold by such Selling Shareholder hereunder and, upon payment for such
     Shares and assuming that the Underwriters are purchasing such Shares
     in good faith and without notice of any other adverse claim within the
     meaning of the Uniform Commercial Code, the Underwriters will have
     acquired all rights of such Selling Shareholder in such Shares free of
     any adverse claim, any lien in favor of the Company and any
     restrictions on transfer imposed by the Company.

                                          14
<PAGE>

     In rendering such opinion, such counsel may rely as to matters of fact on
certificates of the Selling Shareholders, officers of the Company and
governmental officials and the representations and warranties of the Company and
the Selling Shareholders contained in this Agreement and the Shareholders'
Agreements, provided that the opinion of counsel to the Company and Selling
Shareholders shall state that they are doing so, that they have no reason to
believe that they and the Underwriters are not entitled to rely on such
certificates and that copies of such opinions or certificates are to be attached
to the opinion.

     In rendering such opinion, such counsel may rely upon as to matters of
local law on opinions of counsel satisfactory in form and substance to the
Representatives and counsel for the Underwriters, provided that the opinion of
counsel to the Company and the Selling Shareholders shall state that they are
doing so, that they have no reason to believe that they and the Underwriters are
not entitled to rely on such opinions and that copies of such opinions are to be
attached to the opinion.

     (g)  The Representatives shall have received an opinion, dated the Closing
Date and the Option Closing Date, from Faegre & Benson LLP, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.

     (h)  Concurrently with the execution and delivery of this Agreement, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations and with respect to certain financial and other statistical and
numerical information contained in the Registration Statement.  At the Closing
Date and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter from the Accountants, that nothing has come
to their attention during the period from the date of the letter referred to in
the prior sentence to a date (specified in the letter) not more than five days
prior to the Closing Date and the Option Closing Date, as the case may be, which
would require any change in their letter dated the date hereof if it were
required to be dated and delivered at the Closing Date and the Option Closing
Date.

     (i)  Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:

          (i)  Each signer of such certificate has carefully examined the
     Registration Statement and the Prospectus and (A) as of the date of
     such certificate, such documents are true and correct in all material
     respects and do not omit to state a material fact required to be
     stated therein or necessary in order to make the statements therein
     not untrue or misleading and (B) in the case of the certificate
     delivered at the Closing Date and the Option Closing Date, since the
     Effective Date no event has occurred as a result of which it is
     necessary to amend or supplement the Prospectus in order to make the
     statements therein not untrue or misleading.

          (ii)  Each of the representations and warranties of the Company
     contained in this Agreement were, when originally made, and are, at
     the time such certificate is delivered, as if made on and as of such
     date, true and correct.

          (iii)  Each of the covenants required to be performed by the
     Company herein on or prior to the date of such certificate has been
     duly, timely and fully performed and each condition herein required to
     be satisfied or fulfilled on or prior to the date of such certificate
     has been duly, timely and fully satisfied or fulfilled.

     (j)  Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by the Selling Shareholders (or the Attorneys-in-Fact on their
behalf), in form and substance

                                          15
<PAGE>

satisfactory to the Representatives, to the effect that the representations and
warranties of the Selling Shareholders contained herein were, when originally
made, true and correct and are true and correct in all material respects on and
as of the date of such certificate as if made on and as of the date of such
certificate, and each of the covenants and conditions required herein to be
performed or complied with by the Selling Shareholders on or prior to the date
of such certificate has been duly, timely and fully performed or complied with.

     (k)  On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(o).

     (l)  The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.

     (m)  Prior to the Closing Date, the Shares shall have been duly authorized
for listing on the NNM upon official notice of issuance.

     (n)  The Company and the Selling Shareholders shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of its and their
respective obligations hereunder, or as to the fulfillment of the conditions
concurrent and precedent to the obligations hereunder of the Representatives.

     7.   INDEMNIFICATION.

     (a)  The Company and each of the Selling Shareholders, jointly and
severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading in the light of the circumstances in which
they were made, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company or the Selling
Shareholders contained herein or any failure of the Company or the Selling
Shareholders to perform its or their obligations hereunder or under law in
connection with the transactions contemplated hereby; PROVIDED, HOWEVER, that
(i) the Company and the Selling Shareholders will not be liable to the extent
that such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on an
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives, on behalf of any
Underwriter, expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus; (ii) the Company and the Selling
Shareholders will not be liable to any Underwriter, the directors, officers,
employees or agents of such Underwriter or any person controlling such
Underwriter with respect to any loss, claim, liability, expense, or damage
arising out of or based on any untrue statement or omission or alleged untrue
statement or omission or alleged omission to state a material fact in the
preliminary prospectus which is corrected in the Prospectus if the person
asserting any such loss, claim, liability, charge or damage purchased Shares
from such Underwriter but was not sent or given a copy of the Prospectus at or
prior to the written confirmation of the sale of such Shares to such person; and
(iii) the liability of each Selling Shareholder under this Section 7(a) shall
not exceed the product of the purchase price for each Share set forth in Section
1(a) hereof multiplied by the number of Shares sold by such Selling Shareholder
hereunder.  The Company and the Selling Shareholders acknowledge that the
statements set forth under the heading "Underwriting" in the

                                          16
<PAGE>

preliminary prospectus and the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus.  This
indemnity agreement will be in addition to any liability that the Company and
the Selling Shareholders might otherwise have.

     (b)       Each Underwriter will indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each
Selling Shareholder to the same extent as the foregoing indemnity from the
Company and each Selling Shareholder to each Underwriter, as set forth in
Section 7(a), but only insofar as losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives, on behalf of such Underwriter, expressly for use in the
Registration Statement, the preliminary prospectus or the Prospectus.  The
Company and the Selling Shareholders acknowledge that the statements set forth
under the heading "Underwriting" in the preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing to the Company by the Representatives on behalf of the Underwriters
expressly for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus.  This indemnity will be in addition to any
liability that each Underwriter might otherwise have.

     (c)       Any party that proposes to assert the right to be indemnified
under this Section 7 shall, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party.  If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party.  After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense.  The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party,
(ii) the indemnified party has reasonably concluded (based on advice of counsel)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (iii) a conflict or potential conflict exists (based on advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (iv) the
indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying party or
parties.  It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties.  All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. Any indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).

     (d)       If the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable to or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) and (c) of this Section 7 in respect of any losses, claims,
liabilities, expenses and damages referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable (including any investigative, legal and
other expenses reasonably incurred in connection with, and

                                          17
<PAGE>

any amount paid in settlement of, any action, suit or proceeding or any claim
asserted, but after deducting any contribution received by the Company or the
Selling Shareholders from persons other than the Underwriters, such as persons
who control the Company within the meaning of the Act, officers of the Company
who signed the Registration Statement and directors of the Company, who also may
be liable for contribution) by such indemnified party as a result of such
losses, claims, liabilities, expenses and damages in such proportion as shall be
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other hand.
The relative benefits received by the Company and the Selling Shareholders, on
the one hand, and the Underwriters, on the other hand, shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus.  If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault of the Company and the
Selling Shareholders, on the one and, and the Underwriters, on the other hand,
with respect to the statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any other
relevant equitable considerations with respect to such offering.  Such relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Shareholders or
the Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission.  The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein.  The amount paid or payable by an indemnified
party as a result of the loss claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purposes of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.  Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.  The Underwriters' obligations to contribute as
provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint.  or purposes of this Section 7(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof.  Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against any such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d).  No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).

     (e)       The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or
(iii) any termination of this Agreement.

     8.   REIMBURSEMENT OF CERTAIN EXPENSES.  In addition to its other
obligations under Section 7(a) of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon,
in whole or in part, any statement or omission or alleged statement or omission,
or any inaccuracy in the representations and warranties of the Company or the
Selling Shareholder contained herein or failure of the Company or the Selling
Shareholders to perform its or their respective obligations hereunder or under
law, all as described in Section 7(a), notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 8 and the possibility that such payment might

                                          18
<PAGE>

later be held to be improper; PROVIDED, HOWEVER, that, to the extent any such
payment is ultimately held to be improper, the persons receiving such payments
shall promptly refund them.

     9.   TERMINATION.  The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company and the Selling Shareholders from the Representatives,
without liability on the part of any Underwriter to the Company if, prior to
delivery and payment for the Firm Shares or Option Shares, as the case may be,
in the sole judgment of the Representatives, (i) trading in any of the equity
securities of the Company shall have been suspended by the Commission or by The
Nasdaq Stock Market, (ii) trading in securities generally on the New York Stock
Exchange or The Nasdaq Stock Market shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange, by order of the Commission or any court or other
governmental authority, or by the New York Stock Exchange or The Nasdaq Stock
Market, (iii) a general banking moratorium shall have been declared by either
federal, Minnesota State or New York State authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or other calamity or crisis shall have
occurred, the effect of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to proceed with completion of the
public offering or the delivery of and payment for the Shares.

     If this Agreement is terminated pursuant to Section 10 hereof, neither the
Company nor any Selling Shareholder shall be under any liability to any
Underwriter except as provided in Sections 5(j), 7 and 8 hereof; but, if for any
other reason the purchase of the Shares by the Underwriters is not consummated
or if for any reason the Company shall be unable to perform its obligations
hereunder, the Company and the Selling Shareholders will reimburse the several
Underwriters for all out-of-pocket expenses (including the fees, disbursements
and other charges of counsel to the Underwriters) incurred by them in connection
with the offering of the Shares.

     10.  SUBSTITUTION OF UNDERWRITERS.  If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representatives may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 10 by more than one-ninth of such number of Firm Shares
without the prior written consent of such Underwriter.  If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders for the
purchase or sale of any Shares under this Agreement.  In any such case either
the Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected.  Any action taken pursuant to
this Section 10 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.

     11.  MISCELLANEOUS.  Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 4900 West 78th
Street, Bloomington, Minnesota 55435, Attention: [Chief Executive Officer], with
a copy to Robert K. Ranum, Esq., Fredrikson & Byron P.A., or (b) if to the
Underwriters, to the Representatives at the offices of Needham & Company, Inc.,
445 Park Avenue, New York, New York 10022, Attention: Corporate Finance
Department, with a copy to Douglas P. Long, Esq., Faegre & Benson LLP.  Any such
notice shall be effective only

                                          19
<PAGE>

upon receipt.  Any notice under such Section 9 or 10 may be made by telex or
telephone, but if so made shall be subsequently confirmed in writing.

     This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, the Selling Shareholders and the controlling persons,
directors and officers referred to in Section 7, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement.  The term "successors and assigns" as used in this
Agreement shall not include a purchaser, as such purchaser, of Shares from any
of the several Underwriters.

     Any action required or permitted to be made by the Representatives under
this Agreement may be taken by them jointly or by Needham & Company, Inc.

     This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.

     This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.

     In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     The Company and the Underwriters each hereby waive any right they may have
to a trial by jury in respect of any claim based upon or arising out of this
Agreement or the transactions contemplated hereby.

                                          20
<PAGE>

     Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Underwriters.

                                        Very truly yours,

                                        AUGUST TECHNOLOGY CORPORATION


                                        By:
                                             -----------------------------------
                                             Title:



                                        SELLING SHAREHOLDERS
                                        (named in Schedule II hereto)


                                        By:
                                             -----------------------------------
                                                     Attorney-in-Fact


Confirmed as of the date first
above mentioned:

NEEDHAM & COMPANY, INC.
ADAMS, HARKNESS & HILL,, INC.
A.G. EDWARDS & SONS, INC.
     Acting on behalf of themselves
     and as the Representatives of
     the other several Underwriters
     named in Schedule I hereto.


By:  NEEDHAM & COMPANY, INC.


By:
     -----------------------------------
     Title:

                                          21
<PAGE>

                                      SCHEDULE I

                                     UNDERWRITERS

<TABLE>
<CAPTION>

                                                              Number of
                                                                 Firm
                                                                Shares
Underwriters                                                to be Purchased
------------                                                ---------------
<S>                                                         <C>
Needham & Company, Inc..................................
Adams, Harkness & Hill, Inc.............................
A.G. Edwards & Sons, Inc................................




                                                            ---------

          Total.........................................    ---------
                                                            ---------

</TABLE>

                                          22
<PAGE>

                                     SCHEDULE II

<TABLE>
<CAPTION>
                                                            Total Number of
                                                             Option Shares
                                                               to be Sold
                                                               ----------
<S>                                                         <C>
August Technology Corporation.....................

[Selling Shareholder 1]...........................

[Selling Shareholder 2]...........................
                                                                 ------

     TOTAL........................................
                                                                 ------
                                                                 ------

</TABLE>

                                          23
<PAGE>

                                     SCHEDULE III

                              FORM OF LOCK-UP AGREEMENT
                      [AND DIRECTORS, OFFICERS AND SHAREHOLDERS
                    OF THE COMPANY WHO SHALL SIGN SUCH AGREEMENT]



     The undersigned is a holder of securities of August Technology Corporation,
a Minnesota corporation (the "Company"), and wishes to facilitate the public
offering of shares of the Common Stock (the "Common Stock") of the Company (the
"Offering").  The undersigned recognizes that such Offering will be of benefit
to the undersigned.

     In consideration of the foregoing and in order to induce you to act as
underwriters in connection with the Offering, the undersigned hereby agrees that
he, she or it will not, without the prior written approval of Needham & Company,
Inc., acting on its own behalf and/or on behalf of other representatives of the
underwriters, directly or indirectly, sell, contract to sell, make any short
sale, pledge, or otherwise dispose of, or enter into any hedging transaction
that is likely to result in a transfer of, any shares of Common Stock, options
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock of the Company which he, she or it may own, for a
period commencing as of the date hereof and ending on the date which is one
hundred eighty (180) days after the date of the final Prospectus relating to the
Offering[; provided, however, that the foregoing shall not prohibit any
distribution by a partnership to its partners so long as such partners agree to
be bound by the terms of this Agreement].  The undersigned confirms that he, she
or it understands that the underwriters and the Company will rely upon the
representations set forth in this Agreement in proceeding with the Offering.
The undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns.  The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Agreement.

     This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns.


                                        ----------------------------------------

                                          24
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<DESCRIPTION>EXHIBIT 3.1
<TEXT>

<PAGE>

                                                                     Exhibit 3.1


                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                          AUGUST TECHNOLOGY CORPORATION

     The undersigned individual, being of full age, for the purpose of forming a
corporation under and pursuant to Chapter 302A of the Minnesota Statutes, as
amended, hereby adopts the following Articles of Incorporation:

                                ARTICLE 1 - NAME

     1.1) The name of the corporation shall be August Technology Corporation.

                          ARTICLE 2 - REGISTERED OFFICE

     2.1) The registered office of the corporation is located at 4900 West 78th
Street, Bloomington, Minnesota 55435.


                            ARTICLE 3 - CAPITAL STOCK

     3.1) AUTHORIZED SHARES; ESTABLISHMENT OF CLASSES AND SERIES. The aggregate
number of shares the corporation has authority to issue shall be Thirty Million
(30,000,000) shares, which shall have a par value of $.01 per share solely for
the purpose of a statute or regulation imposing a tax or fee based upon the
capitalization of the corporation, and which shall consist of Twenty Eight
Million (28,000,000) common shares and Two Million (2,000,000) undesignated
shares. The Board of Directors of the corporation is authorized to establish
from the undesignated shares, by resolution adopted and filed in the manner
provided by law, one or more classes or series of shares, to designate each such
class or series (which may include but is not limited to designation as
additional common shares), and to fix the relative rights and preferences of
each such class or series.

     3.2) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
establishing a price in money or other consideration, or a minimum price, or a
general formula or method by which the price will be determined.

     3.3) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix


<PAGE>

the terms, provisions and conditions of such rights, including the exchange or
conversion basis or the price at which such shares may be purchased or
subscribed for.

     3.4) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The Board is
further authorized to issue shares of one class or series to holders of that
class or series or to holders of another class or series to effectuate share
dividends or splits.

                       ARTICLE 4 - RIGHTS OF SHAREHOLDERS

     4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.

     4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by
the shareholders of the corporation.

          ARTICLE 5 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION

     5.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.

               ARTICLE 6 - AMENDMENT OF ARTICLES OF INCORPORATION

     6.1) After the issuance of shares by the corporation, any provision
contained in these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority of the
voting power of the shares present and entitled to vote at a duly held meeting
or such greater percentage as may be otherwise prescribed by the laws of the
State of Minnesota.

                  ARTICLE 7 - LIMITATION OF DIRECTOR LIABILITY

     7.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.


                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>4
<DESCRIPTION>EXHIBIT 3.2
<TEXT>

<PAGE>

                                                                     Exhibit 3.2



                           AMENDED AND RESTATED BYLAWS
                                       OF
                         AUGUST TECHNOLOGY CORPORATION.

                                   ARTICLE 1.
                                     OFFICES

     1.1) OFFICES. The principal executive office of the corporation shall be at
such address as the Board of Directors may determine from time to time, and the
corporation may have offices at such other places within or without the State of
Minnesota as the Board of Directors shall from time to time determine or the
business of the corporation requires.

                                   ARTICLE 2.
                            MEETINGS OF SHAREHOLDERS

     2.1) REGULAR MEETINGS. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief executive
officer; provided, that if a regular meeting has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding 3% or
more of the voting power of all shares entitled to vote may demand a regular
meeting of shareholders by written notice of demand given to an officer of the
corporation. At each regular meeting, the shareholders, voting as provided in
the Articles of Incorporation and these Bylaws, shall elect qualified successors
for directors who serve for an indefinite term or whose terms have expired or
are due to expire within six months after the date of the meeting, and shall
transact such other business as shall come before the meeting. No meeting shall
be considered a regular meeting unless specifically designated as such in the
notice of meeting or unless all the shareholders entitled to vote are present in
person or by proxy and none of them objects to such designation.

     2.2) SPECIAL MEETINGS. Special meetings of the shareholders entitled to
vote may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder or
shareholders holding ten percent (10%) or more of the voting power of all shares
entitled to vote who shall demand such special meeting by giving written notice
of demand to the chief executive officer or the chief financial officer
specifying the purposes of the meeting.

     2.3) MEETINGS HELD UPON SHAREHOLDER DEMAND. Within thirty (30) days after
receipt by the chief executive officer or the chief financial officer of a
demand from any shareholder or shareholders entitled to call a regular or
special meeting of shareholders, the Board of Directors shall cause such meeting
to be called and held on notice no later than ninety (90) days after receipt of
such demand. If the Board of Directors fails to cause such a meeting to be
called and held, the shareholder or shareholders making the demand may call the
meeting by giving notice


                                      -1-
<PAGE>

as provided in Section 2.5 hereof at the expense of the corporation.

     2.4) PLACE OF MEETINGS. Meetings of the shareholders shall be held at the
principal executive office of the corporation or at such other place, within or
without the State of Minnesota, as is designated by the Board of Directors,
except that a regular meeting called by or at the demand of a shareholder shall
be held in the county where the principal executive office of the corporation is
located.

     2.5) NOTICE OF MEETINGS. Except as otherwise specified in Section 2.6 or
required by law, a written notice setting out the place, date and hour of any
regular or special meeting shall be given to each holder of shares entitled to
vote not less than ten (10) days nor more than sixty (60) days prior to the date
of the meeting; provided, that notice of a meeting at which there is to be
considered a proposal (i) to dispose of all, or substantially all, of the
property and assets of the corporation or (ii) to dissolve the corporation shall
be given to all shareholders of record, whether or not entitled to vote; and
provided further, that notice of a meeting at which there is to be considered a
proposal to adopt a plan of merger or exchange shall be given to all
shareholders of record, whether or not entitled to vote, at least fourteen (14)
days prior thereto. Notice of any special meeting shall state the purpose or
purposes of the proposed meeting, and the business transacted at all special
meetings shall be confined to the purposes stated in the notice.

     2.6) WAIVER OF NOTICE. A shareholder may waive notice of any meeting
before, at or after the meeting, in writing, orally or by attendance. Attendance
at a meeting by a shareholder is a waiver of notice of that meeting unless the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened, or objects
before a vote on an item of business because the item may not be lawfully
considered at such meeting and does not participate in the consideration of the
item at such meeting.

     2.7) QUORUM AND ADJOURNED MEETING. The holders of a majority of the voting
power of the shares entitled to vote at a meeting, represented either in person
or by proxy, shall constitute a quorum for the transaction of business at any
regular or special meeting of shareholders. If a quorum is present when a duly
called or held meeting is convened, the shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any meeting,
those present shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the requisite
number of shares entitled to vote shall be represented. At such adjourned
meeting at which the required amount of shares entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the original meeting.

     2.8) VOTING. At each meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy duly appointed
by an instrument in writing subscribed by such shareholder. Each shareholder
shall have one (1) vote for each share having voting power standing in his name
on the books of the corporation except as may be otherwise provided in the terms
of the share or as may be required to provide for cumulative voting (if not
denied by the Articles). Upon the demand of any shareholder, the vote for
directors or the vote upon any question before the meeting shall be by ballot.
All elections shall be determined and


                                      -2-
<PAGE>

all questions decided by a majority vote of the number of shares entitled to
vote and represented at any meeting at which there is a quorum except in such
cases as shall otherwise be required by statute, the Articles of Incorporation
or these Bylaws. Except as may otherwise be required to conform to cumulative
voting procedures, directors shall be elected by a plurality of the votes cast
by holders of shares entitled to vote thereon.

     2.9) RECORD DATE. The Board of Directors may fix a time, not exceeding
sixty (60) days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of and
entitled to vote at such meeting, notwithstanding any transfer of any shares on
the books of the corporation after any record date so fixed. The Board of
Directors may close the books of the corporation against transfer of shares
during the whole or any part of such period. In the absence of action by the
Board, only shareholders of record twenty (20) days prior to a meeting may vote
at such meeting.

     2.10) ORDER OF BUSINESS. The suggested order of business at any regular
meeting and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:

     (a)      Call of roll
     (b)      Proof of due notice of meeting or waiver of notice
     (c)      Determination of existence of quorum
     (d)      Reading and disposal of any unapproved minutes
     (e)      Reports of officers and committees
     (f)      Election of directors
     (g)      Unfinished business
     (h)      New business
     (i)      Adjournment.

                                   ARTICLE 3.
                                    DIRECTORS

     3.1) GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors.

     3.2) NUMBER, TERM, ELECTION AND QUALIFICATIONS. At each annual meeting the
Shareholders shall determine the number of directors which shall be not less
than three (3) nor more than nine (9); provided, that between annual meetings
the Board of Directors may increase the authorized number of directors within
the limits stated above. However, notwithstanding the foregoing no increase or
decrease in the number of directors may be effected except according to the
further provisions contained in this Section 3.2.

     The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire Board of
Directors.


                                      -3-
<PAGE>

     At the first meeting of Shareholders held after March 9, 2000, Class I
directors shall be elected for a one (1)-year term, the Class II directors for a
two (2)-year term, and the Class III directors for a three (3) year term. At
each succeeding annual meeting of the shareholders at which directors are
elected, successors to the Class of directors whose term expires at that annual
meeting shall be elected for a three (3) year term.

     A director shall hold office until the annual meeting for the year in which
such director's term expires and until such director's successor shall be
elected and shall qualify, or until such director's resignation or removal from
office. If the number of directors is changed, any increase or decrease shall be
apportioned by the Board of Directors among the classes so as to maintain, as
nearly as possible, an equal number of directors in each class. In the event an
increase or decrease makes it impossible to maintain an equal number of
directors in each class, increases shall be allocated to the class or classes
with the longest remaining term, and decreases shall be allocated to the class
with the shortest remaining term.

     Any director elected to fill a vacancy resulting from an increase in such
class shall hold office for a term that shall coincide with the remaining term
of that class. In no event will a decrease in the number of directors result in
the elimination of an entire class of directors, cause any class to contain a
number of directors two or more greater than any other class, or shorten the
term of any incumbent director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of such director's predecessor.

     No amendment to these Bylaws shall alter, change or repeal any of the
provisions of this Section 3.2 unless the amendment effecting such alteration,
change or repeal shall receive the affirmative vote of the holders of
seventy-five percent (75%) of all shares of stock of the corporation entitled to
vote on all matters that may come before each meeting of shareholders.

     Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of shareholders of the corporation either
by or at the direction of the Nominating Committee of the Board of Directors or
by any shareholder of record entitled to vote in the election of directors at
such meeting who has complied with the notice procedures set forth in this
paragraph of this Section 3.2. A shareholder who desires to nominate a person
for the election to the Board of Directors at a meeting of shareholders of the
corporation and who is eligible to make such nomination must give timely written
notice of the proposed nomination to the Secretary of the corporation. To be
timely, a shareholder's notice given pursuant to this paragraph must be received
at the principal executive office of the corporation not less than one hundred
twenty (120) calendar days in advance of the date which is one year later than
the date of the proxy statement of the corporation released to shareholders of
the corporation in connection with the previous year's annual meeting of
shareholders of the corporation; provided, however, that if no annual meeting of
shareholders of the corporation was held the previous year or if the date of the
forthcoming annual meeting of shareholders has been changed by more than thirty
(30) calendar days from the date contemplated at the time of the previous year's
proxy statement or if the forthcoming meeting is not an annual meeting of
shareholders of the corporation, then to be timely such shareholder's notice
must be so received not later than the close of business on the tenth day
following the earlier of (a) the day on which notice of the date


                                      -4-
<PAGE>

of the forthcoming meeting was mailed or given to shareholders by or on behalf
of the corporation or (b) the day on which public disclosure of the date of the
forthcoming meeting was made by or on behalf of the corporation. Such
shareholder's notice to the Secretary of the corporation shall set forth (a) as
to each person whom the shareholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person; (iii) the class and number of shares of capital stock of the corporation
which are then beneficially owned by such person, (iv) any other information
relating to such person that is required by law or regulation to be disclosed in
solicitations of proxies for the election of directors of the corporation and
(v) such person's written consent to being named as a nominee for election as a
director and to serve as a director if elected and (b) as to the shareholder
giving the notice, (i) the name and address, as they appear in the stock records
of the corporation, of such shareholder, (ii) the class and number of shares of
capital stock of the corporation which are then beneficially owned by such
stockholder, (iii) a description of all arrangements or understandings between
such shareholder and each nominee for election as a director and any other
person or persons (naming such person or persons) relating to the nomination
proposed to be made by such shareholder, and (iv) any other information required
by law or regulation to be provided by a shareholder intending to nominate a
person for election as a director of the corporation. At the request of the
Board of Directors, any person nominated by or at the direction of the Board of
Directors for election as a director of the corporation shall furnish to the
Secretary of the corporation the information concerning such nominee which is
required to be set forth in a shareholder's notice off a proposed nomination. No
person shall be eligible for election as a director of the corporation unless
nominated in compliance with the procedures set forth in this paragraph. The
chairman of a meeting of shareholders of the corporation shall refuse to accept
the nomination of any person not made in compliance with the procedures set
forth in this paragraph, and such defective nomination shall be disregarded.

     3.3) VACANCIES. Vacancies on the Board of Directors shall be filled by the
affirmative vote of a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from an
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the shareholders, who may make such election at the next regular or
special meeting of the shareholders.

     3.4) QUORUM AND VOTING. A majority of the directors currently holding
office shall constitute a quorum for the transaction of business. In the absence
of a quorum, a majority of the directors present may adjourn a meeting from time
to time until a quorum is present. If a quorum is present when a duly called or
held meeting is convened, the directors present may continue to transact
business until adjournment even though the withdrawal of a number of directors
originally present leaves less than the proportion or number otherwise required
for a quorum. Except as otherwise required by law or the Articles of
Incorporation, the acts of a majority of the directors present at a meeting at
which a quorum is present shall be the acts of the Board of Directors.

     3.5) BOARD MEETINGS; PLACE AND NOTICE. Meetings of the Board of Directors
may be held from time to time at any place within or without the State of
Minnesota that the Board of Directors


                                      -5-
<PAGE>

may designate. In the absence of designation by the Board of Directors, Board
meetings shall be held at the principal executive office of the corporation,
except as may be otherwise unanimously agreed orally, or in writing, or by
attendance. Any director may call a Board meeting by giving two (2) days notice
to all directors of the date and time of the meeting. The notice need not state
the purpose of the meeting, and may be given by mail, telephone, telegram, or in
person. If a meeting schedule is adopted by the Board, or if the date and time
of a Board meeting has been announced at a previous meeting, no notice is
required.

     3.6) WAIVER OF NOTICE. A director may waive notice of any meeting before,
at or after the meeting, in writing, orally or by attendance. Attendance at a
meeting by a director is a waiver of notice of that meeting unless the director
objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and does not participate
thereafter in the meeting.

     3.7) COMPENSATION. Directors who are not salaried officers of the
corporation shall receive such fixed sum per meeting attended or such fixed
annual sum or both as shall be determined from time to time by resolution of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving this corporation in any other capacity and receiving
proper compensation therefor.

     3.8) COMMITTEES. The Board of Directors may, by resolution approved by the
affirmative vote of a majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation only
to the extent provided in the resolution. Each such committee shall consist of
one or more natural persons (who need not be directors) appointed by affirmative
vote of a majority of the directors present, and shall be subject at all times
to the direction and control of the Board. A majority of the members of a
committee present at a meeting shall constitute a quorum for the transaction of
business.

     3.9) COMMITTEE OF DISINTERESTED PERSONS. The Board may establish a
committee composed of two or more disinterested directors or other disinterested
persons to determine whether it is in the best interests of the corporation to
pursue a particular legal right or remedy of the corporation and whether to
cause the dismissal or discontinuance of a particular proceeding that seeks to
assert a right or remedy on behalf of the corporation. For purposes of this
section, a director or other person is "disinterested" if the director or other
person is not the owner of more than one percent of the outstanding shares of,
or a present or former officer, employee, or agent of, the corporation or of a
related corporation and has not been made or threatened to be made a party to
the proceeding in question. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority vote of the remaining members. The good
faith determinations of the committee are binding upon the corporation and its
directors, officers and shareholders. The committee terminates when it issues a
written report of its determinations to the Board.

     3.10) ORDER OF BUSINESS. The suggested order of business at any meeting of
the Board of Directors shall, to the extent appropriate and unless modified by
the presiding chairman, be:

     (a)      Roll call


                                      -6-
<PAGE>

     (b)      Proof of due notice of meeting or waiver of notice, or
                  unanimous presence and declaration by presiding chairman
     (c)      Determination of existence of quorum
     (d)      Reading and disposal of any unapproved minutes
     (e)      Reports of officers and committees
     (f)      Election of officers
     (g)      Unfinished business
     (h)      New business
     (i)      Adjournments.

     3.11) REMOVAL. Directors may be removed only for cause by the affirmative
vote of the holders of seventy-five percent (75%) of all shares of stock of the
corporation entitled to vote on all matters that may come before each meeting of
shareholders or for cause by vote of a majority of the entire Board of
Directors. No amendment to these Bylaws shall alter, change or repeal any of the
provisions of this Section 3.11 unless the amendment effecting such alteration,
change or repeal shall receive the affirmative vote of the holders of
seventy-five percent (75%) of all shares of stock of the corporation entitled to
vote on all matters that may come before each meeting of shareholders.

                                   ARTICLE 4.
                                    OFFICERS

     4.1) NUMBER AND DESIGNATION. The corporation shall have one or more natural
persons exercising the functions of the offices of chief executive officer and
chief financial officer. The Board of Directors may elect or appoint such other
officers or agents as it deems necessary for the operation and management of the
corporation including, but not limited to, a Chairman of the Board, a President,
one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board. Any of the offices or functions of
those offices may be held by the same person.

     4.2) ELECTION, TERM OF OFFICE AND QUALIFICATION. At the first meeting of
the Board following each election of directors, the Board shall elect officers,
who shall hold office until the next election of officers or until their
successors are elected or appointed and qualify; provided, however, that any
officer may be removed with or without cause by the affirmative vote of a
majority of the Board of Directors present (without prejudice, however, to any
contract rights of such officer).

     4.3) RESIGNATION. Any officer may resign at any time by giving written
notice to the corporation. The resignation is effective when notice is given to
the corporation, unless a later date is specified in the notice, and acceptance
of the resignation shall not be necessary to make it effective.

     4.4) VACANCIES IN OFFICE. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
shall be filled for the unexpired term


                                      -7-
<PAGE>

by the Board of Directors.

     4.5) CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief executive officer (a) shall have
general active management of the business of the corporation; (b) shall, when
present and in the absence of the Chairman of the Board, preside at all meetings
of the shareholders and Board of Directors; (c) shall see that all orders and
resolutions of the Board are carried into effect; (d) shall sign and deliver in
the name of the corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Articles, these Bylaws or the
Board to some other officer or agent of the corporation; (e) may maintain
records of and certify proceedings of the Board and shareholders; and (f) shall
perform such other duties as may from time to time be assigned to him by the
Board.

     4.6) CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time; (c) shall endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.

     4.7) CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all
meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy affecting
the affairs of the corporation, including particularly its financial and fiscal
affairs.

     4.8) PRESIDENT. Unless otherwise determined by the Board, the President
shall be the chief executive officer. If an officer other than the President is
designated chief executive officer, the President shall perform such duties as
may from time to time be assigned to him by the Board.

     4.9) VICE PRESIDENT. Each Vice President shall have such powers and shall
perform such duties as may be specified in these Bylaws or prescribed by the
Board of Directors. In the event of absence or disability of the President, the
Board of Directors may designate a Vice President or Vice Presidents to succeed
to the power and duties of the President.

     4.10) SECRETARY. The Secretary shall, unless otherwise determined by the
Board, be secretary of and attend all meetings of the shareholders and Board of
Directors, and may record the proceedings of such meetings in the minute book of
the corporation and, whenever necessary, certify such proceedings. The Secretary
shall give proper notice of meetings of shareholders and shall perform such
other duties as may be prescribed by the Board of Directors or the chief


                                    -8-
<PAGE>

executive officer from time to time.

     4.11) TREASURER. Unless otherwise determined by the Board, the Treasurer
shall be the chief financial officer of the corporation. If an officer other
than the Treasurer is designated chief financial officer, the Treasurer shall
perform such duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.

     4.12) DELEGATION. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may delegate in writing some or all of the duties and
powers of his office to other persons.

                                   ARTICLE 5.
                                 INDEMNIFICATION

     5.1) The corporation shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, and to such extent, as
permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter
amended.

                                   ARTICLE 6.
                            SHARES AND THEIR TRANSFER

     6.1) CERTIFICATE OF STOCK. Every owner of stock of the corporation shall be
entitled to a certificate, in such form as the Board of Directors may prescribe,
certifying the number of shares of stock of the corporation owned by him. The
certificates for such stock shall be numbered (separately for each class) in the
order in which they are issued and shall, unless otherwise determined by the
Board, be signed by the chief executive officer, the chief financial officer, or
any other officer of the corporation. A signature upon a certificate may be a
facsimile. Certificates on which a facsimile signature of a former officer,
transfer agent or registrar appears may be issued with the same effect as if he
were such officer, transfer agent or registrar on the date of issue.

     6.2) STOCK RECORD. As used in these Bylaws, the term "shareholder" shall
mean the person, firm or corporation in whose name outstanding shares of capital
stock of the corporation are currently registered on the stock record books of
the corporation. The corporation shall keep, at its principal executive office
or at another place or places within the United States determined by the Board,
a share register not more than one year old containing the names and addresses
of the shareholders and the number and classes of shares held by each
shareholder. The corporation shall also keep at its principal executive office
or at another place or places within the United States determined by the Board,
a record of the dates on which certificates representing shares were issued.
Every certificate surrendered to the corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled (except as provided for in Section 6.4 of this Article 6).


                                      -9-
<PAGE>

     6.3) TRANSFER OF SHARES. Transfer of shares on the books of the corporation
may be authorized only by the share holder named in the certificate (or his
legal representative or duly authorized attorney-in-fact) and upon surrender for
cancellation of the certificate or certificates for such shares. The shareholder
in whose name shares of stock stand on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation; provided,
that when any transfer of shares shall be made as collateral security and not
absolutely, such fact, if known to the corporation or to the transfer agent,
shall be so expressed in the entry of transfer; and provided, further, that the
Board of Directors may establish a procedure whereby a shareholder may certify
that all or a portion of the shares registered in the name of the shareholder
are held for the account of one or more beneficial owners.

     6.4) LOST CERTIFICATE. Any shareholder claiming a certificate of stock to
be lost or destroyed shall make an affidavit or affirmation of that fact in such
form as the Board of Directors may require, and shall, if the directors so re
quire, give the corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board of at least double the value, as determined
by the Board, of the stock represented by such certificate in order to indemnify
the corporation against any claim that may be made against it on account of the
alleged loss or destruction of such certificate, where upon a new certificate
may be issued in the same tenor and for the same number of shares as the one
alleged to have been destroyed or lost.

                                   ARTICLE 7.
                               GENERAL PROVISIONS

     7.1) DISTRIBUTIONS; ACQUISITIONS OF SHARES. Subject to the provisions of
law, the Board of Directors may authorize the acquisition of the corporation's
shares and may authorize distributions whenever and in such amounts as, in its
opinion, the condition of the affairs of the corporation shall render it
advisable.

     7.2) FISCAL YEAR. The fiscal year of the corporation shall be established
by the Board of Directors.

     7.3) SEAL. The corporation shall have such corporate seal or no corporate
seal as the Board of Directors shall from time to time determine.

     7.4) SECURITIES OF OTHER CORPORATIONS.

          (a) VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the chief executive officer shall have full
power and authority on behalf of the corporation (i) to attend and to vote at
any meeting of security holders of other companies in which the corporation may
hold securities; (ii) to execute any proxy for such meeting on behalf of the
corporation; and (iii) to execute a written action in lieu of a meeting of such
other company on behalf of this corporation. At such meeting, by such proxy or
by such writing in lieu of meeting, the chief executive officer shall possess
any may exercise any and all rights and powers incident to the ownership of such
securities that the corporation might have possessed and exercised if it had
been present. The Board of Directors may from time to time confer like


                                      -10-
<PAGE>

powers upon any other person or persons.

          (b) PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by the
Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other company owned by the corporation and may
execute and deliver such documents as may be necessary to effect such purchase,
sale, transfer or encumbrance. The Board of Directors may from time to time
confer like powers upon any other person or persons.

                                   ARTICLE 8.
                                    MEETINGS

     8.1) WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by these Bylaws, the Articles of Incorporation or any of the laws of the
State of Minnesota, a waiver thereof given by the person or persons entitled to
such notice, whether before, at or after the time stated therein and either in
writing, orally or by attendance, shall be deemed equivalent to the actual
required notice.

     8.2) TELEPHONE MEETINGS AND PARTICIPATION. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference constitutes a Board meeting, if the same notice
is given of the conference as would be required for a meeting, and if the number
of directors participating in the conference would be sufficient to constitute a
quorum at a meeting. Participation in a meeting by that means constitutes
presence in person at the meeting. A director may participate in a Board meeting
not heretofore described in this paragraph, by any means of communication
through which the director, other directors so participating, and all directors
physically present at the meeting may simultaneously hear each other during the
meeting. Participation in a meeting by that means constitutes presence in person
at the meeting. The provisions of this section shall apply to committees and
members of committees to the same extent as they apply to the Board and
directors.

     8.3) AUTHORIZATION WITHOUT MEETING. Any action of the shareholders, the
Board of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of the holders of shares who would be entitled to vote on such
action, by all of the directors (unless less than unanimous action is permitted
by the Articles of Incorporation), or by all of the members of such committee,
as the case may be.

                                   ARTICLE 9.
                              AMENDMENTS OF BYLAWS

     9.1) AMENDMENTS. Except as otherwise provided in specific provisions of
these Bylaws, these Bylaws may be altered, amended, added to or repealed by the
affirmative vote of a majority of the members of the Board of Directors at any
regular meeting of the Board or at any special meeting of the Board called for
that purpose, subject to the power of the shareholders to change


                                      -11-
<PAGE>

or repeal such Bylaws and subject to any other limitations on such authority of
the Board provided by the Minnesota Business Corporation Act.


                                      -12-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>5
<DESCRIPTION>EXHIBIT 10.1
<TEXT>

<PAGE>

                                                                   Exhibit 10.1

                            AUGUST TECHNOLOGY CORPORATION

                                1997 STOCK OPTION PLAN


                        ARTICLE 1.  ESTABLISHMENT AND PURPOSE

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

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

                               ARTICLE 2.  DEFINITIONS

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

     2.1  "BOARD" means the Board of Directors of the Company.

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

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

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

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

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

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

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

     2.9  "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any
date:

          (a)  if the Common Stock is listed or admitted to unlisted trading
     privileges on any national securities exchange or is not so listed or
     admitted but transactions in the Common Stock are reported on the NASDAQ
     National Market System, the mean between the reported high and low sale
     prices of the Common Stock on such exchange or by the NASDAQ National
     Market System as of such date (or, if no shares were traded on such day, as
     of the next preceding day on which there was such a trade); or

          (b)  if the Common Stock is not listed or admitted to unlisted trading
     privileges or reported on the NASDAQ National Market System, and bid and
     asked prices therefor in the over-the-counter market are



<PAGE>

     reported by the NASDAQ System or the National Quotation Bureau, Inc. (or
     any comparable reporting service), the mean of the closing bid and asked
     prices as of such date, as reported by the NASDAQ System, or, if not
     reported thereon, as reported by the National Quotation Bureau, Inc. (or
     a comparable reporting service); or

          (c)  if the Common Stock is not listed or admitted to unlisted trading
     privileges, or reported on the NASDAQ National Market System, and bid and
     asked prices are not reported, the price that the Committee determines in
     good faith in the exercise of its reasonable discretion. The Committee's
     determination as to the current value of the Common Stock shall be final,
     conclusive and binding for all purposes and on all persons, including,
     without limitation, the Company, the shareholders of the Company, the
     Optionees and their respective successors-in-interest.  No member of the
     Board or the Committee shall be liable for any determination regarding
     current value of the Common Stock that is made in good faith.

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

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

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

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

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

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

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

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

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

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

                           ARTICLE 3.  PLAN ADMINISTRATION

     The Plan shall be administered by the Board or by a Committee of the Board
consisting of not less than 2 persons; provided, however, that from and
after the date on which the Company first registers a class of its equity
securities under Section 12 of the Exchange Act the Plan shall be administered
by the Board, a majority of which Board and a majority of whom acting on any
matter under the Plan shall be "disinterested persons" as defined by Rule l6b-3
of the Rules and Regulations of the Securities and Exchange Commission, as
amended ("Rule l6b-3") or by a Committee consisting solely of not less than
2 members of the Board who are "disinterested persons" within the meaning
of Rule l6b-3.  Members of a Committee, if established, shall be appointed from
time to time by the Board, shall serve at the pleasure of the Board and may
resign at any time upon written notice to the Board.  A majority of the


                                      2
<PAGE>

members of the Committee shall constitute a quorum.  The Committee shall act
by majority approval of its members, shall keep minutes of its meetings and
shall provide copies of such minutes to the Board.  Action of the Committee
may be taken without a meeting if unanimous written consent thereto is given.
 Copies of minutes of the Committee's meetings and of its actions by written
consent shall be provided to the Board and kept with the corporate records of
the Company.  As used in this Plan, the term "Committee" will refer either to
the Board or to such a Committee, if established.  From and after the date on
which the Company first registers a class of its equity securities under
Section 12 of the Exchange Act, no member of the Committee shall be eligible,
or shall have been eligible at any time within the lesser of one year or the
period since the Company first registered a class of its equity securities
under Section 12 of the Exchange Act, to receive an Incentive Stock Option or
a Non-Statutory Stock Option under the Plan.

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

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

                        ARTICLE 4.  SHARES SUBJECT TO THE PLAN

     4.1  NUMBER.  The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be 500,000, subject to adjustment
upon changes in capitalization of the Company as provided in Section 4.3 below.
The maximum number of shares authorized may be increased from time to time by
approval of the Board and, if required pursuant to Rule 16b-3, Section 422A of
the Code, or the rules of any securities exchange or the NASD, or the
shareholders of the Company.  Shares of Common Stock that may be issued upon
exercise of Options shall be applied to reduce the maximum number of shares of
Common Stock remaining available for use under the Plan.

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

     4.3  CHANGE IN SHARES, ADJUSTMENTS, ETC.  If the number of outstanding
shares of Common Stock is increased or decreased or changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization,


                                      3
<PAGE>

reclassification, stock dividend, stock split, reverse stock split,
combination of shares, rights offering or any other change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of directors of
the surviving corporation) shall make appropriate adjustment as to the number
and kind of securities subject to and reserved under the Plan and, in order
to prevent dilution or enlargement of the rights of Optionees, the number and
kind of securities subject to outstanding Options.  Any such adjustment in
any outstanding Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with an
appropriate adjustment in the price for each share or other unit of any
security covered by the Option.  However, no change shall be made in the
terms of any outstanding Incentive Stock Option as a result of any such
change in the corporate structure or shares of the Company, without the
consent of the Optionee affected thereby, that would disqualify that
Incentive Stock Option from treatment under Section 422 of the Code or would
be considered a modification, extension or renewal of an option under Section
424(h) of the Code.

                         ARTICLE 5.  ELIGIBILITY

     Incentive Stock Options or Non-Statutory Stock Options shall be granted
only to those Eligible Persons who, in the judgment of the Committee, are
performing, or during the term of an Option, will perform, vital services in
the management, operation and development of the Company or a Subsidiary, and
significantly contribute or are expected to significantly contribute to the
achievement of long-term corporate economic objectives.  Optionees may be
granted from time to time one or more Incentive Stock Options and/or
Non-Statutory Stock Options under the Plan, provided that only employees of
the Company or a Subsidiary may be granted Incentive Stock Options under the
Plan, in any case as may be determined by the Committee in its sole
discretion.  The number, type, terms and conditions of Options granted to
various Eligible Persons need not be uniform, consistent or in accordance
with any plan, whether or not such Eligible Persons are similarly situated.
The Committee may grant both an Incentive Stock Option and a Non-Statutory
Stock Option to the same Optionee at the same time or at different times.
Incentive Stock Options and Non-Statutory Stock Options, whether granted at
the same or different times, shall be deemed to have been awarded in separate
grants, shall be clearly identified, and in no event will the exercise of one
Option affect the right to exercise any other Option or affect the number of
shares of Common Stock for which any other Option may be exercised.  Upon
determination by the Committee that an Option is to be granted to an
Optionee, written notice shall be given such person specifying such terms,
conditions, rights and duties related thereto.  Each Optionee shall enter
into an agreement with the Company, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan, specifying
the terms, conditions, rights and duties of Incentive Stock Options and
Non-Statutory Stock Options granted under the Plan. Options shall be deemed
to be granted as of the date specified in the grant resolution of the
Committee, which date shall be the date of the related agreement with the
Optionee.

                        ARTICLE 6.  DURATION AND EXERCISE

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

     6.2  METHOD OF PAYMENT OF OPTION EXERCISE PRICE.  At the time of the
exercise of an Incentive Stock Option or a Non-Statutory Stock Option, the
Optionee may determine whether the total purchase price of the shares to be
purchased shall be paid solely in cash or by transfer from the Optionee to the
Company of previously acquired shares of Common Stock, or by a combination
thereof.  In the event the Optionee elects to pay the purchase price in whole or


                                      4
<PAGE>

in part with previously acquired shares of Common Stock, the value of such
shares shall be equal to their Fair Market Value on the date of exercise.  The
Committee may reject an Optionee's election to pay all or part of the purchase
price with previously acquired shares of Common Stock and require such purchase
price to be paid entirely in cash if, in the sole discretion of the Committee,
payment in previously acquired shares would cause the Company to be required to
recognize a charge to earnings in connection therewith.  For purposes of this
Section 6.2, "previously acquired shares" shall include both shares of Common
Stock that are already owned by the Optionee at the time of exercise and shares
of Common Stock that are to be acquired pursuant to the exercise of the Option
concerned.  In its sole discretion, the Committee may determine either at the
time of grant or exercise of an Incentive Stock Option or a Non-Statutory Stock
Option, to permit a Optionee to pay all or any portion of the purchase price by
delivery of a promissory note in form and substance acceptable to the Committee.

     6.3  RIGHTS AS A SHAREHOLDER.  The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date the Optionee becomes the
holder of record except as the Committee may determine pursuant to Section 4.3.

     6.4  INCENTIVE STOCK OPTIONS.

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

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

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

          (d)  DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
     INCENTIVE STOCK OPTIONS.  Prior to making a disposition (as defined in
     Section 424(c) of the Code) of any shares of Common


                                      5
<PAGE>

     Stock acquired pursuant to the exercise of an Incentive Stock Option
     granted under the Plan before the expiration of two years after the date
     on which the Option was granted or before the expiration of one year
     after the date on which such shares of Common Stock were transferred to
     the Optionee pursuant to exercise of the Option, the Optionee shall send
     written notice to the Company of the proposed date of such disposition,
     the number of shares to be disposed of, the amount of proceeds to be
     received from such disposition and any other information relating to
     such disposition that the Company may reasonably request.  The right of
     an Optionee to make any such disposition shall be conditioned on the
     receipt by the Company of all amounts necessary to satisfy any federal,
     state or local withholding tax requirements attributable to such
     disposition.  The Committee shall have the right, in its sole
     discretion, to endorse the certificates representing such shares with a
     legend restricting transfer and to cause a stop transfer order to be
     entered with the Company's transfer agent until such time as the Company
     receives the amounts necessary to satisfy such withholding requirements
     or until the later of the expiration of two years from the date the
     Option was granted or one year from the date on which such shares were
     transferred to the Optionee pursuant to the exercise of the Option.

          (e)  WITHHOLDING TAXES.  The Company is entitled to withhold and
     deduct from future wages of the Optionee, or make other arrangements for
     the collection of, all legally required amounts necessary to satisfy any
     federal, state or local withholding tax requirements attributable to any
     action by the Optionee, including, without limitation, a disposition of
     shares of Common Stock described in Section 6.4(d) above, that causes the
     Incentive Stock Option to cease to qualify as an incentive stock option
     within the meaning of Section 422 of the Code.

     6.5  NON-STATUTORY STOCK OPTIONS.

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

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

          (c)  WITHHOLDING TAXES.

               (i) The Company is entitled to (aa) withhold and deduct from
          future wages of the Optionee, or make other arrangements for the
          collection of, all legally required amounts necessary to satisfy any
          federal, state or local withholding tax requirements attributable to
          the Optionee's exercise of a Non-Statutory Stock Option or otherwise
          incurred with respect to the Option, or (bb) require the Optionee
          promptly to remit the amount of such withholding to the Company before
          acting on the Optionee's notice of exercise of the Option.


                                      6
<PAGE>

               (ii) The Committee may, in its discretion and subject to such
          rules as the Committee may adopt, permit an Optionee to satisfy, in
          whole or in part, any withholding tax obligation which may arise in
          connection with the exercise of a Non-Statutory Stock Option either
          by electing to have the Company withhold from the shares of Common
          Stock to be issued upon exercise that number of shares of Common
          Stock, or by electing to deliver to the Company already-owned
          shares of Common Stock, in either case having a Fair Market Value,
          on the date such tax is determined under the Code (the "Tax Date"),
          equal to the amount necessary to satisfy the withholding amount
          due.  An Optionee's election to have the Company withhold shares of
          Common Stock or to deliver already-owned shares of Common Stock
          upon exercise is irrevocable and is subject to the consent or
          disapproval of the Committee.  If the Optionee is an officer,
          director or beneficial owner of more than 10% of the outstanding
          Common Stock of the Company and at the time of exercise of the
          Option the Company has a class of equity securities registered
          under Section 12 of the Exchange Act, such election may not be made
          within six months of the date the Non-Statutory Stock Option is
          granted (unless the death or Disability of the Optionee occurs
          prior to the expiration of such six-month period), and must be made
          either six months prior to the Tax Date or between the third and
          twelfth business days following public release of any of the
          Company's quarterly or annual summary earnings statements.  When
          shares of Common Stock are issued prior to the Tax Date to an
          Optionee making such an election, the Optionee shall agree in
          writing to surrender that number of shares on the Tax Date having
          an aggregate Fair Market Value equal to the tax due.

              ARTICLE 7.  EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS

     7.1  TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY
OR RETIREMENT.  In the event an Optionee's employment or other service is
terminated with the Company and all Subsidiaries by reason of his death,
Disability or Retirement, all outstanding Incentive Stock Options and
Non-Statutory Stock Options then held by the Optionee shall become
immediately exercisable in full and remain exercisable for a period of three
months in the case of Retirement and one year in the case of death or
Disability, provided, however, that an exercise may not occur after the
expiration date thereof in any event.  The Company shall undertake to use its
best efforts to notify the Optionee or his heirs or representatives, as the
case may be, of the last date by which Options may be exercised pursuant to
this Section 7.1, at least thirty (30) days in the case of Retirement and at
least sixty (60) days in the case of death or Disability, prior to such date.

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

          (a)  Except as otherwise provided in Article 11 and subsection (b)
     below, in the event an Optionee's employment or other service is terminated
     with the Company and all Subsidiaries for any reason other than his death,
     Disability or Retirement, all rights of the Optionee under the Plan shall
     immediately terminate without notice of any kind and no Incentive Stock
     Option or Non-Statutory Stock Option then held by the Optionee shall
     thereafter be exercisable.

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


                                      7
<PAGE>

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

                      ARTICLE 8.  RIGHTS OF EMPLOYEES; OPTIONEES

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

     8.2  NONTRANSFERABILITY.  No right or interest of any Optionee in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Optionee, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy.  In the event of
an Optionee's death, an Optionee's rights and interest in any Options shall be
transferable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options (to the extent permitted pursuant to Section 7.1) may be made by, the
Optionee's legal representatives, heirs or legatees.  If in the opinion of the
Committee an Optionee holding any Option is disabled from caring for his or her
affairs because of mental condition, physical condition or age, any payments due
the Optionee may be made to, and any rights of the Optionee under the Plan shall
be exercised by, such Optionee's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.

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

                 ARTICLE 9.  SHARE ISSUANCE AND TRANSFER RESTRICTIONS

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

          (a) (i) there shall be in effect with respect to such shares a
     registration statement under the Securities Act and any applicable state
     securities laws if the Committee, in its sole discretion, shall have
     determined to file, cause to become effective and maintain the
     effectiveness of such registration statement; or (ii) if the Committee has
     determined not to so register the shares of Common Stock to be issued under
     the Plan, (A) exemptions from registration under the Securities Act and
     applicable state securities laws shall be available for such issuance (as
     determined by counsel to the Company) and (B) there shall have been
     received from the Optionee (or, in the event of death or disability, the
     Optionee's heir(s) or legal representative(s)) any representations or
     agreements requested by the Company in order to permit such issuance to be
     made pursuant to such exemptions; and


                                      8
<PAGE>

          (b)  there shall have been obtained any other consent, approval or
     permit from any state or federal governmental agency which the Committee
     shall, in its sole discretion upon the advice of counsel, deem necessary or
     advisable.

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

     9.3  LEGENDS.  Unless a registration statement under the Securities Act is
in effect with respect to the issuance or transfer of shares of Common Stock
issued under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless counsel for
the Company is of the opinion as to any such certificate that such legend is
unnecessary:

     THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER APPLICABLE
     STATE SECURITIES LAWS.  THESE SECURITIES HAVE BEEN ACQUIRED FOR
     INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
     TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
     PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH
     STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
     AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
     THE  SATISFACTION OF THE COMPANY.

              ARTICLE 10.  PLAN AMENDMENT, MODIFICATION AND TERMINATION

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

                            ARTICLE 11.  CHANGE IN CONTROL

     If, during the term of an Option, (i) the Company merges or consolidates
with any other corporation and is not the surviving corporation after such
merger or consolidation; (ii) the Company transfers all or substantially all of
its business and assets to any other person; or (iii) more than 50% of the
Company's outstanding voting shares are purchased by any other person, the
Committee may, in its sole discretion, provide for the acceleration of the right
to exercise the option prior to the anticipated effective date of any of the
foregoing transactions or take any other action as it may deem appropriate to
further the purposes of this Plan or protect the interests of the Optionee.


                                      9
<PAGE>


                       ARTICLE 12.  EFFECTIVE DATE OF THE PLAN

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

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


                              ARTICLE 13.  MISCELLANEOUS

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

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

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

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

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





                                      10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>6
<DESCRIPTION>EXHIBIT 10.2
<TEXT>

<PAGE>

                                                                    Exhibit 10.2

--------------------------------------------------------------------------------
                          August Technology Corporation
--------------------------------------------------------------------------------


                            INTERNATIONAL DISTRIBUTOR

                                    AGREEMENT

This Agreement is made as of the 14th day of June , 1999, between AUGUST
TECHNOLOGY CORPORATION, a Minnesota (USA) corporation with a principal place of
business at 5237 Edina Industrial Blvd., Edina, Minnesota 55439, USA, (hereafter
referred to as "August Technology") and MARUBENI SOLUTIONS CORPORATION, an
entity organized and existing under the laws of Japan, having its principal
place of business 1-26-20, Higashi, Shibuya-ku, Tokyo 150-0011 Japan (hereafter
referred to as "Distributor").

In consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:

The following are the terms and conditions under which August Technology sells
and licenses its image inspection technology, vision system controlled
manufacturing tools, licensed software programs, and related spare parts
specified in Exhibit-A (hereinafter jointly referred to as "Product" or "
Products"). Distributor wishes to purchase all or selected Products for resale
and commits to actively provide its customers the necessary service and support
to successfully market and maintain the Products in the assigned territory.

1.       DEFINITIONS

         The terms listed below will have the following meaning, unless the
context clearly indicates otherwise:

         1.1      "AGREEMENT" will mean this International Distributor Agreement
                  and all Exhibits.

         1.2      "COMPETITIVE PRODUCTS" will mean image inspection technology,
                  vision system controlled manufacturing tools, licensed
                  software programs, and related spare parts, of substantially
                  the same functionality Products..

         1.3      "PRICE LIST" will mean the published prices that August
                  Technology shall issue from time to time.

         1.4      "TERRITORY" will mean the countries specified in Exhibit-C.

         1.5      "MIE" will mean Marubeni Solutions Corporation's subsidiary in
                  the USA. Specifically, Marubeni International Electronics
                  Corporation with a principal place of business at 790 Lucerne
                  Drive, Sunnyvale, California, 94086.

<PAGE>

2.       APPOINTMENT AS DISTRIBUTOR

         August Technology hereby appoints Distributor as an authorized,
         independent, exclusive Distributor for the Products, for the purpose of
         reselling and servicing the Products directly to its customers in the
         Territory. Distributor agrees that it will re-sell Products directly,
         without the use of any dealers, sub-agents, and the like except with
         August Technology's express written consent.

3.       TERM OF AGREEMENT

         This Agreement will remain in effect during one (1) year period after
         the signed date on this agreement by both parties, and then shall be
         automatically renewed thereafter on a year-to-year basis unless
         otherwise terminated hereunder. Termination may be made at any time by
         either party by providing written notice at least 6 months prior to the
         intended termination date.

4.       TERRITORY

         Distributor will have the exclusive right to actively market, sell, and
         promote the Products in the Territory (see Exhibit-C).

5.       RESTRICTIONS

         5.1      Distributor agrees not to make any sale, transfer, exchange,
                  or other conveyance of any Products whatsoever to any person
                  that Distributor knows, or has reason to know, is purchasing
                  such Products for the purpose of resale without first
                  notifying August Technology for written approval.

         5.2      Distributor will have no rights to the Products, any software
                  included in the Products, or any improvements in the Products.
                  Distributor agrees not to copy, manufacture, re-manufacture,
                  or otherwise modify any Products without the written consent
                  from August Technology (signed by an officer of the company).
                  If Distributor is permitted to modify Products to conform to
                  customer requests or specifications, such modifications must
                  not degrade the original August Technology operating
                  specifications or impede the reliability of the Products. Any
                  modifications performed in violation of this Section 5.2 will
                  void all warranties.

         5.3      Distributor agrees not to promote, market, or sell any
                  Competitive Products or services, directly or indirectly,
                  within the Territory with the exception of Products that
                  Distributor has a Tight to distribute in the Territory on the
                  date of this Agreement. If any equipment supplier to
                  Distributor develops or promotes a Competitive product to
                  August Technology's products, Distributor agrees to
                  immediately notify August Technology in writing of this
                  conflict (including a proposed resolution to the conflict).
                  Distributor agrees not to establish a branch office or other
                  entity or association with plans to distribute Products
                  outside the

<PAGE>

                  Territory, or to appoint any sub-Distributor outside the
                  Territory except with express written consent by August
                  Technology.

6.       PRICE, PAYMENT, TAXES, DUTY & COMMISSION

         6.1      Prices for the Products purchased under this Agreement will be
                  as specified in Exhibit-B. August Technology will have the
                  right at any time to change its prices and must provide
                  Distributor with a Sixty (60) day advance written notice of
                  any pricing changes. Price changes will not apply to unfilled
                  purchase orders that have been accepted by August Technology
                  prior to the effective date of the price change.

         6.2      Payment by Distributor will be made by bank check in U.S.
                  Dollars issued by Distributor's subsidiary Marubeni
                  International Electronics Corp. ("MIE") to August Technology
                  under the payment terms agreed to as part of this Agreement
                  (see Exhibit-B). All bank checks will be forwarded to August
                  Technology via over night "Express Mail Service". Tracking
                  number will be advised by Marubeni International Electronics
                  Corp upon delivery.

         6.3      Product prices are to be stated in U.S. Dollars and are
                  Ex-works (as defined by Incoterms 1990) exclusive of all
                  sales, use, and like taxes. Distributor agrees to pay all
                  freight, storage fees, bank transfer fees, and all taxes and
                  duties associated with the sale of Products purchased under
                  this Agreement.

         6.4      All risk of loss to Products will pass to Distributor upon
                  surrender by August Technology to the carrier at the point of
                  shipment (Edina, Minnesota, USA.) MIE agrees to make all
                  arrangements for export, select the carrier, and insure
                  Products against loss, damage, theft, or destruction upon
                  surrender to the carrier at August Technology's facility.

         6.5      Both Distributor and August Technology agrees that a customer
                  order has three primary components: (1) project/equipment
                  specification, (2) purchasing/negotiations, and (3)
                  In-Warranty service support. The Distributor's purchasing
                  discount from the August Technology published list price will
                  be effected by these primary components (see Table-1 and
                  Exhibit-D).

TABLE-1: Equipment Discount Schedule

<TABLE>
<CAPTION>
          ----------------- ----------------------- --------------------- ---------------------- --------------------
               ORDER            LOCATION WHERE         LOCATION WHERE        LOCATION WHERE         % OF STANDARD
            POSSIBILITY       PROJECT SPECIFIED         P.O. ISSUED         EQUIP. INSTALLED       EQUIP. DISCOUNT
          ----------------- ----------------------- --------------------- ---------------------- --------------------
          <S>               <C>                     <C>                   <C>                    <C>
                 1                Territory              Territory              Territory               100%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 2                Territory              Territory          Not In Territory           66 2/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 3             Not In Territory          Territory              Territory              66 2/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 4                Territory           Not In Territory          Territory              66 2/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 5                Territory           Not In Territory      Not In Territory           33 1/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 6             Not In Territory          Territory          Not In Territory           33 1/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 7             Not In Territory       Not In Territory          Territory              33 1/3%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
                 8             Not In Territory       Not In Territory      Not In Territory             0%
          ----------------- ----------------------- --------------------- ---------------------- --------------------
</TABLE>

<PAGE>

7.       PURCHASE ORDERS, SHIPMENTS, CANCELLATIONS & CHANGES

         7.1      In order to receive Products, Distributor agrees to deliver to
                  August Technology a hard copy purchase order through MIE. All
                  Distributor purchase orders are subject to acceptance at
                  August Technology. All purchase orders issued by Distributor
                  will include the following information:

                  (a)      Final customer's name (end-user), and location, and
                           customer's official purchase order (P.O.) number (If
                           and when customer's PO number is available).
                  (b)      Distributor purchase order number
                  (c)      "Ship To" location (generally Marubeni International
                           Electronics Corporation address)
                  (d)      "Bill To" location (generally Marubeni International
                           Electronics Corporation address) and accounts payable
                           contact person
                  (e)      Method of shipment, including contact person and
                           telephone number
                  (f)      Quantity and description of each item being purchased
                  (g)      Details of any options purchased
                  (h)      Pricing
                  (i)      Requested ship date(s)
                  (j)      Power requirements
                  (k)      Environmental requirements - if any (such as
                           cleanroom specifications)
                  (l)      Any other special requirements, such as customer part
                           or device drawings and samples. Distributor will
                           submit a completed "order sheet" indicating in detail
                           the power, environmental and any other special
                           requirements such as customer part or device
                           drawings.

                  August Technology reserves the right to reject any order that
                  does not conform to the provisions of this Agreement. All
                  orders accepted for delivery will be governed exclusively by
                  the terms and conditions of this Agreement and its
                  incorporated Exhibits. Unless August Technology expressly
                  agrees in writing, no additional or different terms and
                  conditions appearing on the face or reverse side of any order
                  issued by Distributor will become part of such order.

         7.2      No purchase order will be binding on August Technology until
                  accepted by August Technology in writing. August Technology
                  agrees to use its reasonable best efforts to accept or reject
                  a purchase order, and will notify Distributor within three (3)
                  working days from receipt of order.

         7.3      In no event will August Technology accept purchase orders from
                  any Person other than Distributor. All purchase orders must
                  originate from Distributor.

<PAGE>

         7.4      Cancellation.

                  7.4.1    Distributor may cancel a shipment at no charge up to
                           sixty (60) days prior to shipment.

                  7.4.2    Cancellations within sixty (60) days prior to
                           shipment are treated as follows:

                           7.4.2.1    Cancellation #1: August Technology assumes
                                      "risk" of cancellation. Distributor will
                                      not be responsible for any penalties for
                                      this cancellation.

                           7.4.2.2    Cancellation #2: Distributor assumes
                                      "risk" of the next cancellation (following
                                      Cancellation #1). Distributor will be
                                      responsible for accepting original
                                      shipment schedule and fulfillment of
                                      payment obligations to August Technology.

                                      7.4.2.2.1:     If an alternate buyer is
                                                     found, outside of
                                                     Territory, August
                                                     Technology agrees to
                                                     re-purchase the Product
                                                     from Distributor, at
                                                     original export pricing,
                                                     for resale to alternate
                                                     buyer. Distributor agrees
                                                     to pay for shipping costs
                                                     to alternate buyer if
                                                     required (system must be in
                                                     "as new" condition and not
                                                     used except for
                                                     demonstrations in
                                                     Distributor's clean room).

                           7.4.2.3    Cancellation #3: August Technology assumes
                                      "risk" of the next cancellation (following
                                      cancellation #2). Distributor will not be
                                      responsible for any penalties for this
                                      cancellation.

                           7.4.2.4    Cancellation #4, and after: Distributor
                                      and August Technology will alternate
                                      "risk" of cancellation under same terms as
                                      above repeating the cycle of cancellation
                                      "risk" responsibility.

                  At any time following any cancellation, both Distributor and
                  August Technology agree to make best effort to find an
                  alternate buyer, worldwide.

                  All cancellation notices must been submitted in writing to
                  August Technology within three (3) business days following
                  notification by customer to Distributor.

         7.5      August Technology agrees to use its best efforts to meet
                  scheduled shipment dates. However, August Technology will not
                  be liable for delay in meeting a scheduled shipment date. If
                  Products are in short supply, August Technology will allocate
                  them equitably, at August Technology's discretion, among
                  Distributor and all other resale channels. August Technology
                  will only ship an entire order unless otherwise agreed to in
                  writing by Distributor.

<PAGE>

         7.6      Rescheduling (Later Delivery). All rescheduling change must be
                  made at least fifteen (15) days prior to the original shipment
                  date on the purchase order. In no case will the delay be
                  greater than sixty (60) days from original shipment date.
                  Rescheduling will be allowable one time per purchase order,
                  without cost or liability. Distributor agrees to immediately
                  provide August Technology with a written notice of any
                  rescheduling.

         7.7      Rescheduling (Earlier Delivery). Distributor may request early
                  delivery at any time without cost, and August Technology
                  agrees to use its best efforts to comply with this request.

         7.8      August Technology may refuse to ship, or delay the shipment,
                  of any Products on order, if Distributor becomes delinquent in
                  performance of its obligations or fails to meet other credit
                  or financial requirements established by August Technology. No
                  such cancellation, refusal, or delay will be deemed a
                  termination of this Agreement by August Technology, unless
                  August Technology advises Distributor.

         7.9      All Products will be considered delivered to Distributor
                  Ex-works (in accordance with Incoterms 1990) upon transfer to
                  a common carrier by August Technology at the point of shipment
                  (Edina, Minnesota, USA).

         7.10     In the event of any discrepancy between the provisions of this
                  Agreement and any Purchase Order, the provisions of such
                  Purchase Order shall prevail.

8.       RELATIONSHIP

         8.1      Distributor's relationship to August Technology will be that
                  of an independent contractor engaged in purchasing and
                  licensing Products for resale to Distributor customers.
                  Nothing in this Agreement will be understood to give either
                  party any power to direct or control the day-to-day activities
                  of the other. All financial obligations associated with
                  Distributor's business are the sole responsibility of
                  Distributor. Distributor will be solely responsible for and
                  agrees to indemnify and hold August Technology harmless from
                  any claims, damages or lawsuits arising out of act of gross
                  negligence or willful misconduct of Distributor, its
                  employees, and agents. Distributor, its employees and agents,
                  are not agents or legal representatives of August Technology
                  for any purpose, and have no authority to act for, bind, or
                  commit August Technology. Distributor and August Technology
                  agree that this Agreement does not establish a franchise,
                  joint venture, or partnership.

         8.2      Any commitment made by Distributor to its customers with
                  respect to quality, delivery, modifications, interfacing,
                  capability, suitability of software, or suitability in
                  specific applications, will be Distributor's sole
                  responsibility, unless

<PAGE>

                  prior written approval is obtained from August Technology.
                  Distributor has no authority to modify the Products warranty.

         8.3      Distributor has the right to determine its own resale prices,
                  and no August Technology representative will require that any
                  particular price be charged by Distributor.

         8.4      Distributor agrees that August Technology may market and sell
                  Products, other than those listed in Exhibit-A, without making
                  them available to Distributor.

         8.5      August Technology assigns each Distributor based on their
                  expertise and comprehensive knowledge of the Territory,
                  including regional customs, culture, and specific customer
                  business practices. Distributor agrees that the standard
                  Distributor equipment discount is provided by August
                  Technology in order that August Technology can fully rely on
                  the Distributor for all sales, marketing, training, service,
                  and financial responsibilities (in order to satisfy the agreed
                  upon payment terms in this Agreement).

9.       PRODUCT ACCEPTANCE PROCESS

         9.1      August Technology Site Source Inspection: This August
                  Technology Site Source Inspection takes place at August
                  Technology and is performed by August Technology service
                  engineering. In order to complete this source inspection,
                  August Technology will require approved customer samples be
                  received 2 weeks in advance of the scheduled source inspection
                  (For defect inspection Products, these samples should be
                  representative of the types of devices and defects that the
                  customer intends to find in production environments). This
                  August Technology Site Source Inspection to ensure the system
                  quality and configuration prior to shipment.

         9.2      Product Configuration Acceptance: August Technology will
                  forward a completed August Site Source Inspection document to
                  Distributor. This Product Configuration Acceptance is intended
                  to ensure that Distributor accepts the exact configuration of
                  the system being shipped and that this agrees with the
                  customer's order.

         9.3      Distributor Site Source Inspection: This Distributor Site
                  Source should occur within fifteen (15) days of receipt of
                  equipment in Japan. Distributor will perform a source
                  inspection and complete the "source inspection check list" and
                  return a copy of the completed form to August Technology.
                  Should any Product fail to meet Distributor expectations,
                  August Technology will fully support Distributor in this
                  process and will make best effort to ensure that equipment is
                  accepted by Distributor.

         9.4      Final Acceptance Test at Customer Site: This Final Acceptance
                  Test at Customer Site will completed by Distributor. Should
                  any Product fail to meet Customer

<PAGE>

                  expectations, August Technology will fully support Distributor
                  in this process and will make best effort to ensure that
                  equipment is accepted by Customer.

10.      OBLIGATIONS

         During the term of this Agreement August Technology agrees to perform
         the following:

         10.1     August Technology agrees to offer for sale to Distributor
                  Products required by Distributor to perform its duties as
                  described in this Agreement.

         10.2     August Technology agrees to keep Distributor informed of its
                  progress in the conduct of its marketing, sales, and service
                  activities in the USA, as well as international markets
                  (including new applications discovered, major customers,
                  competitor activities, and other trends). August Technology
                  agrees to identify Distributor as its active, exclusive
                  Distributor in the Territory for Products in appropriate
                  advertising and other promotions.

         10.3     August Technology agrees to provide training for Distributor
                  personnel for Products. Training will be available (at a
                  minimum) as follows:

                  (a)      August Technology will provide factory training at a
                           minimum of one (1) time per year. August Technology
                           will pay for all training material, personnel, local
                           transportation, and meals. All other expenses,
                           including air travel and hotel accommodations, will
                           be paid for by Distributor.

                  (b)      In addition to factory training, August Technology
                           may provide training at Distributor's facility on a
                           mutually agreed upon bases (for example, during a
                           trade show in Distributor's Territory). This
                           additional training is in no way intended to be a
                           substitute for factory training.

         10.4.    August Technology agrees to provide reasonable technical
                  advice to Distributor.

         10.5     August Technology agrees to provide a reasonable amount of
                  technical literature that may be necessary to promote Products
                  (such as brochures, video tapes, technical reports, and other
                  data subject to the confidentiality provisions of this
                  Agreement). All technical material and promotional material
                  will be provided in English.

         10.6     August Technology agrees to actively support the marketing,
                  sales, and service efforts of Products by Distributor, give
                  priority responses to Distributor's requests, and keep
                  Distributor informed of lead times and any related changes to
                  Products.

         During the term of this Agreement Distributor agrees to perform the
         following:

<PAGE>

         10.7     Distributor agrees to use its best efforts in good faith to
                  promote, demonstrate, and sell Products on a face-to-face
                  basis and in an end-user environment within the Territory.
                  Distributor agrees to ensure the highest quality of pre-sale
                  and post-sale support to the customers, and to promote the
                  goodwill, name and interest of August Technology and its
                  Products. Specifically, August Technology expects the
                  Distributor to provide the following basic marketing
                  activities, as necessary, in the Territory - industry trade
                  shows, print advertising, direct mail campaigns, marketing
                  literature and data sheets as required to reach each potential
                  customer. Additionally, August Technology expects the
                  Distributor to provide these materials in the local language
                  if necessary.

         10.8     Distributor agrees to purchase an NSX demonstration system,
                  within five (5) days of this Agreement, to be used to actively
                  promote, demonstrate, and sell Products to the customers. For
                  this demo system, August Technology will offer a 32.5%
                  discount with payment terms of 100% due on shipment (net 30).
                  This demonstration discount is available one-time per year,
                  beginning from the date of first demonstration equipment
                  purchase. Distributor has the right to re-sell the
                  demonstration equipment at any time, provided that it is
                  immediately replaced (physically) with another similar or
                  functionally enhanced unit (replacement of the demonstration
                  equipment will be at the standard Distributor Products
                  discount price if the replacement occurs before the one-time
                  per year special discount period expires).

         10.9     Distributor will ensure that its employees complete
                  appropriate training courses, as necessary, (upon release of
                  new product models and software versions) for each of the
                  following subjects: - a) Maintenance training will take place
                  at August Technology's facility in the US. b) Applications
                  training may take place either in Japan or at August
                  Technology's facility in the US. c) Sales training may take
                  place as various locations. August will make it's best efforts
                  to minimize training costs for distributor by holding training
                  classes in Japan when feasible. August Technology will pay for
                  all training material, personnel, local transportation, and
                  meals. All other expenses, including air travel and hotel
                  accommodations, will be paid for by Distributor.

         10.10    Distributor agrees to promptly handle customer complaints,
                  inquiries and orders, and will provide and support Territory
                  based services such as applications assistance, operation and
                  maintenance training, Factory Source Inspection, final on-site
                  acceptance testing, warranty labor services, post-warranty
                  spares and service support, systems retrofits, up-grade kit
                  installation, and the like. Distributor agrees to stock
                  adequate spare parts for Products to meet the requirements of
                  this Agreement as defined Exhibit-A.

         10.11    Distributor agrees to handle all warranty claims of customers
                  and comply with August Technology policy for in-warranty
                  repairs and post-warranty support of Products.

<PAGE>

                  ** For the 3 existing in-warranty CV systems in the Territory
                  (CX002, CV089, CV095) August Technology agrees to repair or
                  replace any spare parts required during the warranty period.**

         10.12    Distributor agrees to conduct its marketing, sales, and
                  service activities in compliance with local customs,
                  traditions, laws, regulations, and customer expectations at
                  the high quality level consistent with that established by
                  August Technology in the USA. Distributor agrees to clearly
                  identify August Technology as the original source of the
                  Products and as the beneficial owner of all Products rights in
                  all advertising, literature, marketing, or labeling, including
                  the use of August Technology's official trademarks and logo.

         10.13    Distributor agrees to bear all of its operating expenses
                  during the term of this Agreement. Distributor will maintain
                  sufficient net worth and Working capital, and devote
                  sufficient financial resources to allow Distributor to perform
                  its obligation as outlined in this Agreement.

         10.14    If, during the term of this Agreement, Distributor receives
                  any inquiry or order regarding Products from any person or
                  business entity outside the Territory, Distributor agrees to
                  immediately refer the inquiry or order to August Technology.
                  For a case in which Distributor's sales efforts specifically
                  related to a Product Specification made to a specific company
                  and made within the Territory results in sales of Products to
                  the same company or affiliates outside the Territory, August
                  Technology will pay to Distributor a commission in accordance
                  with the rate described in Section 6.5. The payment of such
                  commission shall be made by wire transfer within 30 days after
                  August Technology receives a payment from such transaction.
                  Reference Exhibit-D for a complete description of August
                  Technology's World Wide Service & Support Plan.

         10.15    Distributor agrees to, at its expense, arrange for the
                  translation of any documentation for the use and operation of
                  the Products in the Territory (as required or determined to be
                  necessary by Distributor). Distributor will make every
                  reasonable effort to make any translation accurate so that
                  they completely represent August Technology's English version.

11.      WARRANTY

         11.1     Hardware Products - August Technology warrants that it will
                  repair or replace, at its option, hardware Products which are
                  found to be defective in material or workmanship. August
                  Technology must receive written notification of any defect
                  within fourteen (14) months from date of shipment. All
                  transportation charges associated with hardware Products
                  warranty will be arranged and paid for by August Technology.

         11.2     Software Products - August Technology warrants that it will
                  repair or replace, at its option, software Products which fail
                  in a manner which significantly and

<PAGE>

                  adversely affects operating performance as specified in August
                  Technology's published Products description. August Technology
                  must receive written notification of any failure to conform
                  within fourteen (14) months from date of shipment. August
                  Technology does not warrant that the software Products are
                  free from errors. All transportation charges associated with
                  software Products warranty will be arranged and paid for by
                  August Technology.

         11.3     The foregoing warranties will not apply to any deficiency or
                  defect resulting from:

                  (a)      Normal wear and tear, or items subject to
                           deterioration, breakage, or burnout through use.

                  (b)      Installation or maintenance by customer or any third
                           party (other than Distributor).

                  (c)      Modifications or alterations made by customer or any
                           third party without August Technology's written
                           consent.

                  (d)      Misuse or abuse.

                  (e)      Failure of customer to maintain the equipment, site,
                           and environmental conditions as required for the
                           normal operation of the Products.

                  (f)      Causes beyond August Technology's reasonable control.

                  August Technology makes no other warranty, either expressed or
                  implied, including, but not limited to, any implied warranty
                  of merchantability or fitness for a particular purpose, or
                  arising from course of dealing or usage of trade. The
                  foregoing constitutes August Technology's sole obligation and
                  the exclusive remedies of the customer for any breach by
                  August Technology of the warranties contained in this
                  Agreement. August Technology's total liability under this
                  Section 11 will be limited to the repair or replacement of
                  Products, and will in no case exceed the value of the purchase
                  order.

12.      POST-WARRANTY SPARE PARTS SUPPORT

         Due to the rapid pace of the technologies included in the Products,
         August Technology agrees to use its best efforts to maintain the
         ability to provide spare parts and documentation for any Products
         shipped to the Territory for as long as technologically and
         economically feasible. If a direct replacement spare part can not be
         maintained to exact specifications, August Technology will make every
         effort to supply an equal or superior substitute spare part. For a
         period of five (5) years following Product purchase, under no
         circumstances will the customer be forced to abandon the use of their
         Product (or accept inferior performance) due to unavailable
         post-warranty service or spare parts.

<PAGE>

13.      WARRANTY PROCEDURES

         Distributor agrees to request approval from August Technology before
         returning any defective Products. Once approval is granted, August
         Technology will provide Distributor with a Return Material
         Authorization (RMA) number to be displayed on the shipping container of
         the defective Products. Once August Technology approves the return of
         any defective Product, Distributor agrees to ship the Products to
         August Technology's factory using an August Technology approved
         shipping method on FOB Edina basis. Specific parts to be returned to
         August Technology will be advised in the RMA. Distributor agree to ship
         back such defective parts to August Technology at F.O.B. Edina, MN
         basis. (Shipment cost for non-commercial Products are to be borne by
         Shipper side.)

         To expedite warranty service, Distributor and August Technology agree
         to make every effort to supply the customer with immediate replacement
         Product (or parts) while the defective Product (or part) is being
         tested and repaired at August Technology's factory. After repair or
         replacement is completed, August Technology will determine if warranty
         applies and will invoice Distributor for Product (or parts) if warranty
         does not apply (see Section 11.3 for list of non-warranty conditions).

14.      LIMITATION OF LIABILITY

         14.1     Except as stated in this Agreement, August Technology will not
                  be liable for any loss or damages claimed to have resulted
                  from the use, operation, or performance of the Products.

         14.2     August Technology will in no way be liable to Distributor for
                  any special, indirect, incidental, or consequential damages,
                  or for any damages from loss of use or profits.

15.      TRADEMARKS

         From time to time, August Technology may designate one or more August
         Technology trademarks or trade names as available for Distributor's
         use, and will provide standards for that use in August Technology
         material. August Technology authorizes Distributor to use these
         designated trademarks only as follows:

         (a)      Distributor agrees to use the designated trademarks and trade
                  names in accordance with August Technology's standards solely
                  in advertising and promoting Products, in good taste, and in a
                  manner that preserves their value and August Technology's
                  rights in them.

         (b)      Distributor agrees not to use any August Technology trademark
                  or trade name on its letterhead or in a way that implies
                  Distributor is an agency or branch of August Technology.
                  Distributor will immediately change or discontinue any
                  trademark or trade name use when requested in writing by
                  August Technology.

<PAGE>

16.      PROPRIETARY RIGHTS INDEMNITY

         16.1     August Technology will, except as otherwise provided below,
                  defend or settle any claim made, or suit, or proceeding
                  brought against Distributor so far as it is based on a claim
                  that the use or sale of Products sold under this Agreement
                  infringes an intellectual property right, including but not
                  limited to, patent, copyright and trademark. August Technology
                  must be immediately notified in writing and given information,
                  assistance, and sole authority to defend or settle claims, at
                  August Technology's expense. Also, August Technology will pay
                  all damages and costs including reasonable attorneys' fees.
                  finally awarded against Distributor. If any such Product is
                  determined to infringe, and its use is enjoined, or in case of
                  a settlement, August Technology will have the option, at
                  August Technology's expense, to replace Products with a
                  non-infringing Product, or modify Products so it becomes
                  non-infringing, or repurchase Products from Distributor at the
                  original purchase price. August Technology will have no
                  liability to Distributor for any infringement, or claim
                  thereof, based upon use of any Products in combination with
                  any equipment, device, software, or data not supplied by
                  August Technology, if such infringement is caused by such
                  combination.

         16.2     This Section states August Technology's entire liability for
                  proprietary rights infringement by Products furnished under
                  this Agreement.

17.      TERMINATION

         17.1     Either Distributor or August Technology may terminate this
                  Agreement, to be effective upon receipt of written notice,
                  based on the occurrence of any of the following events:

                  (a)      If the other party commits a breach of any obligation
                           in this Agreement.

                  (b)      The commencement by either party of a voluntary
                           action under the federal bankruptcy laws, or any
                           other applicable federal, state, or foreign
                           bankruptcy, insolvency, or other similar laws.

                  (c)      The consent of either party to the appointment of a
                           receiver, assignee, or trustee (or other similar
                           official).

                  (d)      The admission by either party of its inability to pay
                           its debts as they become due.

                  (e)      If Distributor is acquired, or its ownership changes
                           substantially.

                  (f)      The nationalization of either party's assets or
                           business.

<PAGE>

                  (g)      The passage of any legislation by a country, or
                           subdivision of a country, granting Distributor extra
                           contractual compensation upon termination or
                           non-renewal of this Agreement.

                  (h)      By mutual consent at any time and with a written
                           notice of termination signed by both parties.

         17.2     Each party acknowledges that the other has made no commitments
                  regarding the term or renewal of this Agreement. Neither
                  August Technology or Distributor will be liable to the other
                  for damages of any kind, including incidental or consequential
                  damages, or for any losses or claims whatsoever on account of
                  or arising out of the termination of this Agreement.
                  Distributor waives any and all benefit of any law or
                  regulation providing compensation arising from the termination
                  or non-renewal of this Agreement.

         17.3     Upon termination of this Agreement for any reason, Distributor
                  agrees to immediately cease to be an authorized August
                  Technology Distributor and will immediately stop representing
                  itself as an August Technology Distributor, and from using any
                  August Technology trademark or trade name. Distributor also
                  agrees to return any and all sales and marketing material (and
                  equipment) at the written request of August Technology,
                  shipment pre-paid.

         17.4     Upon termination of this Agreement for any reason, Distributor
                  agrees to continue to provide service support to only Products
                  that are under warranty period in the Territory in return for
                  the compensation already received by Distributor for this
                  service (compensation in the form of discounted Products
                  pricing).

         17.5     Outstanding Service Liability: Distributor will be compensated
                  for outstanding service liability on installed base of "in
                  warranty" CV systems in Japan according to the following
                  schedule:

OUTSTANDING SERVICE LIABILITY SCHEDULE:

<TABLE>
<CAPTION>
                                                                        MONTHS                    TOTAL      1YR
                                                           WARRANTY    REMAINING                 SERVICE     PRORATED
  REF    SYSTEM           LOCATION             SHIP         EXPIRE        ON                    COMMISSION   OUTSTANDING
   #     DESCRIPTION      INSTALLED  SERIAL #  DATE          DATE      WARRANTY    LIST PRICE     (5.8%)     LIABILITY
<S>      <C>              <C>        <C>       <C>        <C>          <C>         <C>          <C>          <C>
   1     Dainichi         Japan      CX002     11/20/98   1/31/00          8        $119,500     $6,931         $4,621
   2     Mitsubishi Mat   Japan      CV089     7/22/98    8/22/99          3         $97,250     $5,641         $1,410
   3     Epson Seiko      Japan      CV095     4/30/99    5/30/00         12        $107,097     $6,212         $6,212

TOTAL OUTSTANDING SERVICE LIABILITY PAYABLE TO MARUBENI:                                                       $12,242
</TABLE>

Note: The amount of $12,242 will be credit against the first customer based NSX
system (not the demo system)

<PAGE>

18.      POST TERMINATION COOPERATION

         Both Distributor and August Technology agree to fully cooperate to
         carry out an orderly transition in the marketing, sales, and service of
         Products in the Territory. Upon receiving a written notice of
         termination, as described in Sections 3 or 17, by either party, until
         the effective date of the termination, both parties agree to fully
         cooperate in supporting existing customers in the Territory (see
         Section 17.4 for further agreement on service support following
         termination).

         18.1     Demonstration equipment buy back :If August Technology
                  terminates this Agreement pursuant to the provisions hereof
                  August Technology shall buy back Distributor's demo equipment.
                  Buy-back price will be the distributor's original discounted
                  purchase price if the equipment was shipped within 12 months
                  of the date of termination. For equipment shipped outside of
                  12 months from the date of termination, the buy-back price
                  will be negotiated on a depreciated price.

         18.2     August Technology shall not be obligated to buy back
                  demonstration equipment if Distributor terminates this
                  Agreement pursuant to the provision hereof.

         18.3     Compensation: In accordance with Section 6.5 of this
                  Agreement, Distributor will be compensated at a rate of 1/3 of
                  the purchasing discount from the August Technology published
                  list price as compensation for providing the original "Project
                  Specification". This offer would extend for a period of six
                  (6) months from date of Termination and would only be
                  applicable to accounts that Distributor identifies at the time
                  of Termination and agreed to by August Technology.

         18.4     Spare Parts Inventories buyback: If August Technology
                  terminates this Agreement pursuant to the provisions hereof,
                  August Technology shall buyback Distributor's spare parts
                  inventories. Buy-back price will be the distributor's original
                  discounted purchase price if the spare parts were shipped
                  within 12 months of the date of termination. For spare parts
                  shipped outside of 12 months from the date of termination, the
                  buy-back price will be negotiated on a depreciated price.

         18.5     August Technology shall not be obligated to buy back spare
                  parts if Distributor terminates this Agreement pursuant to the
                  provision hereof.

19.      CONFIDENTIALITY & PROPRIETARY RIGHTS

         19.1     Distributor recognizes that certain information to be provided
                  by August Technology (during the term of this Agreement)
                  including, designs, specifications, drawings, engineering
                  details, software, and information concerning August
                  Technology's customers, business, procedures, methods, and
                  Products, are proprietary to August Technology. Distributor
                  agrees not to attempt to reverse compile or engineer the
                  Products or software associated with them.

<PAGE>

         19.2     Distributor agrees to keep confidential, and to utilize its
                  best efforts to prevent and protect from unauthorized use or
                  disclosure, any information provided to Distributor by August
                  Technology during the term of this Agreement (which is
                  designated by August Technology as confidential or
                  proprietary).

         19.3     Distributor agrees that unauthorized disclosure or use of any
                  proprietary information is a material breach of this
                  Agreement.

         19.4     Distributor agrees not to make, or have made, additional
                  copies of documents containing confidential or proprietary
                  information unless they are necessary for Distributor to
                  perform its obligations of this Agreement. Distributor agrees
                  to include on any copies of confidential or proprietary
                  information a "Confidential Notice" the same manner as the
                  original August Technology documents.

         19.5     Upon termination of this Agreement, Distributor will return to
                  August Technology, or will destroy and certify in writing to
                  August Technology that it has destroyed, all copies of
                  documentation and other forms of confidential or proprietary
                  information.

         19.6     Distributor's obligations under this Section will continue
                  within 3 years following termination of this Agreement.

20.      DISTRIBUTOR'S REPRESENTATIONS

         Distributor represents and warrants that in performing under this
         Agreement it will in no way compromise any rights or trust
         relationships between any other party and itself, or create a conflict
         of interest for Distributor or August Technology. Distributor agrees to
         conduct business in a manner that will enhance the image and reputation
         of August Technology and the Products. Distributor hereby represents
         and warrants that it will comply with all applicable laws and
         regulations, and avoid deceptive, misleading, unethical, and illegal
         practices.

         Distributor acknowledges that it may be necessary for August Technology
         to disclose the fact of Distributor's appointment, the duties performed
         by Distributor, and the compensation paid, should there be a proper
         inquiry from an authorized U.S. government agency.

21.      FORCE MAJEURE

         Neither party will be liable, or deemed to be in breach of this
         Agreement, by reason of any act, delay or omission caused by strikes,
         lockouts, or other labor disputes, regulations, ordinances, or order of
         a court of competent jurisdiction, act of government, act of God, war,
         riot, epidemic, flood, earthquake or like natural disaster, embargo or
         quarantine, or any other cause beyond the reasonable control of the
         party claiming force majeure. The party whose performance will have
         been prevented or delayed must

<PAGE>

         provide immediate written notice to the other party explaining the
         nature of the act, delay or omission, and the date such condition
         commenced. The party also agrees to provide further written notice
         when the condition has ended.

22.      MODIFICATIONS & IMPROVEMENTS OF PRODUCTS

         If any modifications or improvements to the Products are developed by
         Distributor or August Technology, such modifications or improvements
         will be the exclusive property of August Technology, which will have
         the full right to patent or copyright such modifications or
         improvements at its sole cost and expense.

23.      GOVERNMENT EXPORT RESTRICTIONS

         Distributor agrees that the Products purchased will not be exported
         directly or indirectly, separately or as part of a system, without
         complete and full compliance with the export and re-export restrictions
         imposed by U.S. export laws and regulations. Distributor also agrees to
         take reasonable action to assure that no customer contravenes the U.S.
         laws and regulations.

24.      NOTICES

         Unless otherwise agreed to by both parties, all notices required under
         this Agreement will be made by fax, and all notices will be addressed
         to the attention of the party executing the Agreement, or his or her
         successor.

25.      GENERAL PROVISIONS

         25.1     Neither party may assign or transfer this Agreement. Any
                  attempted assignment or transfer will be void. Both parties
                  agree to advise each other of any change in ownership,
                  control, or operating arrangements.

         25.2     Either party's failure to enforce any provisions of this
                  Agreement will not be deemed a waiver of that provision or of
                  the right to enforce it in the future.

         25.3     This Agreement, including the attached Exhibits, contains the
                  entire and only understanding between the parties, and
                  supersedes all prior agreements either written or oral
                  relating to the subject matter of this Agreement. No
                  modifications of this Agreement will be binding on either
                  party, unless made in writing and signed by persons authorized
                  to sign agreements on behalf of Distributor and August
                  Technology.

         25.4     If any provision of this Agreement will be determined by any
                  court of competent jurisdiction to be illegal, invalid, or
                  unenforceable, that provision will be understood and enforced
                  as if it had been more narrowly drawn so as not to be illegal,
                  invalid or unenforceable. Any determination will have no
                  effect upon the enforceability of any other provision of this
                  Agreement.

<PAGE>

         25.5     If during the term of this Agreement, or at any time after its
                  termination, either August Technology or Distributor commences
                  a suit, action, or other legal proceedings against the other
                  arising out of or in connection with this Agreement, such
                  action will be brought in the state or federal courts located
                  in the State of Minnesota, USA.

         25.6     This Agreement will be governed by the laws of the State of
                  Minnesota, USA and specifically excludes the United States
                  Convention on Contracts of International Sales of Goods. Any
                  disputes or claims arising out of this Agreement or its
                  interpretation, creation, termination, or performance will be
                  settled by binding arbitration in Minnesota, under the Rules
                  of Arbitration of the International Chamber of Commerce.

         25.7     This Agreement will be effective only upon its execution by
                  August Technology at its Corporate Headquarters. This
                  Agreement will be binding upon, and will inure the benefit of
                  the parties, and their respective heirs, executors,
                  representatives, and successors in interest.

         25.8     The prevailing party in any arbitration, or other legal action
                  brought by one party against the other arising out of this
                  Agreement, will be entitled, in addition to any other rights
                  and remedies it may have, to reimbursement for its expenses,
                  including court costs and attorneys' fees.

26.      AUTHORITY

         If Distributor is a partner or corporation, the person executing this
         Agreement represents that he or she is either a general partner or a
         duly authorized corporate officer, and that he or she has full
         authority to enter into this Agreement on behalf of Distributor.


DISTRIBUTOR:                                   ACCEPTED BY:

Marubeni Solutions Corporation                 August Technology Corporation


----------------------------------             ---------------------------------
Authorized Signature                           Authorized Signature

Title:  President                              Title: President & CEO

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>7
<DESCRIPTION>EXHIBIT 10.3
<TEXT>

<PAGE>

                                                                   Exhibit 10.3

                          AUGUST TECHNOLOGY CORPORATION

                            INTERNATIONAL DISTRIBUTOR
                                    AGREEMENT

This, Agreement is made as of the 10th day of September, 1999, between AUGUST
TECHNOLOGY CORPORATION, a Minnesota (USA) corporation with a principal place of
business at 5237 Edina Industrial Blvd., Edina, Minnesota 55439, USA, (hereafter
referred to as "August Technology") and Metron Technology B.V., an entity
organized and existing under the laws of The Netherlands, having its principal
place of business at Almere, The Netherlands, (hereafter referred to as
"Distributor").
                                    AGREEMENT

In consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:

1.       DEFINITIONS:

         The terms listed below will have the following meaning, unless the
         context clearly indicates otherwise:

         1.1      "AGREEMENT" means this International Distributor Agreement and
         all Exhibits.

         1.2      "PRODUCTS" means image inspection technology, vision system
         controlled manufacturing tools, licensed software programs and related
         spare parts manufactured and supplied by August Technology and
         specified in Exhibit A.

         1.3      "COMPETITIVE PRODUCTS" will mean image inspection technology,
         vision system controlled manufacturing tools, licensed software
         programs, and related spare parts, providing substantially the same
         functionality as the Products.

         1.4      "PRICE LIST" will mean the published prices that August
         Technology shall issue from time to time.


         1.5      "Territory" will mean the countries specified in Exhibit D.

2.       APPOINTMENT AND TERRITORY:

         August Technology hereby appoints Distributor as its exclusive
         authorized Distributor for the purpose of selling and servicing the
         Products to customers in the Territory only (except to those customers
         listed in .Exhibit C, which are considered exclusive August
         Technology-accounts). Distributor agrees that it will resell Products
         to end-user of the


                                                                          PAGE 1

<PAGE>

         Products only and not to resellers through its staff of employees and
         not through or by means of third-party dealers, sub-agents or
         representatives. Distributor agrees not to establish a branch office or
         other entity or association for the purpose of selling or distributing
         Products outside the Territory.

3.       PRICE, PAYMENT, TAXES, DUTY & DISCOUNT:

         3.1      Prices for the Products purchased under this Agreement,
         including discounts, are subject to change upon thirty (30) days'
         notice, are quoted in U.S. Dollars and are exclusive of taxes, duties,
         freight insurance, or other similar handling costs. All applicable
         duties, sales, use or excise taxes or other charges assessed or levied
         will be added to the purchase price and itemized and/or invoiced
         separately. Price changes will not apply to unfilled purchase orders
         that have been accepted by August Technology prior to the effective
         date of the price change. All prices are F.C.A./F.O.B. point of origin
         or manufacture.

         3.2      The Distributor shall pay for all Products by wire transfer to
         the account of August Technology as specified on Exhibit B or at such
         other bank as may be directed from time to time by August Technology.
         Payment terms for each order are also specified on Exhibit B. If any
         amount remains unpaid after the due date, the outstanding amount will
         incur interest at the rate of one and one-half percent (1.5%) per month
         or at the highest rate allowed by law, which ever is higher. In
         addition, if any amount is not paid when due, August Technology may
         suspend further shipments to the Distributor until all outstanding
         amounts are paid in full and thereafter may require the Distributor to
         open an irrevocable letter of credit for each order in favor of August
         Technology at a bank acceptable to August Technology payable thirty
         (30) days after sight.

         3.3      Both Distributor and August Technology agree that a customer
         order has three primary components: (1) project/equipment
         specification, (2) purchasing/negotiations, and (3) training,
         installation, and follow-on service support. The-Distributor's
         purchasing discount from the August Technology published list price
         will be effected by these primary components (see Table-1).

         TABLE-1:            Equipment Discount Schedule

<TABLE>
<CAPTION>

         ---------------------------------------------------------------------------------------
                               LOCATION                           LOCATION
                                WHERE           LOCATION           WHERE         %OF STANDARD
              ORDER             PROJECT           WHERE            EQUIP.           EQUIP.
           POSSIBILITY         SPECIFIED       P.O. ISSUED        INSTALLED        DISCOUNT
         ---------------------------------------------------------------------------------------
<S>                            <C>              <C>               <C>                  <C>
                1              Territory        Territory         Territory            100%
         ---------------------------------------------------------------------------------------
                2              Territory        Territory          Not in              66 1/3%
                                                                  Territory
         ---------------------------------------------------------------------------------------
                3              Not in           Territory         Territory            66 1/3%
         ---------------------------------------------------------------------------------------
                4              Territory         Not in
                                                Territory         Territory            66 1/3%
         ---------------------------------------------------------------------------------------
                5              Territory         Not in            Not in              33 1/3%
                                                Territory         Territory
         ---------------------------------------------------------------------------------------
                6               Not in          Territory          Not in              33 1/3
                               Territory                          Territory
         ---------------------------------------------------------------------------------------


                                                                          PAGE 2

<PAGE>

<CAPTION>

         ---------------------------------------------------------------------------------------
                               LOCATION                           LOCATION
                                WHERE           LOCATION           WHERE         %OF STANDARD
              ORDER             PROJECT           WHERE            EQUIP.           EQUIP.
           POSSIBILITY         SPECIFIED       P.O. ISSUED        INSTALLED        DISCOUNT
         ---------------------------------------------------------------------------------------
<S>                            <C>              <C>               <C>                  <C>
                7               Not in           Not in           Territory            33 1/3%
                               Territory        Territory
         ---------------------------------------------------------------------------------------
                8               Not in           Not in            Not in                   0%
                               Territory        Territory         Territory
         ---------------------------------------------------------------------------------------
</TABLE>


4.       TITLE, SECURITY AGREEMENT, RISK OF LOSS:

         4.1      Title and ownership of the Products shall remain in August
         Technology until payment is made in full including any additional
         charges provided for herein.

         4.2      August Technology reserves a purchase money security interest
         in the Products sold hereunder as security for performance of the
         Distributor's obligations set forth herein. A copy of this
         International Distributor Agreement in addition to a specific purchase
         order or orders may be filed as evidence thereof. In addition, and as
         may be allowed by local law, the Distributor will record any
         reservation of title or liens in favor of August Technology in such a
         format and at all places directed by August Technology including,
         without Stations on all purchase orders or invoices issued to customers
         of the Distributor prior to delivery of Products to the customer if
         payment or any portion thereof remains outstanding at the time of
         delivery to customer.

         4.3      Risk of loss shall pass to the Distributor or the
         Distributor's customer upon transfer of the Products to the
         Distributor's or customer's common or specified carrier. The
         Distributor expressly agrees to keep in force fire, theft, and accident
         insurance for the benefit of both parties as their interests appear on
         the date of shipment. Freight, insurance, export arrangements and other
         similar costs and duties shall be solely the responsibility of the
         Distributor or the Distributor's customer; August Technology takes no
         responsibility therefor.

5.       PURCHASE ORDERS, SHIPMENTS, CANCELLATIONS & CHANGES, DELIVERY:

         5.1      The Distributor agrees to deliver to August Technology a hard
         copy purchase order, in substantially the form attached hereto as
         Exhibit E, before August Technology will accept an order. August
         Technology reserves the right to amend the contents of Exhibit E from
         time to time, as the need for different or additional information
         required to process a purchase order is deemed to be necessary.
         Distributor purchase orders are subject to acceptance at August
         Technology.

         August Technology reserves the right to reject any order which does not
         comply with the provisions of this Agreement and conform to Exhibit E.
         AR orders accepted for delivery will be governed exclusively by the
         terms and conditions of this Agreement and its incorporated Exhibits.
         Unless August Technology expressly agrees in writing, no additional or
         different terms and conditions appearing on the face or reverse side of
         any order issued by Distributor will become part of such order.
         Acknowledgment of a


                                                                          PAGE 3

<PAGE>

         Distributor purchase order by August Technology will not constitute
         acceptance of any additional or different terms and conditions.

         5.2      No purchase order will be binding on August Technology until
         accepted by August Technology in writing. August Technology agrees to
         use its best efforts to accept or reject a purchase order, and notify
         Distributor within three (3) working days from receipt of order.

         5.3      Distributor may cancel a shipment or request a change in a
         scheduled shipment date at no charge up to ninety (90) days prior to
         shipment. In the event Distributor cancels or requests a schedule
         change within ninety (90) days prior to shipment a portion of the
         purchase order amount (price) will be charged as provided below. No
         cancellation or changes in a scheduled shipment may be made within
         fifteen (15) days of shipment.

                  5.3.1    RESCHEDULING.  (LATER DELIVERY).

                  Distributor may reschedule shipment of Products for up to
                  sixty (60) days upon written notice, on a one-time basis per
                  purchase order, without cost or liability. Distributor agrees
                  to immediately provide August Technology with a written notice
                  of any rescheduling.

                  5.3.2    CANCELLATION.

                  Distributor may cancel any purchase order in advance of
                  shipment upon written notice to August Technology, subject to
                  the following:

                           (i)      No cancellation is possible within fifteen
                                    (15) days of the shipment date on the
                                    purchase order.

                           (ii)     If cancellation occurs during the LAST 1/3
                                    of the quoted delivery schedule, the charge
                                    will be 25% of the total purchase order
                                    amount - except as provided in "(i)," which
                                    states that no cancellation is possible
                                    within fifteen (15) days of the shipment
                                    date.

                           (iii)    If cancellation occurs during the MIDDLE 1/3
                                    of the quoted delivery schedule, the charge
                                    will be 17.5% of the total purchase order
                                    amount.

                           (iv)     If cancellation occurs during the FIRST 1/3
                                    of the quoted delivery schedule, the charge
                                    will be 10% of the total purchase order
                                    amount.

                                [GRAPHIC OMITTED]

         5.4      August Technology reserves the right to delete a Product from
         Exhibit A if August Technology ceases manufacturing the Product or in
         the event the Product or technology is sold or otherwise transferred to
         a third-party.


                                                                          PAGE 4

<PAGE>

         5.5      August Technology may refuse to ship, or delay the shipment of
         any Products on order, if Distributor becomes delinquent in performance
         of its obligations or fails to meet other credit or special
         requirements established by August Technology. No such cancellation,
         refusal or delay will be deemed a termination of this Agreement by
         August Technology, unless August Technology advises Distributor.

         5.6      All Products will be considered delivered to distributor
         F.C.A./F.O.B. point of origin or MANUFACTURE upon transfer to
         Distributor's or customer's common or specified carrier.

6.       INDEPENDENT CONTRACTOR:

         6.1      The Distributor agrees that it has been granted the right to
         distribute and market the Products for resale to Distributor's
         customers and to conduct its business as an independent agent with
         respect to August Technology. The Distributor agrees that it will at
         all times, represent to third persons and to the public generally and
         to all governmental bodies and authorities that the business conducted
         by Distributor with respect to August Technology is that of an
         independent agent and that is the sole relationship and exclusive
         relationship between the Distributor and August Technology. It is
         expressly understood that the Distributor is not in any way constituted
         the legal representative of August Technology for any purpose
         whatsoever with respect to the Products. It is further expressly
         understood that the sole compensation to be received by the Distributor
         shall be derived from sales of the Products. The Distributor has no
         claim or right against August Technology for compensation for efforts
         to market August Technology's Products except as herein provided.

         It is further understood that the Distributor may have its employees
         and agents in the Territory engage in the solicitation of orders for
         selling and/or servicing of August Technology's Products, and in that
         event those persons shall be employees or agents of the Distributor and
         not of August Technology. All financial obligations associated with
         Distributor's business are the sole responsibility of Distributor. The
         Distributor shall hold August Technology harmless from all losses,
         damages, costs, and expenses of any nature, including attorneys' fees,
         arising from or in any way connected with an act failure to act, or
         negligence of the Distributor or its employees or agents, or others
         acting with authority from the Distributor in the sale, transportation,
         possession, or use of the Products. Distributor and August Technology
         agree that this Agreement does not establish a franchise, joint
         venture, or partnership.

         6.2      Any commitment made by Distributor to its customers with
         respect to quality, delivery, modifications, interfacing, capability,
         suitability of software, or suitability in specific applications, will
         be Distributor's sole responsibility, unless prior written approval is
         obtained from August Technology. Distributor has no authority to modify
         the Product Warranties.

         6.3      Distributor has the right to determine its own resale prices,
         and no August Technology representative will require that any
         particular price be charged by Distributor.


                                                                          PAGE 5

<PAGE>

         6.4      Distributor agrees that August Technology may market and sell
         Products, other than those listed in Exhibit A, without making them
         available to Distributor.

         6.5      August Technology assigns each distributor based on their
         respective expertise and comprehensive knowledge of the Territory,
         including regional customs, culture, and specific customer business
         practices. Distributor agrees that the standard distributor equipment
         discount is provided by August Technology in order that August
         Technology can fully rely on the Distributor for all sales, marketing,
         training, service, and financial responsibilities (in order to satisfy
         the agreed upon payment terms m this Agreement).

7.       PRODUCT ACCEPTANCE:

         Distributor agrees to inspect all Products immediately upon receipt at
         their facility, and may reject any Products that fail to meet the
         August Technology published specifications. Any Products not rejected'
         within fifteen (15) days after receipt by Distributor will be
         considered accepted. Distributor agrees to provide a detailed written
         notification to August Technology of any and all reasons for rejection
         within the fifteen (I 5) day inspection period. Upon receipt of
         rejection notification, August Technology will promptly determine an
         appropriate course of action to be taken regarding the rejected
         Products. All returns of rejected Products to August Technology will
         require prior written approval by August Technology.

8.       OBLIGATIONS OF AUGUST TECHNOLOGY:

         During the term of this Agreement August Technology agrees to perform
         the following:

         8.1      August Technology will furnish to Distributor circulars,
         catalogs, advertising literature, samples, information on new product
         releases, current technical data and all other sales materials
         pertinent to the sale and distribution of the Products in the Territory
         in the English language only and will otherwise assist the Distributor
         in the sale of its Products as requested by the Distributor. In
         addition, August Technology will identify Distributor as its exclusive
         distributor in the Territory for Products in appropriate advertising
         and other promotions.

         8.2      August Technology agrees to provide training for Distributor
         personnel for Products. Training will be available (at a minimum) as
         follows:

                  8.2.1    August Technology will provide factory training at a
                           minimum of one (1) time per year. August Technology
                           will pay for all training material and class room
                           time. All other expenses, including air travel and
                           hotel accommodations, will be paid for by
                           Distributor.

                  8.2.2    In addition to factory training, August Technology
                           may provide at Distributor's facility on a mutually
                           agreed upon bases (for example, during a trade show
                           in Distributor's Territory). This additional training
                           is in no way intended to be a substitute for factory
                           training.


                                                                          PAGE 6

<PAGE>

         8.3      August Technology agrees to actively support the marketing,
         sales, and service efforts of Products by Distributor, give priority
         responses to Distributor's requests, and keep Distributor informed of
         lead times and any related changes to Products.

9.       OBLIGATIONS OF DISTRIBUTOR:

         During the term of this Agreement Distributor agrees to perform the
         following:

         9.1      Distributor agrees to use its best efforts in good faith to
         promote, demonstrate, and sell Products on a face-to-face basis and in
         an end-user environment within the Territory. Distributor agrees to
         ensure the highest quality of pre-sale and post-sale support to the
         customers, and to promote the goodwill, name and interests of August
         Technology and its Products. August Technology expects the Distributor
         to provide the following basic marketing activities in the Territory -
         [a] industry trade shows, [b] print advertising, [c] direct mail
         campaigns, [d] marketing literature and data sheets in local language
         (if necessary). In connection with the foregoing, the Distributor also
         agrees to do the following:

                  9.1.1    Provide each customer at the time of order acceptance
                           a written copy of the August Technology statement of
                           warranty ("August Technology Statement of Warranty")
                           attached hereto as Exhibit F.

                  9.1.2    Solicit potential and existing customers on a regular
                           basis and deliver to August Technology, not later
                           than the end of each month, a written report of all
                           activities of the, Distributor with respect to key
                           customers during that month.

                  9.1.3    Keep August Technology continuously informed of the
                           progress of the Distributor's marketing efforts, and
                           the efforts of all of the Distributor's sales
                           representatives.

                  9.1.4    Deliver to August Technology, not later than June 30
                           each year, a forecast of potential sales of Products
                           in the Territory for the next twelve month period,
                           including the names of customers, type and quantity
                           of Products likely to be purchased. In addition, not
                           later than the end of each calendar quarter,
                           Distributor agrees to provide updates of the
                           foregoing to August Technology in a similar format to
                           roll the forecast forward, with actual sales against
                           the forecasted sales, and projecting sales out
                           continuously for each twelve month period.

         9.2      Distributor agrees to purchase demonstration Products, within
         thirty (30) days of this Agreement, to be used to actively promote,
         demonstrate, and sell Products to the customers. A demonstration unit
         may be purchased for each Product at a special discount of 32.5% off
         published list pricing. This demonstration discount is available
         one-time per year, beginning from the date of first demonstration
         equipment purchase. Distributor has the right to re-sell the
         demonstration equipment at any time, provided that it is immediately
         replaced (physically) with another similar or functionally enhanced
         unit (replacement of the demonstration equipment will be at the
         standard Distributor Products


                                                                          PAGE 7

<PAGE>

         discount price if the replacement occurs before the one-time per year
         special discount period expires). At the end of this agreement,
         Distributor has the right to return the demonstration unit to August
         Technology for the value that was paid for it originally, provided that
         effort has been made to first sell the demonstration unit in the
         Region.

         9.3      Distributor agrees to maintain adequate facilities and to
         actively train and maintain an adequate number of employees to properly
         promote, demonstrate, sell, and service the Products. Distributor will
         ensure that its employees complete appropriate training courses (at a
         minimum of one time per year at August Technology's facility). August
         Technology will pay for all training material and class room time. All
         other expenses, including air travel and hotel accommodations, will be
         paid for by Distributor.

         9.4      Distributor agrees to promptly handle customer complaints,
         inquiries and orders, and will provide and support Territory based
         services such as applications assistance, operation and maintenance
         training, Factory Acceptance Testing (F.A.T. - held at August
         Technology), final on-site acceptance testing, warranty labor services,
         post-warranty spares and service support systems retrofits, up-grade
         kit installation, and the like. Distributor agrees to stock adequate
         spare parts for Products to meet the requirements of this Agreement as
         defined in Exhibit A.

         9.5      Distributor agrees to handle all warranty claims of customers
         and comply with August Technology policy for in-warranty repairs and
         post-warranty support of Products.

         9.6      Distributor agrees to conduct its marketing, sales and service
         activities in compliance with local laws, rules and regulations. Both
         August Technology and the Distributor acknowledge each and every
         authorized representative or distributor of August Technology Products
         is an integral part of a worldwide network and that not -only August
         Technology but all other representatives and distributors of August
         Technology are relying upon the Distributor to perform in accordance
         with this Agreement. For this reason, the Distributor will maintain the
         highest standards of performance in sales, service, physical
         facilities, financial responsibility and general conduct toward the
         public.

         9.7      Distributor agrees to bear all of its operating expenses
         during the term of this Agreement. Distributor will maintain sufficient
         net worth and working capital and devote sufficient financial resources
         to allow Distributor to perform its obligation as outlined in this
         Agreement.

         9.8      If, during the term of this Agreement, Distributor receives
         any inquiry or order regarding Products from any person or business
         entity outside the Territory, Distributor agrees to immediately refer
         the inquiry or order to August Technology, and agrees not to receive
         compensation for this referral.

         9.9      Distributor agrees to, at its expense, arrange for the
         violation of any documentation for the use and operation of the
         Products in the Territory (as required or determined to be necessary by
         Distributor). Distributor shall use its best efforts to make any
         translation accurate.


                                                                          PAGE 8

<PAGE>

         9.10     Distributor agrees to establish a cleanroom at it's facility
         in Taiwan for the purposes of displaying, operating and using the
         demonstration unit and to provide August Technology's Field
         Applications Engineer an office space and phone at this same facility.

10.      INTELLECTUAL PROPERTY:

         10.1     Products shall bear only the trademarks, trade names, other
         marks, or intellectual property rights of August Technology
         (hereinafter referred to as the "Trademarks") as designated by August
         Technology from time to time. To the extent applicable, August
         Technology may grant to the Distributor during the term of Trademarks,
         however, will be strictly to the marketing and sale solely of the
         Products as specifically set forth in this Agreement and does not
         include the right to use the Trademarks generally in the name of the
         Distributor's business or for any other products or services offered by
         the Distributor. In addition, the Distributor will execute, separate
         agreements acknowledging this license, including a registered user
         agreement, if appropriate, for filing with appropriate trademark
         offices. The Distributor shall at all times comply with the reasonable
         instructions or requests of August Technology with respect to the
         application, fixation, manner, and styling of the Trademarks, its
         packaging, and all other documents, marketing, or promotional material.

         10.2     The Distributor acknowledges that August Technology has the
         sole right, title, and interest in the Trademarks, and all other rights
         associated with the Products, including, but not limited to, any
         patents, know-how, approvals, certifications of Products (in the
         countries of the Territory), and all other records or information of
         August Technology with respect to the sale, distribution, and servicing
         of the Products, and all catalogs and other printed information of
         August Technology, whether or not prepared by the Distributor (the
         "Property").

         10.3     Upon request by August Technology the Distributor agrees, on
         behalf of August Technology to assist August Technology in securing any
         approvals, certifications, registrations, letters patent or any other
         registrations to protect the Property in the Territory.

         10.4     The Distributor agrees to promptly inform August Technology
         upon the assertion of a claim, institution of a proceeding by a third
         party, or any circumstances giving rise to any claim by August
         Technology against a third party with respect to the Products, August
         Technology, the Trademarks, or the Property. August Technology shall
         have complete control of any litigation or proceeding related to
         alleged or actual pirating, infringement or imitation of Products, the
         Property, or the Trademarks. The Distributor will advise all employees,
         officers, directors, and agents of the Distributor that the Property is
         the property of August Technology.

         10.5     The Distributor represents and warrants that the Distributor
         has not sought or obtained, and agrees not to seek or obtain, in the
         Territory, or elsewhere, unless for the benefit and at the request of
         August Technology any certification, registration, or approval
         embodying the Property, including, but not limited to, patents,
         copyrights, trademarks, trade names, product certifications; and agrees
         further to discontinue all use


                                                                          PAGE 9

<PAGE>

         of the Property or the Trademarks immediately upon termination of this
         Agreement for any reason. Furthermore, in the event the Distributor
         obtains registrations or certifications of Products in the countries of
         the Territory at the request of August Technology, the parties agree
         those registrations and certifications are solely for the benefit of
         August Technology, they may be canceled or referred by August
         Technology at any time, and the Distributor shall execute all documents
         appropriate to accomplish the cancellation or transfer thereof.

         10.6     The Distributor agrees not to use the Property or the
         Trademarks and any goodwill related thereto except solely as approved
         by August Technology, and only in connection with advertising and
         promoting the Products. Any such use, value, or goodwill shall inure
         solely to the benefit of August Technology and shall not give rise to
         any license to the use thereof by or to further compensate the
         Distributor.

         10.7     The Distributor shall communicate promptly to August
         Technology all engineering, applications, ideas, developments,
         improvements or changes, whether patentable or not, conceived or made
         by the Distributor or the Distributor's representatives,
         sub-distributors, or agents, alone or in conjunction with others during
         the term of this Agreement relating to the Products (the "Distributor's
         Suggestions").

         10.8     The Distributor and August Technology shall make every effort
         to agree upon reasonable terms to allow August Technology to acquire
         the rights to the Distributor's Suggestions. The Distributor shall not
         sell grant, or otherwise offer to third parties any title to the
         Distributor's Suggestions. August Technology shall have the sole right
         to acquire the title or license to the Distributor's Suggestions, and
         the Distributor agrees to offer such rights to August Technology on
         request.

         10.9     The parties understand that, except as may be otherwise
         expressly stated herein, neither the terms and conditions of this
         Agreement nor the acts of either party arising out of this Agreement or
         in connection with performance hereunder, may be considered in any way
         as a grant of any license whatsoever under any of August Technology's
         present or future patents, copyrights, trademarks, trade secrets or
         other proprietary rights; nor is any such license granted by
         implication, estoppel or otherwise.

11.      PRODUCT LIABILITY; TECHNICAL INFORMATION; WARRANTY:

         11.1     The Distributor shall have no responsibility for the Products
         manufactured by August Technology to the purchasers of such Products or
         to persons claiming through such purchasers; unless the Distributor has
         assembled and/or serviced such Products and has failed to do so
         pursuant to August Technology's instructions and warranty, or has
         represented or warranted the Products beyond the scope of August
         Technology's written warranty, if any, without the express written
         authority of August Technology. Except as herein provided, any product
         liability which may result from the sale or distribution of August
         Technology's Product shall be the sole responsibility of August
         Technology and not of the Distributor. The Distributor agrees not to
         make any such representations concerning August Technology's Products,
         other than such representations as may be made by August Technology
         from time to time in writing.


                                                                         PAGE 10

<PAGE>

         11.2     IN NO EVENT SHALL AUGUST TECHNOLOGY OR THE DISTRIBUTOR BE
         LIABLE TO ONE ANOTHER FOR GENERAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
         OR FOR LOSS OF ANTICIPATED PROFITS ON ANY CLAIM OF ANY KIND STEMMING
         FROM A PURCHASE ORDER, A PRODUCT, OR FROM PERFORMANCE OR BREACH OF THIS
         AGREEMENT EXCEPT FOR BREACH OF SECTION 11.1.

         11.3     No warranties exist with respect to the Products except
         express warranties explicitly provided in customer quotations, catalogs
         and other materials provided to the Distributor for delivery to
         ultimate customers. August Technology EXPRESSLY DISCLAIMS ANY IMPLIED
         WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
         ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
         ANY IMPLIED WARRANTY ARISING OUT OF A COURSE OF DEALING OR PERFORMANCE,
         CUSTOMER USAGE OR TRADE USAGE, EXCEPT EXPRESS WRITTEN WARRANTIES, IF
         ANY, PROVIDED TO ULTIMATE CUSTOMERS IN WRITTEN MATERIALS PROVIDED BY
         AUGUST TECHNOLOGY RELATING TO THE PRODUCTS.

         11.4     August Technology warrants that August Technology Products
         sold and delivered to the Distributor hereunder are in accordance with
         August Technology's Statement of Warranty attached hereto as Exhibit F
         (the "August Technology Statement of Warranty").

         11.5     August Technology reserves the right to change technical
         specifications without notice. Some information contained within
         Product catalogs has been obtained from sources other than August
         Technology, but is believed to be reliable. No warranty, express or
         implied, is made or intended as to the accuracy or the completeness
         thereof. August Technology cannot anticipate all applications or
         variations in the use, application or manufacturing methods intended by
         end users of the Products; therefore, August Technology does not assume
         liability for use thereof in association with any technical information
         contained in Product catalogs.

12.      POST-WARRANTY SPARE PARTS SUPPORT:

         August Technology agrees to use its best efforts to maintain the
         ability to provide spare parts and documentation for any Products
         shipped to the Territory for as long as technologically and
         economically feasible. If a direct replacement spare part can not be
         maintained to exact specifications, August Technology will make every
         effort to supply an equal or superior substitute spare part. For a
         period of five (5) years -following Product purchase, under no
         circumstances will the customer be forced to abandon the use of an
         August Technology Product (or accept inferior performance) due to
         unavailable post-warranty service or spare parts.

13.      WARRANTY PROCEDURES:

         13.1     Distributor agrees to request approval from August Technology
         before returning any defective Products. Once approval is granted,
         August Technology will provide


                                                                         PAGE 11

<PAGE>

         Distributor with a Return Material Authorization (RMA) number to be
         displayed on the shipping container of the defective Products. Once
         August Technology approves-the return of any defective Product,
         Distributor agrees to ship the Products to August Technology's factory
         using an August Technology approved shipping method. August Technology
         will attempt to make all necessary repairs or replacements, and will
         ship the Product or a substitute of substantially the same form and
         function back to Distributor or its customer, freight prepaid.

         13.2     All returned Products found to be free of defects will be
         subject to an inspection charge of ten (10) percent of the purchase
         order amount, plus shipping charges. Repairs and replacements due to
         reasons not covered by the warranty will be invoiced at August
         Technology's then current prices and will be payable under the terms of
         this Agreement.

14.      CONFIDENTIALITY:

         The Distributor agrees and shall cause its employees, officers and
         agents: (a) not to communicate, divulge, or use for the benefit of any
         other firm, person, or organization, any of the business secrets or
         methods, business policies, manuals, instructions, reports, and lists
         of names of customers of August Technology; (b) to exercise caution at
         all times in protecting confidential information of August Technology
         pertaining to the Products, its pricing, business, or assets with at
         least the same degree of care as is by the Distributor for the
         protection of its own confidential and proprietary information; and (c)
         not to reveal any other confidential information of August Technology.
         The provisions of this Section 14 shall survive termination of this
         Agreement and the Distributor shall return to August Technology, and
         refrain after the termination of this Agreement from any use of, all
         samples, manuals, product information letters, and similar material
         supplied to it by August Technology, including, but not limited to, all
         documents and copies thereof designated confidential by August
         Technology.

15.      TERM AND TERMINATION:

         15.1     EFFECTIVE DATE. This Agreement shall become effective on the
         date executed (the "Effective Date").

         15.2     TERM - This Agreement shall continue in effect for a period of
         two(2) years from the Effective Date unless terminated sooner in
         accordance with provisions contained herein (the "Initial Term"). This
         Agreement shall continue after the Initial Term, until voluntarily
         terminated by either party upon written notice delivered at least one
         (1) year prior to the end of the Initial Term or ongoing period. Notice
         will be deemed given on the date that the party mails notice as set
         forth in Section 20 below. However, termination in this manner shall
         not release the Distributor from any accrued obligations of this
         Agreement, which will be satisfied promptly. Except as otherwise
         provided, termination, for whatever reason, shall terminate all rights
         of the Distributor set forth herein, including without limitation, the
         right to market or sell the Products or use the Trademarks.


                                                                         PAGE 12

<PAGE>

         15.3     Notwithstanding the provisions of Section 15.2, either
         Distributor or August Technology may terminate this Agreement, to be
         effective upon receipt of written notice, based on the occurrence of
         any of the following events:

                  15.3.1   If the other party commits a breach of any obligation
                           in this. Agreement which is not cured within thirty
                           (30) days after written notice thereof specifying the
                           nature of the breach.

                  15.3.2   The commencement by either party of a voluntary
                           action under the federal bankruptcy laws, or any
                           other applicable federal state, or foreign
                           bankruptcy, insolvency, or other SIMILAR laws.

                  15.3.3   The consent of either party to the appointment of a
                           receiver, assignee, or e (or other similar official).

                  15.3.4   The admission by either party of its inability to pay
                           its debts as they become due.

                  15.3.5   If Distributor is acquired or in the event of a
                           change in control.

                  15.3.6   The nationalization of either party's assets or
                           business.

                  15.3.7   The passage of any legislation by a country, or
                           subdivision of a country, granting Distributor extra
                           contractual compensation upon termination or
                           non-renewal of this Agreement.

                  15.3.8   By mutual consent at any time and with a written
                           notice of termination signed by both parties.

         15.4     Except as provided for herein, each party acknowledges that
         the other has made no commitments regarding the renewal of this
         Agreement. Neither August Technology or Distributor will be liable to
         the other for damages of any kind, including incidental or
         consequential damages, or for any losses or claims whatsoever on
         account of or arising out of the termination of this Agreement.
         Distributor waives any and all benefit of any law or regulation
         providing compensation arising from the termination or non-renewal of
         this Agreement.

16.      POST TERMINATION COOPERATION:

         Upon receipt of notice of termination, and during the remaining period
         of this Agreement, Distributor agrees to use its best efforts to carry
         out an orderly transition in the marketing, sales, and service of
         Products in the Territory and to facilitate a transfer of the customers
         to a new distributor or to August Technology, as the case may be.
         Distributor's best efforts shall include, but not be limited to,
         introducing August Technology representatives to each customer,
         providing each customer's corporate name and buyer name, relevant
         addresses, communications information, historical prices charged for
         the Products as well as any other information or actions deemed
         necessary to facilitate the transition.


                                                                         PAGE 13

<PAGE>

17.      NON-COMPETE:

         The Distributor agrees that August Technology would be substantially
         harmed if the Distributor were to compete with August Technology by
         manufacturing, selling, marketing or distributing Competitive Products
         in the Territory, except as provided by the terms of this Agreement In
         partial consideration for the benefits provided to the Distributor
         hereunder, the Distributor agrees as follows: Du ring the term of this
         Agreement and for a period of one (1) years following the termination
         of this Agreement for whatever reason, the Distributor shall not,
         directly or indirectly, manufacture, sell market or distribute
         Competitive Products in the Territory, except as provided by the terms
         of this Agreement.

18.      FORCE MAJEURE:

         Neither party will be liable, or deemed to be in breach of this
         Agreement, by reason of any act, delay or omission caused by labor
         disputes, lockouts, or other labor disputes, regulations; ordinances,
         or order of a court of competent jurisdiction, act of government, act
         of God, war, riot, epidemic, flood, earthquake or like natural
         disaster, embargo or quarantine, or any other cause beyond the
         reasonable control of the party claiming force majeure. The party whose
         performance will have been prevented or delayed must provide immediate
         written notice to the other party explaining the nature of the act,
         delay or omission, and the date such condition commenced. The party
         also agrees to provide further written notice when the condition has
         ended.

19.      GOVERNMENT EXPORT RESTRICTIONS:

         Distributor agrees that the Products purchased will not be exported y
         or indirectly, separately or as part of a system, without complete and
         full compliance with the export and re-export restrictions imposed by
         U.S. export laws and regulations. Distributor also agrees to take
         reasonable action to assure that no customer contravenes the U.S. laws
         and regulations.

20.      NOTICES:

         20.1     Notices - Any notices required or permitted to be given under
         this Agreement shall be sufficient if in writing and sent by registered
         or certified mail to the address of the party set forth below. The
         parties hereto may change the address to which notices may be sent by
         giving written notice of such change of address to the other party:


                                                                         PAGE 14

<PAGE>

                            If to August Technology:

                       Vice President, Sales and Marketing
                             August Technology, Inc.
                           5237 Edina Industrial Blvd.
                              Edina Minnesota 55439

                             If to the Distributor:

                                ----------------
                                ----------------
                                ----------------

                                 With a copy to:

                                ----------------
                                ----------------
                                ----------------

21.      GENERAL PROVISIONS:

         21.1     ASSIGNMENT - This Agreement shall be binding upon and inure to
         the benefit of August Technology and the Distributor, and their
         respective successors and permitted assigns. August Technology may
         assign or transfer this Agreement without the permission of
         Distributor.' Any attempted assignment or further in violation of the
         Agreement will be void or effect a termination at the election of
         August Technology. Both parties agree to advise each other of any
         change in ownership, control or operating arrangements.

         21.2     WAIVER - Either party's failure to enforce any provisions of
         this Agreement will not be deemed a waiver of that provision or of the
         right to enforce it in the future.

         21.3     APPLICABLE LAW, MERGER - This Agreement will be governed by
         the laws of the State of Minnesota, USA and specifically excludes the
         United States Convention on Contracts of International Sales of Goods.
         This Agreement, including the attached Exhibits, contains the entire
         and only understanding between the parties, and supersedes all prior
         agreements, either written or oral relating to the subject matter of
         this Agreement. No modifications to this Agreement will be binding on
         either party, unless in writing and signed by both parties.

         21.4     SEVERANCE - If any provision of this Agreement will be
         determined illegal, invalid, or unenforceable, that provision will be
         understood and enforced as if it had been more narrowly drawn so as not
         to be illegal, invalid or unenforceable. Any determination will have no
         effect upon the enforceability of any other provision of this
         Agreement.

         21.5     ARBITRATION - All disputes, controversies or differences which
         may arise between the parties hereto, out of, in relation to or in
         connection with this Agreement or any purchase order for Products
         entered into pursuant hereto, or for the breach hereof or


                                                                         PAGE 15

<PAGE>

         thereof, which cannot be resolved amicably by the parties shall be
         finally settled by arbitration in Minneapolis, Minnesota, pursuant to
         the Commercial Arbitration Rules of the American Arbitration
         Association or its successor, before a panel of one (1) arbitrator to
         be selected in accordance with said rules. Arbitration proceedings
         shall be conducted in the English language. The parties to the
         arbitration shall be provided the opportunity to conduct reasonable
         discovery in accordance with the Federal Rules of Civil Procedure. The
         arbitrator shall establish a discovery schedule and shall rule on all
         discovery issues. The arbitration award rendered shall be final and
         binding upon all the parties and may be reduced to a judgment in a
         court of competent jurisdiction. The arbitration and all proceedings
         related thereto and any award of the arbitrator shall be held in strict
         confidence by the parties. The nonprevailing party shall pay the
         prevailing party's attorney's fees and costs including the arbitrator's
         fees and costs. The award will include interest from the date of any
         damages incurred for breach or other violation of the Agreement until
         the award is paid in full at a rate to be fixed by the arbitrator, but
         in no event less than the London Interbank Offering Rate "LIBOR") per
         annum quoted for the corresponding period by the Bank of America in the
         London Interbank Market of United States Dollars for immediately
         available funds.

         21.6     INJUNCTIONS, OTHER REMEDIES AND PERFORMANCE - The parties
         agree that a breach or a threat of a breach of any provision of
         Sect-ions 10, 14 or 17 herein would result in irreparable injury. The
         parties agree that a party may seek to enforce any or all of Sections
         10, 14 or 17 by applying to the State or Federal District Court in and
         for the State of Minnesota, or any other court of general jurisdiction,
         for injunctive relief only pending commencement and completion of
         arbitration proceedings. The court shall refer proceedings to the
         arbitrator selected herein to determine whether any injunctive relief
         issued hereunder shall be made permanent or be dissolved. The
         arbitrator's finding shall be binding and conclusive upon the parties.
         The non-prevailing party shall pay the prevailing party's attorney's
         fees and court costs.

21.7     COUNTERPARTS - This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective, duly authorized representatives as of the day and year
first above written.

DISTRIBUTOR:                                ACCEPTED BY:

Metron Technology                           August Technology Corporation

       WITH CONTINGENCIES (SEE BELOW)
-------------------------------------       ------------------------------------

Authorized Signature                        Authorized Signature

Title:                                      Title:
      -------------------------------             ------------------------------


                                                                         PAGE 16

<PAGE>

The agreement is being signed with the understanding that Exhibit C will be
negotiated further during the week of September 13, 1999. Ratification of this
agreement is contingent upon consent by both parties on the contents of Exhibit
C after those discussions.


                                                                         PAGE 17

<PAGE>

EXHIBIT A:        PRODUCTS


Distributor is granted the right to distribute the following August Technology
Products under the terms of this Agreement.

(1)      CV SERIES - AUTOMATIC CASSETTE INSPECTION SYSTEMS

(2)      NSX SERIES - AUTOMATIC 2ND OPTICAL DEFECT INSPECTION SYSTEMS

Spare parts agreement for each product granted will be as follows:

(1)      CV SERIES - AUTOMATIC CASSETTE INSPECTION SYSTEMS - because the CV
         Series is generally considered to be a "non-production critical" tool,
         it is the Distributor's responsibility to determine each individual
         customer's requirements for spare parts (August Technology will provide
         a recommended spare parts list). Once determined, the Distributor or
         customer is responsible for purchasing these spare parts for local
         stocking.

(2)      NSX SERIES - AUTOMATIC 2ND OPTICAL DEFECT INSPECTION SYSTEMS - because
         the NSX Series is considered to be a "production critical" tool locally
         stocked spare parts are highly recommended. It is the Distributor's
         responsibility to determine each individual customer's requirements for
         spare parts (August Technology will provide a recommended spare parts
         list). Once determined, the Distributor or customer is responsible for
         purchasing these spare parts for local stocking.

NOTE:

Additional Products may be added from time to time by mutual consent and
official amendment to this Exhibit A.


                                                                         PAGE 18

<PAGE>

EXHIBIT B: PRICING, DISCOUNT, AND TERMS


Distributor agrees to pay August Technology for Products purchased based on a
set discount from official published Price Lists, or a set discount from special
pricing quoted by August Technology for mutually agreed to custom projects. The
current applicable Price List for Products and spare parts will be provided and
updated by August Technology on a regular basis.

All pricing is Ex-works (INCOTERMS 1990) at August Technology's factory,
including airfreight.

Distributor agrees to pay all freight insurance, requested interim storage fees,
bank transfer fees, and all international taxes and customs duties assessed on
each order.

Distributor's set discount from official published International Price Lists
will be:  17.5%

Distributor agrees to make all payments in US$ for Products based on the
following terms:

         100% on shipment net 45 days.

         Note:    August Technology views each Distributor as its only
                  "customer" in the Territory, and provides a set discount based
                  on this business model. Payment terms are also based on this
                  business model. Any changes to this model may require August
                  Technology to assume additional business risk, and will
                  require changes to the set discount. August Technology does
                  not expect to participate or be directly involved with any
                  individual customer negotiations (such as pricing, payment
                  terms, delivery, training, warranty, etc.) - this is the full
                  responsibility of the Distributor.

         Distributor agrees to make all payments to August Technology by the
         following method:

                  Direct wire transfer to August Technology's bank. Detailed
                  bank account information is:

                           Norwest Band N.A.
                           Routing # 091000019
                           Swift Code:  NWNBUS44
                           Beneficiary Bank:  Marquette Capital Bank
                           Account Number 6355010918
                           Phone Wire Transfer at:  1-612-525-5944
                           For further credit to:
                           Beneficiary Name:  August Technology
                           Beneficiary Account # 1810820753


                                                                         PAGE 19

<PAGE>

NOTES:

August Technology agrees that the following customers should be approached in a
global strategy with regards to pricing and that both parties will work together
to develop pricing that will allow a global price yet protect both parties gross
margin interests: Intel, Motorola, AMD, Philips and STM.

August Technology agrees that further development is needed on global pricing
and the International Price List. August Technology commits to have this
developed by the end of Ql 2000 and to work with Distributor in the development
of this pricing strategy so that it protects both parties gross margins.

Engineering services, field service labor charges, and personnel travel expenses
are not subject to discounting or commission.


                                                                         PAGE 20

<PAGE>

EXHIBIT C: SPECIAL ACCOUNTS


The following customers who have offices, facilities, factories, fabs, or any
other business facilities within the Territory will be considered Special
Accounts, which will remain exclusive to August Technology regarding all
business activities (including, but not limited to, sales, marketing, and
service support):

August Technology's previous distributor in the Region, Eberts/SET, will
continue to represent August Technology at the following accounts for the
specified products until either a purchase order is received from the customer
for the unit described or December 31, 1999, whichever occurs first.

         NSX Series

                  Philips, KaoHsiung, Taiwan
                  ASE KaoHsiung, Taiwan
                  Chipbond, Taiwan
                  Winbond, Taiwan
                  Amkor, Phillipines
                  Linear Technology, Penang, Malaysia

         CV Series

                  TSMC Hsinchu Taiwan
                  USC Hsinchu, Taiwan
                  SIS Taiwan


                                                                         PAGE 21

<PAGE>

EXHIBIT D: TERRITORY


August Technology hereby appoints Distributor as an authorized, independent,
exclusive Distributor for the Products, for the purpose of reselling and
servicing the Products directly to its customers in the following countries:

                                   South Korea
                                      China
                                    Hong Kong
                                     Taiwan
                                    Thailand
                                    Malaysia
                                   Phillipines
                                    Singapore
                                      India


                                                                         PAGE 22

<PAGE>

EXHIBIT E: PURCHASE ORDER


In order to receive Products, Distributor agrees to deliver to August Technology
a hard copy purchase order. All purchase orders issued by Distributor will
include the following information:

a)       Final customers name (end user) , location and customers official
         purchase order number
b)       Distributor purchase order number
c)       Ship To location
d)       Bill To location and accounts payable contact person
e)       Method of shipment, including contact person and phone number
f)       Quantity and description of each item being purchased
g)       Details of any options purchased
h)       Pricing
i)       Requested ship dates
j)       Power requirements
k)       Environmental Requirements, if any (cleanroom specifications, etc)
l)       Any other special requirements, such as customer part number, drawing
         numbers or samples.


                                                                         PAGE 23

<PAGE>

EXHIBIT F:  AUGUST TECHNOLOGY STATEMENT OF WARRANTY


Hardware Products - August Technology warrants that it will repair or replace,
at its option, hardware Products which are found to be defective in material or
workmanship. August Technology must receive written notification of any defect
within fourteen (14) months from date of shipment. All transportation charges
associated with hardware Products warranty will be arranged and paid for by
August Technology.

Software Products - August Technology warrants that it will repair or replace,
at its option, software Products which fad in a manner which significantly and
adversely affects operating performance as specified in August Technology's
published Products description. August Technology must receive written
notification of any failure to conform within fourteen (14) months from date of
shipment. August Technology does not warrant that the software Products are free
from errors. All transportation charges associated with software Products
warranty will be arranged and paid for by August Technology.

The foregoing warranties will not apply to any deficiency or defect resulting
from:

         (a)      Normal wear and tear, or items subject to deterioration,
                  breakage, or burnout through use.
         (b)      Installation or maintenance by customer or any third party
                  (other dm Distributor).
         (c)      Modifications or alterations made by customer or any third
                  party without August Technology's written consent.
         (d)      Misuse or abuse.
         (e)      Failure of customer to maintain the equipment site, and
                  environmental conditions as required for the normal operation
                  of the Products.
         (f)      Causes beyond August Technology's reasonable control.

August Technology makes no other warranty, either expressed or implied,
including, but not limited to, any implied warranty of merchantability or
fitness for a particular purpose, or arising from course of dealing or usage of
trade. The foregoing constitutes August Technology's sole obligation and the
exclusive remedies of the customer for any breach by August Technology of the
warranties contained in this Agreement. August Technology's total liability
under this Section will be limited to the repair or replacement of Products and
will in no case exceed the value of the purchase order.


                                                                         PAGE 24

<PAGE>

EXHIBIT G: WORLDWIDE SALES AND SERVICE SUPPORT PLAN


                          AUGUST TECHNOLOGY CORPORATION

                     WORLDWIDE SALE'S & SERVICE SUPPORT PLAN

This Plan will define how each Distributor is compensated (paid) when equipment
is shipped into their Territory, August Technology recognizes three (3) periods
of time as shown below.

(1)      Pre-Warranty Period (Installation & Training)
(2)      Warranty Period / Local Service Support (12 months after ship date from
         August
(3)      After Warranty Period (Ongoing Service Support - billable by
         Distributor)

THE PRE- WARRANTY period is for INSTALLATION AND TRAINING of a system once it
has been shipped to the customer. The WARRANTY period is for 12 MONTHS AFTER
SHIPMENT FROM AUGUST TECHNOLOGY. The AFTER-WARRANTY period is for ON-GOING
SERVICE SUPPORT once the standard equipment warranty expires. August Technology
recognizes that the Distributor must be compensated for providing customer
service support during each of these periods.

FOR EXAMPLE: When Distributor "A" takes a purchase order for a CV system in
their Territory, and the customer requests shipment of the system into
Distributor "B" Territory, special arrangements must be made for Installation &
Training and Local Service Support. In this case, DISTRIBUTOR "B" IS RESPONSIBLE
FOR ALL THREE periods -

(1)      Pre-Warranty Period (Installation & Training):  Distributor "N' pays
         for the PRE- WARRANTY (Installation & Training) period.
(2)      Warranty Period (one (1) Year Local Service Support): August Technology
         pays Distributor "B" a 1/3 commission' for the WARRANTY period.
         Distributor "A' receives 1/3 less "commission" on the order.
(3)      After Warranty Period (Ongoing Service Support): Distributor "B"
         charges their normal service support rates for the AFTER- WARRANTY
         PERIOD.

                                [GRAPHIC OMITTED]


                                                                         PAGE 25

<PAGE>

AUGUST TECHNOLOGY'S WORLDWIDE SALE AND SERVICE PLAN IS OUTLINED BELOW.


(1)      REQUEST FOR QUOTATION - when Distributor "A" plans to ship a system
         outside their Territory, they must first contact August Technology and
         request a quotation for the Pre-Warranty Period (Installation &
         Training) at the location where the system will be installed. August
         Technology will contact Distributor "B", request a quotation, and
         forward this quotation to the Distributor "A".

(2)      PRE-WARRANTY PERIOD (INSTALLATION & TRAINING) Distributor "A" must
         include in their pricing the cost of the PreWarranty Period
         (Installation & Training) quoted by Distributor "B". When Distributor
         "A" orders the system from August Technology, their purchase order will
         include: [a] Pre-Warranty Period (Installation & Training), [b]
         equipment, [c] any options ordered.(3) DISTRIBUTOR DISCOUNT ADJUSTMENTS
         MADE - August Technology provides every Distributor and equipment
         purchase discount. This Discount has three (3) parts:

         [1] 1/3, for Project Specification.
         [2] 1/3, for Purchase Order.
         [3] 1/3, for (In-Warranty) Service Support.

in the example shown on the first page, Distributor "A" would receive a 2/3
equipment purchase discount from the list price (for project specification and
purchase order). Distributor "B" would be paid by August Technology for the
Pre-Warranty Period (Installation & Training) of the system (based on the
earlier quotation from Distributor plus 1/3 of the system list price for local
service support during the WARRANTY period.

TO COMPLETE THE EXAMPLE ON THE FIRST PAGE:

Distributor "A" completes the negotiations with LG (Lucky Goldstar) for the
equipment specification and purchase order. LG plans to have the system shipped
to their new factory in the U.K. In this case, Distributor "X' would first
contact August Technology and inform them of these plans.

August Technology would immediately contact Distributor "B" and request
a-quotation for installation and training of the system at LG's site in the U.K.
This quotation is reviewed by August Technology and then forwarded to
Distributor ")V'. Distributor "A" would then add this amount to their quotation
to LG for a complete system package (equipment, options, and local installation
and training).

Once LG places the order, Distributor "A" would order from August Technology,
including equipment, any options, and local installation and training support
for the U.K. NOTE THAT DISTRIBUTOR "A" WILL RECEIVE 2/3 OF THEIR NORMAL
EQUIPMENT DISCOUNT FOR THIS order. Distributor "B"` will be paid their quoted
price, by August Technology, for local installation and (FOR PRE-WARRANTY
support), plus 1/3 of their normal equipment discount for this order (for
Warranty support).

                                                                         PAGE 26

<PAGE>


FOR EXTENDED WARRANTY PERIODS (BEYOND 12 MONTHS FROM SHIP DATE FROM AUGUST
TECHNOLOGY.

Should Distributor "A" choose to offer an EXTENDED WARRANTY PERIOD to the
customer, then Distributor "B" will provide a separate quote for this item. When
Distributor "A" orders the system from August Technology, their purchase order
will include: [a] Pre-Warranty Period (Installation & Training), [b] equipment,
[c] any options ordered and [d] EXTENDED WARRANTY PERIOD.




                                                                         PAGE 27

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>8
<DESCRIPTION>EXHIBIT 10.4
<TEXT>

<PAGE>

                                                                   Exhibit 10.4

                          AUGUST TECHNOLOGY CORPORATION

                            INTERNATIONAL DISTRIBUTOR
                                    AGREEMENT

This Agreement is made as of the 23rd day of September, 1996, between AUGUST
TECHNOLOGY CORPORATION, a Minnesota (USA) corporation with a principal place of
business at 5237 Edina Industrial Blvd., Edina, Minnesota 55439, USA, and QUASYS
AG, an entity organized and existing under the laws of Switzerland, having its
principal place of business at Alte Steinhauserstrasse 21, P.O. Box, CH-6330
Cham, Switzerland.

In consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:

The following are the terms and conditions under which August Technology sells
and licenses its image capture technology, vision system controlled
manufacturing tools, licensed software programs, and related spare parts
specified in Exhibit-A (hereinafter jointly referred to as "Product" or "
Products"). Quasys wishes to purchase all or selected Products for resale and
commits to actively provide its customers the necessary service and support to
successfully market and maintain the Products.

1.       DEFINITIONS

         The terms listed below will have the following meaning, unless the
         context clearly indicates otherwise:

         1.1      "AGREEMENT" will mean this International Distributor Agreement
                  and all Exhibits.

         1.2      "COMPETITIVE PRODUCTS" will mean image capture technology,
                  vision system controlled manufacturing tools, licensed
                  software programs, and related spare parts, of substantially
                  the same functionality as August Technology's Products.

         1.3      "PRICE LIST" will mean the published prices that August
                  Technology shall issue from time to time.

         1.4      "TERRITORY" will mean the countries specified in Exhibit-D.

2.       APPOINTMENT AS DISTRIBUTOR

         August Technology hereby appoints Quasys as an authorized, independent,
         exclusive Distributor for the Products, for the purpose of reselling
         and servicing the Products directly to its customers in the Territory
         (except to those customers listed in Exhibit-C, which are consider
         exclusive August Technology accounts). Quasys agrees that it will
         re-sell Products directly, without the use of any dealers, sub-agents,
         and the like, unless agreed to in writing by August Technology.


<PAGE>

3.       TERM OF AGREEMENT

         This Agreement will begin on the date an authorized officer of August
         Technology executes the Agreement and will continue in full force and
         effect until terminated as provided in this Agreement.

4.       TERRITORY

         Quasys will have the exclusive right to actively market, sell, and
         promote the Products in the Territory (see Exhibit-D).

5.       RESTRICTIONS

         5.1      Quasys agrees not to make any sale, transfer, exchange, or
                  other conveyance of any Products whatsoever to any person that
                  Quasys knows, or has reason to know, is purchasing such
                  Products for the purpose of resale without first notifying
                  August Technology for written approval.

         5.2      Quasys will have no rights to the Products, any software
                  included in the Products, or any improvements in the Products.
                  Quasys agrees not to copy, manufacture, re-manufacture, or
                  otherwise modify any Products without the written consent from
                  August Technology (signed by an officer of the company). If
                  Quasys is permitted to modify Products to conform to customer
                  requests or specifications, such modifications must not
                  degrade the original August Technology operating
                  specifications or impede the reliability of the Products. Any
                  modifications performed in violation of this Section 5.2 will
                  void all warranties.

         5.3      Quasys agrees not to promote, market, or sell any Competitive
                  Products or services, directly or indirectly, within the
                  Territory. Quasys agrees not to establish a branch office or
                  other entity or association with plans to distribute Products
                  outside the Territory, or to appoint any sub-distributor
                  outside the Territory.

6.       PRICE, PAYMENT, TAXES, DUTY & COMMISSION

         6.1      Prices for the Products purchased under this Agreement will be
                  as specified in Exhibit-B. August Technology will have the
                  right at any time to change its prices and must provide Quasys
                  with a sixty (60) day advance written notice of any pricing
                  changes. Price changes will not apply to unfilled purchase
                  orders that have been accepted by August Technology prior to
                  the effective date of the price change.

         6.2      Payment will be made by the wire transfer of funds in U.S.
                  Dollars from Quasys to August Technology's bank account in the
                  United States.

         6.3      Product prices are to be stated in U.S. Dollars and are
                  Ex-works (as defined by Incoterms 1990) exclusive of all
                  sales, use, and like taxes. Quasys agrees to pay


<PAGE>

                  all freight, storage fees, bank transfer fees, and all taxes
                  and duties associated with the sale of Products purchased
                  under this Agreement.

         6.4      All risk of loss to Products will pass to Quasys upon
                  surrender by August Technology to the carrier at the point of
                  shipment (Edina, Minnesota, USA). Quasys agrees to make all
                  arrangements for export, select the carrier, and insure
                  Products against loss, damage, their or destruction upon
                  surrender to the carrier at August Technology's facility.

         6.5      Both Quasys and August Technology agree that a customer order
                  has three primary components: (1) project/equipment
                  specification, (2) purchasing/negotiations, and (3) training,
                  installation, and follow on service support. The Distributor's
                  purchasing discount from the August Technology published list
                  price will be effected by these primary components (see
                  Table-1).

<TABLE>
<CAPTION>
TABLE-1: Equipment Discount Schedule

------------------------- ---------------------- ----------------------- ---------------------- ----------------------
         ORDER               LOCATION WHERE          LOCATION WHERE         LOCATION WHERE          %OF STANDARD
      POSSIBILITY           PROJECT SPECIFIED         P.O. ISSUED          EQUIP. INSTALLED        EQUIP. DISCOUNT
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                    <C>                     <C>                    <C>
           1                    Territory              Territory               Territory                 100%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           2                    Territory              Territory           Not in Territory               66 1/3%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           3                     Not in                Territory               Territory                  66 1/3%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           4                    Territory           Not in Territory           Territory                  66 1/3%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           5                    Territory           Not in Territory       Not in Territory               33 1/3%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           6                Not in Territory           Territory           Not in Territory               33 1/3
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           7                Not in Territory        Not in Territory           Territory                  33 1/3%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
           8                Not in Territory        Not in Territory       Not in Territory                0%
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>

7.       PURCHASE ORDERS, SHIPMENTS, CANCELLATIONS & CHANGES

         7.1      In order to receive Products, Quasys agrees to deliver to
                  August Technology a hard copy purchase order. All Quasys
                  purchase orders are subject to acceptance at August
                  Technology. All purchase orders issued by Quasys will included
                  in the following information:

                  (a)      Final customer's name (end-user), location, and
                           official purchase order (P.O.) number
                  (b)      Quasys purchase order number
                  (c)      "Ship To" location (generally Quasys address)
                  (d)      "Bill To" location (generally Quasys address) and
                           accounts payable contact person
                  (e)      Method of shipment, including contact person and
                           telephone number
                  (f)      Quantity and description of each item being purchased
                  (g)      Details of any options purchased
                  (h)      Pricing
                  (i)      Requested ship date(s)
                  (j)      Power requirements


<PAGE>

                  (k)      Environmental requirements - if any (such as
                           cleanroom specifications)
                  (l)      Any other special requirements

                  August Technology reserves the right to reject any order which
                  does not conform with the provisions of this Agreement. All
                  orders accepted for delivery will be governed exclusively by
                  the terms and conditions of this Agreement and its
                  incorporated Exhibits. Unless August Technology expressly
                  agrees in writing, no additional or different terms and
                  conditions appearing on the face or reverse side of any order
                  issued by Quasys will become part of such order.
                  Acknowledgment of a Quasys purchase order by August Technology
                  will not constitute acceptance of any additional or different
                  terms and conditions.

         7.2      No purchase order will be binding on August Technology until
                  accepted by August Technology in writing. August Technology
                  agrees to use its reasonable best efforts to accept or reject
                  a purchase order, and will notify Quasys within three (3)
                  working days from receipt of order.

         7.3      In no event will August Technology accept purchase orders from
                  any Person other than Quasys. All purchase orders must
                  originate from Quasys.

         7.4      Quasys may cancel a shipment or request a change in a
                  scheduled shipment date at no charge up to ninety (90) days
                  prior to shipment. In the event Quasys cancels or requests a
                  schedule change WITHIN ninety (90) days prior to shipment, a
                  portion of the purchase order amount (price) will be charged
                  as provided below. No cancellation or changes in a scheduled
                  shipment may be made within fifteen (15) days of shipment.

                  7.4.1    Rescheduling (Later Delivery)

                           Quasys may reschedule shipment of Products for a
                           later date by up to sixty (60) days, on a one-time
                           basis per purchase order, without cost or liability.
                           Rescheduling of shipments can not occur within
                           fifteen (15) days of the original shipment date on
                           the purchase order. Quasys agrees to immediately
                           provide August Technology with a written notice of
                           any rescheduling.

                  7.4.2    Rescheduling (Earlier Delivery)

                           Quasys may request early delivery without cost at any
                           time, and August Technology agrees to use its best
                           efforts to comply with this request.

                  7.4.3    Cancellation

                           All cancellation notices are considered official once
                           August Technology receives written notification from
                           Quasys. Quasys has the right to cancel any purchase
                           order, subject to the following:


<PAGE>

                           (a)      No cancellation is possible within fifteen
                                    (15) days of the shipment date on the
                                    purchase order.

                           (b)      The following charges will apply to Quasys
                                    for order cancellation:

                                    -        If cancellation occurs during the
                                             LAST 1/3 of the quoted delivery
                                             schedule, the charge will be 25% of
                                             the total purchase order amount
                                             except as stated in note "(a)"
                                             above, which states that no
                                             cancellation is possible within
                                             fifteen (15) days of the shipment
                                             date.

                                    -        If cancellation occurs during the
                                             MIDDLE 1/3 of the quoted delivery
                                             schedule, the charge will be 17.5%
                                             of the total purchase order amount.

                                    -        If cancellation occurs during the
                                             FIRST 1/3 of the quoted delivery
                                             schedule the charge will be 10% of
                                             the total purchase order amount.

                                 GRAPHIC OMITTED

                           NOTE: All cancellation charges are payable by
                                 Quasys within thirty (30) days from the date
                                 of receipt of August Technology's invoice.

         7.5      August Technology agrees to use its best efforts to meet
                  scheduled shipment dates. However, as an equipment
                  manufacturer, August Technology is subject to possible delays
                  in equipment part delivery from its suppliers worldwide.
                  Therefore, August Technology will not be liable for delay in
                  meeting a scheduled shipment date due to circumstance beyond
                  its reasonable control, such as equipment part delivery delays
                  and acts of God (such as floods, fires, earthquakes, and the
                  like). If a scheduled shipment date is delayed for more than
                  thirty (30) days without reasonable cause, Quasys will have
                  the right to cancel the specific order without any cost. If
                  Products are in short supply, August Technology will allocate
                  them equitably, at August Technology's discretion, among
                  Quasys and all other resale channels. August Technology will
                  only ship an entire order unless otherwise agreed to in
                  writing by Quasys.

         7.6      August Technology may refuse to ship, or delay the shipment,
                  of any Products on order, if Quasys becomes delinquent in
                  performance of its obligations or fails -to meet other credit
                  or financial requirements established by August Technology. No
                  such cancellation, refusal, or delay will be deemed a
                  termination of this Agreement by August Technology, unless
                  August Technology advises Quasys.

         7.7      All Products will be considered delivered to Quasys Ex-works
                  (in accordance with Incoterms 1990) upon transfer to a common
                  carrier by August Technology at the point of shipment (Edina,
                  Minnesota, USA).


<PAGE>

8.       RELATIONSHIP

         8.1      Quasys' relationship to August Technology will be that of an
                  independent contractor engaged in purchasing and licensing
                  Products for resale to Quasys customers. Nothing in this
                  Agreement will be understood to give either party any power to
                  direct or control the day-to-day activities of the other. All
                  financial obligations associated with Quasys' business are the
                  sole responsibility of Quasys. Quasys will be solely
                  responsible for and agrees to indemnify and hold August
                  Technology harmless from any claims, damages or lawsuits
                  arising out of acts of Quasys, its employees, and agents.
                  Quasys, its employees and agents, are not agents or legal
                  representatives of August Technology for any purpose, and have
                  no authority to act for, bind, or commit August Technology.
                  Quasys and August Technology agree that this Agreement does
                  not establish a franchise, joint venture, or partnership.

         8.2      Any commitment made by Quasys to its customers with respect to
                  quality, delivery, modifications, interfacing, capability,
                  suitability of software, or suitability in specific
                  applications, will be Quasys' sole responsibility, unless
                  prior written approval is obtained from August Technology.
                  Quasys has no authority to modify the Products warranty.

         8.3      Quasys has the right to determine its own resale prices, and
                  no August Technology representative will require that any
                  particular price be charged by Quasys.

         8.4      Quasys agrees that August Technology may market and sell
                  Products, other than those listed in Exhibit-A, without making
                  them available to Quasys.

9.       PRODUCT ACCEPTANCE

         Quasys agrees to inspect all Products immediately upon receipt at their
         facility, and may reject any Products that fail to meet the August
         Technology published specifications. Any Products not rejected within
         fifteen (15) days after receipt by Quasys will be considered accepted.
         Quasys agrees to provide a detailed written notification to August
         Technology of any and all reasons for rejection. Upon receipt of
         rejection notification, August Technology will promptly determine an
         appropriate course of action to be taken regarding the rejected
         Products. All returns of rejected Products to August Technology will
         require prior written approval by August Technology.

10.      OBLIGATIONS

         During the term of this Agreement August Technology agrees to perform
         the following:

         10.1     August Technology agrees to offer for sale to Quasys Products
                  required by Quasys to perform its duties as described in this
                  Agreement.

         10.2     August Technology agrees to keep Quasys informed of its
                  progress in the conduct of its marketing, sales, and service
                  activities in the USA, as well as international


<PAGE>

                  markets (including new applications discovered, major
                  customers, competitor activities, and other trends). August
                  Technology agrees to identify Quasys as its active, exclusive
                  distributor in the Territory for Products in appropriate
                  advertising and other promotions.

         10.3     August Technology agrees to provide training for Quasys
                  personnel for Products. Training will be available (at a
                  minimum) as follows:

                  (a)      August Technology will provide factory training at a
                           minimum of one (1) time per year. August Technology
                           will pay for all training material, personnel, local
                           transportation, and meals. All other expenses,
                           including air travel and hotel accommodations, will
                           be paid for by Quasys.

                  (b)      In addition to factory training, August Technology
                           may provide training at Quasys' facility on a
                           mutually agreed upon basis (for example, during a
                           trade show in Quasys' Territory). This additional
                           training is in no way intended to be a substitute for
                           factory training,

         10.4     August Technology agrees to provide reasonable technical
                  advice to Quasys.

         10.5     August Technology agrees to provide a reasonable amount of
                  technical literature that may be necessary to promote Products
                  (such as brochures, video tapes, technical reports, and other
                  data subject to the confidentiality provisions of this
                  Agreement). All technical material and promotional material
                  will be provided in English.

         10.6     August Technology agrees to actively support the marketing,
                  sales, and service efforts of Products by Quasys, give
                  priority responses to Quasys' requests, and keep Quasys
                  informed of lead times and any related changes to Products.

         During the term of this Agreement Quasys agrees to perform the
         following:

         10.7     Quasys agrees to use its best efforts in good faith to
                  promote, demonstrate, and sell Products on a face-to-face
                  basis and in an end-user environment within the Territory.
                  Quasys agrees to ensure the highest quality of pre-sale and
                  post-sale support to the customers, and to promote the
                  goodwill, name and interest of August Technology and its
                  Products.

         10.8     Quasys agrees to purchase demonstration Products, within sixty
                  (60) days of this Agreement to be used to actively promote,
                  demonstrate, and sell Products to the customers. A
                  demonstration unit may be purchased for each Product at a
                  special discount of 25% off published list pricing. This
                  demonstration discount is available one-time per year,
                  beginning from the date of first demonstration equipment
                  purchase. Quasys has the right to re-sell the demonstration
                  equipment at any time, provided that it is immediately
                  replaced (physically) with another similar or functionally
                  enhanced unit (replacement of the demonstration equipment will
                  be at the standard Quasys Products discount price if the
                  replacement occurs before the one-time per year special
                  discount period expires).


<PAGE>

                  Demonstration Products must meet applicable safety and related
                  equipment standards as accepted by the European Community.

         10.9     Quasys agrees to maintain adequate facilities and to actively
                  train and maintain an adequate number of employees to properly
                  promote, demonstrate, sell, and service the Products. Quasys
                  will ensure that its employees complete appropriate training
                  courses (at a minimum of one time per year at August
                  Technology's facility). August Technology will pay for all
                  training material, personnel, local transportation, and meals.
                  All other expenses, including air travel and hotel
                  accommodations, will be paid for by Quasys.

         10.10    Quasys agrees to promptly handle customer complaints,
                  inquiries and orders, and will provide Territory based related
                  services such as applications assistance, operation and
                  maintenance training, start-up and proof-of-performance
                  acceptance testing, warranty labor services, post-warranty
                  spares and service support, systems retrofits, up-grade kit
                  installation, and the like. Quasys agrees to stock adequate
                  spare parts for Products to meet the requirements of this
                  Agreement.

         10.11    Quasys agrees to handle all warranty claims of customers and
                  comply with August Technology policy for in-warranty repairs
                  and post-warranty support of Products.

         10.12    Quasys agrees to conduct its marketing, sales, and service
                  activities in compliance with local customs, traditions, laws,
                  regulations, and customer expectations at the high quality
                  level consistent with that established by August Technology in
                  the USA. Quasys agrees to clearly identify August Technology
                  as the original source of the Products and as the beneficial
                  owner of all Products rights in all advertising, literature,
                  marking, or labeling, including the use of August Technology's
                  official trademarks and logo.

         10.13    Quasys agrees to bear all of its operating expenses during the
                  term of this Agreement. Quasys will maintain sufficient net
                  worth and working capital, and devote sufficient financial
                  resources to allow Quasys to perform its obligation as
                  outlined in this Agreement.

         10.14    If, during the term of this Agreement, Quasys receives any
                  inquiry or order regarding Products from any person or
                  business entity outside the Territory, Quasys agrees to
                  immediately refer the inquiry or order to August Technology,
                  and agrees not to receive compensation for this referral.

         10.15    Quasys agrees to, at its expense, arrange for the translation
                  of any documentation for the use and operation of the Products
                  in the Territory (as required or determined to be necessary by
                  Quasys). Quasys will make every reasonable effort to make any
                  translation accurate so that they completely represent August
                  Technology's English version.

11.      WARRANTY


<PAGE>

         11.1     Hardware Products - August Technology warrants that it will
                  repair or replace, at its option, hardware Products which are
                  found to be defective in material or workmanship. August
                  Technology must receive written notification of any defect
                  within thirteen (13) months from date of shipment. All
                  transportation charges associated with hardware Products
                  warranty will be arranged and paid for by August Technology.

         11.2     Software Products - August Technology warrants that it will
                  repair or replace, at its option, software Products which fail
                  in a manner which significantly and adversely affects
                  operating performance as specified in August Technology's
                  published Products description. August Technology must receive
                  written notification of any failure to conform within thirteen
                  (13) months from date of shipment. August Technology does not
                  warrant that the software Products are free from errors. All
                  transportation charges associated with software Products
                  warranty will be arranged and paid for by August Technology.

         11.3     The foregoing warranties will not apply to any deficiency or
                  defect resulting from:

                  (a)      Normal wear and tear, or items subject to
                           deterioration, breakage, or burnout through use.
                  (b)      Installation or maintenance by customer or any third
                           party (other than Quasys).
                  (c)      Modifications or alterations made by customer or any
                           third party without August Technology's written
                           consent.
                  (d)      Misuse or abuse.
                  (e)      Failure of customer to maintain the equipment, site,
                           and environmental conditions as required for the
                           normal operation of the Products.
                  (f) Causes beyond August Technology's reasonable control.

         11.4     August Technology makes no other warranty, either expressed or
                  implied, including, but not limited to, any implied warranty
                  of merchantability or fitness for a particular purpose, or
                  arising from course of dealing or usage of trade. The
                  foregoing constitutes August Technology's sole obligation and
                  the exclusive remedies of the customer for any breach by
                  August Technology of the warranties contained in this
                  Agreement. August Technology's total liability will be limited
                  to the repair or replacement of Products, and will in no case
                  exceed the value of the purchase order.

         11.5     All returned Products found to be free of defects will be
                  subject to an inspection charge of ten (10) percent of the
                  purchase order amount, plus shipping charges. Repairs and
                  replacements due to reasons not covered by the warranty will
                  be invoiced at August Technology's then current prices and
                  will be payable under the terms of this Agreement.

12.      POST-WARRANTY SPARE PARTS SUPPORT


<PAGE>

         Due to the rapid pace of the technologies included in the Products,
         August Technology agrees to use its best efforts to maintain the
         ability to provide spare parts and documentation for any Products
         shipped to the Territory for as long as technologically and
         economically feasible. If a direct replacement spare part can not be
         maintained to exact specifications, August Technology will make every
         effort to supply an equal or superior substitute spare part. For a
         period of five (5) years following Product purchase, under no
         circumstances will the customer be forced to abandoned the use of their
         Product (or accept inferior performance) due to unavailable
         post-warranty service or spare parts.

13.      WARRANTY PROCEDURES

         Quasys agrees to request approval from August Technology before
         returning any defective Products. Once approval is granted, August
         Technology will provide Quasys with a Return Material Authorization
         (RMA) number to be displayed on the shipping container of the defective
         Products. Once August Technology approves the return of any defective
         Product, Quasys agrees to ship the Products to August Technology's
         factory using an August Technology approved shipping method. August
         Technology will make all necessary repairs or replacements, and will
         ship the Products back to Quasys or its customer, freight prepaid. To
         expedite warranty service, Quasys and August Technology agree to make
         every effort to supply the customer with immediate replacement Product
         (or parts) while the defective Product (or part) is being tested and
         repaired at August Technology's factory. After repair or replacement is
         completed, August Technology will determine if warranty applies and
         will invoice Quasys for Product (or parts) if warranty does not apply
         (see Section 11.3 for list of non-warranty conditions).

14.      LIMITATION OF LIABILITY

         14.1     Except as stated in this Agreement, August Technology will not
                  be liable for any loss or damages claimed to have resulted
                  from the use, operation, or performance of the Products.

         14.2     AUGUST TECHNOLOGY will in no way be liable to QUASYS for any
                  special, indirect, incidental, or consequential damages, or
                  for any damages from loss of use or profits.

15.      TRADE

         From time to time, August Technology may designate one or more August
         Technology trademarks or trade names as available for Quasys' use, and
         will provide standards for that use in August Technology material.
         August Technology authorizes Quasys to use these designated trademarks
         only as follows:

         (a)      Quasys agrees to use the designated trademarks and trade names
                  in accordance with August Technology's standards solely in
                  advertising and promoting Products, in good taste, and in a
                  manner that preserves their value and August Technology's
                  rights in them.


<PAGE>

         (b)      Quasys agrees not to use any August Technology trademark or
                  trade name on its letterhead or in a way that implies Quasys
                  is an agency or branch of August Technology. Quasys will
                  immediately change or discontinue any trademark or trade name
                  use when requested in writing by August Technology.

16.      PROPRIETARY RIGHTS INDEMNITY

         16.1     August Technology will, except as otherwise provided below,
                  defend or settle any claim made, or suit, or proceeding
                  brought against Quasys so far as it is based on a claim that
                  the use or sale of Products sold under this Agreement
                  infringes a U.S. patent or trademark. August Technology must
                  be immediately notified in writing and given information,
                  assistance, and sole authority to defend or settle claims, at
                  August Technology's expense. Also, August Technology will pay
                  all damages and costs finally awarded against Quasys. If any
                  such Product is determined to infringe, and its use is
                  enjoined, or in case of a settlement, August Technology will
                  have the option, at August Technology's expense, to replace
                  Products with a non-infringing Products, or modify Products so
                  it becomes non-infringing, or repurchase Products from Quasys
                  at the original purchase price. August Technology will have no
                  liability to Quasys for any infringement, or claim thereof,
                  based upon use of any Products in combination with any
                  equipment device, software, or data not supplied by August
                  Technology.

         16.2     This Section states August Technology's entire liability for
                  proprietary rights infringement by Products furnished under
                  this Agreement.

17.      TERMINATION

         17.1     Either Quasys or August Technology may terminate this
                  Agreement, to be effective upon receipt of written notice,
                  based on the occurrence of any of the following events:

                  (a)      If the other party commits a breach of any obligation
                           in this Agreement.
                  (b)      The commencement by either party of a voluntary
                           action under the federal bankruptcy laws, or any
                           other applicable federal, state, or foreign
                           bankruptcy, insolvency, or other similar laws.
                  (c)      The consent of either party to the appointment of a
                           receiver, assignee, or trustee (or other similar
                           official).
                  (d)      The admission by either party of its inability to pay
                           its debts as they become due.
                  (e)      If Quasys is acquired, or its ownership changes
                           substantially.
                  (f)      The nationalization of either party's assets or
                           business.
                  (g)      The passage of any legislation by a country, or
                           subdivision of a country, granting Quasys' extra
                           contractual compensation upon termination or
                           non-renewal of this Agreement.
                  (h)      By mutual consent at any time and with a written
                           notice of termination signed by both parties.


<PAGE>

         17.2     August Technology or Quasys may terminate this Agreement, to
                  be effective upon receipt of written notice, in the event that
                  either party fails to meet its obligations as described in
                  this Agreement.

         17.3     Each party acknowledges that the other has made no commitments
                  regarding the term or renewal of this Agreement. Neither
                  August Technology or Quasys will be liable to the other for
                  damages of any kind, including incidental or consequential
                  damages, or for any losses or claims whatsoever on account of
                  or arising out of the termination of this Agreement. Quasys
                  waives any and all benefit of any law or regulation providing
                  compensation arising from the termination or non-renewal of
                  this Agreement.

         17.4     Upon termination of this Agreement for any reason, Quasys
                  agrees to immediately cease to be an authorized August
                  Technology distributor and will immediately stop representing
                  itself as an August Technology distributor, and from using any
                  August Technology trademark or trade name. Quasys also agrees
                  to return any and all sales and marketing material (and
                  equipment) at the written request of August Technology,
                  shipment pre-paid.

         17.5     Upon termination of this Agreement for any reason, Quasys
                  agrees to continue to provide service support to existing
                  customers in the Territory in return for the compensation
                  already received by Quasys for this service (compensation in
                  the form of discounted Products pricing). Quasys agrees to
                  continue to provide existing customers with professional
                  service support for ninety (90) days following the effective
                  termination date.

18.      POST TERMINATION COOPERATION

         Both Quasys and August Technology agree to fully cooperate to carry out
         an orderly transition in the marketing, sales, and service of Products
         in the Territory. Upon receiving a written notice of termination by
         either party, until the effective date of the termination, both parties
         agree to fully cooperate in supporting existing customers in the
         Territory (see Section 17.5 for further agreement on service support
         following termination).

19.      CONFIDENTIALITY & PROPRIETARY RIGHTS

         19.1     Quasys recognizes that certain information to be provided by
                  August Technology during the term of this Agreement,
                  including, designs, specifications, drawings, engineering
                  details, software, and information concerning August
                  Technology's customers, business, procedures, methods, and
                  Products, are proprietary to August Technology. Quasys agrees
                  not to attempt to reverse compile or engineer the Products or
                  software associated with them.

         19.2     Quasys agrees to keep confidential, and to utilize its best
                  efforts to prevent and protect from unauthorized use or
                  disclosure, any information provided to Quasys by August
                  Technology during the term of this Agreement (which is
                  designated by August Technology as confidential or
                  proprietary).


<PAGE>

         19.3     Quasys agrees that unauthorized disclosure or use of any
                  proprietary information is a material breach of this
                  Agreement.

         19.4     Quasys agrees not to make, or have made, additional copies of
                  documents containing confidential or proprietary information
                  unless they are necessary for Quasys to perform its
                  obligations of this Agreement. Quasys agrees to include on any
                  copies of confidential or proprietary information a
                  "Confidential Notice" the same manner as the original August
                  Technology document.

         19.5     Upon termination of this Agreement, Quasys will return to
                  August Technology, or will destroy and certify in writing to
                  August Technology that it has destroyed, all copies of
                  documentation and other forms of confidential or proprietary
                  information.

         19.6     Quasys' obligations under this Section will continue following
                  termination of this Agreement.

20.      DISTRIBUTOR'S REPRESENTATIONS

         Quasys represents and warrants that in performing under this Agreement
         it will in no way compromise any rights or trust relationships between
         any other party and itself, or create a conflict of interest for Quasys
         or August Technology. Quasys agrees to conduct business in a manner
         that will enhance the image an reputation of August Technology and the
         Products. Quasys hereby represents and warrants that it will comply
         with all applicable laws and regulations, and avoid deceptive,
         misleading, unethical, and illegal practices.

         Quasys acknowledges that it may be necessary for August Technology to
         disclose the fact of Quasys' appointment, the duties performed by
         Quasys, and the compensation paid should there be a proper inquiry from
         an authorized U.S. government agency.

21.      FORCE MAJEURE

         Neither party will be liable, or deemed to be in breach of this
         Agreement, by reason of any act, delay or omission caused by strikes,
         lockouts, or other labor disputes, regulations, ordinances, or order of
         a court of competent jurisdiction, act of government, act of God, war,
         riot, epidemic, flood, earthquake or like natural disaster, embargo or
         quarantine, or any other cause beyond the reasonable control of the
         party claiming force majeure. The party whose performance will have
         been prevented or delayed must provide immediate written notice to the
         other party explaining the nature of the act, delay or omission, and
         the date such condition commenced. The party also agrees to provide
         further written notice when the condition has ended

22.      MODIFICATIONS & IMPROVEMENTS OF PRODUCTS

         If any modifications or improvements to the Products are developed by
         Quasys or August Technology, such modifications or improvements will be
         the exclusive property of


<PAGE>

         August Technology, which will have the full right to patent or
         copyright such modifications or improvements at its sole cost and
         expense.

23.      GOVERNMENT EXPORT RESTRICTIONS

         Quasys agrees that the Products purchased will not be exported directly
         or indirectly, separately or as part of a system, without complete and
         full compliance with the export and re-export restrictions imposed by
         U.S. export laws and regulations. Quasys also agrees to take reasonable
         action to assure that no customer contravenes the U.S. laws and
         regulations.

24.      NOTICES

         Unless otherwise agreed to by both parties, all notices required under
         this Agreement will be made by fax, and all notices will be addressed
         to the attention of the party executing the Agreement, or his or her
         successor.

25.      GENERAL PROVISIONS

         25.1     Neither party may assign or transfer this Agreement. Any
                  attempted assignment or transfer will be void. Both parties
                  agree to advise each other of any change in ownership,
                  control, or operating arrangements.

         25.2     Either party's failure to enforce any provisions of this
                  Agreement will not be deemed a waiver of that provision or of
                  the right to enforce it in the future.

         25.3     This Agreement, including the attached Exhibits, contains the
                  entire and only understanding between the parties, and
                  supersedes all prior agreements either written or oral
                  relating to the subject matter of this Agreement. No
                  modifications of this Agreement will be binding on either
                  party, unless made in writing and signed by persons authorized
                  to, sign agreements on behalf of Quasys and August Technology.

         25.4     If any provision of this Agreement will be determined by any
                  court of competent jurisdiction to be illegal, invalid, or
                  unenforceable, that provision will be understood and enforced
                  as if it had been more narrowly drawn so as not to be illegal,
                  invalid or unenforceable. Any determination will have no
                  effect upon the enforceability of any other provision of this
                  Agreement.

         25.5     If during the term of this Agreement, or at any time after its
                  termination, either August Technology or Quasys commences a
                  suit, action, or other legal proceedings against the other
                  arising out of or in connection with this Agreement, such
                  action will be brought in the state or federal courts located
                  in the State of Minnesota, USA.

         25.6     This Agreement will be governed by the laws of the State of
                  Minnesota, USA and specifically excludes the United States
                  Convention on Contracts of International Sales of Goods. Any
                  disputes or claims arising out of this Agreement or its


<PAGE>

                  interpretation, creation, termination, or performance will be
                  settled by binding arbitration in Minnesota, -under the Rules
                  of Arbitration of the International Chamber of Commerce.

         25.7     This Agreement will be effective only upon its execution by
                  August Technology at its Corporate Headquarters. This
                  Agreement will be binding upon, and will insure the benefit of
                  the parties, and their respective heirs, executors,
                  representatives, and successors in interest.

         25.8     The prevailing party in any arbitration, or other legal action
                  brought by one party against the other arising out of this
                  Agreement, will be entitled, in addition to any other rights
                  and remedies it may have, to reimbursement for its expenses,
                  including court costs and attorneys' fees.

26.      AUTHORITY

         If Quasys is a partner or corporation, the person executing this
         Agreement represents that he or she is either a general partner or a
         duly authorized corporate officer, and that he or she has full
         authority to enter into this Agreement on behalf of Quasys.

DISTRIBUTOR:                                 ACCEPTED BY:

Quasys AG                                    August Technology Corporation




-----------------------------------          ----------------------------------
Authorized Signature                         Authorized Signature



Title:                                       Title:
      -----------------------------                ----------------------------



<PAGE>

EXHIBIT-A:  PRODUCTS

Quasys is granted the right to distribute the following August Technology
Products under the terms of this

Agreement.

(1)      LV SERIES - SEMI-AUTOMATIC LEAD & PACKAGE INSPECTION SYSTEMS



NOTES:

(a)      It is August Technology's intent to also provide Quasys the right to
         distribute the NSX-80 - AUTOMATED DIE DEFECT INSPECTION SYSTEM
         (POST-PROBE). Note that the NSX-80 will be in development at the time
         this Agreement is signed. Consequently, August Technology feels that it
         would not be appropriate at this time to include this proposed future
         product within the Agreement.

(b)      Additional Products may be added from time to time by mutual consent
         and official amendment to this Exhibit-A.


<PAGE>


EXHIBIT-B:  PRICING, DISCOUNT, AND TERMS

Quasys agrees to pay August Technology for Products purchased based on a set
discount from official published Price Lists, or a set discount from special
pricing quoted by August Technology for mutually agreed to custom projects. The
current applicable Price List for Products and spare parts are attached to this
Exhibit.

All pricing is Ex-works (INCOTERMS 1990) at August Technology's factory,
including air freight.

Quasys agrees to pay all freight, insurance, requested interim storage fees,
bank transfer fees, and all international taxes and customs duties assessed on
each order.

Quasys' set discount from official published Price Lists will be:  17.5%

Quasys agrees to make all payments in US$ for Products based on the following
terms:

         (1)      For Product with Distributor purchase price of.- Less than
                  $75,000

                  [a]      100% net 30 days from shipment.

         (2)      For Product with Distributor purchase price of.- Greater than
                  $75,000

                  [a]      1/3 on order, net 30 days.

                  [b]      1/3 on shipment, net 30 days.

                  [c]      1/3 on "commission of equipment" or within 20 days of
                           receipt of equipment (whichever occurs first), net 30
                           days.

Quasys agrees to make all payments to August Technology by the following method:

         Direct wire transfer to August Technology's bank. Detailed bank account
         information is: Norwest Bank, Minnesota, N.A., Transit Routing
         #091000019, Account #3972985397.

PLEASE NOTE-

Engineering services, field service labor charges, and personnel travel
expenses, are not subject to discounting or commission.


<PAGE>


                       **LV9200 PRICE LIST OR QUOTE Here*


<PAGE>


                        **LV 9200 SPARE PARTS List Here**


<PAGE>


EXHIBIT-C:  SPECIAL ACCOUNTS

The following customers who have offices, facilities, factories, fabs, or any
other business facilities within the Territory will be considered Special
Accounts, which will remain exclusive to August Technology regarding all
business activities (including, but not limited to, sales, marketing, and
service support): None


<PAGE>


EXHIBIT-D:  TERRITORY

August Technology hereby appoints Quasys as an authorized, independent,
exclusive Distributor for the Products, for the purpose of reselling and
servicing the Products directly to its customers in the following countries:

         -        Switzerland

         -        Germany

         -        Austria

         -        Italy

         -        Portugal

         -        France (see Note I below)

NOTE:    (1) France will be considered a non-exclusive territory (all other
         countries show are exclusive to Quasys) for the term of this Agreement.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>9
<DESCRIPTION>EXHIBIT 10.5
<TEXT>

<PAGE>

                                                                   Exhibit 10.5

                          AUGUST TECHNOLOGY CORPORATION
                         INTERNATIONAL SALES DISTRIBUTOR
                                    AGREEMENT

This Agreement is made as of the 3rd day of September , 1996, between August
Technology Corporation, a Minnesota (USA) corporation with a principal place of
business at 5237 Edina Industrial Blvd., Edina, Minnesota 55439, USA, and Firfax
Systems Ltd., (Firfax), an entity organized and existing under the laws of
England, having its principal place of business at Avening Mill, Avening, Glos.
GL8 8LU, UK.

In consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:

The following are the terms and conditions under which August Technology sells
and licenses its image capture technology, vision system controlled
manufacturing tools, licensed software programs, and related spare parts
specified in Exhibit-A (hereinafter jointly referred to as "Product" or
"Products"). Firfax wishes to purchase all or selected Products for resale and
commits to actively provide its customers the necessary service and support to
successfully market and maintain the Products.

1.       DEFINITIONS.

         The terms listed below will have the following meaning, unless the
         context clearly indicates otherwise:

         1.1      "AGREEMENT" will mean this International Sales Distributor
                  Agreement and all Exhibits.

         1.2      "COMPETITIVE PRODUCTS" will mean image capture technology,
                  vision system controlled manufacturing tools, licensed
                  software programs, and related spare parts, of substantially
                  the same functionality as August Technology's Products.

         1.3      "Price List" will mean the published prices that August
                  Technology shall issue from time to time.

         1.4      "TERRITORY" will mean the countries specified in Exhibit-D.

2.       APPOINTMENT AS DISTRIBUTOR

         August Technology hereby appoints Firfax as an authorized, independent,
         exclusive Distributor for the Products, for the purpose of reselling
         and servicing the Products directly to its customers in the Territory
         (except to those customers listed in Exhibit-C, which are consider
         exclusive August Technology accounts). Fir-fax agrees that it will
         re-sell Products directly, without the use of any dealers, sub-agents,
         and the like, unless agreed to in writing by August Technology.

3.       TERM OF AGREEMENT

<PAGE>

         This Agreement will begin on the date an authorized officer of August
         Technology executes the Agreement and will continue in full force and
         effect until terminated as provided in this Agreement.

4.       TERRITORY

         Firfax will have the exclusive right to actively market, sell, and
         promote the Products in the Territory (see Exhibit-D).

5.       RESTRICTIONS

         5.1      Firfax agrees not to make any sale, transfer, exchange, or
                  other conveyance of any Products whatsoever to any person that
                  Firfax knows, or has reason to know, is purchasing such
                  Products for the purpose of resale without first notifying
                  August Technology for written approval.

         5.2      Firfax will have no rights to the Products, any software
                  included in the Products, or any improvements in the Products.
                  Firfax agrees not to copy, manufacture, re-manufacture, or
                  otherwise modify any Products without the written consent from
                  August Technology (signed by an officer of the company). If
                  Firfax is permitted to modify Products to conform to customer
                  requests or specifications, such modifications must not
                  degrade the original August Technology operating
                  specifications or impede the reliability of the Products. Any
                  modifications performed in violation of this Section 5.2 will
                  void all warranties.

         5.3      Firfax agrees not to promote, market, or sell any Competitive
                  Products or services, directly or indirectly, within the
                  Territory. Firfax agrees not to establish a branch office or
                  other entity or association with plans to distribute Products
                  outside the Territory, or to appoint any sub-distributor
                  outside the Territory.

6.       PRICE, PAYMENT, TAXES, DUTY & COMMISSION

         6.1      Prices for the Products purchased under this Agreement will be
                  as specified in Exhibit-B. August Technology will have the
                  right at any time to change its prices and must provide Firfax
                  with a thirty (30) day advance written notice of any pricing
                  changes. Price changes will not apply to unfilled purchase
                  orders that have been accepted by August Technology prior to
                  the effective date of the price change.

         6.2      Payment will be made by the wire transfer of funds in U.S.
                  Dollars from Firfax to August Technology's bank account in the
                  United States.

         6.3      Product prices are to be stated in U.S. Dollars and are
                  Ex-works (as defined by Incoterms 1990) exclusive of all
                  sales, use, and like taxes. Firfax agrees to pay all freight
                  storage fees, bank transfer fees, and all taxes and duties
                  associated with the sale of Products purchased under this
                  Agreement.


                                       2
<PAGE>

         6.4      All risk of loss to Products will pass to Firfax upon
                  surrender by August Technology to the carrier at the point of
                  shipment (Edina, Minnesota, USA). Firfax agrees to make all
                  arrangements for export, select the carrier, and insure
                  Products against loss, damage, theft, or destruction upon
                  surrender to the carrier at August Technology's facility.

         6.5      Both Firfax and August Technology agree that a customer order
                  has three primary components: (1) project/equipment
                  specification, (2) purchasing/negotiations, and (3) training,
                  installation, and follow on service support. The Distributor's
                  purchasing discount from the August Technology published list
                  price will be effected by these primary components (see
                  Table-1).

TABLE 1:  Equipment Discount Schedule

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
ORDER                        LOCATION WHERE         LOCATION WHERE          LOCATION WHERE         % OF STANDARD
POSSIBILITY                  PROJECT SPECIFIC       P.O. ISSUED             EQUIP. INSTALLED       EQUIP.DISCOUNT
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>                    <C>                     <C>                    <C>
           1                    Territory              Territory               Territory                100%
----------------------------------------------------------------------------------------------------------------------
           2                    Territory              Territory           Not In Territory            6-1/3%
----------------------------------------------------------------------------------------------------------------------
           3                Not in Territory           Territory               Territory               66-1/3%
----------------------------------------------------------------------------------------------------------------------
           4                    Territory           Not in Territory           Territory               66-1/3%
----------------------------------------------------------------------------------------------------------------------
           5                    Territory           Not in Territory       Not in Territory            33-1/3%
----------------------------------------------------------------------------------------------------------------------
           6                Not in Territory           Territory           Not in Territory            33-1/3%
----------------------------------------------------------------------------------------------------------------------
           7                Not in Territory        Not in Territory           Territory               33-1/3%
----------------------------------------------------------------------------------------------------------------------
           8                Not in Territory        Not in Territory       Not in Territory              0%
----------------------------------------------------------------------------------------------------------------------
</TABLE>


7.       PURCHASE ORDERS, SHIPMENTS, CANCELLATIONS & CHANGES

         7.1      In order to receive Products, Firfax agrees to deliver to
                  August Technology a hard copy purchase order. All Firfax
                  purchase orders are subject to acceptance at August
                  Technology. All purchase orders issued by Firfax will included
                  in the following information:

                  (a)      Final customer's name (end-user), location, and
                           official purchase order (P.O.) number

                  (b)      Firfax purchase order number

                  (c)      "Ship To" location (generally Firfax address)


                                       3
<PAGE>

                  (d)      "Bill To" location (generally Firfax address) and
                           accounts payable contact person

                  (e)      Method of shipment, including contact person and
                           telephone number

                  (f)      Quantity and description of each item being purchased

                  (g)      Details of any options purchased

                  (h)      Pricing

                  (i)      Requested ship date(s) power requirements

                  (k)      Environmental requirements - if any (such as
                           cleanroom specifications)

                  (l)      Any other special requirements

                  August Technology reserves the right to reject any order which
                  does not conform with the provisions of this Agreement. All
                  orders accepted for delivery will be governed exclusively by
                  the terms and conditions of this Agreement and its
                  incorporated Exhibits. Unless August Technology expressly
                  agrees in writing, no additional or different terms and
                  conditions appearing on the face or reverse side of any order
                  issued by Firfax will become part of such order.
                  Acknowledgment of a Firfax purchase order by August Technology
                  will not constitute acceptance of any additional or different
                  terms and conditions.

         7.2      No purchase order will be binding on August Technology until
                  accepted by August Technology in writing. August Technology
                  agrees to use its reasonable best efforts to accept or reject
                  a purchase order, and will notify Firfax within three (3)
                  working days from receipt of order.

         7.2      In no event will August Technology accept purchase orders from
                  any Person other than Firfax. All purchase orders must
                  originate from Firfax.

         7.4      Firfax may cancel a shipment or request a change in a
                  scheduled shipment date at no charge up to ninety (90) days
                  prior to shipment. In the event Firfax cancels or requests a
                  schedule change within ninety (90) days prior to shipment, a
                  portion of the purchase order amount (price) will be charged
                  as provided below. No cancellation or changes in a scheduled
                  shipment may be made within fifteen (15) days of shipment.

                  7.4.1    Rescheduling (Later Delivery)

                           Firfax may reschedule shipment of Products for a
                           later date by up to sixty (60) days, on a one-time
                           basis per purchase order, without cost or liability.
                           Rescheduling of shipments can not occur within
                           fifteen (15) days of the original shipment date on
                           the purchase order. Firfax agrees to


                                       4
<PAGE>

                           immediately provide August Technology with a written
                           notice of any rescheduling.

                  7.4.2    Rescheduling (Earlier Delivery)

                           Firfax may request early delivery without cost at any
                           time, and August Technology agrees to use its best
                           efforts to comply with this request.

                  7.4.3    Cancellation

                           All cancellation notices are considered official once
                           August Technology receives written notification from
                           Firfax. Firfax has the right to cancel any purchase
                           order, subject to the following:

                           (a)      No cancellation is possible with fifteen(15)
                                    days of the shipment date on the purchase
                                    order.

                           (b)      The following charges will apply to Firfax
                                    for order cancellation:

                                    -        If cancellation occurs during the
                                             last 1/3 of the quoted delivery
                                             schedule, the charge will be 25% of
                                             the total purchase order amount -
                                             except as stated in note "(a)"
                                             above, which states that no
                                             cancellation is possible within
                                             fifteen (15) days of the shipment
                                             date.

                                    -        If cancellation occurs during the
                                             middle 1/3 of the quoted delivery
                                             schedule, the charge will be 17.5%
                                             of the total purchase order amount.

                                    -        If cancellation occurs during the
                                             first 1/3 of the quoted delivery
                                             schedule, no charge will apply.

[GRAPHIC OMITTED]

                           NOTE: All cancellation charges are payable by Firfax
                           within thirty (30) days from the date of receipt of
                           August Technology's invoice.

         7.5      August Technology agrees to use its best efforts to meet
                  scheduled shipment dates. However, August Technology will not
                  be liable for delay in meeting a scheduled shipment date. If
                  Products are in shortly, August Technology will allocate them
                  equitably, at August Technology's discretion, among Firfax and
                  all other resale channels. August Technology will only ship an
                  entire order unless otherwise agreed to in writing by Firfax.

         7.6      August Technology may refuse to ship, or delay the shipment,
                  of any Products on order, if Firfax becomes delinquent in
                  performance of its obligations or fails to


                                       5
<PAGE>

                  meet other credit or financial requirements established by
                  August Technology. No such cancellation, refusal, or delay
                  will be deemed a termination of this Agreement by August
                  Technology, unless August Technology advises Firfax.

         7.7      All Products will be considered delivered to Firfax Ex-works
                  (in accordance with Incoterms 1990) upon transfer to a common
                  carrier by August Technology at the point of shipment (Edina,
                  Minnesota, USA).

8.       RELATIONSHIP

         8.1      Firfax's relationship to August Technology will be that of an
                  independent contractor engaged in purchasing and licensing
                  Products for resale to Firfax customers. Nothing in this
                  Agreement will be understood to give either party any power to
                  direct or control the day-to-day activities of the other. All
                  financial obligations associated with Firfax's business are
                  the sole responsibility of Firfax. Firfax will be solely
                  responsible for and agrees to indemnify and hold August
                  Technology harmless from any claims, damages or lawsuits
                  arising out of acts of Firfax, its employees, and agents.
                  Firfax, its employees and agents, are not agents or legal
                  representatives of August Technology for any purpose, and have
                  no authority to act for, bind, or commit August Technology.
                  Firfax and August Technology agree that this Agreement does
                  not establish a franchise, joint venture, or partnership.

         8.2      Any commitment made by Firfax to its customers with respect to
                  quality, delivery, modifications, interfacing, capability,
                  suitability of software, or suitability in specific
                  applications, will be Firfax's sole responsibility, unless
                  prior written approval is obtained from August Technology.
                  Firfax has no authority to modify the Products warranty.

         8.3      Firfax has the right to determine its own resale prices, and
                  no August Technology representative will require that any
                  particular price be charged by Firfax.

         8.4      Firfax agrees that August Technology may market and sell
                  Products, other than those listed in Exhibit-A, without making
                  them available to Firfax.

9.       PRODUCT ACCEPTANCE

         Firfax agrees to inspect all Products immediately upon receipt at their
         facility, and may reject any Products that fail to meet the August
         Technology published specifications. Any Products not rejected within
         thirty (30) days after receipt by Firfax will be considered accepted.
         Firfax agrees to provide a detailed written notification to August
         Technology of any and all reasons for rejection. Upon receipt of
         rejection notification, August Technology will promptly determine an
         appropriate course of action to be taken regarding the rejected
         Products. All returns of rejected Products to August Technology will
         require prior written approval by August Technology.

10.      OBLIGATIONS


                                       6
<PAGE>

         During the term of this Agreement August Technology agrees to perform
         the following:

         10.1     August Technology agrees to offer for sale to Firfax Products
                  required by Firfax to perform its duties as described in this
                  Agreement.

         10.2     August Technology agrees to keep Firfax informed of its
                  progress in the conduct of its marketing, sales, and service
                  activities in the USA, as well as international markets
                  (including new applications discovered, major customers,
                  competitor activities, and other trends). August Technology
                  agrees to identify Firfax as its active, exclusive distributor
                  in the Territory for Products in appropriate advertising and
                  other promotions.

         10.3     August Technology agrees to provide training for Firfax
                  personnel for Products. Training will be available (at a
                  minimum) as follows:

                  (a)      August Technology will provide factory training at a
                           minimum of one (1) time per year. August Technology
                           will pay for all training material, personnel, local
                           transportation, and meals. All other expenses,
                           including air travel and hotel accommodations, will
                           be paid for by Firfax.

                  (b)      In addition to factory training, August Technology
                           may provide training at Firfax's facility on a
                           mutually agreed upon bases (for example, during a
                           trade show in Firfax's Territory). This additional
                           training is in no way intended to be a substitute for
                           factory training,

         10.4     August Technology agrees to provide reasonable technical
                  advice to Firfax.

         10.5     August Technology agrees to provide a reasonable amount of
                  technical literature that may be necessary to promote Products
                  (such as brochures, video tapes, technical reports, and other
                  data subject to the confidentiality provisions of this
                  Agreement). All technical material and promotional material
                  will be provided in English.

         10.6     August Technology agrees to actively support the marketing,
                  sales, and service efforts of Products by Firfax, give
                  priority responses to Firfax's requests, and keep Firfax
                  informed of lead times and any related changes to Products.

                  During the term of this Agreement Firfax agrees to perform the
                  following:

         10.7     Firfax agrees to use its best efforts in good faith to
                  promote, demonstrate, and sell Products on a face-to face
                  basis and in an end-user environment within the Territory.
                  Firfax agrees to ensure the highest quality of pre-sale and
                  post-sale support to the customers, and to promote the
                  goodwill, name and interest of August Technology and its
                  Products.

         10.8     Firfax agrees to purchase demonstration Products if the demo
                  purchase price is less than $75,000; within sixty (60) days of
                  this Agreement, to be used to actively promote, demonstrate,
                  and sell Products to the customers. Demonstration


                                       7
<PAGE>

                  Products with a demo purchase price greater than $75,000 can
                  be purchased at Firfax's option, so long as Firfax can
                  adequately support the market need for demonstration Products
                  via other means (e.g., trade shows, factory borrowed
                  equipment, etc.). If demonstration Products are borrowed from
                  the factory, the duration will be negotiated on a case-by-case
                  basis between Firfax and August Technology. Demonstration
                  Products with a demo purchase price greater than $75,000 will
                  be provided on a temporary basis at the discretion of August
                  Technology and generally with no equipment charge to Firfax
                  (Firfax agrees to pay for all charges relating to freight,
                  taxes, duties, and related charges that result from borrowing
                  the demonstration Products). A demonstration unit may be
                  purchased for each Product at a special discount of 25% off
                  published list pricing. This demonstration discount is
                  available one-time per year, beginning from the date of first
                  demonstration equipment purchase. Firfax has the right to
                  re-sell the demonstration equipment at any time, provided that
                  it is immediately replaced (physically) with another similar
                  or functionally enhanced unit (replacement of the
                  demonstration equipment will be at the standard Firfax
                  Products discount price if the replacement occurs before the
                  onetime per year special discount period expires).

         10.9     Firfax agrees to maintain adequate facilities and to actively
                  train and maintain an adequate number of employees to properly
                  promote, demonstrate, sell, and service the Products. Firfax
                  will ensure that its employees complete appropriate training
                  courses (at a minimum of one time per year at August
                  Technology's facility). August Technology will pay for all
                  training material, personnel, local transportation, and meals.
                  All other expenses, including air travel and hotel
                  accommodations, will be paid for by Firfax.

         10.10    Firfax agrees to promptly handle customer complaints,
                  inquiries and orders, and will provide Territory based related
                  services such as applications assistance, operation and
                  maintenance training, start-up and proof-of-performance
                  acceptance testing, warranty labor services, post-warranty
                  spares and service support, systems retrofits, up-grade kit
                  installation, and the like. Firfax agrees to stock adequate
                  spare parts for Products to meet the requirements of this
                  Agreement.

         10.11    Firfax agrees to handle all warranty claims of customers and
                  comply with August Technology policy for in-warranty repairs
                  and post-warranty support of Products.

         10.12    Firfax agrees to conduct its marketing, sales, and service
                  activities in compliance with local customs, traditions, laws,
                  regulations, and customer expectations at the high quality
                  level consistent with that established by August Technology in
                  the USA. Firfax agrees to clearly identify August Technology
                  as the original source of the Products and as the beneficial
                  owner of all Products rights in all advertising, literature,
                  marking, or labeling, including the use of August Technology's
                  official trademarks and logo.

         10.13    Firfax agrees to bear all of its operating expenses during the
                  term of this Agreement. Firfax will maintain sufficient net
                  worth and working capital, and


                                       8
<PAGE>

                  devote sufficient financial resources to allow Firfax to
                  perform its obligation as outlined in this Agreement.

         10.14    If, during the term of this Agreement, Firfax receives any
                  inquiry or order regarding Products from any person or
                  business entity outside the Territory, Firfax agrees to
                  immediately refer the inquiry or order to August Technology,
                  and agrees not to receive compensation for this referral.

         10.15    Firfax agrees to, at its expense, arrange for the translation
                  of any documentation for the use and operation of the Products
                  in the Territory (as required or determined to be necessary by
                  Firfax). Firfax will make every reasonable effort to make any
                  translation accurate so that they completely represent August
                  Technology's English version.

11.      WARRANTY

         11.1     Hardware Products - August Technology warrants that it will
                  repair or replace, at its option, hardware Products which are
                  found to be defective in material or workmanship. August
                  Technology must receive written notification of any defect
                  within thirteen (13) months from date of shipment. All
                  transportation charges associated with hardware Products
                  warranty will be arranged and paid for by August Technology.

         11.2     Software Products - August Technology warrants that it will
                  repair or replace, at its option, software Products which fail
                  in a manner which significantly and adversely affects
                  operating performance as specified in August Technology's
                  published Products description. August Technology must receive
                  written notification of any failure to conform within thirteen
                  (1 3) months from date of shipment. August Technology does not
                  warrant that the software Products are free from errors. All
                  transportation charges associated with software Products
                  warranty will be arranged and paid for by August Technology.

         11.3     The foregoing warranties will not apply to any deficiency or
                  defect resulting from:

                  (a)      Normal wear and tear, or items subject to
                           deterioration, breakage, or burnout through use.

                  (b)      Installation or maintenance by customer or any third
                           party (other than Firfax).

                  (c)      Modifications or alterations made by customer or any
                           third party without August Technology's written
                           consent.

                  (d)      Misuse or abuse.

                  (e)      Failure of customer to maintain the equipment, site,
                           and environmental conditions as required for the
                           normal operation of the Products.


                                       9
<PAGE>

                  (f)      Causes beyond August Technology's reasonable control.

         11.4     August Technology makes no other warranty, either expressed or
                  implied, including, but not limited to, any implied warranty
                  of merchantability or fitness for a particular purpose, or
                  arising from course of dealing or usage of trade. The
                  foregoing constitutes August Technology's sole obligation and
                  the exclusive remedies of the customer for any breach by
                  August Technology of the warranties contained in this
                  Agreement. August Technology's total liability will be limited
                  to the repair or replacement of Products, and will in no case
                  exceed the value of the purchase order.

         11.5     All returned Products found to be free of defects will be
                  subject to an inspection charge of ten (10) percent of the
                  purchase order amount plus shipping charges. Repairs and
                  replacements due to reasons not covered by the warranty will
                  be invoiced at August Technology's then current prices and
                  will be payable under the terms of this Agreement.

12.      POST-WARRANTY SPARE PARTS SUPPORT

         Due to the rapid pace of the technologies included in the Products,
         August Technology agrees to use its best efforts to maintain the
         ability to provide spare parts and documentation for any Products
         shipped to the Territory for as long as technologically and
         economically feasible.

13.      WARRANTY PROCEDURES

         Firfax agrees to request approval from August Technology before
returning any defective Products. Once approval is granted, August Technology
will provide Firfax with a Return Material Authorization (RMA) number to be
displayed on the shipping container of the defective Products. Once August
Technology approves the return of any defective Product, Firfax agrees to ship
the Products to August Technology's factory using an August Technology approved
shipping method. August Technology will make all necessary repairs or
replacements, and will ship the Products back to Firfax or its customer, freight
prepaid. To expedite warranty service, Firfax and August Technology agree to
make every effort to supply the customer with immediate replacement Product (or
parts) while the defective Product (or part) is being tested and repaired at
August Technology's factory. After repair or replacement is completed, August
Technology will determine if warranty applies and will invoice Firfax for
Product (or parts) if warranty does not apply (see Section 1 1.3 for list of
nonwarranty conditions).

14.      LIMITATION OF LIABILITY

         14.1     Except as stated in this Agreement, August Technology will not
                  be liable for any loss or damages claimed to have resulted
                  from the use, operation, or performance of the Products.

         14.2     August Technology will in no way be liable to Firfax for any
                  special, indirect, incidental, or consequential damages, or
                  for any damages from loss of use or profits.


                                       10
<PAGE>

15.      TRADE

         From time to time, August Technology may designate one or more August
         Technology trademarks or trade names as available for Firfax's use, and
         will provide standards for that use in August Technology material.
         August Technology authorizes Firfax to use these designated trademarks
         only as follows:

                  (a)      Firfax agrees to use the designated trademarks and
                           trade names in accordance with August Technology's
                           standards solely in advertising and promoting
                           Products, in good taste, and in a manner that
                           preserves their value and August Technology's rights
                           in them.

                  (b)      Firfax agrees not to use any August Technology
                           trademark or trade name on its letterhead or in a way
                           that implies Firfax is an agency or branch of August
                           Technology. Firfax will immediately change or
                           discontinue any trademark or trade name use when
                           requested in writing by August Technology.

16.      PROPRIETARY RIGHTS INDEMNITY

         16.1     August Technology will, except as otherwise provided below,
                  defend or settle any claim made, or suit, or proceeding
                  brought against Firfax so far as it is based on a claim that
                  the use or sale of Products sold under this Agreement
                  infringes a U.S. patent or trademark. August Technology must
                  be immediately notified in writing and given information,
                  assistance, and sole authority to defend or settle claims, at
                  August Technology's expense. Also, August Technology will pay
                  all damages and costs formally awarded against Firfax. If any
                  such Product is determined to infringe, and its use is
                  enjoined, or in case of a settlement, August Technology will
                  have the option, at August Technology's expense, to replace
                  Products with a non-infringing Products, or modify Products so
                  it becomes non-infringing, or repurchase Products from Firfax
                  at the original purchase price. August Technology will have no
                  liability to Firfax for any infringement, or claim thereof,
                  based upon use of any Products in combination with any
                  equipment, device, software, or data not supplied by August
                  Technology.

         16.2     This Section states August Technology's entire liability for
                  proprietary. rights infringement by Products furnished under
                  this Agreement.

17.      TERMINATION

         17.1     Either Firfax or August Technology may terminate this
                  Agreement, to be effective upon receipt of written notice,
                  based on the occurrence of any of the following events:

                  (a)      If the other party corm-nits a breach of any
                           obligation in this Agreement.


                                       11
<PAGE>

                  (b)      The commencement by either party of a voluntary
                           action under the federal bankruptcy laws, or any
                           other applicable federal, state, or foreign
                           bankruptcy, insolvency, or other similar laws.

                  (c)      The consent of either party to the appointment of a
                           receiver, assignee, or trustee (or other similar
                           official).

                  (d)      The admission by either party of its inability to pay
                           its debts as they become due.

                  (e)      If Firfax is acquired, or its ownership changes
                           substantially.

                  (f)      The nationalization of either party's assets or
                           business.

                  (g)      The passage of any legislation by a country, or
                           subdivision of a country, granting Firfax extra
                           contractual compensation upon termination or
                           non-renewal of this Agreement.

                  (h)      By mutual consent at any time and with a written
                           notice of termination signed by both parties.

         17.2     August Technology or Firfax may terminate this Agreement, to
                  be effective upon receipt of written notice, m the event that
                  either party fails to meet its obligations as described in
                  this Agreement.

         17.3     Each party acknowledges that the other has made no commitments
                  regarding the term or renewal of this Agreement. Neither
                  August Technology or Firfax will be liable to the other for
                  damages of any kind, including incidental or consequential
                  damages, or for any losses or claims whatsoever on account of
                  or arising out of the termination of this Agreement. Firfax
                  waives any and all benefit of any law or regulation providing
                  compensation arising from the termination or non-renewal of
                  this Agreement.

         17.4     Upon termination of this Agreement for any reason, Firfax
                  agrees to immediately cease to be an authorized August
                  Technology distributor and will immediately stop representing
                  itself as an August Technology distributor, and from using any
                  August Technology trademark or trade name. Firfax also agrees
                  to return any and all sales and marketing material (and
                  equipment) at the written request of August Technology,
                  shipment pre-paid.

         17.5     Upon termination of this Agreement for any reason, Firfax
                  agrees to continue to provide service support to existing
                  customers in the Territory in return for the compensation
                  already received by Firfax for this service (compensation in
                  the form of discounted Products pricing). Firfax agrees to
                  continue to provide existing customers with professional
                  service support for ninety (90) days following the effective
                  termination date.


                                       12
<PAGE>

         17.6     Upon termination of this Agreement by August Technology,
                  August Technology agrees to repurchase any demonstration
                  Products that were purchased by Firfax within one-hundred
                  twenty (120) days from date of official termination notice.
                  The repurchase price for demonstration Products will be the
                  original purchase price for Products returned to August
                  Technology in "as new" condition (demonstration Products not
                  returned in "as new" condition will be discounted based on
                  negotiations between Firfax and August Technology). Firfax
                  agrees to pay for all charges relating to freight, taxes,
                  duties, and related charges that result from the return of
                  demonstration Products.

18.      POST TERMINATION COOPERATION

         Both Firfax and August Technology agree to fully cooperate to carry out
         an orderly transition in the marketing, sales, and service of Products
         in the Territory. Upon receiving a written notice of termination by
         either party, until the effective date of the termination, both parties
         agree to fully cooperate in supporting existing customers in the
         Territory (see Section 17.5 for further agreement on service support
         following termination).

19.      CONFIDENTIALITY & PROPRIETARY RIGHTS

         19.1     Firfax recognizes that certain information to be provided by
                  August Technology during the term of this Agreement,
                  including, designs, specifications, drawings, engineering
                  details, software, and information concerning August
                  Technology's customers, business, procedures, methods, and
                  Products, are proprietary to August Technology. Firfax agrees
                  not to attempt to reverse compile or engineer the Products or
                  software associated with them.

         19.2     Firfax agrees to keep confidential, and to utilize its best
                  efforts to prevent and protect from unauthorized use or
                  disclosure, any information provided to Firfax by August
                  Technology during the term of this Agreement (which is
                  designated by August Technology as confidential or
                  proprietary).

         19.3     Firfax agrees that unauthorized disclosure or use of any
                  proprietary information is a material breach of this
                  Agreement.

         19.4     Firfax agrees not to make, or have made, additional copies of
                  documents containing confidential or proprietary information
                  unless they are necessary for Firfax to perform its
                  obligations of this Agreement. Firfax agrees to include on any
                  copies of confidential or proprietary information a
                  "Confidential Notice" the same manner as the original August
                  Technology document.

         19.5     Upon termination of this Agreement, Firfax will return to
                  August Technology, or will destroy and certify in writing to
                  August Technology that it has destroyed, all copies of
                  documentation and other forms of confidential or proprietary
                  information.


                                       13
<PAGE>

         19.6     Firfax's obligations under this Section will continue
                  following termination of this Agreement.

20.      DISTRIBUTOR'S REPRESENTATIONS

         Firfax represents and warrants that in performing under this Agreement
         it will in no way compromise any rights or trust relationships between
         any other party and itself, or create a conflict of interest for Firfax
         or August Technology. Firfax agrees to conduct business in a manner
         that will enhance the image an reputation of August Technology and the
         Products. Firfax hereby represents and warrants that it will comply
         with all applicable laws and regulations, and avoid deceptive,
         misleading, unethical, and illegal practices.

         Firfax acknowledges that it may be necessary for August Technology to
         disclose the fact of Firfax's appointment, the duties performed by
         Firfax, and the compensation paid should there be a proper inquiry from
         an authorized U.S government agency.

21.      FORCE MAJEURE

         Neither party will be liable, or deemed to be in breach of this
         Agreement, by reason of any act, delay or omission caused by strikes,
         lockouts, or other labor disputes, regulations, ordinances, or order of
         a court of competent jurisdiction, act of government, act of God, war,
         riot, epidemic, flood, earthquake or like natural disaster, embargo or
         quarantine, or any other cause beyond the reasonable control of the
         party claiming force majeure. The party whose performance will have
         been prevented or delayed must provide immediate written notice to the
         other party explaining the nature of the act, delay or omission, and
         the date such condition commenced. The party also agrees to provide
         further written notice when the condition has ended.

22.      MODIFICATIONS & IMPROVEMENTS OF PRODUCTS

         If any modifications or improvements to the Products are developed by
         Firfax or August Technology, such modifications or improvements will be
         the exclusive property of August Technology, which will have the full
         right to patent or copyright such modifications or improvements at its
         sole cost and expense.

23.      GOVERNMENT EXPORT RESTRICTIONS

         Firfax agrees that the Products purchased will not be exported directly
         or indirectly, separately or as part of a system, without complete and
         full compliance with the export and re-export restrictions imposed by
         U.S. export laws and regulations. Firfax also agrees to take reasonable
         action to assure that no customer contravenes the U.S. laws and
         regulations.

24.      NOTICES

         Unless otherwise agreed to by both parties, all notices required under
         this Agreement will be made by fax, and all notices will be addressed
         to the attention of the party executing the Agreement, or his or her
         successor.


                                       14
<PAGE>

25.      GENERAL PROVISIONS

         25.1     Neither party may assign or transfer this Agreement. Any
                  attempted assignment or transfer will be void. Both parties
                  agree to advise each other of any change in ownership,
                  control, or operating arrangements.

         25.2     Either party's failure to enforce any provisions of this
                  Agreement will not be deemed a waiver of that provision or of
                  the right to enforce it in the future.

         25.3     This Agreement, including the attached Exhibits, contains the
                  entire and only understanding between the parties, and
                  supersedes all prior agreements either written or-oral
                  relating to the subject matter of this Agreement. No
                  modifications of this Agreement will be binding on either
                  party, unless made in writing and signed by persons authorized
                  to sign agreements on behalf of Firfax and August Technology.

         25.4     If any provision of this Agreement will be determined by any
                  court of competent jurisdiction to be illegal, invalid, or
                  unenforceable, that provision will be understood and enforced
                  as if it had been more narrowly drawn so as not to be illegal,
                  invalid or unenforceable. Any determination will have no
                  effect upon the enforceability of any other provision of this
                  Agreement.

         25.5     If during the term of this Agreement, or at any time after its
                  termination, either August Technology or Firfax commences a
                  suit, action, or other legal proceedings against the other
                  arising out of or in connection with this Agreement, such
                  action will be brought in the state or federal courts located
                  in the State of Minnesota, USA.

         25.6     This Agreement will be governed by the laws of the State of
                  Minnesota, USA and specifically excludes the United States
                  Convention on Contracts of International Sales of Goods. Any
                  disputes or claims arising out of this Agreement or its
                  interpretation, creation, termination, or performance will be
                  settled by binding arbitration in Minnesota, under the Rules
                  of Arbitration of the International Chamber of Commerce.

         25.7     This Agreement will be effective only upon its execution by
                  August Technology at its Corporate Headquarters. This
                  Agreement will be binding upon, and will insure the benefit of
                  the parties, and their respective heirs, executors,
                  representatives, and successors in interest.

         25.8     The prevailing party in any arbitration, or other legal action
                  brought by one party against the other arising out of this
                  Agreement, will be entitled, in addition to any other rights
                  and remedies it may have, to reimbursement for its expenses,
                  including court costs and attorneys' fees.

26.      AUTHORITY


                                       15
<PAGE>

         If Firfax is a partner or corporation, the person executing this
         Agreement represents that he or she is either a general partner or a
         duly authorized corporate officer, and that he or she has full
         authority to enter into this Agreement on behalf of Firfax.

DISTRIBUTOR:                                 ACCEPTED BY:

Firfax Systems Ltd.                          August Technology Corporation




----------------------------------           -----------------------------------
Authorized Signature                         Authorized Signature




Title:                                       Title:
      ----------------------------                 -----------------------------


                                       16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>10
<DESCRIPTION>EXHIBIT 10.6
<TEXT>

<PAGE>

                         EXECUTIVE EMPLOYMENT AGREEMENT

                                    PARTIES:

                  THOMAS VELIN, Chief Financial Officer ("Executive")
                  12745 Florida Lane
                  Apple Valley, Minnesota 55124

                  August Technology Corporation ("Company")
                  5237 Industrial Boulevard
                  Minneapolis, Minnesota 55439

Dated this 21st-day of September, 1998.

                                    RECITALS

A.       The parties desire to provide for employment of Executive by Company as
         its Chief Financial Officer.

B.       Executive desires to be protected in the event of a change in the
         control of the Company.

C.       Company desires reasonable protection of Company's confidential
         business and technical information which has been developed over the
         years by Company at substantial expense.

Company and Executive, each intending to be legally bound, covenant and agree as
follows:

1.       EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
         Company hereby employs Executive, and Executive accepts such employment
         as its Chief Financial Officer. Except as expressly provided herein,
         termination of this Agreement by either party shall also terminate
         Executive's employment by Company.

2.       DUTIES. Executive shall devote his full-time and best efforts to
         Company and fulfilling the duties of his position which shall include
         such duties as may from time to time be assigned him or her by the CEO
         or Board of Directors of the Company; provided that such duties are
         reasonably consistent with Executive's education, experience and
         background.

3.       EMPLOYMENT DATE. Executive's employment shall commence as of the date
         hereof ("Employment Date"), and continue until terminated as provided
         herein. In any event, the Agreement shall automatically terminate
         without notice when the Executive reaches 70 years of age. If
         employment is continued after the age of 70 by mutual agreement, it
         shall be terminable at will by either party.

4.       COMPENSATION.

         (a)      BASE SALARY. For all services rendered under this Agreement
                  during the term of Executive's employment, Company shall pay
                  Executive a Base Salary ("Base
<PAGE>

                  Salary" shall mean regular cash compensation paid on a
                  periodic basis exclusive of benefits, bonuses or incentive
                  payments) at the annual rate of $97,500, payable twice monthly
                  subject to adjustment by the Board of Directors at least
                  annually. If the Executive's salary is adjusted during the
                  term of this Agreement, the adjusted amount shall be the Base
                  Salary until further adjusted by the Board of Directors. A
                  merit review will be held at six (6) months from employment
                  start date, with all follow on merit reviews to occur
                  annually, in accordance with the Company's standard review
                  policy.

         (b)      BONUS AND INCENTIVE. Bonus or incentive compensation shall be
                  at the discretion of the Board of Directors, provided that
                  Executive shall participate in those bonus or incentive plans
                  in which any executive employee of the Company currently or
                  hereafter participates. Company reserves the right to alter,
                  amend or eliminate any bonus or incentive plans in accordance
                  with their terms.

         (c)      FRINGE BENEFITS. In addition to the compensation payable to
                  Executive as provided in paragraphs 4(a) and (b) above:

                  i)       VACATION. Executive shall be entitled to accrue three
                           (3) weeks paid vacation for each year of employment,
                           which shall be calculated in arrears on a monthly
                           basis commencing as of the end of the month following
                           the Employment Date. Vacation shall accumulate, so
                           that if the full vacation that is earned and accrued
                           in a particular year of employment is not taken in
                           that particular year of employment, any unused
                           portion will be carried into and may be taken in the
                           following year of employment only.

                  ii)      OTHER BENEFITS. The Executive shall be entitled to
                           participate in all other benefit programs offered by
                           the Company to its full-time executive employees,
                           including, but not limited to,
                           health/medical/cafeteria plans; retirement benefits
                           through the Company's 401k plans; personal days off
                           benefits; and other benefits that may be offered from
                           time to time by the Company.

         (d)      STOCK OPTIONS. Company hereby agrees to grant the Executive
                  Incentive Stock Options under the Company's 1997 Stock Option
                  Plan to purchase up to 85,000 shares of its common stock Such
                  options shall have an exercise price equal to $1.80, shall
                  expire seven (7) years from the date of hereof, shall vest 20%
                  per year commencing August 31, 1999 (subject to paragraph 10
                  hereof), and shall have other provisions generally included in
                  stock option agreements of the Company. Such stock options
                  shall be governed by the terms of the Company's applicable
                  stock option plan(s) and a stock option agreement with
                  Executive. It is the intention of the Board of Directors, from
                  time to time, to make additional options available to
                  executives based on performance.

5.       BUSINESS EXPENSES. Company shall, in accordance with, and to the extent
         of, its policies in effect from time to time, bear all ordinary and
         necessary business expenses incurred by the Executive in performing his
         duties as an employee of Company, provided that


                                       2
<PAGE>

         Executive accounts promptly for such expenses to Company in the manner
         prescribed from time to time by Company.

6.       TERMINATION. Subject to the respective continuing obligations of the
         parties, pursuant to paragraphs 7, 8, 9, 10, 11 and 12, this Agreement
         may be terminated as follows:

         (a)      BY THE COMPANY. The Company may terminate this Agreement under
                  the following circumstances:

                  (i)      WITH CAUSE, ETC. Company may terminate this Agreement
                           immediately for cause, which for purposes of this
                           agreement shall include without limitation, fraud,
                           misrepresentation, theft or embezzlement of Company
                           assets, material intentional violations of law or
                           Company policies, actions involving moral turpitude
                           or a material breach of the provisions of this
                           Agreement, including specifically the repeated
                           failure to perform his duties as required by
                           paragraph 2 after notice of such failure from Company
                           and the expiration of thirty (30) days without
                           collective action having been undertaken by
                           Executive.

                  (ii)     WITHOUT CAUSE. Company may terminate this Agreement
                           without cause on sixty (60) days' advance written
                           notice subject to the severance payment provisions
                           set forth in paragraph 7.

         (b)      BY EXECUTIVE. Executive may terminate this Agreement without
                  cause on sixty (60) days' notice.

         (c)      DEATH. If Executive should die during the term of this
                  Agreement, this Agreement shall thereupon terminate; provided,
                  however, that the Company shall pay to the Employees
                  beneficiary or estate, the compensation as provided in
                  paragraph 7 below.

         (d)      PERMANENT DISABILITY. in the event the Executive should become
                  permanently disabled during the term of this Agreement, then
                  this Agreement shall terminate. For the purposes hereof, a
                  permanent disability shall mean that disability resulting from
                  injury, disease or other cause, whether mental or physical,
                  which incapacitates the Executive from performing his normal
                  duties as an employee, appears to be permanent in nature and
                  contemplates the continuous, necessary and substantially
                  complete loss of all management and professional activities
                  for a continuous period of six (6) months.

         (e)      PARTIAL DISABILITY. If the Executive should become partially
                  disabled, he shall be entitled to his salary as provided
                  herein for a period of six (6) months. At the end of said
                  period of time, if such Executive remains partially disabled,
                  the disabled Executive's salary shall be reduced according to
                  the amount of time the disabled Executive is able to devote to
                  the Company's business.

         (f)      TEMPORARY DISABILITY. In the event the Executive should become
                  disabled, but such disability is not permanent, as defined
                  above, such disabled Executive shall


                                       3
<PAGE>

                  be entitled to his salary for a period of six (6) months. If
                  such temporary disability continues longer than said period of
                  time, then the disabled Executive shall be deemed to have
                  become permanently disabled for the purposes of this Agreement
                  at the end of said six (6) month period.

7.       REMEDIES FOR EARLY TERMINATION.

         (a)      In the event of termination pursuant to paragraph 6, Base
                  Salary and any other compensation shall be paid as follows:

                  (i)      In the event of termination pursuant to paragraph
                           6(a)(i), Base Salary shall continue to be paid on a
                           semimonthly basis prorated through the date of
                           termination specified in any notice of termination
                           and Executive shall be entitled to continue to
                           participate in those benefit programs provided by
                           Subparagraph 4(c)(ii) for the minimum time period
                           required by law following termination at his own
                           cost.

                  (ii)     In the event of termination pursuant to paragraph
                           6(a)(ii), Base Salary shall continue to be paid on a
                           semi-monthly basis for six (6) months following the
                           date of termination specified in any notice of
                           termination, and Executive shall be entitled to
                           continue to participate in those benefit programs
                           provided by Subparagraph 4(c)(ii) for the longer of
                           six (6) months or the minimum time period required by
                           law following termination, provided that the Company
                           shall bear the cost of such benefits for no longer
                           than six (6) months.

                  (iii)    In the event of termination pursuant to paragraph
                           6(b), compensation shall continue to be paid as if
                           the notice of termination is given by Executive at
                           any time, Base Salary shall continue to be paid on a
                           semi-monthly basis prorated through the date of
                           termination specified in such notice and Executive
                           shall be entitled to continue to participate in those
                           benefit programs provided by Subparagraphs 4(c)(ii)
                           for the minimum time period required by law following
                           termination at his own cost.

                  (iv)     In the event of termination of this Agreement by
                           reason of Executive's death, payment of Base Salary
                           shall terminate as of the end of the month following
                           the Executive's death.

                  (v)      In the event of disability, payment of Base Salary
                           shall terminate as of the end of the month in which
                           the last day of the six (6) month period of
                           Executive's inability to perform his duties occurs.

         (b)      In the event of termination by reason of Executive's death or
                  disability (clauses (a)(iv) and (a)(v) above):

                  (i)      Executive shall receive a pro rata portion (prorated
                           through the last day Base Salary is payable pursuant
                           to clauses (a)(iii) and (a)(iv), respectively) of any
                           bonus or incentive payment (for the you in which
                           death or


                                       4
<PAGE>

                           disability occurred), to which he/she would have been
                           entitled had he/she remained continuously employed
                           for the full fiscal year in which death or disability
                           occurred and continued to perform his duties in the
                           same manner as they were performed immediately prior
                           to the death or disability; and

                  (ii)     The exercise of any options then held by Executive
                           shall be governed by the terms of the applicable
                           Company stock option plan.

8.       CONFIDENTIAL INFORMATION.

         (a)      For purposes of this paragraph 8, the term "Confidential
                  Information" means information which is not generally known
                  and which is proprietary to Company or which has been made
                  available to the Company in a manner reasonably understood to
                  require confidential treatment, including (i) trade secret
                  information about Company and its products; and (ii)
                  information relating to the business of Company as conducted
                  at any time within the previous two (2) years or anticipated
                  to be conducted by Company, and to any of its past, current or
                  anticipated products, including, without limitation,
                  information about Company's research, development
                  manufacturing, purchasing, accounting, engineering, marketing,
                  selling, leasing or servicing. All information that Executive
                  has a reasonable basis to consider Confidential Information or
                  which is treated by Company as being Confidential Information
                  shall be presumed to be Confidential Information, whether
                  originated by Executive or by others, and without regard to
                  the manner in which Executive obtains access to such
                  information.

         (b)      Executive will be governed by the terms of the Employee
                  Assignment and Disclosure Agreement attached hereto as Exhibit
                  A .

9.       INVENTIONS.

         (a)      For purposes of this paragraph 9, the term "Inventions" means
                  discoveries, improvements and ideas (whether or not in writing
                  or reduced to practice) and works of authorship, whether or
                  not patentable or copyrightable, (1) which relate directly to
                  the business of Company, or to Company's actual or
                  demonstrably anticipated research or development, (2) which
                  result from any work performed by Executive for Company, (3)
                  for which equipment, supplies, facilities or trade secret
                  information of Company is utilized, or (4) which were
                  developed during the time Executive was obligated to perform
                  the duties described in paragraph 2.

         (b)      Executive will be governed by the terms of the Employee
                  Assignment and Disclosure Agreement attached hereto as Exhibit
                  A.

10.      BUSINESS COMBINATION. For purposes of this paragraph 10, a "Business
         Combination" shall mean the merger or consolidation of Company with,
         the sale of all or substantially all the assets of Company to, or the
         ownership of fifty-one percent (51%) or more of the total voting
         capital stock of Company then issued and outstanding by, any person or
         entity not affiliated with Company as of the date of this Agreement. It
         is expressly recognized by the parties that a Business Combination
         would necessarily result in


                                       5
<PAGE>

         material alteration or diminishment of Executive's position and
         responsibilities. Therefore, notwithstanding any other provision
         herein, if, during the first twenty-four (24) months of this Agreement,
         there shall occur, with or without the consent of Company, a Business
         Combination, the Company shall have the option to terminate this
         Agreement on ten (10) days' notice. Accordingly, in the event that
         Company elects to terminate the agreement because of a Business
         Combination under this paragraph 10:

         (a)      Executive shall be under no obligation whatever to seek other
                  employment opportunities during any period between termination
                  of this Agreement under this paragraph 10 and expiration of
                  six (6) months, and Executive shall not be obligated to accept
                  any other employment opportunity which may be offered to
                  Executive during such period.

         (b)      During such six (6) months, one hundred percent (100%) of
                  Executive's Base Salary in effect upon the date immediately
                  prior to the Business Combination shall continue to be paid on
                  a semi-monthly basis.

         (c)      In addition to the continued compensation provided in
                  paragraph 10(b), a bonus in an amount equal to one hundred
                  percent (100%) of the total aggregate Base Salary payments
                  provided in paragraph 10(b) shall also be paid on a
                  semi-monthly basis for six (6) months, together with the
                  payments provided in paragraph 10(b).

         (d)      Executive shall be entitled to continue to participate in
                  those benefit programs provided by Subparagraphs 4(c)(ii) for
                  the longer of six (6) months or the minimum time period
                  required by law following termination, provided that the
                  Company shall bear the cost of such benefits for no longer
                  than six (6) months.

The right to exercise any unexpired stock options granted Executive shall
accelerate as provided by the terms of the 1997 Stock Option Plan regardless of
when the Business Combination occurs.

11.      NO ADEQUATE REMEDY. The parties declare that it is impossible to
         measure in money the damages which will accrue to either party by
         reason of a failure to perform any of the obligations under this
         Agreement. Therefore, if either party hall institute any action or
         proceeding to enforce the provisions hereof, such person against whom
         such action or proceeding is brought hereby waives the claim or defense
         that such party has an adequate remedy at law, and such person shall
         not urge in any such action or proceeding the claim or defense that
         such party has an adequate remedy at law.

12.      MISCELLANEOUS.

         (a)      SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
                  and inure to the benefit of the successors and assigns of
                  Company, whether by way of merger, consolidation, operation of
                  law, assignment, purchase or other acquisition of
                  substantially all the assets or business of Company and shall
                  only be assignable under the foregoing circumstances and shall
                  be deemed to be materially breached by Company if any such
                  successor or assign does not absolutely and unconditionally
                  assume all of Company's obligations hereunder. Any such


                                       6
<PAGE>

                  successor or assign shall be included in the term "Company" as
                  used in this Agreement.

         (b)      NOTICES. All notices, requests and demands given to or made
                  pursuant hereto shall, except as otherwise specified herein,
                  be in writing and be delivered or mailed to any such party at
                  its address which:

                  In the case of the Executive shall be:

                                  Thomas Velin
                               12745 Florida Lane
                          Apple Valley, Minnesota 55124

                  In the case of Company shall be:

                          August Technology Corporation
                            5237 Industrial Boulevard
                          Minneapolis, Minnesota 55439

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

         (c)      CAPTIONS. The various headings or captions in this Agreement
                  are for convenience only and shall not affect the meaning or
                  interpretation of this Agreement.

         (d)      GOVERNING Law. The validity, construction and performance of
                  this Agreement shall be governed by the laws of the State of
                  Minnesota and any and every legal proceeding arising out of or
                  in connection with this Agreement shall be brought in the
                  appropriate courts of the State of Minnesota, each of the
                  parties hereby consenting to the exclusive jurisdiction of
                  said courts for this purpose.

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

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


                                       7
<PAGE>

         (g)      MODIFICATION. This Agreement may not be and shall not be
                  modified or amended except by written instrument signed by the
                  parties hereto.

         (h)      ENTIRE AGREEMENT. This Agreement constitutes the entire
                  Agreement and understanding between the parties hereto in
                  reference to all the matters herein agreed upon; provided,
                  however, that this Agreement shall not deprive Executives of
                  any other rights Executives may have now or in the future,
                  pursuant to law or the provisions of Company benefit plans.

         IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.



                                  ---------------------------------------------
                                  Thomas Velin

                                  August Technology Corporation

                                  By:
                                     ------------------------------------------

                                  Its:
                                      -----------------------------------------


                                       8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>11
<DESCRIPTION>EXHIBIT 10.7
<TEXT>

<PAGE>

                                                                   Exhibit 10.7

                           EXECUTIVE EMPLOYMENT AGREEMENT


                                      PARTIES:

     DONALD M. NUTZMANN, Vice President, Engineering ("Executive")
     10830 Alberton Court
     Inver Grove Heights, MN 55077
     AUGUST TECHNOLOGY CORPORATION ("Company")
     5237 Industrial Boulevard
     Minneapolis, Minnesota 55439

     Dated this 19th day of August, 1999.

                                      RECITALS

A.   The parties desire to provide for employment of Executive by Company as its
     Vice President, Engineering.

B.   Company desires reasonable protection of Company's confidential business
     and technical information which has been developed over the years by
     Company at substantial expense.

Company and Executive, each intending to be legally bound, covenant and agree as
follows:

1.   EMPLOYMENT.  Upon the terms and conditions set forth in this Agreement,
     Company hereby employs Executive, and Executive accepts such employment as
     its Vice President, Engineering.  Except as expressly provided herein,
     termination of this Agreement by either party shall also terminate
     Executive's employment by Company.

2.   DUTIES.  Executive shall devote his full-time and best efforts to Company
     and fulfilling the duties of his position which shall include such duties
     as may from time to time be assigned him or her by the CEO or Board of
     Directors of the Company; provided that such duties are reasonably
     consistent with Executive's education, experience and background.

3.   EMPLOYMENT DATE.  Executive's employment shall commence as of the date
     hereof ("Employment Date"), and continue until terminated as provided
     herein.  In any event, the Agreement shall automatically terminate without
     notice when the Executive reaches 70 years of age.  If employment is
     continued after the age of 70 by mutual agreement, it shall be terminable
     at will by either party.

4.   COMPENSATION.

     (a)  BASE SALARY.  For all services rendered under this Agreement during
          the term of Executive's employment, Company shall pay Executive a Base
          Salary ("Base Salary" shall mean regular cash compensation paid on a
          periodic basis exclusive of benefits, bonuses or incentive payments)
          at the annual rate of $104,000,


                                                                     Page 1
<PAGE>

          payable twice monthly subject to adjustment by the Board of
          Directors at least annually.  If the Executive's salary is adjusted
          during the term of this Agreement, the adjusted amount shall be the
          Base Salary until further adjusted by the Board of Directors.

     (b)  BONUS AND INCENTIVE.  Bonus or incentive compensation shall be in
          accordance with the August Technology Annual Award Plan (Exhibit-A).
          Company reserves the right to alter, amend or eliminate any bonus or
          incentive plans in accordance with their terms.

     (c)  FRINGE BENEFITS.  In addition to the compensation payable to Executive
          as provided in paragraphs 4(a) and (b) above:

          i)     VACATION.  Executive shall be entitled to accrue three (3)
                 weeks paid vacation for each year of employment, which shall be
                 calculated in arrears on a monthly basis commencing as of the
                 end of the month following the Employment Date.  Vacation shall
                 accumulate, so that if the full vacation that is earned and
                 accrued in a particular year of employment is not taken in that
                 particular year of employment, any unused portion will be
                 carried into and may be taken in the following year of
                 employment only.

          ii)    OTHER BENEFITS.  The Executive shall be entitled to participate
                 in all other benefit programs offered by the Company to its
                 full-time executive employees, including, but not limited to,
                 health/medical/cafeteria plans; retirement benefits through the
                 Company's 401k plans; personal days off benefits; and other
                 benefits that may be offered from time to time by the Company.

     (d)  STOCK OPTIONS.  Company hereby agrees to grant the Executive Incentive
          Stock Options under the Company's 1997 Stock Option Plan to purchase
          up to 45,000 shares of its common stock.  Such options shall have an
          exercise price equal to fair market value (FMV) as determined by the
          Board of Directors, or shall be set equal to the share price achieved
          during an equity offering (if offering occurs within 120 days of this
          Agreement).  Options shall expire seven (7) years from the date of
          hereof shall vest 20% per year commencing August 30, 1999 (subject to
          paragraph 10 hereof), and shall have other provisions generally
          included in stock option agreements of the Company.  Such stock
          options shall be governed by the terms of the Company's applicable
          stock option plan(s) and a stock option agreement with Executive.  It
          is the intention of the Board of Directors, from time to time, to make
          additional options available to executives based on performance.

5.   BUSINESS EXPENSES.  Company shall, in accordance with, and to the extent
     of, its policies in effect from time to time, bear all ordinary and
     necessary business expenses incurred by the Executive in performing his
     duties as an employee of Company, provided that Executive accounts promptly
     for such expenses to Company in the manner prescribed from time to time by
     Company.


                                                                     Page 2
<PAGE>

6.   TERMINATION.  Subject to the respective continuing obligations of the
     parties, pursuant to paragraphs 7, 8, 9, 10, 11 and 12, this Agreement may
     be terminated as follows:

     (a)  BY THE COMPANY.  The Company may terminate this Agreement under the
          following circumstances:

          (i)    WITH CAUSE, ETC.  Company may terminate this Agreement
                 immediately for cause, which for purposes of this agreement
                 shall include without limitation, fraud, misrepresentation,
                 theft or embezzlement of Company assets, material intentional
                 violations of law or Company policies, actions involving moral
                 turpitude or a material breach of the provisions of this
                 Agreement, including specifically the repeated failure to
                 perform his duties as required by paragraph 2 after notice of
                 such failure from Company and the expiration of thirty (30)
                 days without corrective action having been undertaken by
                 Executive.

          2.     WITHOUT CAUSE.  Company may terminate this Agreement without
                 cause on sixty (60) days' advance written notice subject to the
                 severance payment provisions set forth in paragraph 7.

     (b)  BY EXECUTIVE.  Executive may terminate this Agreement without cause on
          sixty (60) days' notice.

     (c)  DEATH.  If Executive should die during the term of this Agreement,
          this Agreement shall thereupon terminate; provided, however, that the
          Company shall pay to the Employee's beneficiary or estate, the
          compensation as provided in paragraph 7 below.

     (d)  PERMANENT DISABILITY.  In the event the Executive should became
          permanently disabled during the term of this Agreement, then this
          Agreement shall terminate.  For the purposes hereof a permanent
          disability shall mean that disability resulting from injury, disease
          or other cause, whether mental or physical, which incapacitates the
          Executive from performing his normal duties as an employee, appears to
          be permanent in nature and contemplates the continuous, necessary and
          substantially complete loss of all management and professional
          activities for a continuous period of six (6) months.

     (e)  PARTIAL DISABILITY.  If the Executive should become partially
          disabled, he shall be entitled to his salary as provided herein for a
          period of six (6) months.  At the end of said period of time, if such
          Executive remains partially disabled, the disabled Executive's salary
          shall be reduced according to the amount of time the disabled
          Executive is able to devote to the Company's business.

     (f)  In the event the Executive should become disabled, but such disability
          is not permanent, as defined above, such disabled Executive shall be
          entitled to his



                                                                     Page 3
<PAGE>

          salary for a period of six (6) months.  If such temporary
          disability continues longer than said period of time, then the
          disabled Executive shall be deemed to have become permanently
          disabled for the purposes of this Agreement at the end of said six
          (6) month period.

7.   REMEDIES FOR EARLY TERMINATION.

     (a)  In the event of termination pursuant to paragraph 6, Base Salary and
          any other compensation shall be paid as follows:

          (i)    In the event of termination pursuant to paragraph 6(a)(i), Base
                 Salary shall continue to be paid on a semimonthly basis
                 prorated through the date of termination specified in any
                 notice of termination and Executive shall be entitled to
                 continue to participate in those benefit programs provided by
                 Subparagraph 4(c)(ii) for the minimum time period required by
                 law following termination at his own cost.

          (ii)   In the event of termination pursuant to paragraph 6(a)(ii),
                 Base Salary shall continue to be paid on a semi-monthly basis
                 for three (3) months following the date of termination
                 specified in any notice of termination, and Executive shall be
                 entitled to continue to participate in those benefit programs
                 provided by Subparagraph 4(c)(ii) for the longer of three (3)
                 months or the minimum time period required by law following
                 termination, provided that the Company shall bear the cost of
                 such benefits for no longer than three (3) months.

          (iii)  In the event of termination pursuant to paragraph 6(b),
                 compensation shall continue to be paid as follows:  if the
                 notice of termination is given by Executive at any time, Base
                 Salary shall continue to be paid on a semi-monthly basis
                 prorated through the date of termination specified in such
                 notice and Executive shall be entitled to continue to
                 participate in those benefit programs provided by Subparagraphs
                 4(c)(ii) for the minimum time period required by law following
                 termination at his own cost.

          (iv)   In the event of termination of this Agreement by reason of
                 Executive's death, payment of Base Salary shall terminate as of
                 the end of the month following the Executive's death.

          (v)    In the event of disability, payment of Base Salary shall
                 terminate as of the end of the month in which the last day of
                 the three (3) month period of Executive's inability to perform
                 his duties occurs.

     (b)  In the event of termination by reason of Executive's death or
          disability (clauses (a)(iv) and (a)(v) above):


                                                                     Page 4
<PAGE>

          (i)    Executive shall receive a pro rata portion (prorated through
                 the last day Base Salary is payable pursuant to clauses
                 (a)(iii) and (a)(iv), respectively) of any bonus or incentive
                 payment (for the year in which death or disability occurred),
                 to which he/she would have been entitled had he/she remained
                 continuously employed for the full fiscal year in which death
                 or disability occurred and continued to perform his duties in
                 the same manner as they were performed immediately prior to the
                 death or disability; and

          (ii)   The exercise of any options then held by Executive shall be
                 governed by the terms of the applicable Company stock option
                 plan.

8.   CONFIDENTIAL INFORMATION.

     (a)  For purposes of this paragraph 8, the term "Confidential Information"
          means information which is not generally known and which is
          proprietary to Company or which has been made available to the Company
          in a manner reasonably understood to require confidential treatment,
          including (i) trade secret information about Company and its products;
          and (ii) information relating to the business of Company as conducted
          at any time within the previous two (2) years or anticipated to be
          conducted by Company, and to any of its past, current or anticipated
          products, including, without limitation, information about Company's
          research, development, manufacturing, purchasing, accounting,
          engineering, marketing, selling, leasing or servicing.  All
          information that Executive has a reasonable basis to consider
          Confidential Information or which is treated by Company as being
          Confidential Information shall be presumed to be Confidential
          Information, whether originated by Executive or by others, and without
          regard to the manner in which Executive obtains access to such
          information.

     (b)  Executive will be governed by the terms of the Employee Assignment and
          Disclosure Agreement attached hereto as Exhibit-B.

9.   INVENTIONS.

     (a)  For purposes of this paragraph 9, the term "Inventions" means
          discoveries, improvements and ideas (whether or not in writing or
          reduced to practice) and works of authorship, whether or not
          patentable or copyrightable, (1) which relate directly to the business
          of Company, or to Company's actual or demonstrably anticipated
          research or development, (2) which result from any work performed by
          Executive for Company, (3) for which equipment, supplies, facilities
          or trade secret information of Company is utilized, or (4) which were
          developed during the time Executive was obligated to perform the
          duties described in paragraph 2.

     (b)  Executive will be governed by the terms of the Employee Assignment and
          Disclosure Agreement attached hereto as Exhibit-B.


                                                                     Page 5
<PAGE>

10.  NO ADEQUATE REMEDY.  The parties declare that it is impossible to measure
     in money the damages which will accrue to either party by reason of a
     failure to perform any of the obligations under this Agreement.  Therefore,
     if either party shall institute any action or proceeding to enforce the
     provisions hereof such person against whom such action or proceeding is
     brought hereby waives the claim or defense that such party has an adequate
     remedy at law, and such person shall not urge in any such action or
     proceeding the claim or defense that such party has an adequate remedy at
     law.

11.  MISCELLANEOUS.

     (a)  SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and
          inure to the benefit of the successors and assigns of Company, whether
          by way of merger, consolidation , operation of law, assignment,
          purchase or other acquisition of substantially all the assets or
          business of Company and shall only be assignable under the foregoing
          circumstances and shall be deemed to be materially breached by Company
          if any such successor or assign does not absolutely and
          unconditionally assume all of Company's obligations hereunder.  Any
          such successor or assign shall be included in the term "Company" as
          used in this Agreement.

     (b)  NOTICES.  All notices, requests and demands given to or made pursuant
          hereto shall, except as otherwise specified herein, be in writing and
          be delivered or mailed to any such party at its address which:

                    In the case of the Executive shall be:

                         Donald Nutzmann
                         10830 Alberton Court
                         Inver Grove Heights, MN 55077

                    In the case of Company shall be:

                         August Technology Corporation
                         5237 Industrial Boulevard
                         Minneapolis, Minnesota 55439


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

     (c)  CAPTIONS.  The various headings or captions in this Agreement are for
          convenience only and shall not affect the meaning or interpretation of
          this Agreement.


                                                                     Page 6
<PAGE>

     (d)  GOVERNING LAW.  The validity, construction and performance of this
          Agreement shall be governed by the laws of the State of Minnesota and
          any and every legal proceeding arising out of or in connection with
          this Agreement shall be brought in the appropriate courts of the State
          of Minnesota, each of the parties hereby consenting to the exclusive
          jurisdiction of said courts for this purpose.

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

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

     (g)  MODIFICATION.  This Agreement may not be and shall not be modified or
          amended except by written instrument signed by the parties hereto.

     (h)  ENTIRE AGREEMENT.  This Agreement constitutes the entire Agreement and
          understanding between the parties hereto in reference to all the
          matters herein agreed upon; provided, however, that this Agreement
          shall not deprive Executives of any other rights Executives may have
          now or in the future, pursuant to law or the provisions of Company
          benefit plans.


     IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.



     _______________________________________
     Donald Nutzmann


AUGUST TECHNOLOGY CORPORATION

By   _______________________________________

Its: _______________________________________


                                                                     Page 7


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>12
<DESCRIPTION>EXHIBIT 10.8
<TEXT>

<PAGE>

                                                                   Exhibit 10.8

                         EXECUTIVE EMPLOYMENT AGREEMENT

                                    PARTIES:

                  Mayson Brooks, Vice President, Sales & Marketing ("Executive")
                  120 Woodridge Road
                  Beech Mt, North Carolina 28604

                  August Technology Corporation ("Company")
                  5237 Industrial Boulevard
                  Minneapolis, Minnesota 55439

                  Dated this 20 day of May, 1999.

                                    RECITALS

A.       The parties desire to provide for employment of Executive by Company as
         its Vice President, Sales & Marketing.

B.       Company desires reasonable protection of Company's confidential
         business and technical information which has been developed over the
         years by Company at substantial expense.

         Company and Executive, each intending to be legally bound, covenant and
         agree as follows:

1.       EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
         Company hereby employs Executive, and Executive accepts such employment
         as its Vice President, Sales & Marketing. Except as expressly provided
         herein, termination of this Agreement by either party shall also
         terminate Executives employment by Company.

2.       DUTIES. Executive shall devote his full-time and best efforts to
         Company and fulfilling die duties of his position which shall include
         such duties as may from time to time be assigned him or her by the CEO
         or Board of Directors of the Company; provided that such duties are
         reasonably consistent with Executive's education, experience and
         background.

3.       EMPLOYMENT DATE. Executive's employment shall commence as of the date
         hereof ("Employment Date"), and continue until terminated as provided
         herein. In any event, the Agreement shall automatically terminate
         without notice when the Executive reaches 70 years of age. If
         employment is continued after the age of 70 by mutual agreement, it
         shall be terminable at will by either party.


                                                                          Page 1
<PAGE>

4.       COMPENSATION.

         (a)      BASE SALARY. For all services rendered under this Agreement
                  during the term of Executive's employment, Company shall pay
                  Executive a Base Salary ("Base Salary" shall mean regular cash
                  compensation paid on a periodic basis exclusive of benefits,
                  bonuses or incentive payments) at the annual rate of $109,500,
                  payable twice monthly subject to adjustment by the Board of
                  Directors at least annually. If the Executive's salary is
                  adjusted during the term of this Agreement, the adjusted
                  amount shall be the Base Salary until further adjusted by the
                  Board of Directors.

         (b)      BONUS AND Incentive. Bonus or incentive compensation shall be
                  in accordance with the August Technology Annual Award Plan
                  (Exhibit-A). Company reserves the right to alter, amend or
                  eliminate any bonus or incentive plans in accordance with
                  their terms.

         (c)      FRINGE BENEFITS. In addition to the compensation payable to
                  Executive as provided in paragraphs 4(a) and (b) above:

                  (i)      Vacation. Executive shall be entitled to accrue three
                           (3) weeks paid vacation for each year of employment,
                           which shall be calculated in arrears on a monthly
                           basis commencing as of the end of the month following
                           the Employment Date. Vacation shall accumulate, so
                           that if the full vacation that is earned and accrued
                           in a particular year of employment is not taken in
                           that particular year of employment, any unused
                           portion will be carried into and may be taken in the
                           following year of employment only.

                  (ii)     OTHER BENEFITS. The Executive shall be entitled to
                           participate in all other benefit programs offered by
                           the Company to its full-time executive employees,
                           including, but not limited to,
                           health/medical/cafeteria plans; retirement benefits
                           through the Company's 401k plans; personal days off
                           benefits; and other benefits that may be offered from
                           time to time by the Company.

         (d)      STOCK OPTIONS. Company hereby agrees to grant the Executive
                  Incentive Stock Options under the Company's 1997 Stock Option
                  Plan to purchase up to 55,000. Such options shall have
                  an exercise price equal to fair market value (FMV) as
                  determined by the Board of Directors, or shall be set equal to
                  the share price achieved during an equity offering (if
                  offering occurs within 120 days of this Agreement). Options
                  shall expire seven (7) years from the date of hereof shall
                  vest 20% per year commencing July 5, 1999 (subject to
                  paragraph 10 hereof, and shall have other provisions generally
                  included in stock option agreements of the Company. Such stock
                  options shall be governed by the terms of the Company's
                  applicable stock option plan(s) and a stock option agreement
                  with Executive. It is the intention of the Board of Directors,
                  from time to time, to make additional options available to
                  executives based on performance.


                                                                          Page 2
<PAGE>

5.       BUSINESS EXPENSES. Company shall, in accordance with, and to the extent
         of its policies in effect from time to time, bear all ordinary and
         necessary business expenses incurred by the Executive in performing his
         duties as an employee of Company, provided that Executive accounts
         promptly for such expenses to Company in the manner prescribed from
         time to time by Company.

6.       TERMINATION. Subject to the respective continuing obligations of the
         parties, pursuant to paragraphs 7, 8, 9, 10, 11, and 12, this Agreement
         may be terminated as follows:

         (a)      BY THE COMPANY. The Company may terminate this Agreement under
                  the following circumstances:

                  (i)      WITH CAUSE, ETC. Company may terminate this Agreement
                           immediately for cause, which for p of this agreement
                           shall include without limitation, fraud,
                           misrepresentation, theft or embezzler Company assets,
                           material intentional violations of law or Company
                           policies, actions involving turpitude or a material
                           breach of the provisions of this Agreement, including
                           specifically the failure to perform his duties as
                           required by paragraph 2 after notice of such failure
                           from Company the expiration of thirty (30) days
                           without corrective action having been undertaken by
                           Executive.

                  2.       WITHOUT CAUSE. Company may terminate this Agreement
                           without cause on sixty (60) days' advance written
                           notice subject to the severance payment provisions
                           set forth in paragraph 7.

         (b)      BY EXECUTIVE. Executive may terminate this Agreement without
                  cause on sixty (60) days' notice

         (c)      DEATH. If Executive should die during the term of this
                  Agreement, this Agreement shall thereupon terminate; provided,
                  however, that the Company shall pay to the Employee's
                  beneficiary or estate, the compensation as provided in
                  paragraph 7 below.

         (d)      PERMANENT DISABILITY. In the event the Executive should become
                  permanently disabled during the term of this Agreement, then
                  this Agreement shall terminate. For the purposes hereof, a
                  permanent disability shall mean that disability resulting from
                  injury, disease or other cause, whether mental or physical,
                  which incapacitates the Executive from performing his normal
                  duties as an employee, appears to be permanent in nature and
                  contemplates the continuous, necessary and substantially
                  complete loss of all management and professional activities
                  for a continuous period of six (6) months.

         (e)      PARTIAL DISABILITY. If the Executive should become partially
                  disabled, he shall be entitled to his salary as provided
                  herein for a period of six (6) months. At the end of said
                  period of time, if such Executive remains partially disabled,
                  the disabled Executive's salary shall be reduced according to
                  the amount of time disabled Executive is able to devote to the
                  Company's business.


                                                                          Page 3
<PAGE>

         (f)      TEMPORARY DISABILITY. In the event the Executive should become
                  disabled, but such disability is not permanent, as defined
                  above, such disabled Executive shall be entitled to his salary
                  for a period of six (6) months. If such temporary disability
                  continues longer than said period of time, then the disabled
                  Executive shall be deemed to have become permanently disabled
                  for the purposes of this Agreement at the end of said six (6)
                  month period.

7.       REMEDIES FOR EARLY TERMINATION.

         (a)      In the event of termination pursuant to paragraph 6, Base
                  Salary and any other compensation shall be paid as follows:

                  (ii)     In the event of termination pursuant to paragraph
                           6(a)(ii), Base Salary shall continue to be
                           semi-monthly basis for six (6) months following the
                           date of termination specified in any termination, and
                           Executive shall be entitled to continue to
                           participate in those benefit provided by Subparagraph
                           4(c)(ii) for the longer of six (6) months or the
                           minimum time period by law following termination,
                           provided that the Company shall bear the cost of such
                           benefits for no longer than six (6) months.

                  (iii)    In the event of termination pursuant to paragraph
                           6(b), compensation shall continue to be paid as
                           follows: if the notice of termination is given by
                           Executive at any time, Base Salary shall continue to
                           be paid on a semi-monthly basis prorated through the
                           date of termination specified match notice and shall
                           be entitled to continue to participate in those
                           benefit pr s provided by 4(c)(ii) for the minimum
                           time period required by law following termination at
                           his own cost.

                  (iv)     In the event of termination of this Agreement by
                           reason of Executive's death, payment of Base Salary
                           shall terminate as of the end of the month following
                           the Executive's death.

                  (v)      In the event of disability, payment of Base Salary
                           shall terminate as of the end of the month in which
                           the last day of the six (6) month period of
                           Executive's inability to perform his duties occurs.

         (b)      In the event of termination by reason of Executive's death or
                  disability (clauses (a)(iv) and (a)(v) above):

                  (i)      Executive shall receive a pro rata portion (prorated
                           through the last day Base Salary is payable pursuant
                           to clauses (a)(iii) and (a)(iv), respectively) of any
                           bonus or incentive payment (for the year in which
                           death or disability occurred), to which he/she would
                           have been entitled had he/she remained continuously
                           employed for the full fiscal year in which death or
                           disability occurred and continued to perform his
                           duties in the same manner as they were performed
                           immediately prior to the death or disability-, and
                           The exercise of any options then held by Executive
                           shall be governed by the terms of the applicable
                           Company stock option plan.


                                                                          Page 4
<PAGE>

                  (ii)     The exercise of any options then held by Executive
                           shall be governed by the terms of the applicable
                           Company stock option plan.

8.       CONFIDENTIAL INFORMATION.

         (a)      For purposes of this paragraph 8, the term "Confidential
                  Information" means information which is not generally known
                  and which is proprietary to Company or which has been made
                  available to the Company in a manner reasonably understood to
                  require confidential treatment, including (i) trade secret
                  information about Company and its products; and (ii)
                  information relating to the business of Company as conducted
                  at any time within the previous two (2) years or anticipated
                  to be conducted by Company, and to any of its past, current or
                  anticipated products, including, without limitation,
                  information about Companies research, development,
                  manufacturing, purchasing, accounting, engineering, marketing,
                  selling, leasing or servicing. All information that Executive
                  has a reasonable basis to consider Confidential Information or
                  which is treated by Company as being Confidential Information
                  shall be presumed to be Confidential Information, whether
                  originated by Executive or by others, and without regard to
                  the manner in which Executive obtains access to such
                  information.

         (b)      Executive will be governed by the terms of the Employee
                  Assignment and Disclosure Agreement attached hereto as
                  Exhibit-B.

9.       INVENTIONS.

         (a)      For purposes of this paragraph 9, the term "Inventions" means
                  discoveries, improvements and ideas (whether or not in writing
                  or reduced to practice) and works of authorship, whether or
                  not patentable or copyrightable, (1) which relate directly to
                  the business of Company, or to Company's actual or
                  demonstrably anticipated research or development, (2) which
                  result from any work performed by Executive for Company, (3)
                  for which equipment, supplies, facilities or trade secret
                  information of Company is utilized, or (4) which were
                  developed during the time Executive was obligated to perform
                  the duties described in paragraph 2.

         (b)      Executive will be governed by the terms of the Employee
                  Assignment and Disclosure Agreement attached hereto as
                  Exhibit-B.

10.      No ADEQUATE REMEDY. The parties declare that it is impossible to
         measure in money the damages which will accrue to either party by
         reason of a failure to perform any of the obligations under this
         Agreement. Therefore, if either party shall institute any action or
         proceeding to enforce the provisions hereof such person against whom
         such action or proceeding is brought hereby waives the claim or defense
         that such party has an adequate remedy at law, and such person shall
         not urge in any such action or proceeding the claim or defense that
         such party has an adequate remedy at law.


                                                                          Page 5
<PAGE>

11.      MISCELLANEOUS.

         (a)      SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
                  and inure to the benefit of the successors and assigns of
                  Company, whether by way of merger, consolidation, operation of
                  law, assignment, purchase or other acquisition of
                  substantially all the assets or business of Company and shall
                  only be assignable under the foregoing circumstances and shall
                  be deemed to be materially breached by Company if any such
                  successor or assign does not absolutely and unconditionally
                  assume all of Company's obligations hereunder. Any such
                  successor or assign shall be included in the term "Company" as
                  used in this Agreement.

         (b)      NOTICES. All notices, requests and demands given to or made
                  pursuant hereto shall, except as otherwise specified herein,
                  be in writing and be delivered or mailed to any such party at
                  its address which:

                  In the case of the Executive shall be:

                           Mayson Brooks
                           120 Woodridge Road
                           Beech Mt, North Carolina 28604

                  In the case of Company shall be:

                           August Technologv Corporation
                           5237 Industrial Boulevard
                           Minneapolis, Minnesota 55439

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

         (c)      CAPTIONS. The various headings or captions in this Agreement
                  are for convenience only and shall not affect the meaning or
                  interpretation of this Agreement.

         (d)      GOVERNING LAW. The validity, construction and performance of
                  this Agreement shall be governed by the laws of the State of
                  Minnesota and any and every legal proceeding arising out of or
                  in connection with this Agreement shall be brought in the
                  appropriate courts of the State of Minnesota, each of the
                  parties hereby consenting to the exclusive jurisdiction of
                  said courts for this purpose.

         (e)      CONSTRUCTION. Wherever possible, each provision of this
                  Agreement shall be interpreted in such manner as to be
                  effective and valid under applicable law, but if any provision
                  of this Agreement shall be prohibited by or invalid under
                  applicable law, such provision shall be ineffective only to
                  the extent of such prohibition or


                                                                          Page 6
<PAGE>

                  invalidity without invalidating the remainder of such
                  provision or the remaining provisions of this Agreement.

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

         (g)      MODIFICATION. This Agreement may not be and shall not be
                  modified or amended except by written instrument signed by the
                  parties hereto.

         (h)      ENTIRE AGREEMENT. This Agreement constitutes the entire
                  Agreement and understanding between the parties hereto in
                  reference to all the matters herein agreed upon; provided,
                  however, that this Agreement shall not deprive Executives of
                  any other rights Executives may have now or in the future,
                  pursuant to law or the provisions of Company benefit plans.

         IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

         ------------------------------------
         Mayson Brooks

         AUGUST TECHNOLOGY CORPORATION

         By
            ---------------------------------

         Its:
            ---------------------------------


                                                                          Page 7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>13
<DESCRIPTION>EXHIBIT 10.9
<TEXT>

<PAGE>

                                                                    Exhibit 10.9

                             OFFICE WAREHOUSE LEASE

                                 LEASE AGREEMENT

This LEASE AGREEMENT, made as of this 18 day of October, 1999, between
West 78h Street, Bloomington Associates, LLC ("Landlord"), and August Technology
Corporation ("Tenant");

WITNESSETH, THAT

1.       PREMISES: Landlord, subject to the terms and conditions hereof, hereby
initially leases to Tenant certain premises (the "Premises") shown generally on
Exhibit A and as detailed in the space plan dated September 13, 1999, prepared
by BDH & Young, attached hereto as Exhibit B, containing approximately 42,818
square feet in the building situated at 4900 W. 7 Street, Bloomington, Minnesota
("Building"). As of the date hereof, the square footage of the Building is
stipulated to be 98,613 square feet. Landlord shall pay all costs associated
with space planning for the Premises, the First Expansion Premises (as defined
below) and the Second Expansion Premises (as defined below), including, but not
limited to, preparation of construction drawings and costs associated with the
preparation of Exhibit B. Such costs shall not constitute Operating Costs
payable as Additional Rent by Tenant, and shall be separate from Leasehold
Improvements and allowances therefor provided by Landlord. The Building, the
land underlying and contiguous thereto and all improvements thereon are
hereinafter referred to as the "Project".

A.       MANDATORY EXPANSION: During the Term of the Lease the leased Premises
         shall be increased in the manner set forth below:

         (i)      Subject to the provisions of Section 8 below, commencing on
                  December 1, 2000, Tenant shall lease approximately 9,801
                  additional square feet in the Building, as described in
                  Exhibit B (the "First Expansion Premises"); provided, however,
                  that, if Tenant desires to take early delivery of the First
                  Expansion Premises, Tenant shall so notify Landlord in writing
                  and so long as Landlord does not have a binding agreement with
                  a third party for the lease of the First Expansion Premises,
                  Landlord shall use commercially reasonable efforts to provide
                  early delivery of the First Expansion Premises to Tenant in
                  accordance with Tenant's desired timing. Except for the
                  earlier delivery of such space, all other terms and conditions
                  of this Lease shall remain in full force and effect; provided,
                  however, that Tenant shall not be required to pay rent or
                  other charges with respect to the First Expansion Premises
                  until the earlier of (A) the date falling sixty (60) days
                  after the later of the date Landlord substantially completes
                  its required improvements to the First Expansion Premises as
                  set forth in Section 8 below and the date Landlord delivers
                  the First Expansion Premises to Tenant or (B) the date Tenant
                  begins conducting its business from the First Expansion
                  Premises. Additionally, if Landlord and Tenant determine that
                  it is desirable for Landlord to perform some or all of its
                  improvements to the First Expansion Premises described in
                  Section 8 below during the same timeframe as Tenant is
                  performing its build-out of the First Expansion Premises, the
                  parties agree to coordinate the


<PAGE>

                  improvement work within the First Expansion Premises and to
                  work in harmony during the construction process.

         (ii)     Subject to the provisions of Section 8 below, commencing on
                  December 1, 2002, Tenant shall lease approximately 10,224
                  additional square feet in the Building, as described in
                  Exhibit B (the "Second Expansion Premises"); provided,
                  however, that, if Tenant desires to take early delivery of the
                  Second Expansion Premises, Tenant shall so notify Landlord in
                  writing and so long as Landlord does not have a binding
                  agreement with a third party for the lease of the Second
                  Expansion Premises, Landlord shall use commercially reasonable
                  efforts to provide early delivery of the Second Expansion
                  Premises to Tenant in accordance with Tenant's desired timing.
                  Except for the earlier delivery of such space, all other terms
                  and conditions of this Lease shall remain in full force and
                  effect; provided, however, that Tenant shall not be required
                  to pay rent or other charges with respect to the Second
                  Expansion Premises until the earlier of (A) the date falling
                  sixty (60) days after the later of the date Landlord
                  substantially completes its required improvements to the
                  Second Expansion Premises as set forth in Section 8 below and
                  the date Landlord delivers the Second Expansion Premises to
                  Tenant or (B) the date Tenant begins conducting its business
                  from the Second Expansion Premises. Additionally, if Landlord
                  and Tenant determine that it is desirable for Landlord to
                  perform some or all of its improvements to the Second
                  Expansion Premises described in Section 8 below during the
                  same timeframe as Tenant is performing its build-out of the
                  Second Expansion Premises, the parties agree to coordinate the
                  improvement work within the Second Expansion Premises and to
                  work in harmony during the construction process.

B.       OPTIONAL EXPANSION: Tenant shall have the option (the "Third Expansion
         Premises Option") to lease approximately 15,594 additional square feet
         in the Building, as described in Exhibit B (the "Third Expansion
         Premises") and subject to the following:

         (i)      Tenant shall give written notice to Landlord on or before
                  February 28, 2002 of Tenant's exercise of the Third Expansion
                  Premises Option; provided, however, that, -if Tenant desires
                  to take early delivery of the Third Expansion Premises, Tenant
                  shall so notify Landlord in writing and so long as Landlord
                  does not have a binding agreement with a third party for the
                  lease of the Third Expansion Premises, Landlord shall use
                  commercially reasonable efforts to provide early delivery of
                  the MM Expansion Premises to Tenant in accordance with
                  Tenant's desired timing. Except for the earlier delivery of
                  such space, all other terms and conditions of this Lease shall
                  remain in full force and effect; provided, however, that
                  Tenant shall not be required to pay rent or other charges with
                  respect to the Third Expansion Premises until the earlier of
                  (A) the date falling sixty (60) days after the later of the
                  date Landlord substantially completes its required
                  improvements to the Third Expansion Premises as set forth in
                  Section 8 below and the date Landlord delivers the Third
                  Expansion Premises to Tenant or (B) the date Tenant begins
                  conducting its business from the Third Expansion Premises.
                  Additionally, if Landlord and Tenant determine that it is
                  desirable for Landlord to perform some or all of its
                  improvements to the Third Expansion Premises


                                       2
<PAGE>

                  described in Section 8 below during the same timeframe as
                  Tenant is performing its build-out of the Third Expansion
                  Premises, the parties agree to coordinate the improvement work
                  within the Third Expansion Premises and to work in harmony
                  during the construction process.

         (ii)     Except as otherwise provided herein, Tenant shall occupy the
                  Third Expansion Premises on December 1, 2002.

C.       DEFINITION OF "PREMISES:" For purposes of this Lease, and unless the
         context requires otherwise, "Premises" shall include the "First
         Expansion Premises," the "Second Expansion Premises" and the "Third
         Expansion Premises' to the extent applicable.

D.       BASEMENT SPACE: Tenant shall be entitled to use the basement of the
         Building for a total (gross) rent of $5.00 per square foot per year.
         The term for leasing such space shall be on a month to month basis and
         shall be based on the number of square feet in the basement that Tenant
         is actually utilizing from time to time. In this regard, Tenant shall
         submit, together with its monthly rent payment, an estimate of the
         approximate number of square feet of basement space that it is
         utilizing for the month in question. Rent for the basement shall be
         payable at the same times and in the same manner as Base Rent is
         payable with respect to the balance of the Premises. Landlord agrees
         that, irrespective of the number of square feet utilized by Tenant from
         time to time, Landlord shall not lease (or allow any other party to
         use) any portion of the basement of the Building during the term of
         this Lease including any extensions or renewals thereof (i.e., the
         entire basement shall be reserved for Tenant's use subject to the
         rental provisions described above); however, Landlord shall have the
         right to use any portion of the basement for storage and related
         purposes not required by Tenant upon notice to Tenant (it being further
         understood that Landlord shall promptly vacate any such portion of the
         basement used by Landlord if Tenant desires that space for its use). If
         any third party tenant has access to the basement, Landlord shall take
         reasonable steps to ensure that ingress and egress to the basement
         shall be provided in such manner so as not to comprise Tenant's
         security both with respect to the Premises and the basement.

E.       TRUCK SERVICES: Beginning on the Commencement Date, Landlord shall
         provide Tenant with exclusive access to three dock doors and one
         drive-in connection to the Premises as shown on Exhibit A.

F.       SIGNAGE: Tenant shall be entitled to place one or more signs on the
         Building at its own cost. The aggregate size of such signs shall not
         exceed 60% of the total area permitted for exterior signage on the
         Building per city codes. Such signage shall be subject to Landlord's
         approval, which shall not be unreasonably withheld, conditioned or
         delayed so long as such signage meets applicable code requirements.

2.       TERM: Tenant takes the Premises from Landlord, upon the terms and
conditions herein contained for an initial term ("Initial Term") of five (5)
years commencing on December 1, 1999 (the "Commencement Date") and terminating
on November 30, 2004, unless sooner terminated as herein provided or as renewed
as set forth below:


                                       3
<PAGE>

A.       RENEWAL TERM: Tenant shall have the option (the "Renewal Option") to
         renew this Lease for one additional period of three (3) years (the
         "Renewal Term"). Tenant shall provide written notice of its exercise of
         the Renewal Option at least 180 days prior to the termination of the
         initial Term of this Lease.

B.       DEFINITION OF "TERM:" For purposes of this Lease, and unless the
         context requires otherwise, "Term" shall include both the Initial Term
         and the Renewal Term, to the extent applicable.

3.       MONTHLY BASE RENT: Tenant agrees to pay to Landlord during the Term a
monthly Base Rent ("Base Rent") as set forth below:

                                  INITIAL TERM:

<TABLE>
<CAPTION>

Date                                Square Feet               Annual Base Rent Per Square Foot
----                                -----------               --------------------------------
<S>                                 <C>                       <C>
12/1/99 - 11/30/00                      42,818                                  $7.45

12/1/00 - 11/30/01                      52,619                                  $7.45

12/1/01 - 11/30/02                      52,619                                  $7.94

12/1/02 - 11/30/03                      62,843(1)                               $7.94

12/1/03 - 11/30/04                      62,843(1                                $8.59

                                  RENEWAL TERM:

Date                                Square Feet               Annual Base Rent Per Square Foot
----                                -----------               --------------------------------

12/1/04 - 11/30/05                      62,843(1)                               $8.19

12/1/05 - 11/30/06                      62,843(1)                               $8.48

12/1/06 - 11/30/07                      62,843(1)                               $8.48
</TABLE>

Subject to Sections 20 and 25 herein and except as otherwise expressly set forth
herein, Base Rent shall be payable on the first day of each month in advance,
without deduction or setoff of any kind, to Landlord and delivered to Landlord's
managing agent, Ryan Properties, Inc., 700 International Centre, 900 Second
Avenue South, Minneapolis, Minnesota 55402, or at such other place as may from
time to time be designated by Landlord.

4.       USE: Tenant may use the Premises on a twenty four (24) hour per day,
seven (7) day per week basis for Tenant's business of development, design and
manufacturing and related uses and shall not use the Premises for any other use
or purpose without the prior written consent of Landlord (which shall not be
unreasonably withheld, conditioned or delayed).

--------------------------------
(1) Assumes no exercise of the Third Expansion Premises Option. If such option
    were exercised, "Square Feet" would equal 78,437, and "Annual Base Rent Per
    Square Foot" would remain unchanged.


                                       4
<PAGE>

5.       OPERATING COSTS:

A.       DEFINITION OF "OPERATION COSTS:" Tenant shall, for the entire Term and
         at the same time it pays Base Rent, pay to Landlord as an item of
         additional rent ("Additional Rent"), without any setoff or deduction
         therefrom, its monthly estimated Proportionate Share of costs
         ("Operating Costs") which Landlord may incur in maintaining and
         operating the Project during each calendar year of the Term.
         "Proportionate Share" is defined as that percentage of Operating Costs
         incurred by Landlord with respect to the Premises (the decimal
         equivalent of a fraction, the numerator of which is the rentable area
         of the Premises and the denominator of which is the rentable area
         within the Building as well as any other buildings located on or within
         the Project (i.e. Tenant's Proportionate Share shall initially be
         43.420/o). "Operating Costs" are defined to include all expenses and
         costs (but not specific costs which are: (i) separately billed to and
         paid by individual tenant; or (ii) to be paid by the Landlord as set
         forth herein) of every kind and nature which the Landlord shall pay or
         become obligated to pay because of or in connection with the ownership
         and operation of the Project and supporting facilities of the Project,
         including but not limited to all real estate taxes and annual
         installments of special or other assessments payable with respect to
         the Project during the Term; costs of any contest of such taxes,
         including reasonable attorneys' fees (but only to the extent such
         contested taxes fall within the Term; provided, that Tenant is entitled
         to require Landlord to contest taxes on one or more occasions during
         the Term); management fees consistent with management fees charged by
         landlords of buildings similar to the Building in the Minneapolis/St.
         Paul metropolitan area (but, in any event, not to exceed 5% of gross
         rents for the Project), insurance premiums, utility costs, security
         costs, costs of wages, maintenance costs (relating to the Project
         including sidewalks, landscaping, snow removal and parking or service
         areas, common areas, service contracts, equipment and supplies) and all
         other costs of any nature whatsoever which for federal tax purposes may
         be expensed rather than capitalized, but exclusive of leasing
         commissions, depreciation, costs of Leasehold Improvements and payments
         of principal and interest on any mortgages, deeds of trusts, other
         security devices covering the Project, capital expenditures or
         improvements to the Project which do not benefit the Premises, repair
         or replacement of the parking lot servicing the Building (to the extent
         such repair or replacement encompasses an area greater dm 15% of the
         total parking lot in any calendar year, otherwise, if such work
         encompasses less than 15% of the total parking lot area in any calendar
         year, then the costs shall constitute an Operating Cost, subject to the
         Operating Cost Cap set forth herein), costs associated with
         construction drawings, the space plan costs associated with the
         preparation of Exhibit B, costs of any code compliance work, the cost
         of any testing, removal or remediation of any Hazardous Substances (as
         defined in Section 19 below) or any cost or expenditure that is not
         assessed on every other tenant in the Project. Operating Costs shall
         also include the yearly amortization of capital costs incurred by the
         Landlord for improvements or structural repairs to the Project required
         to comply with any change in the current laws, rules or regulations of
         any governmental authority having Jurisdiction, or for purposes of
         reducing Operating Costs, which costs shall be amortized over the
         useful life of such improvements or repairs, as calculated in
         accordance with GAAP (as defined in subsection B below).


                                       5
<PAGE>

B.       CAPS ON OPERATING COSTS: Notwithstanding the foregoing Section,
         Operating Costs as a whole, as well as certain specific components of
         Operating Costs, shall be capped as follows (provided, that in no event
         shall an operating cost exceed the amount allowed by Generally Accepted
         Accounting Principles ("GAAP") in a Lease Year (as that term is defined
         below)):

         (i)      OPERATING COSTS CAP: During the Term, and exclusive only of
                  taxes, insurance, snow and trash removal and Utilities (as
                  that term is defined in Section 9 herein) cost, Operating
                  Costs shall not exceed the following amounts (the "Operating
                  Cost Cap"):

<TABLE>
<CAPTION>

                                       Date                   Amount Per Square Foot
<S>                                                               <C>
                               12/1/99 - 12/31/00                      $1.35

                               1/1/01 - 12/31/01                       $1.39

                               1/1/02 - 12/31/02                       $1.43

                               1/1/03 - 12/31/03                       $1.48

                               1/1/04 - 12/31/04                       $1.52

                               1/1/05 - 12/31/05                       $1.57

                               1/1/06 - 12/31/06                       $1.61
                               1/1/07 - the expiration date
                                         of this Lease                 $1.66
</TABLE>

         (ii)     HVAC CAP: Any costs associated with repair or replacement of
                  heating, ventilating and air-conditioning ("HVAC") units
                  serving the Building which are billed to Tenant as Operating
                  Costs, for actual costs incurred, shall not exceed $.20 per
                  square foot during any calendar year (with appropriate
                  prorations to the first and last years of the Term if the
                  Commencement Date does not fall on January 1 or the expiration
                  date does not fall on December 31) (the "HVAC Cap"). Landlord
                  shall during the Term have and keep in force a maintenance
                  contract, with a contractor reasonably satisfactory to Tenant,
                  providing for regular periodic inspection and maintenance of
                  the HVAC units (which, in any case, shall be no less than once
                  every six months), and providing for necessary repairs thereto
                  (the "HVAC Maintenance Contract"). Any expenses related to the
                  HVAC Maintenance Contract shall be included in and subject to
                  the HVAC Cap.

         (iii)    ROOF CAP: Any costs associated with repair or replacement of
                  the roof of the Building which are billed to Tenant as
                  Operating Costs, for actual costs incurred, shall not exceed
                  $.20 per square foot (the "Roof Cap") during any calendar year
                  (with appropriate prorations to the first and last years of
                  the Term if the Commencement Date does not fall on January 1
                  or the expiration date does not fall on December 31).


                                       6
<PAGE>

C.       DETERMINATION OF OPERATING COSTS: As soon as reasonably practicable
         prior to the commencement of each calendar year during the Term,
         Landlord shall furnish to Tenant an estimate of Operating Costs for the
         ensuing calendar year and Tenant's Proportionate Share thereof. Tenant
         shall pay, as additional rent hereunder together with each installment
         of Base Rent, one-twelfth (1/12th) of its estimated annual
         Proportionate Share of Operating Costs. As soon as reasonably
         practicable after the end of each calendar year during the Term,
         Landlord shall furnish to Tenant a statement of the actual Operating
         Costs for the previous calendar year, including Tenant's Proportionate
         Share of Operating Costs, and within thirty (30) days thereafter Tenant
         shall pay to Landlord, or Landlord shall credit to the next rent
         payments due Landlord from Tenant, as the case may be, any difference
         between the actual Operating Costs and the estimated Operating Costs
         paid by Tenant. In the event Tenant overpays Operating Costs as of the
         expiration of this Lease, Landlord shall return such payment to tenant
         within sixty (60) days of the earlier of. (i) the expiration of the
         Term of this Lease; or (ii) the earliest date Landlord can reasonably
         determine that Tenant has overpaid. Tenant's Proportionate Share of
         Operating Costs for the years in which this Lease commences and
         terminates shall be prorated by multiplying the actual Operating Costs
         by a fraction the numerator of which is the number of days of that year
         of the Term and the denominator of which is 365.

D.       AUDIT OF OPERATING COSTS: For a period of two years following Tenant's
         receipt of Landlord's statement of actual Operating Costs, Landlord
         shall keep available for Tenant's inspection copies of all supporting
         statements relating to Operating Costs. During this period Tenant may
         audit, at its own cost, Landlord's Operating Costs records upon
         reasonable notice to Landlord. The audit must be performed during
         regular business hours in the offices located in the Minneapolis/St.
         Paul metropolitan area where Landlord maintains its accounting records.
         Within ten (10) business days of the completion of the audit, Tenant
         will provide Landlord a copy of the audit. If as a result of any such
         audit it is determined that Landlord has overcharged Tenant for its
         proportionate share of Operating Costs, (i) Landlord shall promptly
         refund such overpayment to Tenant and (ii) Landlord shall reimburse
         Tenant for its reasonable costs of performing such audit if Tenant has
         been overcharged by more than five percent (5%). No subtenant will have
         the right to audit under this provision. An assignee, approved by
         Landlord, may have the right to audit as provided herein, however, such
         right shall only apply to the assignee's term of occupancy in the
         Premises pursuant to the Lease.

6.       ADDITIONAL TAXES: Tenant shall pay as additional rent to Landlord,
together with each installment of Base Rent, the amount of any gross receipts
tax, sales tax or similar tax imposed in lieu of property taxes (but excluding
therefrom any income tax), payable or which will be payable by Landlord, by
reason of the receipt of the Base Rent and adjustments thereto.

7.       SECURYIY DEPOSIT: During the first 12 months of the Term, Tenant shall
pay to Landlord as a security deposit (the "Security Deposit") $2,083.33 per
month, payable at the same times and in the same manner as Base Rent. Provided
that Tenant is not default under this Lease beyond all applicable notice and
cure periods, then on the 1st day of the 15th month of the Term Landlord shall
return the entire accumulated Security Deposit in the amount of $25,000. During
the period beginning with the 13th month and ending with the 36th month, Tenant
shall pay a Security Deposit of $1,041.67 per month. Provided Tenant is not in
default under this Lease


                                       7
<PAGE>

beyond all applicable notice and cure periods, then on the 1st day of the 39th
month of the Term Landlord shall return the entire accumulated Security Deposit
in the amount of $25,000. The Security Deposit shall be held for the performance
by Tenant of Tenant's covenants and obligations under this Lease, it being
expressly understood that the deposit shall not be considered an advance payment
of rent or a measure of Landlord's damage in case of default by Tenant. Upon the
occurrence of any event of default by Tenant or breach by Tenant of Tenant's
covenants under this Lease that extends beyond all applicable notice and cure
periods, Landlord may, from time to time, without prejudice to any other remedy,
use the security deposit to the extent necessary to make good any arrears of
rent and/or damage, injury, expense or liability caused to Landlord by the event
of default or breach of covenant, any remaining balance of the security deposit
to be returned by Landlord to Tenant within 30 days of termination of this
Lease.

8.       LEASEHOLD IMPROVEMENTS:

A.       LEASEHOLD IMPROVEMENTS: Prior to the Commencement Date, Landlord shall,
         at its own cost (which cost shall not constitute an Operating Cost
         payable as Additional Rent by the Tenant), make and install or provide
         for the installation of leasehold improvements (the "Leasehold
         Improvements") in accordance with the plans, specifications, terms and
         conditions set forth in Exhibit B. Landlord warrants that at the
         Commencement Date (or at the time of Tenant's occupancy of the First,
         Second or Third Expansion Premises, as applicable), A CERTIFICATE OF
         OCCUPANCY (IF REQUIRED FOR TENANT'S OCCUPANCY THEREOF) SHALL HAVE BEEN
         ISSUED BY THE APPROPRIATE GOVERNMENTAL AUTHORITIES FOR THE APPLICABLE
         PORTION OF THE PREMISES AND the Leasehold Improvements will be free
         from defects in material and workmanship for the longer of: (i) one
         year or (ii) the warranty, if any, provided by the manufacturer. In
         preparation of the Leasehold Improvements, Landlord shall, at its own
         cost (which costs shall not constitute an Operating Cost payable as
         Additional Rent by the Tenant), demolish certain existing improvements
         and complete, such other work to the Premises as described in the
         demolition plan attached hereto as Exhibit C, and shall undertake other
         work specified in the Landlord's architectural plans attached hereto as
         Exhibit E. In addition to the work described in Exhibits B, C and E,
         the Landlord agrees to undertake the following, at Landlord's cost
         (which cost shall not constitute an Operating Cost payable as
         Additional Rent by the Tenant), prior to the Commencement Date:

         (i)      Replace all windows on the south side and east side of the
                  Building up to the loading dock area. Such replacement windows
                  shall be dual pane, thermally insulated, of commercial grade
                  and the glass shaft be tinted green. Moreover, a new window
                  shall be added to the southeast comer of the Building.

         (ii)     Repaint the exterior of the Building, including the concrete
                  block, trim, flashing and gutters. Additionally, as soon as
                  reasonably possible following the Commencement Date, Landlord
                  shall repaint the dock doors, fences, HVAC units visible to
                  the parking lot and streets, and bollards. The color for all
                  such painting shall be mutually agreed upon in writing by
                  Landlord and Tenant.


                                       8
<PAGE>

         (iii)    Landlord shall be responsible for any and all cost (which cost
                  shall not constitute an Operating Cost payable as Additional
                  Rent by the Tenant) associated with an ADA compliant ramp on
                  the east side of the Building. In addition to the foregoing,
                  Landlord shall contribute up to $30,000 (which cost shall not
                  constitute an Operating Cost payable as Additional Rent by the
                  Tenant and which shall be separate from the $150,000 in
                  financing for Leasehold Improvements to be provided by the
                  Landlord pursuant to Section 8(F) herein) for the construction
                  of a new entrance to the Building (the "East Entrance"), and
                  Tenant shall be responsible for all costs related to the East
                  Entrance in excess of $30,000; provided, however, that any
                  costs in excess of $30,000 shall be payable in equal monthly
                  installments over the Term as Additional Rent and interest
                  shall not accrue or be payable on any such amount in excess of
                  $30,000. The final design of the East Entrance shall be
                  mutually agreed upon between Landlord and Tenant.

         (iv)     The Landlord shall use best efforts to seal-coat and re-stripe
                  the parking lot, and patch and repair any holes or sunken
                  areas, as needed, to put the parking lot in good condition and
                  repair as of the Commencement Date; provided, further, that if
                  Landlord does not complete such work by the Commencement Date,
                  it shall use best efforts to complete the same as soon as
                  possible thereafter.

         (v)      Landscaping shall be undertaken by British Landscaping in
                  accordance with the work letter attached hereto as Exhibit D.

         (vi)     Repair the roof of the Building (and where necessary replace
                  portions thereof) in order to put the roof of the Building in
                  good condition and repair as of the Commencement Date.

         (vii)    General clean-up of the exterior of the Building, including,
                  but not limited to, sweeping parking lot, painting bollards,
                  removing signage of prior tenants and repairing damaged
                  fences.

         (viii)   Relocate the HVAC unit from its current location above the
                  East Entrance to a location which is mutually agreeable to the
                  Landlord and the Tenant.

         (ix)     Provide adequate parking lot light, and paint rusted light
                  pole located in the south parking lot of the Building.

         Such Leasehold Improvements shall not constitute Operating Costs, and
         shall not be paid by Tenant as Additional Rent. Except as specifically
         provided for in this Lease, Landlord shall have no obligation to
         repair, improve, redecorate or remodel the Premises. Without limitation
         of the foregoing provision of this Section 8(A), so long as Landlord
         substantially completes the Leasehold Improvements and foregoing items,
         the Commencement. Date shall not be delayed if the East Entrance is not
         substantially completed by the Commencement Date due to Tenant caused
         delays.

B.       LANDLORD'S COVENANTS REGARDING LEASEHOLD IMPROVEMENTS: During the Term,
         the Landlord agrees to the following:


                                       9
<PAGE>

         (i)      Without limitation of Landlord's obligations under Section
                  10(C) below, Landlord warrants that the HVAC units are or
                  shall be in good working condition as of the Commencement Date
                  and that the HVAC shall have the appropriate capacity and
                  distribution, given Tenant's initial intended use and
                  occupancy of the Premises and the layout of the Premises as of
                  the Commencement Date, to operate within the following
                  specifications (the "HVAC Specifications"): (i) at a
                  temperature between 68 and 72 degrees Fahrenheit in the
                  production area of the Building and (ii) at standard
                  tolerances for temperature variations in the office area of
                  the Building with appropriate zoning for internal and
                  perimeter office areas.

         (ii)     Landlord shall replace or repair, at its cost (which cost
                  shall not constitute an Operating Cost payable as Additional
                  Rent by the Tenant), any HVAC units that are unable to perform
                  in accordance with HVAC Specifications, through November 30,
                  2000.

C.       FIRST EXPANSION PREMISES: Prior to the earlier of October 1, 2000 and
         the date Tenant takes occupancy of the First Expansion Premises,
         Landlord shall, at its cost (which cost shall not constitute an
         Operating Cost payable as Additional Rent by the Tenant): (i) demolish
         and remove the following items from the First Expansion Premises:
         existing ceiling grid; ceiling tiles; lights; HVAC diffusers and duct
         work; carpet and base; and those certain walls identified on the
         demolition plan attached hereto as Exhibit B; (ii) install: new ceiling
         grid; HVAC diffusers and duct work; and sprinklers; and (iii) provide
         new ceiling tiles and lights (stacked on the floor) of the type
         specified in Exhibit A. The demolition and construction of the First
         Expansion Premises shall be performed by Ryan Companies, or another
         construction company mutually agreed upon by Landlord and Tenant. Such
         construction company shall have access to the First Expansion Premises
         to complete the foregoing work prior to the required delivery date. In
         addition to the foregoing costs to be assumed by the Landlord, Landlord
         shall provide Tenant with an allowance of $80,000 for completing
         Leasehold Improvements to the First Expansion Premises. Such allowance
         shall be paid on or before the date falling thirty (30) days after
         Tenant takes occupancy of the First Expansion Premises. Any unused
         portion of such allowance may be used, at Tenant's discretion, for
         improvements elsewhere in the Building or be applied to the Leasehold
         Improvements for the Second Expansion Premises.

D.       SECOND EXPANSION PREMISES: Prior to the earlier of October 1, 2002 and
         the date Tenant takes occupancy of the Second Expansion Premises,
         Landlord shall, at its cost (which cost shall not constitute an
         Operating Cost payable as Additional Rent by Tenant): (i) demolish and
         remove the following items from the Second Expansion Premises: existing
         ceiling grid; ceiling tiles; lights; HVAC diffusers and duct work;
         carpet and base; and those certain walls identified on the demolition
         plan attached hereto as Exhibit B; (ii) install: new ceiling grid; HVAC
         diffusers and duct work; and sprinklers; and (iii) provide new ceiling
         tiles and lights (stacked on the floor) of the type specified in
         Exhibit A. The demolition and construction to the Second Expansion
         Premises shall be performed by Ryan Companies, or another construction
         company mutually agreed upon by Landlord and Tenant. Such construction
         company shall have access to the First Expansion


                                       10
<PAGE>

         Premises to complete the foregoing work prior to the required delivery
         date. In addition to the foregoing costs to be assumed by the Landlord,
         Landlord shall provide Tenant with an allowance of $40,000 for
         completing Leasehold Improvements to the Second Expansion Premises.
         Such allowance shall be paid on or before the date falling thirty (30)
         days after the later of the date Tenant takes occupancy of the Second
         Expansion Premises and the date that Tenant furnishes Landlord with
         invoices for such improvements. Any unused portion of such allowance
         may be used, at Tenant's discretion, for improvements elsewhere in the
         Building or be applied to future rent payments (however, any portion of
         such allowance not utilized within six [61 months of the Second
         Expansion Premises commencement date shall be applied to future rent
         payments, and if so applied, the same shall be spread equally, without
         interest, across the remaining installments of Base Rent applicable to
         the Second Expansion Premises for the balance of the Initial Term).

E.       THIRD EXPANSION PREMISES: Prior to Tenant's occupancy of the Third
         Expansion Premises, Landlord shall, at its cost (which cost shall not
         constitute an Operating Cost payable as Additional Rent by Tenant),
         undertake the work specified in the demolition plan attached as Exhibit
         B. In addition to the foregoing costs which shall be assumed by the
         Landlord, Landlord shall provide Tenant with an allowance of $60,000
         for completing Leasehold Improvements to the Third Expansion Premises;
         provided, however, that if Tenant exercises the Renewal Option
         simultaneously with the Third Expansion Premises Option, then Landlord
         shall provide Tenant with an allowance of $180,000 for completing
         Leasehold Improvements to the Third Expansion Premises. Either such
         allowance shall be paid within thirty (30) days after the later of the
         date Tenant takes occupancy of the Third Expansion Premises and the
         date that Tenant furnishes Landlord with invoices for such
         improvements. Any unused portion of such allowance may be used, at
         Tenant's discretion, for improvements elsewhere in the Building or be
         applied to future rent payments (however, any portion of such allowance
         not utilized within six [6] months of the Third Expansion Premises
         commencement date shall be applied to future rent payments, and if so
         applied, the same shall be spread equally, without interest, across the
         remaining installments of Base Rent applicable to the Third Expansion
         Premises for the balance of the Initial Term [and the Renewal Term if
         Tenant simultaneously exercises the Third Expansion Premises Option and
         the Renewal Option]).

F.       ADDITIONAL FINANCING BY LANDLORD: In addition to any other allowances
         provided for Leasehold Improvements described elsewhere in this Lease,
         so long as Tenant is not then in monetary default hereunder and has not
         theretofore committed more than two (2) monetary defaults within the
         twelve (12) month period immediately prior to Tenant's request for the
         same, Landlord shall at any time and from time to time after the date
         hereof and prior to the expiration of the Term, provide Tenant with up
         to $150,000 in financing, in the aggregate, for so-called "leasehold
         improvements" to the Premises (i.e. including construction, design and
         related leasehold improvement costs but excluding furniture, trade
         fixtures, moveable equipment, personalty and similar costs). Any such
         financing shall be paid to Tenant within thirty (30) days after written
         request is made by Tenant to Landlord and shall be amortized over the
         then remaining Term, with an interest rate of 10% per annum on the
         first $100,000 and 11% per annum on the next $50,000.


                                       11
<PAGE>

         The amortized amount shall be deemed Additional Rent and shall be paid
         at the same times and in the same manner as monthly Base Rent. If any
         such additional financing is provided to Tenant, Landlord and Tenant
         shall enter into an amendment to this Lease reflecting the amount of
         such additional financing and the requirement by Tenant to make
         payments on such financing in accordance with the terms of this
         Section.

9.       UTILITIES:

A.       UTILITY COSTS: Landlord shall provide mains and conduits to supply
         water, gas, electricity and sanitary sewage service to the Premises.
         Tenant shall pay, when due, all charges for sewer usage or rental,
         garbage disposal, refuse removal, water, electricity, gas, telephone
         and/or other utility services or energy source (the "Utilities")
         furnished to the Premises during the term of this Lease, or any renewal
         or extension thereof (the "Utility Costs"). Moreover, Tenant agrees
         that during the period beginning on the Commencement Date and ending on
         November 30, 2002, it shall also pay, as Additional Rent, 33% of the
         costs of electric, gas and water for the vacant space located only on
         the first floor of the Building (and not including the basement);
         provided, however, that by the Commencement Date Landlord shall install
         at its own cost (which cost shall not constitute an Operating Cost
         payable as Additional Rent by the Tenant) an energy management system
         in the Building that allows for separate zoning of the vacant space
         from the Premises so as to allow temperature set backs on the vacant
         space. At any time any services or utilities are jointly metered,
         Tenant shall pay its Proportionate Share thereof within 20 days of
         Landlord's written statement. Landlord shall maintain and keep
         available for Tenant's inspection, for a period of a minimum of two
         years, records of the Utilities in the Building. Tenant may audit such
         records upon reasonable notice to Landlord with an auditor reasonably
         acceptable to Landlord, and the cost of such auditors shall be split
         between Landlord and Tenant. The audit must be performed during regular
         business hours in the office where Landlord maintains its accounting
         records. Within 10 business days of the completion of the audit, Tenant
         will provide a copy of the audit. Any adjustment in Utility Costs as a
         result of an audit shall be both retroactive and prospective for any
         vacant space in the Building, and prospective only for the entire
         Building. It as a result of any such audit it is determined that
         Landlord has overcharged Tenant for its proportionate share of Utility
         Costs, (i) Landlord shall promptly refund such overpayment to Tenant
         and (ii) notwithstanding the foregoing, Landlord shall pay the entire
         cost of the audit if Tenant has been overcharged by more than five
         percent (5%). If as a result of any such audit it is determined that
         Landlord has undercharged Tenant for its proportionate share of Utility
         Costs (i) Tenant shall promptly pay the difference to Landlord and (ii)
         notwithstanding the foregoing, Tenant shall pay the entire cost of the
         audit if Tenant has been undercharged by more than five percent (5%).
         No subtenant will have the right to audit under this provision. An
         assignee, approved by Landlord, may have the right to audit as provided
         herein, however, such right shall only apply to the assignee's term of
         the occupancy in the Premises pursuant to the Lease. Landlord shall
         have the right at any time, at its sole cost (and not payable by Tenant
         as Additional Rent), to submeter or separately meter Tenant's utility
         usage. The utility costs shall be deemed Additional Rent.


                                       12
<PAGE>

10.      CARE AND REPAIR OF PREMISES BUILDING AND PROJECT:

A.       TENANT'S RESPONSIBILITY TO MAINTAIN AND REPAIR: Tenant shall, at all
         times throughout the Term of this Lease, including renewals and
         extensions, and at its sole expense, keep and maintain the Premises in
         a clean, safe, sanitary and in the same condition as the Premises was
         delivered, normal wear and tear and damage by fire or other casualty
         excepted, and in compliance with all applicable laws, codes,
         ordinances, rules and regulations relating to Tenant's specific use and
         occupancy thereof. Tenant's obligations hereunder shall include but not
         be limited to the maintenance, repair and replacement, if necessary, of
         all lighting, plumbing fixtures and equipment, fixtures, motors and
         machinery, all interior walls, partitions, doors and windows, including
         the regular painting thereof, all exterior entrances, windows, doors
         and docks and the replacement of all broken glass. When used in this
         provision, the term "repairs" shall include replacements or renewals
         when necessary, and all such repairs made by the Tenant shall be equal
         in quality and class to the original work.

B.       TENANT'S FAILURE TO MAINTAIN OR REPAIR: If Tenant fails, refuses or
         neglects to maintain or repair the Premises as required in this Lease
         after written notice shall have been given Tenant and all cure periods
         have expired, Landlord may make such repairs and upon completion
         thereof, Tenant shall pay to Landlord, as Additional Rent, all actual
         costs for repairing the Premises plus an administrative fee equal to
         ten percent (10%) of such costs.

C.       LANDLORD'S RESPONSIBILITY TO MAINTAIN OR REPAIR: Subject to the
         provisions of Section 5 above, Landlord, at its sole cost and expense,
         shall maintain in good condition and repair the roof, foundation,
         structural supports, the HVAC (and all other structural portions) of
         the Building and Premises, plumbing and electrical systems to the point
         of entry to the Premises, exterior walls, exterior painting, and the
         sewer lines serving the Premises to the point of entry to the Premises,
         and all mechanical, fire protection, life safety and other building
         systems serving the Building or the Premises. Landlord shall indemnify
         Tenant for any repair or replacement costs for damage to any Leasehold
         Improvements or to any of Tenant's property including, but not limited
         to, furniture, fixtures, inventory, work in process or equipment that
         is related to roof leakage, unless such roof leakage is caused by
         Tenant's negligence or willful acts. The cost to replace or repair
         Leasehold Improvements or Tenant's furniture or equipment shall not
         constitute an Operating Cost, and shall not be paid as Additional Rent.
         Moreover, Tenant shall not be required to submit insurance claims for
         such casualty loss and, if Landlord chooses to make such claims on its
         insurance, any costs related thereto including any insurance deductible
         shall not constitute an Operating Cost, and shall not be paid as
         Additional Rent. Landlord further agrees that, throughout the Term, it
         shall maintain the parking lot serving the Building in good repair and
         condition. Costs to maintain, repair or replace the parking lot
         (including asphalt surfaces, curbs and sidewalks) shall constitute
         Operating Costs only in the manner set forth in Section 5(A) herein.

D.       LANDLORD'S FAILURE TO MAINTAIN OR REPAIR: In the event the Premises
         become or are out of repair and not in good condition due to either the
         failure of Landlord to comply with the terms of Section 10(C) or a
         latent defect, then Landlord shall perform or cause to be


                                       13
<PAGE>

         performed any and all repairs necessary to restore the Premises to a
         state of good condition and repair. If such repairs are not completed
         within fifteen (15) days after Landlord has received written notice
         from Tenant of such state of disrepair or if such repairs cannot
         reasonably be completed within such fifteen (15) day period and
         Landlord shall fail to commence such repairs within fifteen (15) days
         after notice and proceed diligently thereafter, then Tenant may
         prosecute such repairs itself and Landlord shall reimburse Tenant for
         the cost of prosecuting such repairs, plus an administrative fee equal
         to ten percent (10%) of such costs within twenty (20) days following
         the date that Tenant furnishes Landlord with invoices therefor.
         Notwithstanding the foregoing, in the case of an emergency (such as,
         without limitation, a leaky roof or HVAC breakdown), Tenant shall have
         the right to prosecute immediately any and all necessary repairs and
         shall deliver contemporaneous notification to Landlord of the emergency
         and related repairs and Landlord shall reimburse Tenant for the cost of
         prosecuting such repairs, plus an administrative fee equal to ten
         percent (10%) of such costs within twenty (20) days following the date
         that Tenant furnishes Landlord with invoices therefor; provided,
         further, that if contemporaneous notice is not practicable, as
         determined by Tenant in its reasonable judgment then Tenant shall
         provide such notice as soon thereafter as reasonably practicable.

E.       LANDLORD'S MANAGEMENT OF THE PROJECT: In a manner consistent with first
         class owners of buildings similar to the Building, Landlord shall
         maintain and manage all common areas of the Project which management
         and maintenance shall include, without limitation, snow plowing, lawn
         care and general maintenance of the grounds and parking areas. The cost
         of said maintenance shall be prorated in accordance with Section 5 of
         this Lease. All such maintenance which is provided by Landlord shall be
         provided as reasonably necessary for the comfortable use and occupancy
         of the Premises during business hours, except Saturdays, Sundays, and
         nationally recognized holidays, upon the condition that the Landlord
         shall not be liable for damages for failure to do so due to causes
         beyond its control.

11.      COVENANTS OF TENANT: Tenant agrees that it shall:

A.       Observe such reasonable rules and regulations as from time to time may
         be put in effect by Landlord for the general safety, comfort and
         convenience of Landlord, occupants and tenants of the Building so long
         as the same are enforced by Landlord in a uniform and nondiscriminatory
         manner.

B.       Give Landlord access to the Premises upon 24 hours' written (unless an
         emergency exists, in which case Landlord shall use its best efforts to
         give reasonable notice), without change or diminution of rent, to
         enable Landlord to examine the same and to make such repairs, additions
         and alterations as Landlord may deem advisable. During the ninety (90)
         days prior to the expiration of the Term, the Landlord shall be
         permitted to exhibit the Premises to prospective tenants upon 48 hours'
         written notice. During any such entry into the Premises, Landlord shall
         use reasonable efforts to minimize disruption of Tenant's business
         operations.


                                       14
<PAGE>

C.       Keep the Premises in good order and condition and replace all broken
         glass with glass of the same quality as that broken, save only glass
         broken by fire or other casualty covered by standard all risk
         insurance, and commit no waste on the Premises.

D.       Pay for all electric lamps, starters and ballasts used in the Premises.

E.       Upon the termination of this Lease in any manner whatsoever, remove
         Tenant's goods and effects and those of any other person claiming under
         Tenant, and quit and deliver up the Premises to Landlord peaceably and
         quietly in as good order and condition as the same are now in or
         hereafter may be put in by Landlord or Tenant, reasonable use, wear and
         tear thereof, damage by fire or other casualty and repairs which are
         Landlord's obligation excepted. Landlord acknowledges and agrees that
         Tenant shall be entitled to remove its equipment used in the operation
         of its business from the Premises, whether or not such equipment
         constitutes a fixture, including, but not limited to, clean room
         equipment, vacuum pumps and compressors, however, Tenant agrees to
         repair any material damage to the Premises caused by such removal.
         Goods and effects not removed by Tenant within twenty (20) days of the
         termination of this Lease, however terminated, shall be considered
         abandoned and Landlord may dispose of the same as it deems expedient,
         at Tenant's expense.

F.       The Tenant may not assign this Lease or sublet all or any part of the
         Premises voluntarily, involuntarily or by operation of law, or through
         change in the ownership of Tenant if Tenant is a corporation or a
         partnership, without first obtaining Landlord's written consent
         thereto. Landlord's consent will not be unreasonably withheld,
         conditioned or delayed provided that (i) the occupancy of any such
         assignee or sublessee is not inconsistent with the character of the
         Building; (ii) such assignee or sublessee shall agree in writing to be
         bound by all of the covenants and obligations of Tenant hereunder;
         (iii) a fully executed copy of any such assignment or sublease shall be
         immediately delivered to Landlord but the making of such assignment or
         sublease shall not be deemed to release Tenant from the payment and
         performance of any of its obligations under this Lease; (iv) Tenant
         shall promptly disclose and, after deducting reasonable lease related
         costs incurred by Tenant in connection with such subletting (e.g.
         broker's commissions and construction costs), pay to Landlord as
         Additional Rent hereunder eighty percent (80%) of the amount of any
         rent or other payments actually paid to Tenant pursuant to any sublease
         which exceeds the amounts payable hereunder and any other consideration
         paid, or to be paid, by reason of the assignment or sublease; (v) such
         assignment or subletting is approved by any mortgagee holding a
         mortgage covering the Premises which reserves such right unto the
         mortgagee; and (vi) Tenant is not then in monetary default or in
         non-monetary default beyond applicable notice and cure periods under
         the terms of this Lease.

         Notwithstanding the foregoing, with respect to any proposed assignment
         or sublease after the thirteenth (13th) month of the Initial Term, in
         the event the above requirements are met and the net worth of the
         proposed assignee or sublessee is equal to or greater than
         $1,500,000.00 (as shown on current audited financial statements of the
         assignee or sublessee prepared by a firm of certified public
         accountants of national standing and delivered to Landlord), then
         Landlord shall be required to approve such assignment or sublease.
         Additionally, provided that Tenant is not then in default beyond
         applicable


                                       15
<PAGE>

         notice and cure periods, Tenant shall have the absolute right without
         Landlord's approval (written or otherwise), to sublet, assign or
         otherwise transfer its interest in this Lease to (each, an
         "Affiliate"): (i) any parent or wholly owned operating subsidiary of
         Tenant; (ii) any subsidiary of Tenant's parent; or (iii) any
         corporation with which it may merge or consolidate or a person or
         entity that acquires all or substantially all of Tenant's assets
         (including, without limitation, this Lease, irrespective of whether
         this Lease is considered an asset or a liability) so long as the
         resulting or acquiring entity has a net worth equal to or greater than
         that of Tenant immediately prior to such merger, consolidation or
         acquisition, as the case may be. In the event of any such subletting,
         assignment or other transfer, (A) Tenant shall promptly notify Landlord
         of same and (B) with respect to an assignment, Tenant shall
         automatically be released from all obligations under this Lease, vided
         such Affiliate has a net worth equal to or greater than $1,500,000.00
         so long as Tenant furnishes Landlord with current audited financial
         statements prepared by a firm of certified public accountants of
         national standing evidencing such Affiliate's net worth.
         Notwithstanding anything contained in this Section to the contrary,
         Landlord shall have the right, exercisable within fifteen (15) days
         following any request by Tenant for Landlord to consent to an
         assignment or subletting to any third party (other than an Affiliate),
         to (i) sublease the Premises or the portion thereof proposed to be
         sublet by Tenant upon the same terms as those offered to the proposed
         subtenant, (ii) take an assignment of the Lease upon the same terms as
         those offered to the proposed assignee, or (iii) terminate this Lease
         as to the portion of the Premises proposed to be assigned or sublet,
         with a proportionate adjustment in the Rent and other charges payable
         hereunder if the Lease is terminated as to less than all of the
         Premises; provided, however, that if Landlord elects to recapture the
         Premises or any portion thereof pursuant to this provision, Tenant
         shall have the right, exercisable within fifteen (15) days after
         Landlord so elects to recapture, to withdraw its proposal to assign
         this Lease or sublet all or any portion of the Premises, in which case,
         Landlord's exercise of its recapture right shall be deemed rescinded
         and of no further force and effect. Moreover, if Landlord does not
         exercise any of the nature options described in the preceding sentence
         within the stated fifteen (15) day period, Landlord's right to
         recapture with regard to the Premises (or portion thereof) shall be
         null and void and of no further force and effect, and Landlord shall
         promptly consent or deny its consent to the proposed assignment or
         subletting.

G.       Not place signs on or about the Premises without first obtaining
         Landlord's written consent thereto (which consent shall not be
         unreasonably withheld, conditioned or delayed).

H.       Not overload, damage or deface the Premises or do any act which may
         make void or voidable any insurance on the Premises or the Building.

L.       Not place any additional locks on any of Tenant's doors without the
         written consent of the Landlord (which consent shall not be
         unreasonably withheld). The Landlord shall have the right to keep pass
         keys to the Premises.

J.       Not make any alterations or additions to the Premises in excess of
         $20,000 in any 12 month period without obtaining the prior written
         approval of the Landlord thereto (which approval shall not be
         unreasonable withheld), and all alterations, additions or


                                       16
<PAGE>

         improvements (including carpeting or other floor covering which has
         been glued or otherwise affixed to the floor) which may be made by
         either of the parties hereto upon the Premises, except movable office
         furniture and equipment shall be the property of Landlord, and shall
         remain upon and be surrendered with the Premises, as a part thereof, at
         the termination of this Lease; provided, however, Tenant shall be
         entitled to remove its equipment and fixtures so long as Tenant repairs
         any damage to the Premises caused by such removal.

K.       Keep the Premises and the Project free from any mechanics',
         materialmen's, contractors' or other liens arising from, or any claims
         for damages growing out of, any work performed, materials furnished or
         obligations incurred by or on behalf of Tenant. Provided, however, that
         Tenant shall have the right to contest any such lien, in which event
         such lien shall not be considered a default under this Lease until the
         existence of the lien has been finally adjudicated and all appeal
         periods have expired. Tenant shall indemnify and hold harmless Landlord
         from and against any such lien, or claim or action thereon, reimburse
         Landlord promptly upon demand therefor by Landlord for costs of suit
         and reasonable attorneys' fees incurred by Landlord in connection with
         any such lien, claim or action, and, upon written request of Landlord,
         provide Landlord with a bond in an amount and under circumstances
         necessary to obtain a release of the Premises or the Project from such
         lien.

L.       Not carry any stock of goods or do anything in or about said Premises
         which will increase insurance rates on said Premises or the Building in
         which the same are located without the Landlord's written consent
         (which consent shall not be unreasonable withheld). If Landlord shall
         consent to such use, Tenant agrees to pay as Additional Rent any
         increase in premiums for insurance resulting from the business carried
         on in the Premises by Tenant. Tenant shall, at its own expense, comply
         with the requirements of insurance underwriters and insurance rating
         bureaus and governmental authorities having jurisdiction.

M.       Maintain at its expense at all times during the Term (i) a policy or
         policies of public liability insurance with respect to the Premises and
         the business of Tenant, with limits of not less than $2,000,000.00
         combined single limit; and (ii) a policy or policies of all risk
         insurance insuring Tenant's leasehold improvements, trade fixtures and
         other personal property for the full insurable value thereof. All such
         insurance policies shall be placed with companies that hold a
         Certificate of Authorization, (Licensed), to do business in the State
         of Minnesota, and any public liability insurance policy shall provide
         for at least thirty (30) days prior written notice to Landlord before
         cancellation or amendment, name Landlord as an additional insured
         thereon, and evidence of such policies of insurance be in the form of
         an ISO ACORD form Certificate of Insurance, or its equivalent, filed
         with Landlord prior to Tenant's occupancy of the Premises and at all
         times thereafter during the Tenn. These insurance requirements are only
         minimum requirements and are not meant to represent Tenant's insurance
         needs.

         Landlord shall, at all times during the Term, procure and maintain all
         risk property insurance for the full replacement cost of the Building
         in which the Premises are located and such other insurance as may be
         required by its mortgagee, if any. Landlord shall


                                       17
<PAGE>

         also, at all times during the Term, procure and maintain commercial
         general liability insurance for the Building in which the Premises are
         located. Such insurance shall have minimum limits of liability of
         $2,000,000.00, combined single limit.

12.      AMERICANS WITH DISABILITIES ACT: The parties agree that the liabilities
and obligations of Landlord and Tenant under that certain federal statute
commonly known as the Americans With Disabilities Act as well as the regulations
and accessibility guidelines promulgated thereunder as each of the foregoing is
supplemented or amended from time to time (collectively, the "ADA") shall be
apportioned as follows:

A.       If any of the common areas of the Project, including, but not limited
         to, exterior and interior routes of ingress and egress, off-street
         parking and all rules and regulations applicable to the Premises, the
         Building or the Project, fails to comply with the ADA, such
         nonconformity shall be promptly made to comply by Landlord at
         Landlord's cost (and the same shall not be considered part of Operating
         Costs). Landlord shall also cause its manager of the Building and the
         Project (the "Manager") to comply with the ADA in its operation of the
         Building and the Project.

B.       Landlord assumes responsibility for compliance of the Leasehold
         Improvements set forth on Exhibit B with the ADA at no cost to Tenant.
         From and after delivery of the initial Premises, the First Expansion
         Premises, the Second Expansion Premises or the Third Expansion
         Premises, as applicable, Tenant covenants and agrees to conduct its
         operations within the Premises in compliance with the ADA. If any of
         the Premises fails to comply with the ADA as a result of Tenant's
         specific use and occupancy, such nonconformity shall be promptly made
         to comply by Tenant. In the event that Tenant elects to undertake any
         alterations to, for or within the Premises, Tenant agrees to cause such
         alterations to be performed in compliance with the ADA.

13.      PARKING AND DRIVES: Tenant, its employees, and invitees shall have the
nonexclusive right to use the common driveways and parking lots along with the
other tenants and customers of the building; provided, however, that the
Landlord agrees that the parking lot for the Building shall contain
non-exclusive parking at a level of at least four stalls per 1,000 square feet
of space leased in the Premises by the Tenant during the Term. The Landlord
further agrees that Tenant shall be provided not less dm 160 parking stalls on
the north and east side of the Building during the Term. Notwithstanding the
foregoing, Landlord agrees that in addition to the handicap parking required by
code, Tenant shall have the right to designate up to six visitor parking stalls
near the East Entrance for Tenant's exclusive use. The use of such driveways and
parking facilities are subject to such reasonable rules and regulations as the
Landlord may impose. Tenant further agrees not to use, or permit the use by its
employees, of the parking areas for the overnight storage of automobiles or
other vehicles without the written permission of Landlord.

14.      CASUALTY LOSS: If the Premises is damaged in part or whole from any
cause and the Premises can be substantially repaired and restored within one
hundred eighty (180) days from the date of the damage using standard working
methods and procedures, then Landlord shall at its expense promptly and
diligently repair and restore the Premises to substantially the same condition
as existed before the damage. This repair and restoration shall be made within


                                       18
<PAGE>

one hundred eighty (180) days from the date of the damage unless the delay is
due to causes beyond Landlord's reasonable control.

If the Premises cannot be repaired and restored within the one hundred eighty
(180) day period, then either party may, within ten (10) days after determining
that the repairs and restoration cannot be made within one hundred eighty (180)
days, cancel the Lease by giving notice to the other party. If the Premises is
not repaired and restored within one hundred eighty (180) days from the date of
the damage, then Tenant may cancel the Lease at any time after the one hundred
eightieth (180th) day and before the two hundred tenth (210th) day following the
date of damage. Tenant shall not be able to cancel this Lease if its willful
misconduct caused the damage unless Landlord is not promptly and diligently
repairing and restoring the Premises.

Unless the damage is caused by Tenant's willful misconduct, the Base Rent and
Additional Rent shall abate in proportion to that part of the Premises that is
unfit for use in Tenant's business. The abatement shall consider the nature and
extent of interference to Tenant's ability to conduct business in the Premises
and the need for access and essential services. The abatement shall continue
from the date the damage occurred until ten (10) business days after Landlord
completes the repairs and restoration, or until Tenant again uses the Premises
or the part rendered unusable, whichever is first.

Landlord shall not be obligated to repair or restore damage to Tenant's trade
fixtures, furniture, equipment or other personal property but shall repair any
and all leasehold improvements made to the Premises (including the First
Expansion Premises, the Second Expansion Premises and the Third Expansion
Premises, as applicable) made by Landlord or Tenant.

Landlord may cancel this Lease if

                  (i)      more than forty percent (40%) of the Building is
                           damaged and the Landlord decides not to repair and
                           restore the Building;

                  (ii)     any mortgagee of the Building does not allow adequate
                           insurance proceeds for repair and restoration unless
                           Tenant agrees to pay the difference at a commercially
                           reasonable time and in a commercially reasonable
                           manner,

                  (iii)    the damage is not covered by Landlord's insurance; or

                  (iv)     the Lease is in the last twelve (12) months of its
                           Term unless Tenant exercises any then available
                           renewal option within fifteen (15) days after notice
                           of Landlord's intended cancellation of this Lease.

To cancel, Landlord must give notice to Tenant within thirty (30) days after the
Landlord knows of the damage. The notice must specify the cancellation date,
which shall be at least thirty (30) but not more than sixty (60) days after the
date notice is given.

15.      CONDEMNATION: If the entire Project is taken by eminent domain or
transferred under threat of such taking, this Lease shall automatically
terminate as of the date of taking. In the event of a partial taking, Landlord
shall, at its expense, restore the Project and the Premises, exclusive of any
changes made therein by Tenant (but including any and all leasehold


                                       19
<PAGE>

improvements made by Landlord or Tenant to the initial Premises, the First
Expansion Premises, the Second Expansion Premises and the Third Expansion
Premises, as applicable), to as near the condition which existed immediately
prior to the date of taking as reasonably possible, and to the extent that the
Premises are rendered untenantable, the rent shall proportionately abate;
provided, however, that, if a taking concerns more than ten percent (10%) of the
Project and restoring the Project and the Premises is not feasible from an
economic standpoint or otherwise, Landlord shall have the right to terminate
this Lease upon notice to Tenant given no later than thirty (30) days after
Landlord is given legal notice of such taking which termination shall be
effective as of the taking of possession by the condemning authority.
Additionally, if any portion of the Project or the Premises is taken by eminent
domain so as to have a material adverse effect on Tenant's business operations
(and provided Landlord can not reasonably correct the same within sixty [60]
days, subject to Force Majeure events [as described in Section 30 below], then
Tenant may terminate this Lease by written notice thereof to Landlord, which
notice must be given within (30) days after Tenant is given legal notice of such
taking and which shall be effective as of the taking of possession by the
condemning authority. All damages awarded for a taking under the power of
eminent domain shall belong to and be the exclusive property of Landlord,
whether such damages be awarded as compensation for diminution in value of the
leasehold estate hereby created or to the fee of the Premises; provided,
however, that Landlord shall not be entitled to any separate award made to
Tenant which does not reduce any separate condemnation award made to Landlord.

16.      DELAY IN POSSESSION:

A.       If the Premises are not ready for occupancy by the Tenant or the
         Leasehold Improvements described in Exhibit B have not been
         substantially completed by the Commencement Date, then Base Rent and
         Additional Rent shall abate until the Premises are delivered or such
         Leasehold Improvements have been substantially completed. In addition,
         and without limitation of the foregoing abatement, if, subject to
         Excused Delays (as hereinafter defined), the Premises are not ready for
         occupancy or such Leasehold Improvements have not been substantially
         completed by (i) December 31, 1999, then, provided the Leasehold
         Improvements have been completed by January 31, 2000, Base Rent shall
         be abated for thirty (30) days following the date of substantial
         completion and delivery of the Premises to Tenant (however, under such
         circumstances, the expiration date of the Lease shall be extended by an
         additional thirty (30) days), (ii) by January 31, 2000, then, provided
         the Leasehold Improvements have been substantially completed by
         February 29, 2000, Base Rent shall be abated for sixty (60) days
         following the date of substantial completion and delivery of the
         Premises to Tenant (however, under such circumstances, the expiration
         date of the Lease shall be extended by an additional sixty (60) days),
         and (iii) by February 29, 2000, then Base Rent shall be abated for
         ninety (90) days following the date of substantial completion and
         delivery of the Premises to Tenant (however, under such circumstances,
         there shall be no extension of the expiration date). This Lease shall
         remain in all other respects in full force and effect and the Term
         shall not be extended. Tenant acknowledges that Landlord will require
         access to the Premises during December 1999 to complete minor
         additional Leasehold Improvements and certain punchlist items, so long
         as such work is conducted in such a manner that does not materially
         impair Tenant's ability to conduct its business within the Premises.
         Notwithstanding the foregoing, but subject to Excused Delays (provided
         that delays by


                                       20
<PAGE>

         reason of one or more Force Majeure Events [as defined in Section 30
         below] may not exceed sixty (60) days, in the aggregate, in the context
         of this sentence), in the event the Premises are not ready for
         occupancy by the Tenant or the Leasehold Improvements described in
         Exhibit B have not been substantially completed by April 30, 2000, then
         Tenant shall have the Option to terminate this Lease in its entirety
         upon written notice to Landlord without liability on the part of or
         penalty to the Tenant. For purposes hereof the term "Excused Delays"
         shall mean any delays reasonably attributable to Tenant and any delays
         by reason of a Force Majeure.

B.       If Landlord does not substantially complete the improvements to the
         First Expansion Premises described in Section 8(C) above and deliver
         the First Expansion Premises to Tenant by October 1, 2000, then Base
         Rent and Additional Rent with respect to the First Expansion Premises
         shall abate until the date falling sixty (60) days after such
         improvements are substantially completed and the First Expansion
         Premises are delivered to Tenant; provided, further, that Landlord
         shall use commercially reasonable efforts to complete such improvements
         to the First Expansion Premises and deliver the First Expansion
         Premises to Tenant as soon thereafter as practicable.

C.       If Landlord does not substantially complete the improvements to the
         Second Expansion Premises described in Section 8(D) above and deliver
         the Second Expansion Premises to Tenant by October 1, 2002, then Base
         Rent and Additional Rent with respect to the Second Expansion Premises
         shall abate until the date falling sixty (60) days after such
         improvements are substantially completed and the Second Expansion
         Premises are delivered to Tenant; provided, further, that Landlord
         shall use commercially reasonable efforts to complete such improvements
         to the Second Expansion Premises and deliver the Second Expansion
         Premises to Tenant as soon thereafter as practicable.

D.       If Landlord does not substantially complete the improvements to the
         Third Expansion Premises described in Section 8(E) above and deliver
         the Third Expansion Premises to Tenant by December 31, 2002, then Base
         Rent and Additional Rent with respect to the Third Expansion Premises
         shall abate until such improvements are substantially completed and the
         Third Expansion Premises are delivered to Tenant; provided, further,
         that Landlord shall use commercially reasonable efforts to complete
         such improvements to the Third Expansion Premises and deliver the Third
         Expansion Premises to Tenant as soon thereafter as practicable.

E.       Landlord agrees to use best efforts to complete any and all punchlist
         items with respect to the Leasehold Improvements as well as the
         improvements to the First Expansion Premises, the Second Expansion
         Premises and Third Expansion Premises described in Section 8 above
         within thirty (30) days following substantial completion of such
         Leasehold Improvements and other improvements described in Section 8.

F.       The abatement provisions set forth in this Section 16 shall be in
         addition to (and not in lieu of) any other rights and remedies
         available to Tenant.

17.      LIABILITY AND INDEMNITY: Save for its tortious acts, gross negligence
or intentional acts of Landlord, its agents, contractors or employees, Landlord
shall not be


                                       21
<PAGE>

responsible or liable to Tenant for any loss or damage (i) that may be
occasioned by or through the acts or omissions of persons occupying any part of
the Building or any persons ting any business in or about the Building or
persons present in or about the Building for any other purpose or (ii) for any
loss or damage resulting to Tenant or its property from burst, stopping or
leaking water, sewer, sprinkler or steam pipes or plumbing fixtures or from any
failure of or defect in any electric line, circuit or facility. Tenant shall
defend, indemnify and save Landlord harmless from and against all liabilities,
damages, claims, costs, charges, judgments and expenses, including, but not
limited to, reasonable attorneys' fees, which may be imposed upon or incurred or
paid by or asserted against Landlord, the Premises or any interest therein or in
the Building by reason of or in connection with any use, non-use, possession or
operation of the Premises, or any part thereof, any negligent, tortious act or
intentional act on the part of Tenant or any of its agents, contractors,
servants, employees, licensees or invitees, any accident, injury, death or
damage to any person or property occurring in, on or about the Premises or any
part thereof, and any failure on the part of Tenant to perform any of the terms
or conditions of this Lease provided, however, that nothing contained in this
paragraph shall be deemed to require Tenant to indemnify Landlord with respect
to any gross negligence or tortious act committed by Landlord or to any extent
prohibited by law. Landlord hereby agrees to indemnify and hold Tenant harmless
from all acts, all injuries, losses, or claim and all damage to personal
property or any causes of action that arise in the common areas or parking lots
of the Building or Project which are due, directly or indirectly, to the
negligence or willful misconduct of Landlord, its agents, contractors or
employees.

18.      MUTUAL RELEASE/WAIVER OF SUBROGATION: Each of Landlord and Tenant
hereby releases the other from any and all liability or responsibility to the
other or anyone claiming through or under them by way of subrogation or
otherwise for any loss or damage to property caused by any of the all risk
casualties, even if such casualty shall have been caused by the fault or
negligence of the other party, or anyone for whom such party may be responsible.

19.      HAZARDOUS SUBSTANCES:

A.       DEFINITION OF "HAZARDOUS SUBSTANCE:" The term "Hazardous Substance", as
         used in this Lease, shall include, without limitation, flammables,
         explosives, radioactive materials, asbestos, polychlorinated biphenyls
         (PCBs), chemicals known to cause cancer or reproductive toxicity,
         pollutants, contaminants, hazardous wastes, toxic substances or related
         materials, petroleum and petroleum products, and substances including,
         without limitation, freon or other chlorofluorocarbons declared to be
         hazardous or toxic or regulated or banned under any law or regulation
         now or hereafter enacted or promulgated by any government authority.

B.       LANDLORD'S REPRESENTATIONS: Landlord has not (and, except as disclosed
         in the environmental report dated _________, 19____ prepared by B.A.
         Liesch for Landlord and made available to Tenant for review, Landlord
         has no knowledge of any facts and circumstances which might reasonably,
         suggest that any other person has) placed, held, located, stored,
         buried, dumped,, disposed, spilled or released any Hazardous Substances
         on the Premises. Landlord further represents to Tenant that Landlord
         has not received any notice from any governmental entity of a violation
         existing on or about the Project of


                                       22
<PAGE>

         any federal, state or local law or ordinance regarding Hazardous
         Substances ("Hazardous Substance Laws").

C.       TENANT'S COVENANTS: Tenant shall not cause or actively permit to occur:
         (a) any violation of any Hazardous Substance Law now or hereafter
         enacted, related to environmental conditions on, under, or about the
         Premises, or arising from Tenant's use or occupancy of the Premises,
         including, but not limited to, soil and ground water conditions; or (b)
         the use, generation, release, manufacture, refining, production,
         processing, storage, or disposal of any Hazardous Substance on, under,
         or about the Premises, or the transportation to or from the Premises of
         any Hazardous Substance in any manner not sanctioned by law or by the
         commercial standards prevailing in the industry for the storage and use
         of such substances or materials, nor allow to be brought into the
         Building any such materials or substances except to use in the ordinary
         course of Tenants business.

D.       ENVIRONMENTAL CLEANUP: Tenant agrees to Environmental Cleanup as
         follows: (a) Tenant shall, at Tenant's own expense, comply with all
         Hazardous Substance Laws regulating the use, generation, storage,
         transportation, or disposal of Hazardous Substances; (b) Tenant shall,
         at Tenant's own expense, make all submissions to, provide all
         information required by, and comply with all requirements of all
         governmental authorities (the "Authorities") under the Laws; (c) should
         any Authority demand that a cleanup plan be prepared and that a cleanup
         be undertaken because of any deposit, spill, discharge, or other
         release of Hazardous Substances that occurs during the term of this
         Lease, at or from the Premises, or which arises at any time from
         Tenant's use or occupancy of the Premises, then Tenant shall, at
         Tenant's own expense, prepare and submit the required plans and all
         related bonds and other financial assurances, and Tenant shall carry
         out all such cleanup plans; and (d) Tenant shall promptly provide all
         information regarding the use, generation, storage, transportation, or
         disposal of Hazardous Substances that is requested by Landlord;
         provided, however, Tenant shall not be responsible for Environmental
         Cleanup of. (i) Hazardous Substances existing on the Premises prior to
         the Commencement Date; or (ii) Hazardous Substances whose presence on
         the Premises were caused by a party other dm Tenant or a party
         operating under Tenant's direction or control. If Tenant fails to
         fulfill any duty imposed under this Paragraph within a reasonable time,
         Landlord may do so, at Tenant's expense; and in such case, Tenant shall
         cooperate with Landlord in order to prepare all documents Landlord
         deems necessary or appropriate to determine the applicability of the
         Hazardous Substance Laws to the Premises and Tenant's use thereof, and
         for compliance therewith, and Tenant shall execute all documents
         promptly upon Landlord's request. No such action by Landlord and no
         attempt made by Landlord to mitigate damages under any Hazardous
         Substance Laws shall constitute a waiver of any of Tenant's obligations
         under this Paragraph. Tenant will, at and to the extent of any
         reasonable written request of Landlord, remove from the Premises at the
         end of Term, at Tenant's expense and in accordance with any applicable
         laws or regulations, equipment that belongs to Tenant (including
         refrigeration equipment and enhancements to the Building's standard
         HVAC systems) that contains, uses or generates freon or any other
         chlorofluorocarbons, whether or not such removal is then required by
         applicable laws or regulations. Tenant's obligations and liabilities
         under this Paragraph shall survive the expiration of this Lease.


                                       23
<PAGE>

E.       ENVIRONMENTAL INDEMNIFICATION BY TENANT: Tenant agrees to indemnify,
         defend, and hold harmless Landlord, the manager of the property, and
         their respective officers, directors, beneficiaries, shareholders,
         partners, agents, and employees from all fines, suits, procedures,
         claims, and actions of every kind, and all costs associated therewith
         (including attorneys' and consultants' fees) arising out of or in any
         way connected with any deposit, spill, discharge, or other release of
         Hazardous Substances that occurs during the term of this Lease, at or
         from the Premises and which is caused by Tenant or a party operating
         under Tenant's direction or control or from Tenant's failure to provide
         all information, make all submissions, and take all steps required by
         all Authorities under the Hazardous Substance Laws and all other
         environmental laws. Tenant's obligations and liabilities under this
         Paragraph shall survive the expiration of this Lease.

F.       ENVIRONMENTAL INDEMNIFICATION BY LANDLORD: Landlord agrees to
         indemnify, defend, and hold harmless Tenant and its officers,
         directors, beneficiaries, shareholders, partners, agents, and employees
         from all fines, suits, procedures, claims, and actions of every kind,
         and all costs associated therewith (including attorneys' and
         consultants' fees) arising out of or in any way connected with any
         deposit, spill, discharge, or other release of Hazardous Substance that
         was present on the Premises prior to the Commencement Date of this
         Lease,, or which arises at any time during the Term of this Lease from
         the actions of Landlord or a party operating under Landlord's direction
         or control, or from Landlord's failure to take all steps required by
         all Authorities under the Hazardous Substance Laws and all other
         environmental laws. Landlord's obligations and liabilities under this
         Paragraph shall survive the expiration of this Lease.

20.      DEFAULT: If Tenant fails to pay any amount due under the Lease within
10 days after notice of failure to pay on the due date, or Tenant fails to keep
or perform any of the other terms, conditions or covenants of this Lease for
more than 20 days after notice of such failure is given to Tenant (provided that
where a cure is not reasonably possible within that period, Tenant shall be
entitled to additional time to effect a cure so long as Tenant promptly
commences acts reasonably calculated to effect a cure and thereafter diligently
prosecutes those acts to completion), Landlord, in addition to all other rights
and remedies available to Landlord by law or by other provisions hereof, may
after five days written notice, with due process, re-enter immediately into the
Premises and remove all persons and property therefrom, and, at Landlord's
option, annul and cancel this Lease as to all future rights of Tenant and Tenant
hereby expressly waives the service of any notice in writing of intention to
re-enter as aforesaid. Tenant further agrees that in case of any such
termination Tenant will indemnify the Landlord against all loss of rents and
other damage which Landlord incurs by reason of such termination, including, but
not being limited to, costs of restoring and repairing the Premises and putting
the same in rentable condition, costs of renting the Premises to another tenant,
loss or diminution of rents and other damage which Landlord may incur by reason
of such termination, and all reasonable attorney's fees and expenses incurred in
enforcing any of the terms of the Lease. Neither acceptance of rent by Landlord,
with or without knowledge of default nor failure of Landlord to take action on
account of any default hereof or to enforce its rights hereunder shall be deemed
a waiver of any default, and absent written notice or consent, said default
shall be a continuing one. In the event of a default by Tenant, Landlord shall
take all reasonable actions to mitigate its damages.


                                       24
<PAGE>

21.      NOTICES: All bills, statements, notices or communications which
Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
Premises and the time of rendition thereof of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant or deposited in the mail as herein provided. Any notice by Tenant to
Landlord must be personally delivered to Landlord or served by registered or
certified mail addressed to Landlord at the address where the last previous
rental hereunder was payable, or in case of subsequent change upon notice given,
to the latest address furnished.

22.      HOLDING OVER: Should Tenant continue to occupy the Premises after
expiration or termination for any reason of the Term or any renewal or renewals
thereof such tenancy shall be from month to month, and shall be on all the terms
and conditions hereof applicable to a month to month tenancy except that Base
Rent shall equal one hundred fifty percent (150%) of the Base Rent payable at
the time of such expiration or termination. Nothing herein, however, shall
prevent Landlord from removing Tenant forthwith and seeking all remedies
available to Landlord in law or equity; however, Landlord shall not be entitled
to any lost profits or special or consequential damages in the event of a
holding over by Tenant.

23.      SUBORDINATION: The rights of Tenant shall be and are subject and
subordinate at all times to the lien of any mortgage now or hereafter in force
against the Project, and Tenant shall execute such further instruments
subordinating this Lease to the lien of any such mortgage as shall be requested
by Landlord, including upon request an agreement by Tenant to attorn to the
holder of such mortgage in return for a covenant of nondisturbance of Tenant's
occupancy by such holder in the event that such holder, its successors or
assigns, succeeds to the interest of Landlord.

24.      ESTOPPEL CERTIFICATE: Tenant shall at any time and from time to time,
within ten (10) days after written request by Landlord, execute, acknowledge and
deliver to Landlord and any other parties designated by Landlord, a certificate
in such form as may from time to time be provided, ratifying this Lease and
certifying (a) that this Lease is in full force and effect and has not been
assigned, modified or amended in any way (or, if there has been any assignment,
modification or amendment, identifying the same); (b) the dates of commencement
and expiration of the Lease Term, the date to which the Base Rent and additional
rent payable hereunder have been paid in advance, if any, and (c) that there
are, to Tenant's knowledge, no incurred defaults on the part of Landlord or any
defenses or offsets against the enforcement of this Lease by Landlord (or
specifying each default, defense or offset if any are claimed). Any such
certificate may be furnished to and relied upon by any prospective purchaser,
lessee or encumbrancer of all or any portion of the Building.

25.      SERVICE CHARGE: Tenant agrees to pay a service charge equal to one and
one half percent (1.5%) per month or any portion thereof of any payment of
monthly Base Rent or additional charge payable by Tenant hereunder which is not
paid within ten (10) days from the date due for the first late payment in any
twelve month period during the Term (or five (5) days' from the due date with
respect to any subsequent late payment during such twelve (12) month period), or
of $50.00 per month or portion thereof, whichever is greater.


                                       25
<PAGE>

26.      BINDING EFFECT: The word "Tenant", wherever used in this Lease, shall
be construed to mean tenants in all cases where there is more dm one tenant, and
the necessary grammatical changes required to make the provisions hereof apply
to corporations, partnerships or individuals, men or women, shall in all cases
be assumed as though in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Landlord and Tenant and their respective heirs, legal representatives,
successors and assigns, provided that this Lease shall not inure to the benefit
of any heir, legal representative, transferee or successor of Tenant except upon
the express written consent or election of Landlord.

27.      TRANSFER OF LANDLORD'S INTEREST: In the event of any transfer or
transfers of Landlord's interest in the Premises or the Project, other than a
transfer for security purposes only, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the date of such transfer, so long as the transferee
agrees to assume transferor's obligations under this Lease.

28.      LIMITATION OF LIABILITY: In the event that Landlord is ever adjudged by
any court to be liable to Tenant in damages, Tenant specifically agrees to look
solely to Landlord's interest in the Project (including the Building) for the
recovery of any judgment from Landlord, it being agreed that Landlord, or if
Landlord is a partnership, its partners whether general or limited, or if
Landlord is a corporation, its directors, officers, or shareholders, shall never
be personally liable for any judgment. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Tenant might
otherwise have to obtain injunctive relief against Landlord or Landlord's
successor in interest, or to maintain any other action not involving the
personal liability of Landlord (or if Landlord is a partnership, its partners
whether general or limited, or if Landlord is a corporation, requiring its
directors, officers or shareholders to respond in monetary damages from assets
other than Landlord's interest in the Project including the Building), or to
maintain any suit or action in connection with enforcement or collection of
amounts which may become owing or payable under or on account of insurance
maintained by Landlord.

29.      INCORPORATION OF EXHIBITS: The following exhibits to this Lease are
hereby incorporated by reference for all purposes as fully set forth at length
herein:

Exhibit A         Description of Premises
Exhibit B         Space Plan dated September 13, 1999, prepared by BDH & Young
Exhibit C         Demolition Plan
Exhibit D         British Landscaping Work Letter
Exhibit E         Landlord's Architectural Plans

30.      FORCE MAJEURE: All of the obligations of Landlord and of Tenant under
this Lease are subject to and shall be postponed for a period equal to any delay
or suspension resulting from fire, strikes, acts of God, and other causes beyond
the control of the party delayed in its performance hereunder (a "Force
Majeure'), this Lease remaining in all other respects in full force and effect
and the Term not thereby extended. Provided nevertheless, the unavailability of
funds for payment or performance of Landlord's or Tenant's obligations hereunder
shall not give


                                       26
<PAGE>

rise to any postponement or delay in such payment or performance of such party's
obligations hereunder.

31.      BROKERS: Landlord agrees to pay Northco Corporation a commission equal
to $10,000, plus 75% of the amounts set forth in the following schedule:

         -        7% of the Base Rent payable during the first 12 months of the
                  Lease.

         -        6% of the Base Rent payable during the second 12 months of the
                  Lease.

         -        5% of the Base Rent payable during the third 12 months of the
                  Lease.

         -        4% of the Base Rent payable during the fourth 12 months of the
                  Lease.

         -        3% of the Base Rent payable during the fifth 12 months of the
                  Lease.

         -        2% of the Base Rent payable during the balance of the Lease.

The Landlord shall pay such commission as follows: (i) 50% upon the mutual
execution of this Lease; and (ii) the remaining 50% on the Commencement Date.

32.      GENERAL: The submission of this Lease for examination does not
constitute the reservation of or an option for the Premises, and this Lease
becomes effective only upon execution and delivery hereof by Landlord and
Tenant. This Lease does not create the relationship of principal and agent or of
partnership, joint venture or any association between Landlord and Tenant, the
sole relationship between Landlord and Tenant being that of lessor and lessee.
No waiver of any default of Landlord or Tenant hereunder shall be implied from
any omission by Tenant or Landlord to take any action on account of such default
if such default persists or is repeated, and no express waiver shall affect any
default other than the default specified in the express waiver and that only for
the time and to the extent therein stated. Each term and each provision of this
Lease performable by Landlord and Tenant shall be construed to be both a
covenant and a condition. The topical headings of the several paragraphs and
clauses are for convenience only and do not define, limit or construe the
contents of such paragraphs or clauses. All preliminary negotiations are merged
into and incorporated in this Lease. This Lease can only be modified or amended
by an agreement in writing signed by the parties hereto, their successors or
assigns. All provisions hereof shall be binding upon the heirs, successors and
assigns of each party hereto.

33.      SEVERABILITY: The invalidity of any provision, clause or phrase herein
contained shall not serve to render the balance of this Lease ineffective or
void and the same shall be construed as if such had not been herein set forth.

34.      QUIET ENJOYMENT: Landlord covenants that Landlord has the right to
enter into this Lease and that, if Tenant is not in material default of this
Lease beyond the period for applicable cure, Tenant shall lawfully, peaceably
have, hold, occupy and enjoy the Premises through the Term and any extension
thereof without hindrance or ejection by Landlord or any person claiming by,
through or under Landlord or Landlord's successors, and Landlord shall defend
Tenant's right to such peaceable enjoyment. Landlord also represents, covenants
and


                                       27
<PAGE>

warrants (i) that it has lawful title to the Project shown on Exhibit A to this
Lease and has full right, power and authority to enter into this Lease; and (ii)
no restrictive covenant, easement, lease or other written agreement restricts,
prohibits or otherwise affects Tenant's rights set forth in this Lease.

35.      YEAR 2000: Landlord covenants to Tenant that Landlord shall use efforts
consistent with first class owners of buildings similar to the Building to
ensure that the Project are Millennium Compliant (as hereinafter defined).
Without limitation of the foregoing, any and all costs associated with making
Landlord or the Project (or any portion thereof) Millennium Compliant shall be
excluded from Operating Costs. For purposes of this Section, the term
"Millennium Compliant" means, with respect to the Project and Landlord, that all
software, hardware, equipment, goods or systems material to the physical
operations, business operations or financial reporting of Landlord and for the
Project will properly perform date sensitive functions before, during and after
January 1, 2000.

IN WITNESS WHEREOF, the respective parties hereto have caused this Lease to be
executed the day and year first above written.

TENANT:  August Technology Corporation

By
  ------------------------------------

Its
   -----------------------------------

By
  ------------------------------------

Its
   -----------------------------------



LANDLORD:  West 78th Street, Bloomington Associates, LLC

By
  ------------------------------------

Its
   -----------------------------------

By
  ------------------------------------

Its
   -----------------------------------


And:  Bloomington Office Project, LLC
Its:    Member and Manager

By:
   -----------------------------------
        Timothy M. Gray
        Its Chief Manager


                                       28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>14
<DESCRIPTION>EXHIBIT 10.10
<TEXT>

<PAGE>

                                                                   Exhibit 10.10

                MARQUETTE CAPITAL BANK, N. A. - LETTER AGREEMENT



November 4, 1999



To:      August Technology Corporation (the "Borrower")
         5237 Edina Industrial Blvd.
         Edina, Minnesota 55439

Gentlemen:

This letter agreement confirms the additional agreements between the Borrower
and Marquette Capital Bank, N. A. (the "Bank"). In consideration of the mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties, the
Borrower and the Bank agree as follows:

         1. Subject to the provisions of this letter agreement, at the
Borrower's request, the Bank shall make loans to the Borrower during the period
from the date of this letter agreement to May 31, 2000 in an aggregate amount
not exceeding Two Million Seven Hundred and Fifty Thousand Dollars
($2,750,000.00) at any time outstanding (the "Line of Credit"). The Line of
Credit is a revolving line of credit, and the Borrower may borrow, prepay and
reborrow under the Line of Credit. The Borrower's obligation to repay such loans
and to pay interest and other charges, fees and expenses thereon is evidenced by
the Borrower's promissory note dated November 4, 1999 payable to the order of
the Bank in the principal amount of exceeding Two Million Seven Hundred and
Fifty Thousand Dollars ($2,750,000.00) (together with any amendments,
extensions, renewals and replacements thereof, called the "Revolving Note"). The
Bank shall have no obligation to make any such loan after the occurrence of any
Event of Default.

         2. Subject to the provisions of this letter agreement, at the
Borrower's request, the Bank shall issue one or more standby letters of credit
for the account of the Borrower (each a "Letter of Credit") from time to time
during the period from the date hereof to and including the expiration date in
an aggregate amount at any time outstanding not to exceed the amount of the line
of credit less the sum of (A) all outstanding advances under the line of credit
and (B) the letter of credit amount. The Borrower acknowledges and agrees that
the letter of Credit amount shall reduce the line of credit amount available for
advances. Each Letter of Credit request will be further evidenced by an
application and reimbursement agreement.

         3. The Borrower shall pay the following fees to the Bank: With respect
to each Letter of Credit, the Borrower shall pay to the Bank annually and in
advance a letter of credit fee equal to one percent (1.0%) per annum on the face
amount of such Letter of Credit, computed for the period commencing on the date
of issuance of such Letter of Credit and ending on the expiration date thereof.
In addition, the Borrower agrees to pay to the Bank, on written demand


                                       1
<PAGE>

by the Bank, the administrative fees charged by the Bank in the ordinary
course of business in connection with the honoring of drafts under any Letter
of Credit and for all other activity with respect to any Letter of Credit at
the then-current rates of the Bank.

         THE BORROWER SHALL NOT AT ANY TIME PERMIT THE UNPAID PRINCIPAL BALANCE
OF THE REVOLVING NOTE PLUS THE AMOUNT OF OUTSTANDING LETTERS OF CREDIT TO EXCEED
THE BORROWING BASE.

         4. As long as any now existing or hereafter arising debt, obligation or
liability of the Borrower to the Bank (including but not limited to any debt,
obligation or liability relating to any letter of credit) shall remain
outstanding, the Borrower shall comply with the following requirements:

                  a. The Borrower shall deliver to the Bank, in form and
substance acceptable to the Bank:

                  As soon as available, and in any event within 120 days after
                  each fiscal year of the Borrower, the annual audited financial
                  statements of the Borrower for such fiscal year, prepared in
                  accordance with GAAP; and

                  As soon as available, and in any event within 30 days after
                  the end of each fiscal year of the Borrower, the projected
                  financial statements of the Borrower for the next fiscal year;
                  and

                  As soon as available, and in any event within 30 days after
                  the end of each month, the financial statements. of the
                  Borrower for such period, prepared by the Borrower in
                  accordance with GAAP; and

                  As soon as available, and in any event within 30 days after
                  the end of each month, an aging and a listing of accounts
                  receivable of the Borrower and a listing of inventory of the
                  Borrower as of the end of such period; and

                  As soon as available, and in any event within 30 days after
                  the end of each month, a Borrowing Base and Covenant
                  Compliance Certificate in the form of Exhibit A attached
                  hereto, completed with amounts determined as of the end of
                  such period; and

                  At least once every 12 months, and as otherwise requested by
                  the Bank, the current signed personal financial statements of
                  any guarantors of any of the Borrower's indebtedness to the
                  Bank (called the "Guarantors"); and

                  Within 45 days after the same are filed with the United States
                  Internal Revenue Service, the annual federal income tax
                  returns of the Borrower and any Guarantors, including all
                  schedules, attachments and amendments thereto; and


                                       2
<PAGE>

                  Within 10 days after the Bank's request therefor, such other
                  information about the Borrower and any Guarantors as the Bank
                  may reasonably request from time to time.

                  b. The Borrower shall keep accurate books and records in which
         true and complete entries will be made in accordance with GAAP. Upon
         request of the Bank, the Borrower, during normal business hours, shall
         give any representatives of the Bank access to and permit such
         representatives to examine and copy all books, records and other
         writings in its possession, to inspect its property and to discuss its
         finances, accounts, property and business with any of its officers and
         directors.

                  c. The Borrower shall file when due all required tax returns,
         shall pay when due all taxes, assessments and other governmental
         charges levied or imposed upon it or upon its income or profits or upon
         any of its property, and shall pay when due all lawful claims for
         labor, materials and supplies which, if unpaid, might become a lien or
         charge upon any property of the Borrower; provided, that the Borrower
         shall not be required to pay any such tax, assessment, charge or claim
         whose amount, applicability or validity is being contested in good
         faith by appropriate proceedings.

                  d. The Borrower shall keep and maintain its inventory,
         equipment, real estate and other property necessary or useful in its
         business in good condition and repair and shall pay when due all rental
         and mortgage payments due on such property; provided, that nothing in
         this Section shall prevent the Borrower from discontinuing the
         operation and maintenance of any such property if such discontinuance
         is desirable in the conduct of the Borrower's business and is not
         disadvantageous to the Bank.

                  e. The Borrower shall obtain and maintain insurance with
         insurers that are acceptable to the Bank, in such amounts and with such
         coverages (including without limitation professional liability
         insurance, public liability insurance, fire, hazard and extended
         coverage insurance on all of its assets, necessary workers'
         compensation insurance, and all other coverages as are consistent with
         industry practice) as are acceptable to the Bank.

                  f. The Borrower shall not declare or pay any dividends or
         other distributions on account of any shares of its stock or any of its
         other ownership interests, or make any payment on account of any
         purchase, redemption or other retirement of any shares of such stock or
         any such ownership interests, or make any other payment or distribution
         on account of any shares of stock or any ownership interests, or any
         warrant or option therefor, either directly or indirectly.

                  g. The Borrower shall preserve and maintain its existence and
         all of its rights, privileges and franchises, and shall comply with all
         applicable laws and regulations.

                  h. The Borrower shall not create, incur or permit to exist in
         favor of any person other than the Bank any mortgage, deed of trust,
         assignment, security interest or


                                       3
<PAGE>


         other than on any of its property now owned or hereafter acquired,
         except purchase money security interests securing indebtedness
         permitted by Section 3(h)(ii).

                  i. The Borrower shall not incur, create, assume or permit to
         exist any Funded Debt, except:

                           (i)      Indebtedness to the Bank;

                           (ii) Indebtedness in an aggregate amount not to
                  exceed at any time outstanding $500,000 incurred in the
                  purchase (or borrowing for the purchase) or lease of
                  equipment.

                  j. The Borrower shall maintain its primary operating deposit
         account at the Bank.

                  k. The Borrower shall comply with the following requirements:

                  The Borrower shall not permit the aggregate amount of the
                  Borrower's Capital Expenditures in any fiscal year of the
                  Borrower to exceed $750,000.

                  The Borrower shall not permit the Borrower's Tangible Net
                  Worth to be less than $2,750,000.

                  The Borrower shall not permit the ratio of Debt to Tangible
                  Net Worth of the Borrower to be more than 1.5 to 1.

                  The Borrower shall not permit the Borrower's cumulative EBITDA
                  to be less than the amounts described in the following table
                  for the indicated periods:
<TABLE>
<CAPTION>
                                PERIOD                          MINIMUM EBITDA
                         <S>                                    <C>
                          12/31/98 - 9/30/99                    $250,000
                          12/31/98 - 12/31/99                   $350,000
                          12/31/99 - 3/31/00                    $150,000
</TABLE>
                  l. Year 2000 Compliance. "Year 2000 Compliance" means, with
         regard to any person or entity, that all software, embedded microchips,
         and other processing capabilities utilized by, and material to the
         business operations or financial condition of, such person or entity
         are able to interpret and manipulate data on and involving all calendar
         dates correctly and without causing any abnormal ending scenario,
         including but not limited to all dates in and after the year 2000. The
         Borrower represents and warrants to the Bank and agrees that: (a) the
         Borrower has made due inquiry to determine whether the computer
         applications and hardware the Borrower and the Borrower's material
         suppliers and customers will be Year 2000 Compliant by January 1, 2000;
         and (b) the Borrower has a plan to become Year 2000 compliant. By
         January 1, 2000, and the Borrower agrees to devote adequate resources
         toward, diligently pursue, and take all actions necessary to complete
         such plan and become Year 2000 Compliant by January 1,


                                       4
<PAGE>

         2000; and (c) to the best of the B6rrower's knowledge, all of the
         Borrower's material suppliers and customers will be Year 2000 Compliant
         by January 1, 2000; and (d) the Borrower agrees to deliver to the Bank
         such information regarding the plans and progress of the Borrower
         and the Borrower's material suppliers and customers toward becoming
         Year 2000 Compliant as the Bank may reasonably request from time to
         time,including but not limited to any assessment by a third party of
         the Borrower's efforts to become Year 2000 Compliant; (e) at the
         Banks request from time to time,the Borrower shall order, obtain, and
         deliver to the Bank a copy of audits of the Borrower's plans and
         progress to become Year 2000 Compliant by January 1, 2000, and the
         Borrower shall permit the Bank and the Bank's representatives to
         conduct audits of the Borrower's operations for such purpose, and (f)
         the Borrower shall substantially complete implementation of the
         Borrower's plan and remediation of material Year 2000 problems by
         September 30, 1999. Breach of any representation, warranty or agreement
         in this paragraph, or failure of the Borrower or a significant portion
         of the Borrower's material suppliers and customers to become Year 2000
         Compliant by January 1, 2000 shall constitute an Event of Default
         hereunder.

         5. In this letter agreement:

                  a. "Borrowing Base" means the sum of (i) 80% of Eligible
         Accounts Receivable, plus (ii) the lesser of 50% of Eligible Inventory
         or $1,375,000.

                  b. "Capital Expenditures" means all expenditures for any
         assets, or for improvements, replacements, substitutions or additions
         therefor or thereto, which are capitalized on the balance sheet and
         which, in accordance with GAAP, are required to be included in or
         reflected by the property, plant or equipment or similar fixed asset
         account reflected in such balance sheet, and shall include without
         limitation capitalized lease obligations.

                  c. "Debt" means (i) all items of indebtedness or liability of
         the Borrower which in accordance with GAAP would be included in
         determining total liabilities as shown on the liabilities side of the
         Borrower's balance sheet on the date as of which Debt is to be
         determined, plus (ii) indebtedness secured by any mortgage, pledge, hen
         or security interest on property of the Borrower, whether or not the
         indebtedness secured thereby shall have been assumed, plus (iii)
         guaranties, endorsements (other than for purposes of collection in the
         ordinary course of business) and other contingent obligations of the
         Borrower in respect of, or to purchase or otherwise acquire
         indebtedness of others.

                  d. "EBITDA" means for any period of determination, the net
         income of the Borrower for such period plus (i.) deductions for
         Interest Expense, income taxes, depreciation and amortization for such
         period, minus (ii) extraordinary income and gains (losses) on sales of
         assets during such period, all as determined in accordance with GAAP.



                                       5
<PAGE>

                  e. "Eligible Accounts Receivable" means only such accounts
         receivable of the Borrower as the Bank, in its sole discretion, shall
         deem eligible. Without limiting the discretion of the Bank to consider
         any account receivable not to be an Eligible Account Receivable, and by
         way of example only of the types of accounts receivable that the Bank
         will consider not to be Eligible Accounts Receivable, notwithstanding
         any earlier classification of eligibility, the following accounts
         receivable shall not be considered Eligible Accounts Receivable: (i)
         any account receivable which is not paid in full within 90 days after
         it is created; (ii) any account receivable as to which any warranty is
         breached; (iii) any account receivable as to which the account debtor
         or other obligor disputes liability or makes any claim; (iv) any
         account receivable owed by any officer, director or shareholder of the
         Borrower or any of their relatives or any partnership, corporation,
         association, joint venture or other business entity wholly or partly
         owned or controlled directly or indirectly by the Borrower or any of
         them or any of their relatives; (v) any account receivable owed by any
         person as to whom a petition in bankruptcy or other application for
         relief is filed under any bankruptcy, reorganization, receivership,
         moratorium, insolvency or s law; (vi) any account receivable owed by
         any person who makes an assignment for the benefit of creditors,
         becomes insolvent, fails, suspends business, or goes out of business;
         (vii) any account receivable owed by the United States government or
         any agency of the United States government; (viii) any account
         receivable owed by any person if 10% or more in amount of the accounts
         receivable owed by such person to the Borrower are considered
         ineligible; (ix) consignment receivables; (x) bonded receivables; (xi)
         any account receivable constituting a retainage; (xii) any account
         receivable for goods which have not been shipped or work which has not
         been fully performed; (xiii) any account receivable owed by any person
         outside the United States of America, except account debtors approved
         in writing by the Bank (approved foreign account debtors are described
         on Exhibit B) ; (xiv) any account receivable owed by any person with
         whose creditworthiness the Bank becomes dissatisfied; and (xv) any
         account receivable in which the Bank does not have a perfected security
         interest constituting a first hen. In the event the Borrower owes any
         amount to any person that owes an account receivable to the Borrower,
         such amount owed by the Borrower shall be deducted from that portion of
         the account receivable which would otherwise qualify as an Eligible
         Account Receivable and only the difference thereof shall be considered
         an Eligible Account Receivable. No account receivable which does not
         qualify as an Eligible Account Receivable shall be considered an
         Eligible Account Receivable unless the Bank, upon the written request
         of the Borrower, states in writing that such account receivable is to
         be considered an Eligible Account Receivable.

                  f. "Eligible Inventory" means the lesser of cost or fair
         market value of only such raw materials inventory and finished goods
         inventory of the Borrower as the Bank, in its sole discretion, shall
         deem eligible. Without limiting the discretion of the Bank to consider
         any inventory not to be Eligible Inventory, notwithstanding any earlier
         classification of eligibility, the following inventory shall not be
         considered Eligible Inventory: (i) any inventory which does not
         constitute finished goods, or which does not constitute raw materials
         that are to be used or consumed by the Borrower in the normal course of
         its business in the processing of such raw materials into finished
         goods which, upon completion, will constitute Eligible Inventory; (ii)
         any inventory which does not


                                       6
<PAGE>

         meet all standards imposed by any governmental agency; (iii) any
         inventory which is not located in the United States of America; (iv)
         any inventory which is obsolete, or which is not usable by the
         Borrower in the normal course of its business; (v) any inventory
         which is on consignment to or from any other person, or which has been
         sold or otherwise delivered, transferred or conveyed to any other
         person, or which is subject to any bailment or lease; (vi) any finished
         goods inventory which is not held for sale by the Borrower in the
         normal course of its business, or which is not saleable by the Borrower
         in the normal course of its business; and (vii) any inventory in which
         the Bank does not have a perfected security interest constituting a
         first lien.

                  g. "Event of Default" means any default or event of default
         under any existing or future note or other agreement of the Borrower
         with the Bank.

                  h. "GAAP" means generally accepted accounting principles
         consistently applied. Except as otherwise approved by the Bank in
         writing, all financial reporting, financial record keeping, and
         financial calculations in connection with this letter agreement shall
         be made on the basis of accounting principles, methods, elections and
         estimates that are consistent and that are consistent with the
         accounting principles, methods, elections and estimates used in the
         last annual financial statements of the Borrower delivered by tie
         Borrower to the Bank before or upon the execution of this letter
         agreement, and that fairly present the financial condition or results
         of operations for the period then ended.

                  i.       "Tangible Net Worth" means the difference of:

                           (i) the tangible assets of the Borrower which, in
                           accordance with GAAP, are tangible assets, after
                           deducting adequate reserves in each case where, in
                           accordance with GAAP, a reserve is proper, minus

                           (ii)  all Debt of the Borrower;

provided, that (A) inventory shall be taken into account on the basis of the
cost or current market value, whichever is lower, (B) in no event shall there be
included as such tangible assets patents, trademarks, tradenames, copyrights,
licenses, good will, memberships, or treasury stock or any securities or debt of
the Borrower, or any officer, director, employee, agent, shareholder or
affiliate of the Borrower, or any officer, director, employee, agent,
shareholder or affiliate of any shareholder or affiliate of the Borrower, or any
other debt or securities unless the same are readily marketable in the United
States of America, (C) securities included as such tangible assets shall be
taken into account at their current market price or cost, whichever is lower,
and (D) any write-up in the book value of any assets shall not be taken into
account.

         6. In addition to all other defaults and events of default, each of the
following events shall constitute a default and an event of default under each
of the Borrower's existing and future notes and other agreements with the Bank:
The Borrower's failure to comply with any provision of this letter agreement;
Jeff O'Dell is no longer the President of the Borrower and a collateral


                                       7
<PAGE>

survey prepared by an outside firm and acceptable to the Bank has not been
completed prior to December 31, 1999 at the Borrower's expense.

         7. The Borrower consents to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy relating in any way to this letter agreement or to any
transaction or matter relating to this letter agreement, waives any argument
that venue in such forums is not convenient, and agrees that any litigation
initiated by the Borrower against the Bank relating in any way to this letter
agreement or to any transaction or matter relating to this letter agreement
shall be venued in either the Minnesota District Court of the county where
the Bank is located, or the United States District Court, District of
Minnesota.

         8. No provision of this letter agreement can be amended, modified,
waived or terminated, except by a writing executed by the Borrower and the
Bank. The Borrower shall pay to the Bank on demand all of the Bank's costs
and expenses, including but not limited to reasonable attorneys' fees and
legal expenses, in connection with this letter agreement, the writings
executed herewith, and the transactions described herein and therein. This
letter agreement shall bind and benefit the parties and their respective
successors and assigns; provided, the Borrower shall not assign any of its
rights or obligations under this letter agreement without the prior written
consent of the Bank, and any assignment in violation of this sentence shall
be null and void. This letter agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.

         9. This letter agreement supersedes and replaces all prior commitment
letters, proposal letters, term sheets, and other statements of loan terms
issued by the Bank to the Borrower, and all such letters and term sheets are
terminated.

Sincerely,

MARQUETTE CAPITAL BANK, N.A.


By___________________________
    Ryan McKinney
    Title:  Vice President

         The Borrower agrees to this letter agreement.



                                       8
<PAGE>

         THE BORROWER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE
BORROWER HAS READ ALL OF THIS LETTER AGREEMENT AND UNDERSTANDS ALL OF THE
PROVISIONS OF THIS LETTER AGREEMENT.


         Executed as of November 4, 1999.



By_________________________________
    Tom C. Velin
    Title:  Chief Financial Officer









































                                        9
<PAGE>



                                    EXHIBIT A
                     BORROWER: AUGUST TECHNOLOGY CORPORATION
                BORROWER BASE AND COVENANT COMPLIANCE CERTIFICATE


         I,____________________the___________________________ of August
Technology Corporation, a corporation (the "Borrower"), pursuant to the
letter agreement dated November 4, 1999 (the "Agreement"), hereby certify to
Marquette Capital Bank, N.A. (the "Bank") as follows:

BORROWING BASE

         As of the close of business on______________ , the Borrowing Base
and the unpaid principal balance of the Revolving Note were as follows:
<TABLE>
<S>      <C>                        <C>                                                <C>
1.       Accounts Receivable                                                            $__________________(1)

2.       Less:  Ineligibles
                  Over 90 days      $___________
                  10% Rule          $___________
                  Other Ineligibles $___________
                  Total Ineligibles $___________                                        $__________________(2)

3.       Eligible Accounts Receivable (1 minus 2)                                       $__________________(3)

4.       80% of Line 3                                                                  $__________________(4)

5.       Eligible Inventory                                                             $__________________(5)

6.       Lesser of 50% of Line 5 or $1,375,000                                          $__________________(6)

7.       Borrowing Base (4 plus 6)                                                      $__________________(7)

8.       Credit Limit (lesser of $2,750,000                                             $__________________(8)
         or Line 7)

9.       Unpaid Principal Balance of                                                    $__________________(9)
         Revolving Note

10.      Outstanding Amount of Letters of Credit                                        $__________________(10)

11.      Availability or (Shortfall) (8 minus 9 minus 10)                               $__________________(11)
</TABLE>

FINANCIAL COVENANTS

As of the dose of business on_________________, the following amounts and
ratios were true and correct:


                                       10
<PAGE>

<TABLE>
<CAPTION>

1.       CAPITAL EXPENDITURES IN FISCAL YEAR ENDING
         <S>     <C>                                                                <C>
         a.       Actual Capital Expenditures                                       $____________________

         b.       Maximum Amount                                                    $      750,000

2.       TANGIBLE NET WORTH

         a.       Actual Tangible Net Worth                                         $____________________

         b.       Minimum Tangible Net Worth                                        $    2,750,000

3.       RATIO OF DEBT TO TANGIBLE NET WORTH

         a.       Debt                                                              $____________________

         b.       Tangible Net Worth                                                $____________________

         c.       Actual Ratio of Debt to Tangible Net Worth                         _________to 1

         d.       Maximum Ratio                                                          1.50 to 1

4.       MINIMUM EBITDA:

         a.       Actual EBITDA 12/31/98 - 9/30/99                                  $____________________
                           Minimum EBITDA required                                  $    250,000

         b.       Actual EBITDA 12/31/98 - 12/31/99                                 $____________________
                           Minimum EBITDA required                                  $    350,000

         c.       Actual EBITDA 12/31/99 - 3/31/00                                  $____________________
                           Minimum EBITDA required                                  $    150,000

</TABLE>

         AS OF THE DATE OF THIS CERTIFICATE, NO EVENT HAS OCCURRED WHICH
CONSTITUTES AN EVENT OF DEFAULT AS DEFINED IN THE AGREEMENT.


Date of Certificate:___________________________________


                                                   _________________________
                                                   Signature


                                       11

<PAGE>

                                    EXHIBIT B

                     BORROWER: AUGUST TECHNOLOGY CORPORATION
                        APPROVED FOREIGN ACCOUNT DEBTORS

                              MARUBENI CORPORATION
                              METRON TECHNOLOGY LTD









                                       12

<PAGE>

[LOGO]  MARQUETTE CAPITAL BANK -- AMENDMENT TO
                       LETTER AGREEMENT


This Agreement is made as of this 10 day of March 2000, by and between
Marquette Capital Bank, N.A., a national banking association, having its
office at 60 South Sixth Street, Minneapolis, MN (the "Bank") and August
Technology Corporation, a corporation, (the "Borrower").

                                    RECITALS

A.  The Borrower executed and delivered to the Bank that certain promissory
    Note, dated November 4, 1999, in the original principal amount of
    2,750,000.00 (the "Note").

B.  The Borrower further executed and delivered to the Bank that certain
    Letter Agreement, dated November 4, 1999, (the "Letter Agreement")
    pursuant to which additional agreements were made between the Borrower and
    the Bank regarding advances under the Note.

C.  The Borrower has requested and the Bank is willing to amend the Minimum
    EBITDA covenant as it appears in the Letter Agreement.

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:

The Borrower will not be required to obtain a Minimum EBITDA for the period
between 1/1/99 to 03/31/00.

The Letter Agreement is amended only to the extent necessary to reflect the
changes set forth herein.

IN WITNESS WHEREOF, the parties hereto have each duly executed this Amendment
effective as of the day and year first above written.

MARQUETTE CAPITAL BANK, N.A.                     AUGUST TECHNOLOGY CORPORATION


By /s/ Ry McKinney                               By /s/ [ILLEGIBLE]
  -----------------------------                    ----------------------------
 Its    VP                                        Its        CFO
    ---------------------------                      --------------------------



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>15
<DESCRIPTION>EXHIBIT 10.11
<TEXT>

<PAGE>

                                                                   Exhibit 10.11

                 MARQUETTE CAPITAL BANK, N. A. - PROMISSORY NOTE


$2,750,000.00

No. 418100000071                                         Minneapolis, Minnesota
Maker:  AUGUST TECHNOLOGY CORPORATION                    Date: November 4, 1999


         FOR VALUE RECEIVED, the Maker promises to pay to the order of Marquette
Capital Bank, N.A. (the "Bank"), at its office Minneapolis, Minnesota, or at
such other place as any present or future holder of this Note may designate from
time to time, the principal amount of Two Million Seven Hundred and Fifty
Thousand Dollars, ($2,750,000.00), or so much thereof as is advanced and remains
outstanding as shown in the records of the holder of this Note, plus interest
thereon from the date on which the same is advanced until this Note is fully
paid, computed on the basis of the actual number of days elapsed and a 360-day
year.

INTEREST:         The interest raw under this Note is:

         A variable rate that shall always be 2.75% per annum more than the
         prior month average of the 30 day LIBOR rate as published in The Wall
         Street Journal, as determined by the holder of this Note.

If the interest rate under this Note is a variable rate based on an index rate
that is no longer available, the holder of this Note may select a comparable
index rate for use under this Note. If this Note provides for a variable
interest rate based on an index rate, the Bank may tend to its other customers
at rates that are equal to, more than, or less than the index rate.

PAYMENTS:         The Maker shall make the following payments of principal and
                  interest under this Note:

         Payments of accrued interest only on the last day of each month
         beginning November 30, 1999, and 1 final payment of the remaining
         unpaid balance of principal and accrued interest on May 31, 2000.

ADDITIONAL INTEREST:

         Notwithstanding the foregoing, after the occurrence of an Event of
         Default and until such Event of Default is cured, the interest rate
         under this Note shall automatically increase to a rate that is 2.0%
         per annum in excess of the rate otherwise in effect. If this Note
         provides for a variable interest rate, the increased rate shall
         continue to vary based on changes in the index rate.


                                       1
<PAGE>

LATE FEES:

         If any payment under this Note (including but not limited to any final
         payment, and any payment due by reason of default or acceleration) is
         more than 10 days past due, the Maker shall pay the holder of this
         Note a late fee equal to 5% of the past due amount.

PREPAYMENTS:

         All or any part of the unpaid balance of this Note may be prepaid at
         any time without penalty.

OTHER PROVISIONS:

         This Note evidences the Maker's obligation to repay one or more loans
         under a revolving line of credit.

         This Note is an amendment of the Maker's $1,750,000.00 promissory note
         to the Bank dated July 1, 1999.

         The extensions of credit under this Note are made under Section 47.59
         of the Minnesota Statutes.

         At the option of the holder of this Note, any payment under this Note
may be applied first to the payment of charges, fees and expenses (other than
principal and interest) under this Note and any other agreement or writing in
connection with this Note, second to the payment of interest accrued through the
date of payment, and third to the payments of principal under this Note in
inverse order of maturity. Also, at the option of the holder of this Note, if
there is any overpayment of interest under this Note, the holder may hold the
excess and apply it to future interest accruing under this Note. The Maker
represents, warrants, certifies to the Bank and agrees that all advances under
this Note shall be used solely for business purposes.

The occurrence of any of the following events shall constitute an Event of
Default under this Note:

         (i)      any breach or default in the payment of this Note; or
         (ii)     any breach or default under the terms of any other note,
                  obligation, mortgage, assignment, guaranty, other agreement,
                  or other writing heretofore, herewith or hereafter existing to
                  which the Maker or any endorser, guarantor or surety of this
                  Note or any other person or entity providing security for this
                  Note or for any guaranty of this Note is a party; or
         (iii)    the insolvency, death, dissolution, liquidation, merger or
                  consolidation of any such Maker, endorser, guarantor, surety
                  or other person or entity; or
         (iv)     any appointment of a receiver, trustee or similar officer of
                  any property of any such Maker, endorser, guarantor, surety or
                  other person or entity; or
         (v)      any assignment for the benefit of creditors of any such Maker,
                  endorser, guarantor, surety or other person or entity; or


                                       2
<PAGE>

         (vi)     any commencement of any proceeding under any bankruptcy,
                  insolvency, receivership, dissolution, liquidation or similar
                  law by or against any such Maker, endorser, guarantor, surety
                  or other person or entity; or
         (vii)    the sale, lease or other disposition (whether in one or more
                  transactions) to one or more persons or entities of all or a
                  substantial part of the assets of any such Maker, endorser,
                  guarantor, surety or other person or entity; or
         (viii)   any such Maker, endorser, guarantor, surety or other person or
                  entity takes any action to go out of business, or to revoke or
                  terminate any agreement, liability or security in favor of the
                  holder of this Note; or
         (ix)     the entry of any judgment or other order for the payment of
                  money in the amount of $100,000.00 or more against any such
                  Maker, endorser, guarantor, surety or other person or entity;
                  or
         (x)      the issuance or levy of any writ, warrant, attachment,
                  garnishment, execution or other process against any property
                  of any such Maker, endorser, guarantor, surety or other person
                  or entity; or
         (xi)     the attachment of any tax lien to any property of any such
                  Maker, endorser, guarantor, surety or other person or entity;
                  or
         (xii)    any statement, representation or warranty made by any such
                  Maker, endorser, guarantor, surety or other person or entity
                  (or any representative of any such Maker, endorser, guarantor,
                  surety or other person or entity) to the holder of this Note
                  at any time shall be incorrect or misleading in any material
                  respect when made; or
         (xiii)   there is a material adverse change in the condition
                  (financial or otherwise), business or property, of any such
                  Maker,endorser, guarantor, surety or other person or entity;
                  or
         (xiv)    the holder of this Note "in good faith believe that the
                  prospect of due and punctual payment or performance of this
                  Note or the due and punctual payment or performance of any
                  other note, obligation, mortgage, assignment, guaranty, or
                  other agreement heretofore, herewith or hereafter given to or
                  acquired by the holder of this Note in connection with this
                  Note is impaired.

         Upon the commencement of any proceeding under any bankruptcy law by or
against any such Maker, endorser, guarantor, surety or other person or entity,
the unpaid principal balance of this Note plus accrued interest and all other
charges, fees and expenses under this Note shall automatically become
immediately due and payable in full, without any declaration, presentment,
demand, protest, or other notice of any kind. Upon the occurrence of any other
Event of Default and at any time thereafter, the then holder of this Note may,
at its option, declare this Note to be immediately due and payable and
thereupon the unpaid principal balance of this Note plus accrued interest and
all other charges, fees and expenses under this Note shall automatically become
due and payable in full, without any presentment, demand, protest or other
notice of any kind.

         The Maker: (i) waives demand, presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment of this Note; (ii) agrees to
promptly provide the holder of this Note from time to time with the Maker's
financial statements and such other information respecting the financial
condition, business and property of the Maker as the holder of this Note may


                                       3
<PAGE>

request, in form and substance acceptable to the holder of this Note; (iii)
agrees that when or at any time after this Note becomes due the holder of this
Note may offset or charge the full amount owing on this Note against any account
then maintained by the Maker with the holder of this Note without notice; (iv)
agrees to pay on demand all fees, costs and expenses of the holder of this Note
in connection with this Note and any transactions and matters relating to this
Note, including but not limited to audit fees and expenses and reasonable
attorneys' fees and legal expenses, plus interest on such amounts at the rate
set forth in this Note; and (v) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related in any way to this Note or any transaction or matter
relating to this Note, waives any argument that venue in such forums is not
convenient, and agrees that any litigation initiated by the Maker against the
Bank or any other holder of this Note relating in any way to this Note or any
transaction or matter relating to this Note, shall be venued in either the
Minnesota District Court of the county where the Bank is located, or the United
States District Court, District of Minnesota. Interest on any amount under this
Note shall continue to accrue, at the option of the holder of this Note, until
such holder receives final payment of such amount in collected funds in form
and substance acceptable to such holder.

         No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of the holder of this Note shall be cumulative and may be
exercised singly, concurrently or successively. The Maker, if more than one,
shall be jointly and severally liable under this Note, and the term "Maker,"
wherever used in this Note, shall mean the Maker or any one or more of them. All
references in this Note to the holder of this Note shall mean the Bank and any
and all other present and future holders of this Note. This Note shall bind the
Maker and the heirs, representatives, successors and assigns of the Maker. This
Note shall benefit the holder of this Note and its successors and assigns. This
Note shall be governed by and construed in accordance with the internal laws of
the State of Minnesota (excluding conflict of law rules).

         THE MAKER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE MAKER
HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE.


ADDRESS OF MAKER:                           MAKER:
5237 Edina Industrial Blvd.
Edina, Minnesota 55439-2910                 AUGUST TECHNOLOGY CORPORATION

TELEPHONE:  (612) 820-0080


                                            By:
                                               ----------------------
                                               Tom C. Velin
                                               Title:  Chief Financial Officer


                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>16
<DESCRIPTION>EXHIBIT 10.12
<TEXT>

<PAGE>

                                                                   Exhibit 10.12

                                 LEASE AGREEMENT

THIS LEASE is executed this 18th day of August 1998, by and between DUKE REALTY
MINNESOTA, LLC, Minnesota limited liability company (`Landlord'), and AUGUST
TECHNOLOGY CORPORATION, a Minnesota corporation (`Tenant').

                                   WITNESSETH:

                          ARTICLE I - LEASE OF PREMISES

         SECTION 1.01.  BASIC LEASE PROVISIONS AND DEFINITIONS.

A.       Leased Premises Address: 5237-45 Edina Industrial Boulevard, Edina,
         Minnesota 55439 (the "Building"); located in Pakwa Business Center I
         (the "Park,);

B..      Rentable Area:  approximately 14,148 square feet;

         Landlord shall use commercially reasonable standards, consistently
         applied, in determining the Rentable Area and the rentable area of the
         Building. The Rentable Area shall include the area within the Leased
         Premises plus a pro rata portion of the area covered by the common
         areas within the Building. Landlord's determination of Rentable Area
         made in good faith as set forth above shall conclusively be deemed
         correct for all purposes hereunder, including without limitation the
         calculation of Tenant's Proportionate Share and Tenant's Minimum Annual
         Rent. Landlord hereby agrees that the Rentable Area of the Building
         shall not be increased or decreased by more than ten percent (10%).

C.       Tenant's Proportionate Share:  37.04%;

D.       Minimum Annual Rent:

<TABLE>
                <S>                                  <C>
                 08/15/98- 08/31/98                   $ 4,007.07 (17 days)
                 09/01/98 - 08/31/00                  $ 87,684.60 per year
                 09/01/00 - 09/30/00                  $ 7,307.05 (1 month)
                 10/01/00 - 09/30/03                  $ 90,006.84 per year;

</TABLE>

E.       Monthly Rental Installments:

<TABLE>
                <S>                                  <C>
                 08/15/98 - 08/31/98                  $ 4,007.07 (17 days)
                 09/01/98 - 09/30/00                  $ 7,307.05 per month
                 10/01/00 - 09/30/03                  $ 7,500.57 per month;

</TABLE>
F.       Term:  Five (5) years, one (1) month and seventeen (17) days;

G.       Target Commencement Date:  September 1, 1998;

H.       Security Deposit:  None;

<PAGE>

I.       Guarantor:  None;

J.       Broker: Duke Realty Services Limited Partnership representing Landlord;
         Duke Realty Services Limited Partnership will not share the broker's
         compensation with other brokers who may represent Tenant.

K.       Permitted Use; Office, assembly, warehousing and distribution,
         including office, design, marketing, assembly, warehousing, storage and
         distribution of automated inspection equipment for the semiconductor
         industry.

L.       Addresses for notices:

         Landlord:         Duke Realty Minnesota, LLC
                           856 Fifth Street South
                           Hopkins, M 55343-7750

         Tenant:           August Technology Corporation
                           5237 Edina Industrial Boulevard
                           Edina, MN 55439

         Address for rental and other payments:

                           Duke Realty Minnesota, LLC
                           NW 7210
                           P.O. Box 1450
                           Minneapolis, MN 55485-7210

         SECTION 1.02. LEASED PREMISES. Landlord hereby leases to Tenant and
Tenant leases from Landlord, subject to all of the terms and conditions set
forth herein, that portion of the Building described in the Basic Lease
Provisions and outlined on EXHIBIT A attached hereto (the "Leased Premises").
Landlord also grants to Tenant, together with the rights granted from time to
time by Landlord to other tenants and occupants of Landlord's premises in common
with Tenant, the nonexclusive right to use the common parking area adjoining the
Building.

                         ARTICLE 2 - TERM AND POSSESSION

         SECTION 2.01. TERM. The term of this Lease ("Lease Term") shall be the
period of time specified in the Basic Lease Provisions and shall commence on (i)
the Target Commencement Date described in the Basic Lease Provisions; or (ii)
such later date as the tenant finish improvements to be constructed by Landlord
in the Leased Premises pursuant to Section 2.02 hereof are Substantially
Completed (as hereinafter defined), provided, however, that such date shall not
be extended as a result of any Tenant Caused Delays (as hereinafter defined).
Substantial Completion shall mean the date on which the tenant finish
improvements to be constructed by Landlord have been completed in accordance
with Exhibit B subject only to minor punchlist items of work which do not
substantially interfere with Tenant's use of the Leased Premises `Tenant Caused
Delay, shall mean any delay caused by or resulting from the following or any
combination thereof: (i) any change orders requested by Tenant; (ii) failure of
Tenant to timely or properly arrange its furnishings or be present for any
scheduled walk-


                                       2
<PAGE>

throughs of the Leased Premises; or (iii) failure of Tenant to
cooperate with Landlord and respond promptly to any reasonable request of
Landlord. Upon delivery of possession of the Leased Premises to Tenant, Tenant
shall execute a letter of understanding acknowledging (i) the Commencement Date
of this Lease, and (ii) that Tenant has accepted the Leased Premises for
occupancy and that the condition of the Leased Premises (including any tenant
finish improvements constructed thereon) and the Building was at the time
satisfactory and in conformity with the provisions of this Lease in all
respects, except for (i) any patent defects as to which Tenant shall give
written notice to Landlord within thirty (30) days after such delivery, and (ii)
any latent defects as to which Tenant shall give written notice to Landlord
within twelve (12) months after such delivery. Landlord shall promptly
thereafter correct all such defects. Such letter of understanding shall become a
part of this Lease. If Tenant takes possession of and occupies the Leased
Premises, and does not execute the letter described above within ten (10)
business days after delivery of the Leased Premises, Tenant shall be deemed to
have accepted the Leased Premises as described above, even though Tenant may not
have executed the letter of understanding.

         SECTION 2.02. CONSTRUCTION OF TENANT IMPROVEMENTS. Tenant has
personally inspected the Leased Premises and accepts the same "as is" without
representation or warranty by Landlord of any kind and with the understanding
that Landlord shall have no responsibility with respect thereto except to
construct in a good and workmanlike manner the improvements in the Leased
Premises in accordance with Tenant's plans and specifications which shall be
mutually agreed upon by both Landlord and Tenant and attached hereto as Exhibit
B in an amount not to exceed Twenty-seven Thousand Three Hundred Forty-six
Dollars ($27,346.00) (-Landlord's Allowance') and except as provided in Section
2.01. Tenant hereby acknowledges and agrees that all costs in excess of
Landlord's Allowance will be (i) paid by Tenant to Landlord within thirty (30)
days of Tenant's receipt of Landlord's invoice therefor; or (ii) amortized at an
interest rate of eleven percent (11%) per annum and paid by Tenant as Additional
Rent over the Lease Term. Notwithstanding anything contained herein to the
contrary, Landlord agrees that, at Landlord's sole cost and expense (and without
deduction from Landlord's Allowance), Landlord shall repair the existing defect
in floor elevation rise within the Leased Premises.

         In addition, Landlord and Tenant hereby agree that Landlord will not be
responsible for removing the existing scissor jack lift in the Leased Premises
(the `Lift') and Tenant shall have the right, at Tenant's sole cost and expense,
to remove the Lift, provided that Tenant promptly repairs any damage caused by
such removal and restores the Leased Premises to its prior condition. In the
event Tenant elects not to remove the Lift, Tenant shall have no liability or
responsibility to ensure that the Lift is operational at the end of the Lease
Term.

         Landlord hereby agrees that the tenant finish improvements to be
constructed pursuant to Exhibit B shall be submitted to four (4) contractors for
bids, including one (1) contractor selected by Tenant. Landlord and Tenant shall
thereafter work together in good faith and in a reasonable manner to select the
contractor to perform such work, based on price, quality, delivery and other
reasonable factors. Landlord shall keep Tenant involved in the selection
process, but Landlord shall have the ultimate right to select the contractor
based on its reasonable evaluation of the factors set forth above. There shall
be d presumption that the lowest bid will be selected, unless outweighed by
other factors. Landlord agrees to warrant all work performed on the tenant
finish


                                       3
<PAGE>

improvements within the Leased Premises pursuant to EXHIBIT B for a period of
one (1) year from the Commencement Date.

         SECTION 2.03. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to
re-enter the Leased Premises without terminating this Lease, Tenant shall
immediately surrender the Leased Premises to Landlord, in broomclean condition
and in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair. Tenant shall also remove its
personal property, trade fixtures and any of Tenant's alterations (excluding the
initial tenant finish improvements as set forth in EXHIBIT B) designated by
Landlord at the time Landlord gives its consent to said alteration; promptly
repair any damage caused by such removal; and restore the Leased Premises to the
condition existing prior to the installation of the items so removed. Landlord's
work pursuant to Section 2.02 herein, shall not be considered a Tenant
alteration and, therefore, shall not be removed by Tenant. If Tenant fails to do
so, Landlord may restore the Leased Premises to such condition at Tenant's
expense, and Landlord may cause all of said property to be removed at Tenant's
expense, and Tenant hereby agrees to pay all the costs and expenses thereby
reasonably incurred. All property of Tenant which is not removed within ten (10)
days following Landlord's written demand therefor shall be conclusively deemed
to have been abandoned by Tenant, and Landlord shall be entitled to dispose of
such property without thereby incurring any liability to Tenant. The provisions
of this section shall survive the expiration or other termination of this Lease.
Notwithstanding anything contained herein to the contrary, in the event Tenant
installs or causes Landlord to install HEPA filters paid for by Tenant (the
"Filters') in the Leased Premises, Tenant shall have the right to remove the
Filters upon expiration or earlier termination of the Lease Term, provided
Tenant is not in default hereunder, and further provided that Tenant replaces
all ceiling tiles and professionally-and appropriately terminates all wiring
associated with the Filters.

         SECTION 2.04. HOLDING OVER. It Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at 150% of the Monthly Rental Installment in
effect at the end of the Lease Term (plus Additional Rent as provided in Article
3 hereof), and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease,
and Tenant shall vacate and surrender the Leased Premises to Landlord upon
Tenant being given thirty (30) days prior written notice from Landlord to
vacate.

                                ARTICLE 3 - RENT

         SECTION 3.01. BASE RENT. Tenant shall pay to Landlord as Minimum Annual
Rent for the Leased Premises the sum specified in the Basic Lease Provisions,
payable in equal consecutive Monthly Rental Installments, in advance, without
deduction or offset except as otherwise specifically provided herein, beginning
on the Commencement Date and on or before the first day of each and every
calendar month thereafter during the Lease Term. The Monthly Rental Installment
for partial calendar months shall be prorated based on the number of days during
the month this Lease was in effect in relation to the total number of days in
such month.


                                       4
<PAGE>

         SECTION 3.02. ADDITIONAL RENT. In addition to the Minimum Annual Rent
specified in this Lease, Tenant agrees to pay to Landlord for each calendar year
during the Lease Term, as "Additional Rent," Tenant's Proportionate Share (as
described in the Basic Lease Provisions) of all costs, charges and expenses
incurred by Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and appurtenant common areas (collectively "Common
Area Charges").

         "Operating Expenses" shall mean all of Landlord's expenses for
operation, repair, replacement and maintenance as necessary to keep the Building
and appurtenant common areas in good order, condition and repair (including all
additional direct costs and expenses of operation and maintenance of the
Building which Landlord reasonably determines it would have paid or incurred
during such year if the Building had been ninety-five percent (95%) occupied),
including, but not limited to, service and other charges incurred in the
operation and maintenance of the electrical systems, heating, ventilation and
air conditioning systems and sprinkler and plumbing systems; reasonable and
customary management fees; utilities; stormwater discharge fees; license,
permit, inspection and other fees; environmental and pollution testing and
consultation fees related thereto; fees and assessments imposed by any covenants
or owners' association provided that costs are equitably shared with other
property owners subject to such covenants or owners, association; tools and
supplies; security services; insurance premiums; and maintenance and repair of
the driveways and parking areas (including snow removal), exterior lighting
facilities, landscaped areas, walkways, curbs, drainage strips, sewer lines,
exterior walls, foundation, structural frame, roof and gutters. Capital
expenditures shall be amortized, together with interest at the rate of twelve
percent (12%) per annum on the unamortized balance, over the useful life thereof
as reasonably determined by Landlord and in accordance with generally accepted
accounting principles.

         "Operating Expenses' shall not include (i) the cost of repairs,
maintenance or replacements of the foundation, exterior and load-bearing walls
of the Building, (ii) costs of utilities separately billed to and paid by other
tenants in the Building, (iii) principal or interest payments on loans secured
by mortgages on the Building or any part thereof, (iv) the cost of any special
service provided to a tenant of the Building which is not provided generally to
all tenants of the Building, (v) costs and expenses incurred in connection with
leasing space in the Building, including, but not limited to, leasing
commissions, advertising and promotional expenses, legal fees for preparation of
leases, court costs and legal fees incurred to enforce the obligations of other
tenants under leases of the Building, (vi) costs recovered by Landlord pursuant
to its insurance policies, (vii) costs due to Landlord's default under this
Lease and (viii) costs due to the gross negligence of Landlord, its employees,
agents, contractors and assigns.

         "Real Estate Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Building and
common areas (or against Landlord's business of leasing the Building to the
extent in lieu of other real estate taxes) by any authority having the direct or
indirect power to tax, together with reasonable costs and expenses of contesting
the validity or amount of Real ` Estate Taxes. If the property is not separately
assessed, then Tenant's liability shall be an equitable proportion of the real
estate taxes for all of the land and improvements included within the tax parcel
assessed.


                                       5
<PAGE>

         Tenant shall pay, prior to delinquency, all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Leased Premises or elsewhere. Tenant shall
cause such trade fixtures, furniture, equipment and all other personal property
to be assessed and billed separately from the Leased Premises.

         SECTION 3.03. PAYMENT OF ADDITIONAL RENT. Landlord shall be entitled to
estimate the total amount of Additional Rent to be paid by Tenant during each
calendar year of the Lease Term, whereupon commencing on the Commencement Date,
Tenant shall pay to Landlord each month, at the same time the Monthly Rental
Installment is due, an amount equal to one-twelfth (1/12) of the estimated
Additional Rent for such year. Within a reasonable time after the end of each
calendar year, Landlord shall submit to Tenant a statement of the actual amount
of such Additional Rent and within thirty (30) days after receipt of such
statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year, or in the event of overpayment,
Landlord shall credit the amount of such overpayment toward the next
installments of Minimum Rent. To the extent that the Lease Term includes any
partial calendar years, the Additional Rent included in this section shall be
prorated based upon the number of days in such calendar year included within the
Lease Term divided by 360.

         SECTION 3.04. LATE CHARGES. Tenant acknowledges that Landlord shall
incur certain additional unanticipated costs and expenses, including
administrative costs and attorneys' fees, if Tenant fails to timely pay any
payment required hereunder. Therefore, as compensation for such additional
expenses, and in addition to the other remedies available to Landlord hereunder,
if any payment of Minimum Rent or any other sum or charge required to be paid by
Tenant to Landlord hereunder shall become overdue for a period of ten (10) days,
a late charge of five percent (5%) of the payment so due shall be paid by Tenant
as additional rent. In addition, if Tenant fails to pay within fifteen (15) days
after the same is due and payable any sum or charge required to be paid by
Tenant to Landlord, such unpaid amount shall bear interest from the due date
thereof to the date of payment at the rate of fifteen percent (15%) per annum.


                          ARTICLE 4 - SECURITY DEPOSIT

         Tenant, upon execution of this Lease, shall deposit with Landlord the
Security Deposit as specified in the Basic Lease Provisions as security for the
full and faithful performance by Tenant of all of the terms, conditions and
covenants contained in this Lease on the part of Tenant to be performed,
including but not limited to the payment of the rent. In the event of a default
by Tenant of any term, condition or covenant herein contained beyond any
applicable grace or cure period, Landlord may apply all or any part of such
security deposit to curing all or any part of such default; and Tenant agrees to
promptly, upon demand, deposit such additional sum with Landlord as may be
required to maintain the full amount of the security deposit. All sums held by
Landlord pursuant to this section shall be without interest. At the end of the
Lease Term, provided that there is then no uncured default, Landlord shall
return the security deposit to Tenant.


                                       6
<PAGE>

                                 ARTICLE 5 - USE

         SECTION 5.01. USE OF LEASED PREMISES. The Leased Premises are to be
used by Tenant solely as provided in the Basic Lease Provisions, and for no
other purposes without the prior written consent of Landlord.

         SECTION 5.02. COVENANTS OF TENANT Regarding Use. In connection with its
use of the Leased Premises, Tenant agrees to do the following:

         (a) Tenant shall (i) use and maintain the Leased Premises and conduct
its business thereon in a safe and lawful manner, (ii) comply with all laws,
rules, regulations, orders, ordinances, directions and requirements of any
governmental authority or agency, now in force or which may hereafter be in
force, including without limitation those which shall impose upon Landlord or
Tenant any duty with respect to or triggered by a change in the use or
occupation of, or any improvement or alteration to, the Leased Premises,
provided, however, that Landlord shall be responsible for performing any
alterations or improvements to the Leased Premises that pertain solely to the
use of the Leased Premises for general office and warehouse use and not to the
particular business or activities of Tenant, the costs of which shall be treated
as Operating Expenses in accordance with Section 3.02 hereof, and (iii) comply
with and obey all reasonable directions of the Landlord, including any Rules and
Regulations that may be adopted by Landlord from time to time, provided Tenant
is given prior written notice of the same.

         (b) Tenant shall not (i) use the Leased Premises for any unlawful
purpose or act, (ii) commit or permit any waste or damage to the Leased
Premises, (iii) store any inventory, equipment or any other materials outside
the Leased Premises, or (iv) do or permit anything to be done in or about the
Leased Premises or appurtenant common areas which constitutes a nuisance or
which will in any way obstruct or interfere with the rights of other tenants or
occupants of the Building or injure or annoy them. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the Building of its lease or of any Rules and Regulations but shall use
commercially reasonable efforts to enforce such leases and Rules and Regulations
against other tenants or occupants of the Building.

         (c) Tenant shall not overload the floors of the Leased Premises as to
cause damage to the floor. Landlord represents that the floor load capacity is
750 pounds per square inch. Tenant represents that its forklift with maximum
load is equal to 300 pounds per square inch. All damage to the floor structure
or foundation of the Building due to improper positioning or storage of items or
materials shall be repaired by Landlord at the sole expense of Tenant, who shall
reimburse Landlord immediately therefor upon demand.

         (d) Tenant shall not use the Leased Premises, or allow the Leased
Premises to be used, for any purpose or in any manner which would invalidate any
policy of insurance now or hereafter carried on the Building or increase the
rate of premiums payable on any such insurance policy. Should Tenant fail to
comply with this covenant, Landlord may, at its option, require Tenant to stop
engaging in such activity or to reimburse Landlord as Additional Rent for any
increase in premiums charged during the term of this Lease on the insurance
carried by Landlord on the Leased Premises and attributable to the use being
made of the Leased Premises by Tenant.

         (e) Tenant may, at its own expense, erect a sign concerning its
business which shall be in keeping with the decor and other signs on the
Building, provided that such sign is first


                                       7
<PAGE>
approved by Landlord in writing. Landlord's approval, if given, may be
conditioned upon such criteria as Landlord deems appropriate to maintain the
area in a neat and attractive manner. Tenant agrees to maintain any sign in good
state of repair, and upon expiration of the Lease Term, Tenant shall promptly
remove the sign and repair any resulting damage to the Leased Premises or
Building.

         SECTION 5.03. LANDLORD'S RIGHTS REGARDING USE. In addition to the
rights specified elsewhere in this Lease, Landlord shall have the following
rights regarding the use of the Leased Premises or the appurtenant common areas
by Tenant, its employees, agents, customers and invitees, each of which may be
exercised without notice or liability to Tenant:

         (a) Landlord may install such signs, advertisements, notices or tenant
identification information as it shall reasonably deem necessary or proper.

         (b) Landlord shall have the right at any time to change or otherwise
alter the appurtenant common areas provided any change shall not diminish the
parking available for use by tenants or other occupants of the Building.
Landlord may control the appurtenant common areas in such manner as it deems
necessary or proper.

         (c) Landlord or Landlord's agent shall be permitted to inspect or
examine the Leased Premises at any reasonable time, upon reasonable advance
notice, and accompanied by a representative of Tenant provided Tenant makes such
representative reasonably available, except in the event of an emergency in
which case no notice or Tenant representative shall be required, and Landlord
shall have the right to make any repairs to the Leased Premises which are
necessary for its preservation; provided, however, that any repairs made by
Landlord shall be at Tenant's expense, except as provided in Section 7.01
hereof. If Tenant is not present to open and permit such entry into the Leased
Premises at any time when such entry is necessary or permitted hereunder,
Landlord and its employees and agents may enter the Leased Premises by means of
a master or pass key or otherwise, provided Landlord has used commercially
reasonable efforts to notify Tenant as required hereunder. Landlord shall incur
no liability to Tenant for such entry, nor shall such entry constitute an
eviction of Tenant or a termination of this Lease, or entitle Tenant to any
abatement of rent therefor.

                       ARTICLE 6 - UTILITIES AND SERVICES

         Tenant shall obtain in its own name and shall pay directly to the
appropriate supplier the cost of all utilities and services serving the Leased
Premises, including but not limited to: natural gas, electrical power,
telephone, janitorial service, refuse disposal and other utilities and services.
However, if any services or utilities are jointly metered with other property,
Landlord shall make a reasonable determination of Tenant's proportionate share
of the cost of such utilities and services and Tenant shall pay such share to
Landlord within fifteen (15) days after receipt of Landlord's written statement.
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service or other service furnished to the Leased
Premises; and no such failure or interruption shall entitle Tenant to terminate
this Lease or withhold sums due hereunder.


                                       8
<PAGE>

         Notwithstanding anything in this Lease to the contrary, Landlord shall
use commercially reasonable efforts to promptly restore utility service and in
the event restoration of service is within Landlord's control and Landlord
negligently fails to restore such service within a reasonable time, thereby
causing the Leased Premises to be rendered untenantable (meaning that Tenant is
unable to use such space in the normal course of its business) by Tenant for the
use permitted under this Lease for more than three (3) consecutive business days
after notice from Tenant to Landlord that such service has been interrupted and
a reasonable opportunity for Landlord to restore such service, Minimum Annual
Rent and Annual Rental Adjustment shall abate on a per them basis for each day
after such three (3) day period during which the Leased Premises remain
untenantable.

                       ARTICLE 7 - MAINTENANCE AND REPAIRS

         SECTION 7.01. LANDLORD'S RESPONSIBILITY. During the term of this Lease,
Landlord shall maintain in good condition and repair the electrical systems,
heating and air conditioning systems, sprinkler and plumbing systems, roof,
exterior walls, foundation and structural frame of the Building and the parking
and landscaped areas, the costs of which shall be included in Operating Expenses
except as otherwise provided in Section 3.02; provided, however, that to the
extent any of the foregoing items require repair because of the negligence,
misuse, or default of Tenant, its employees, agents, customers or invitees,
Landlord shall make such repairs at Tenant's expense.

         SECTION 7.02. ALTERATIONS. Tenant shall not permit structural or
non-structural alterations or additions in or to the Leased Premises unless and
until the plans have been approved by Landlord in writing. As a condition of and
at the time of such approval, Landlord may require Tenant to remove the
alterations and restore the Leased Premises upon termination of this Lease;
otherwise, all such alterations or improvements, except movable office furniture
and equipment and trade fixtures, shall become a part of the realty and the
property of Landlord, and shall not be removed by Tenant. If Landlord consents
to Tenant's performance of alterations or additions to the Leased Premises,
Tenant shall ensure that all alterations and improvements which are made or
necessitated thereby shall be made in accordance with all applicable laws,
regulations and building codes, in a good and workmanlike manner and in quality
equal to or better than the original construction of the Building. Landlord's
approval of the plans, specifications and working drawings for Tenant's
alterations shall create no responsibility or liability on the part of Landlord
for their completeness, design sufficiency, or compliance with all laws, rules
and regulations of governmental agencies or authorities. Tenant shall indemnify
and save harmless Landlord from all costs, loss or expense in connection with
any construction or installation except to the extent caused by Landlord's
negligence or intentional acts. No person shall be entitled to any lien directly
or indirectly derived through or under Tenant or through or by virtue of any act
or omission of Tenant upon the Leased Premises for any improvements or fixtures
made thereon or installed therein or for or on account of any labor or material
furnished to the Leased Premises or for or on account of any matter or thing
whatsoever; and nothing in this Lease contained shall be construed to constitute
a consent by Landlord to the creation of any lien. If any lien is filed against
the Leased Premises for work claimed to have been done for, or material claimed
to have been furnished to, Tenant, Tenant shall cause such lien to be discharged
of record by bonding over or otherwise posting reasonable security to protect
Landlord against loss within thirty (30) days after filing. Tenant shall
indemnify and save harmless Landlord from


                                       9
<PAGE>

all costs, losses, expenses, and attorneys' fees in connection with any
such lien. Notwithstanding anything contained herein to the contrary, Tenant
shall have the right, without Landlord's consent, and in compliance with all
other provisions of this section, to make any non-structural alterations to the
Leased Premises which do not materially impact the Building's mechanical or
electrical systems, do not require a building permit, and the aggregate cost of
which does not exceed Seven Thousand Dollars ($7,000.00) in any given year,
provided that Tenant gives Landlord fifteen (15) business days prior written
notice of any such alteration, along with copies of all plans and specifications
relating thereto, and provides Landlord with lien waivers for all work, labor
and services to be performed and materials to be furnished in connection with
such work.

                              ARTICLE 8 - CASUALTY

         SECTION 8.01. CASUALTY . In the event of total or partial destruction
of the Building or the Leased Premises by fire or other casualty, Landlord
agrees to promptly restore and repair the Leased Premises; provided, however,
that Landlord's obligation hereunder shall be limited to the reconstruction of
such of the tenant finish improvements as were originally required to be made by
Landlord, if any. Any insurance proceeds not used by Landlord in restoring or
repairing the Leased Premises shall be the sole property of Landlord. Rent shall
proportionately abate during the time that the Leased Premises or part thereof
are unusable because of any such damage thereto. Notwithstanding the foregoing,
if the Leased Premises are (i) so destroyed that they cannot be repaired or
rebuilt within one hundred eighty (180) days from the date on which the
insurance claim is adjusted; or (ii) destroyed by a casualty which is not
covered by the insurance required hereunder or, if covered, such insurance
proceeds are not released by any mortgagee entitled thereto or are insufficient
(excluding any deductible) to rebuild the Building and the Leased Premises;
then, in case of a clause (i) casualty, either Landlord or Tenant may, or, in
the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days
written notice to the other party, terminate and cancel this Lease; and all
further obligations hereunder shall thereupon cease and terminate. Landlord
hereby agrees to notify Tenant (i) within sixty (60) days of the date of the
casualty whether or not Landlord believes the Leased Premises can be repaired or
rebuilt within such one hundred eighty (180) day time period, and (ii) as soon
as reasonably possible in the event Landlord elects to terminate the Lease
pursuant to clause (ii) above.

         SECTION 8.02. FIRE AND EXTENDED COVERAGE INSURANCE. During the term of
this Lease, Landlord shall maintain fire and extended coverage insurance on the
Building, including the tenant finish improvements made by Landlord pursuant to
this Lease, but shall not protect Tenant's property on the Leased Premises; and,
notwithstanding the provisions of Section 9.01, Landlord shall not be liable for
any damage to Tenant's property, regardless of cause, including the negligence
of Landlord and its employees, agents, and invitees. Tenant hereby expressly
waives any right of recovery against Landlord (or any other tenant of the
Building) for damage to any property of Tenant located in or about the Leased
Premises, however caused, including the negligence of Landlord and its
employees, agents, and invitees; and, notwithstanding the provisions of Section
9.01 below, Landlord hereby expressly waives any rights of recovery


                                       10
<PAGE>

against Tenant for damage to the Leased Premises or the Building which is
insured against under Landlord's fire and extended coverage insurance. All
insurance policies maintained by Landlord or Tenant as provided in this Lease
shall contain an agreement by the insurer waiving the insurer's right of
subrogation against the other party to this Lease and agreeing not to acquire
any rights of recovery which the insured has expressly waived prior to loss.

                         ARTICLE 9 - LIABILITY INSURANCE

         SECTION 9.01. TENANT'S RESPONSIBILITY. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Building or the
appurtenant common areas, or (ii) the occurrence of any accident in or about the
Leased Premises or the appurtenant common areas, or (iii) any act or neglect of
Tenant or any other tenant or occupant of the Building or of any other person,
unless such damage, injury or death is directly and primarily the result of
Landlord's negligence or the negligence of its employees or agents; and Tenant
hereby releases Landlord from any and all liability for the same. Tenant shall
be liable for, and shall indemnify and defend Landlord and hold it harmless
from, any and all liability for (i) any act or neglect of Tenant and any person
coming on the Leased Premises by the license of Tenant, express or implied, (ii)
any damage to the Leased Premises caused by Tenant, its employees or agents,
subject to the waiver of rights set forth in Section 8.02, and (iii) any loss of
or damage or injury to any person (including death resulting therefrom) or
property occurring in, on or about the Leased Premises, regardless of cause,
except for any loss or damage from fire or casualty insured as provided in
Section 8.02 and except for that caused directly and primarily by Landlord's
negligence. Notwithstanding the foregoing, Tenant shall bear the risk of any
loss or damage to its property as provided in Section 8.02.

         SECTION 9.02. TENANT'S INSURANCE. Tenant, in order to insure against
the liabilities specified in this Lease, shall at all times during the term of
this Lease carry, at its own expense, one or more policies of general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:

A.       Worker's Compensation:  minimum statutory amount.

B.       Commercial General Liability Insurance, including blanket, contractual
         liability, broad form property damage, personal injury, completed
         operations, products liability, and fire damage: Not less than
         $1,000,000 Combined Single Limit for both bodily injury and property
         damage.

C.       Fire and Extended Coverage, Vandalism and malicious Mischief, and
         Sprinkler Leakage insurance, if applicable, for ninety-five percent
         (95%) of the cost of replacement of Tenant's property.

The insurance policy or policies shall name Landlord and Landlord's managing
agent and mortgagee (upon written request) as additional insureds on the
Worker's Compensation and Commercial General Liability Insurance policies
required above, and shall provide that they may not be cancelled on less than
thirty (30) days prior written notice to Landlord. Tenant shall furnish Landlord
with Certificates of insurance evidencing all required coverage. Should Tenant


                                       11
<PAGE>

fail to carry such insurance and furnish Landlord with such Certificates of
Insurance after a request to do so, Landlord shall have the right to obtain such
insurance and collect the cost thereof from Tenant as additional rent.

                           ARTICLE 10 - EMINENT DOMAIN

         If all or any substantial part of the Building or appurtenant common
areas shall be acquired by the exercise of eminent domain, Landlord may
terminate this Lease by giving written notice to Tenant within fifteen (15) days
after possession thereof is so taken. If all or any part of the Leased Premises
shall be acquired or if Tenant's access to the loading docks shall be obstructed
or more than fifteen percent (15%) of the parking spaces in existence on the
date of this Lease shall be acquired by the exercise of eminent domain in such a
manner that the Leased Premises shall become unusable by Tenant for the purpose
for which it is then being used, Tenant may terminate this Lease by giving
written notice to Landlord within fifteen (15) days after possession of the
Leased Premises or part thereof is so taken. Tenant shall have no claim against
Landlord on account of any such acquisition for the value of any unexpired lease
term remaining after possession of the Leased Premises is taken. All damages
awarded shall belong to and be the sole property of Landlord; provided, however,
that Tenant shall be entitled to any award expressly made to Tenant by any
governmental authority for the cost of or the removal of Tenant's stock,
equipment and fixtures and other moving expenses.

                      ARTICLE 11 - ASSIGNMENT AND SUBLEASE

         Tenant shall not assign this Lease or sublet the Leased Premises in
whole or in part without Landlord's prior written consent, which consent shall
not be unreasonably withheld, conditioned or, delayed. In the event of any
assignment or subletting, Tenant shall remain primarily liable to perform all of
the covenants and conditions contained in this Lease, including but not limited
to payment of Minimum Rent and Additional Rent as provided herein. The
acceptance of rent from any other person shall not be deemed to be a waiver of
any of the provisions of this Lease or to be a consent to the assignment of this
Lease or the subletting of the Leased Premises.

         Without in any way limiting Landlord's right to refuse to consent to
any assignment or subletting of this Lease, Landlord reserves the right to
refuse to give such consent if in Landlord's reasonable discretion and opinion
(i) the use of the Leased Premises is or will likely be materially adversely
affected; (ii) the business reputation of the proposed assignee or subtenant is
unacceptable in light of Landlord's or its affiliate's leasing standards for
similar properties owned by Landlord or its affiliate in the general vicinity of
the Leased Premises (or, in the event Landlord or its affiliate no longer owns
or manages any such similar properties, the reasonable standards utilized by
other similarly situated landlords for similar properties in the vicinity); or
(iii) the financial worth of the proposed assignee or subtenant is insufficient
to meet the obligations hereunder or is less than that of Tenant as of the date
of execution of this Lease. Landlord further expressly reserves the right to
refuse to give its consent to any subletting if the proposed rent is to be less
than the then current rent for similar premises in the Park under a similar
lease term, and in comparable condition. Landlord agrees to notify Tenant in
writing of the reasons for any refusal of consent hereunder. Tenant agrees to
reimburse Landlord for reasonable accounting and attorneys, fees incurred in
conjunction with the processing and


                                       12
<PAGE>

documentation of any such requested transfer, assignment, subletting or any
other hypothecation of this Lease or Tenant's interest in and to the Leased
Premises, which fees shall not exceed Five Hundred Dollars ($500.00) for any
proposed assignment or subletting.

                       ARTICLE 12 - TRANSFERS BY LANDLORD

         SECTION 12.01. SALE AND CONVEYANCE OF THE BUILDING. Landlord shall have
the right to sell and convey the Building at any time during the term of this
Lease, subject only to the rights of Tenant hereunder; and such sale and
conveyance shall operate to release Landlord from liability hereunder arising
after the date of such conveyance.

         SECTION 12.02. SUBORDINATION AND ESTOPPEL CERTIFICATE. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage; and the
recording of any such mortgage shall make it prior and superior to this Lease
regardless of the date of execution or recording of either document. Within ten
(10) business days following receipt of a written request from Landlord, Tenant
shall execute and deliver to Landlord, without cost:

         (a) any instrument which Landlord may deem necessary or desirable to
confirm the subordination of this Lease; provided that such agreement shall
contain a covenant of nondisturbance as described in subparagraph (c) below. If
Tenant fails or refuses to do so, Landlord may execute such instrument in the
name and as the act of Tenant.

         (b) an estoppel certificate in such form as Landlord may reasonably
request certifying (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification), (ii) the
date to which rent has been paid, (iii) that there are not, to Tenant's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed), and (iv) any other matters or state of facts reasonably required
respecting the Lease or Tenant's occupancy of the Leased Premises. Such estoppel
may be relied upon by Landlord and by any purchaser or mortgagee of all or any
part of the Building. Tenant's failure to deliver such statement within such
period shall be conclusive upon Tenant that this Lease is in full force and
effect and unmodified and that there are no uncured defaults in Landlord's
performance hereunder except for any defaults of which Landlord has actual
knowledge.

         (c) Notwithstanding the foregoing, if the mortgagee or anyone claiming
through the mortgagee shall take title to the Leased Premises through
foreclosure or deed in lieu of foreclosure, Tenant shall be allowed to continue
in possession of the Leased Premises as provided for in this Lease so long as
Tenant shall not be in default. Tenant shall, in the event any proceedings are
brought to foreclose any such mortgage, attorn to the purchaser upon any such
foreclosure and recognize such purchaser as the landlord under this Lease.
Landlord hereby represents to Tenant that, as of the date of execution of this
Lease, there are no mortgages or deeds of trust encumbering the Building.

         SECTION 12.03. LENDER'S RIGHTS. Landlord shall have the right, at any
time and from time to time, to notify Tenant in writing that Landlord has placed
a mortgage on the Building, specifying the identity of the Lender ("Lender").
Following receipt of such notice, Tenant agrees to give such Lender a copy of
any notice of default served by Tenant on Landlord. Tenant


                                       13

<PAGE>

further agrees that if Landlord fails to cure any default as provided in Section
13.03 herein, Lender shall have an additional five (5) days within which to cure
such default; provided, however, that if the term, condition, covenant or
obligation to be performed by Landlord is of such nature that the same cannot
reasonably be performed within such thirty-day period, such default shall be
deemed to have been cured if Lender commences such performance within said
five-day period and thereafter diligently completes the same.

                         ARTICLE 13 - DEFAULT AND REMEDY

         SECTION 13.01. DEFAULT. The occurrence of any of the following shall be
deemed an "Event of Default":

         (a) Tenant shall fail to pay any Monthly Rental Installment or
Additional Rent within ten (10) days after the same shall be due and payable, or
Tenant shall fail to pay any other amounts due Landlord from Tenant within ten
(10) days after the same, shall be due and payable.

         (b) Tenant shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of thirty (30)
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than thirty (30) days are reasonably
required to cure, then such default shall be deemed to have been cured if Tenant
commences such performance within said thirty day period and thereafter
diligently completes the required action within a reasonable time.

         (c) Tenant shall abandon the Leased Premises for any period, or fail to
occupy the Leased Premises or any substantial portion thereof for a period of
ninety (90) days.

         (d) All or substantially all of Tenant's assets in the Leased Premises
or Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency, or for reorganization or arrangement is
filed by or against Tenant (and Tenant fails to secure a stay or discharge
thereof within sixty (60) days thereafter); Tenant shall be insolvent and unable
to pay its debts as they become due; Tenant makes a general assignment for the
benefit of creditors; Tenant takes the benefit of any insolvency action or law;
the appointment of a receiver or trustee in bankruptcy for Tenant or its assets
if such receivership has not been vacated or set aside within thirty (30) days
thereafter; dissolution or other termination of Tenant's corporate charter if
Tenant is a corporation.

         SECTION 13.02. REMEDIES. Upon the occurrence of any Event of Default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law, any one or more of which may be exercised without further notice
to or demand upon Tenant:

         (a) Landlord may apply the security deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action, except to the extent caused by
Landlord's gross negligence.


                                       14
<PAGE>

         (b) Landlord may terminate this Lease or, without terminating this
Lease, terminate Tenant's right to possession of the Leased Premises as of the
date of such default, and thereafter (i) neither Tenant nor any person claiming
under or through Tenant shall be entitled to possession of the Leased Premises,
and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord shall be entitled to recover from Tenant the
present value of the amount of rent and other charges equivalent to rent
reserved in this Lease for the remainder of the Lease Term, less the present
value of the net amount of such rent and other charges for the remainder of the
Lease Term which Landlord determines could reasonably be recovered by Landlord
from reletting the Leased Premises under then-current and reasonably anticipated
market conditions, whereupon Tenant shall be obligated to pay the same to
Landlord, together with all loss or damage which Landlord may sustain by reason
of Tenant's default ("Default Damages"), which shall include without limitation
reasonable expenses of preparing the Leased Premises for re-letting, demolition,
repairs, tenant finish improvements, and brokers, and attorneys' fees, it being
expressly understood and agreed that the liabilities and remedies specified in
this subsection (b) shall survive the termination of this Lease. In the event of
any reletting which extends beyond the original term of this Lease, Tenant shall
pay only a prorated portion of the expenses of reletting attributable to the
original term of the Lease.

         (c) Landlord may, without terminating this Lease, reenter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
present value of the difference between the rent provided for herein and that
provided for in any lease covering a subsequent re-letting of the Leased
Premises, for the period which would otherwise have constituted the balance of
the Lease Term, together with all of Landlord's Default Damages.

         (d) Landlord may sue for injunctive relief or to recover damages for
any loss resulting from the breach.

         (e) In addition to the defaults and remedies described above, the
parties hereto agree that if Tenant defaults in the performance of any term or
condition of this Lease (excluding any default in the payment of rent) three (3)
or more times during any twelve (12) month period and Landlord has previously
given notice to Tenant of such defaults, regardless of whether such defaults are
ultimately cured, then such conduct shall, at Landlord's option, represent a
separate Event of Default.

         SECTION 13.03. LANDLORD'S DEFAULT AND TENANT'S REMEDIES. Landlord shall
be in default if it shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of thirty (30)
days after written notice thereof from Tenant to Landlord and to Lender, if any;
provided, however, that if the term, condition, covenant or obligation to be
performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be deemed to have
been cured if Landlord commences such performance within said thirty-day period
and thereafter diligently undertakes to complete


                                       15
<PAGE>

the same. Upon the occurrence of any such default, Tenant may sue for injunctive
relief or to recover damages for any loss resulting from the breach, but Tenant
shall not be entitled to terminate this Lease or withhold, offset or abate any
rent due hereunder until final judgment has been rendered, except as otherwise
provided herein.

         SECTION 13.04. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall
fail to perform or observe any term, condition, covenant or obligation required
to be performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord (whether
compensatory or punitive in nature), Tenant agrees that it shall look solely to
Landlord's right, title and interest in and to the Building and the rents
therefrom for the collection of such judgment; and Tenant further agrees that no
other assets of Landlord shall be subject to levy, execution or other process
for the satisfaction of Tenant's judgment and that Landlord shall not be
personally liable for any deficiency.

         The references to "Landlord" in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a mortgage
or other transfer as security for a debt), the "Landlord" named herein, or, in
the case of a subsequent transfer, the transferor, shall, after the date of such
transfer, be automatically released from all liability for the performance or
observance of any term, condition, covenant or obligation required to be
performed or observed by Landlord hereunder after such date; and the transferee
shall be deemed to have assumed all of such terms, conditions, covenants and
obligations.

         SECTION 13.05. NONWAIVER OF DEFAULTS. Neither party's failure or delay
in exercising any of its rights or remedies or other provisions of this Lease
shall be construed to be a waiver thereof or affect its right thereafter to
exercise or enforce each and every such right or remedy or other provision. No
waiver of any default shall be deemed to be a waiver of any other default.
Landlord's receipt of less than the full rent due shall not be construed to be
other than a payment on account of rent then due, nor shall any statement on
Tenant's check or any letter accompanying Tenant's check be deemed an accord and
satisfaction, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of the rent due or to pursue any other
remedies provided in this Lease. No act or omission by Landlord or its employees
or agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Leased Premises, and no agreement to accept such a surrender
shall be valid unless in writing and signed by Landlord.

         SECTION 13.06. ATTORNEYS' Fees. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for the attorneys' fees incurred thereby.

         ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT.  Intentionally
Omitted.


                                       16
<PAGE>

                     ARTICLE 15 NOTICE AND PLACE OF PAYMENT

         SECTION 15.01. NOTICES. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to (i) the party who is to receive such notice at the address
specified in the Basic Lease Provisions and (ii) in the case of a default notice
from Tenant to Landlord, any Lender designated by Landlord. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. Either
party may change its address by giving written notice thereof to the other
party.

         SECTION 15.02. PLACE OF PAYMENT. All payments required to be made by
Tenant to Landlord shall be delivered or mailed to Landlord's management agent
at the address specified in the Basic Lease Provisions or any other address
Landlord may specify from time to time by written notice to Tenant.

                 ARTICLE 16 - TENANT'S RESPONSIBILITY REGARDING
                  ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.

         SECTION 16.01.  DEFINITIONS.

         a. "Environmental Laws' - All federal, state and municipal laws,
ordinances, rules and regulations applicable to the environmental and ecological
condition of the Leased Premises, including, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Federal Resource Conservation and Recovery Act; the Federal Toxic
Substance Control Act; the Clean Air Act; the Clean Water Act; the rules and
regulations of the Federal Environmental Protection Agency, or any other
federal, state or municipal agency or governmental board or entity having
jurisdiction over the Leased Premises.

         b.       "Hazardous Substances" - Includes:

                  (i) Those substances included within the definitions of
         `hazardous substances,' `hazardous materials,, toxic substances, "solid
         waste' or "infectious waste' in any of the Environmental Laws; and

                  (ii) Such other substances, materials and wastes which are or
         become regulated under applicable local, state or federal law, or which
         are classified as hazardous, toxic or infectious under present or
         future Environmental Laws or other federal, state, or local laws or
         regulations.

         SECTION 16.02. COMPLIANCE. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws which shall impose any duty upon
Tenant with respect to the use, occupancy, maintenance or alteration of the
Leased Premises. Tenant shall promptly comply with any final, binding and
enforceable notice from any source issued pursuant to the Environmental Laws or
with any notice from any insurance company pertaining to Tenant's use,
occupancy, maintenance or alteration of the Leased Premises, whether such notice
shall be served upon Landlord or Tenant.


                                       17
<PAGE>

         SECTION 16.03. RESTRICTIONS ON TENANT. Tenant shall not cause or permit
its agents or employees to cause:

         a. Any violation of the Environmental Laws related to environmental
conditions on, under, or about the Leased Premises, or arising from Tenant's use
or occupancy of the Leased Premises, including, but not limited to, soil and
ground water conditions.

         b. The use, generation, release, manufacture, refining, production,
processing, storage or disposal of any Hazardous Substances on, under, or about
the Leased Premises, or the transportation to or from the Leased Premises of any
Hazardous Substances, except as necessary and appropriate for Tenant's use as
defined in Section 1.01.K hereof in which case the use, storage or disposal of
such Hazardous Substances shall be performed in compliance with the
Environmental Laws and the highest standards prevailing in the industry.

         SECTION 16.04.  NOTICES, AFFIDAVITS, ETC.

         a. Tenant shall immediately notify Landlord of (i) any known violation
by Tenant, its employees, agents, representatives, customers, invitees or
contractors of the Environmental Laws on, under or about the Leased Premises, or
(ii) the presence or suspected presence of any Hazardous Substances on, under or
about the Leased Premises in violation of the Environmental Laws and shall
immediately deliver to Landlord any notice received by Tenant relating to (i)
and (ii) above from any source. Landlord shall notify Tenant, to the extent it
affects Tenant, of (i) any known violation of Landlord, its employees, agents,
representatives, customers, invitees or contractors of the Environmental Laws
on, under or about the Building or (ii) the presence or suspected presence of
any Hazardous Substances on, under or about the Building.

         b. Tenant shall execute affidavits, representations and the like
reasonably requested by Landlord from time to time, within ten (10) days of
Landlord's request therefor, concerning Tenant's best knowledge and belief
regarding the presence of any Hazardous Substances on, under or about the Leased
Premises.

         SECTION 16.05.  LANDLORD'S RIGHTS.

         a. Landlord and its agent shall have the right, but not the duty, upon
advance notice (except in the case of emergency when no notice shall be
required) to inspect the Leased Premises and conduct tests thereon at any time
to determine whether or the extent to which there has been a violation of
Environmental Laws by Tenant or whether there are Hazardous Substances on, under
or about the Leased Premises. In exercising its rights herein, Landlord shall
use reasonable efforts to minimize interference with Tenant's business but such
entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to Tenant's
property or business caused thereby.

         b. If Landlord, any lender or governmental agency shall ever require
testing to ascertain whether there has been a release of Hazardous Substances
on, under or about the Leased Premises or a violation of the Environmental Laws,
and such requirement arose in whole or in part because of an act or omission on
the part of Tenant, then Tenant's share of the reasonable costs thereof (which
shall be apportioned based upon Tenant's acts or omissions


                                       18
<PAGE>

relative to the acts or omissions of others) shall be reimbursed by Tenant to
Landlord upon demand as Additional Rent.

         SECTION 16.06. TENANT'S INDEMNIFICATION. Tenant shall indemnify and
hold harmless Landlord and Landlord's managing agent from any and all claims,
loss, liability, costs, expenses or damage, including attorneys' fees and costs
of remediation, incurred by Landlord in connection with any breach by Tenant of
its obligations under this Article 16. The covenants and obligations of Tenant
under this Article 16 shall survive the expiration or earlier termination of
this Lease.

         SECTION 16.07. LANDLORD'S REPRESENTATION AND INDEMNIFICATION. Landlord
represents and warrants that, to the best of Landlord's actual knowledge,
without independent investigation, as of the date of execution of this Lease,
there are no Hazardous Substances in, on or about the Leased Premises or
Building in violation of the Environmental Laws. Landlord agrees not to
knowingly allow other tenants of the Building to generate Hazardous Substances
in violation of Environmental Laws. Landlord shall indemnify and hold Tenant
harmless from and against any and all claims, loss, liability, costs, expenses
or damage, including attorneys' fees and costs of remediation, incurred by
Tenant to the extent caused directly by Landlord's use or disposal of any
Hazardous Substances in, on or about the Building or the Leased Premises in
violation of Environmental Laws. Amounts expended by Landlord under the
indemnification provision of this Section 16.07 shall not be included in
Operating Expenses.

                           ARTICLE 17 - MISCELLANEOUS

         SECTION 17.01. BENEFIT OF LANDLORD AND TENANT. This Lease and all of
the terms and provisions hereof shall inure to the benefit of and be binding
upon Landlord and Tenant and their respective successors and assigns.

         SECTION 17.02. GOVERNING Law. This Lease shall be governed in
accordance with the laws of the State of Minnesota.

         SECTION 17.03.  GUARANTY.  Intentionally Omitted.

         SECTION 17.04. FORCE MAJEURE. Landlord and Tenant (except for the
payment of rent) shall be excused for the period of any delay in the performance
of any obligation hereunder when such delay is occasioned by causes beyond its
control, including, but not limited to, war, invasion or hostility; work
stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment,
labor or energy; man-made or natural casualties; unusual weather conditions;
acts or omissions of governmental or political bodies; or civil disturbances or
riots.

         SECTION 17.05. CONDITION OF PREMISES. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Leased Premises or the Building or with respect to the
suitability or condition of any part thereof for the conduct of Tenant's
business except as provided in this Lease.

         SECTION 17.06. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.


                                       19
<PAGE>

         SECTION 17.07. INDEMNIFICATION FOR LEASING COMMISSIONS. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are those named in the Basic Lease
Provisions and that no other broker or person is entitled to any leasing
commission or compensation as a result of the negotiation or execution of this
Lease. Each party shall indemnify and hold the other harmless from any and all
liability for the breach of this representation and warranty on its part and
shall pay any compensation to any other broker or person who may be deemed or
held to be entitled thereto.

         SECTION 17.08. QUIET ENJOYMENT. If Tenant shall perform all of the
covenants and agreements herein provided to be performed by Tenant, Tenant
shall, at all times during the Lease Term, have the quiet enjoyment and peaceful
possession of the Leased Premises without hindrance, except as may be provided
in Section 12.02 hereunder.

         SECTION 17.09. SEVERABILITY OF INVALID PROVISIONS. If any provision of
this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.

         SECTION 17.10. FINANCIAL STATEMENTS. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord, within thirty (30) days of
Landlord's written request therefor, but not more frequently than once a year, a
copy of Tenant's most recent financial statements prepared as of the end of
Tenant's most recent fiscal year. Such financial statements shall be signed by
Tenant or an authorized officer or representative of Tenant who shall attest to
the truth and accuracy of the information set forth in such statements. All
financial statements provided by Tenant to Landlord hereunder shall be prepared
in conformity with generally accepted accounting principle consistently applied.
Landlord agrees to maintain all financial statements provided by Tenant
hereunder on a confidential basis, except that Landlord may provide copies to
Landlord's lenders, auditors and financial analysts on the condition that such
lenders, auditors and financial analysts maintain the confidentiality of such
financial statements.

         SECTION 17.11.

         (a) TENANT'S REPRESENTATIONS AND WARRANTIES. The undersigned represents
and warrants to Landlord that (i) Tenant is duly organized, validly existing and
in good standing in accordance with the laws of the state under which it was
organized; (ii) all action necessary to authorize the execution of this Lease
has been taken by Tenant; and (iii) the individual executing and delivering this
Lease on behalf of Tenant has been authorized to do so, and such execution and
delivery shall bind Tenant. Tenant, at Landlord's request, shall provide
Landlord with evidence of such authority.

         (b) LANDLORD'S REPRESENTATIONS AND WARRANTIES. The undersigned
represents and warrants to Tenant that (i) Landlord is duly organized, validly
existing and in good standing in accordance with the laws of the state under
which it was organized; (ii) all action necessary to authorize the execution of
this Lease has been taken by Landlord; and (iii) the individual executing and
delivering this Lease on behalf of Landlord has been authorized to do so, and
such execution and delivery shall bind Landlord. Landlord, at Tenant's request,
shall provide Tenant with evidence of such authority.


                                       20
<PAGE>

         SECTION 17.12. REPRESENTATIONS AND INDEMNIFICATIONS. Any
representations and indemnifications of Landlord contained in the Lease shall
not be binding upon (prior to foreclosure and passage of the applicable
redemption period) any mortgagee having a mortgage presently existing or
hereafter placed on the Building.

         SECTION 17.13. OPTION TO TERMINATE. Provided Tenant is not in default
hereunder, Tenant shall have the option to terminate this Lease effective
October 1, 2000 ("First Termination Option') and October 1, 2001 ("Second
Termination Option"). Such option shall be exercised by (i) Tenant's giving
written notice to Landlord of its intention to terminate on or before April 1,
2000 with respect to the First Termination Option or on or before April 1, 2001
with respect to the Second Termination Option, and (ii) Tenant's payment to
Landlord of an amount equal to the unamortized tenant finish improvement costs,
other allowances and leasing commissions (amortized at eleven percent (11%)
interest per annum) plus two (2) months' Minimum Annual Rent, to be paid on or
before September 1, 2000 with respect to the First Termination Option or to be
paid on or before September 1, 2001 with respect to the Second Termination
Option. Such payment is made in consideration for Landlord's grant of this
option to terminate, to compensate Landlord for rental and other concessions
given to Tenant, and for other good and valuable consideration. Such payment
shall not in any manner affect Tenant's obligations to pay Minimum Annual Rent
and Annual Rental Adjustment or to perform its obligations under the Lease up to
and including the date of termination. Failure to timely and properly exercise
this option shall forever waive and extinguish it. If such option is validly
exercised, then upon such termination, Tenant shall surrender the Leased
Premises to Landlord in accordance with the terms of this Lease and each party
shall be released from further liability hereunder; provided, however, that such
termination shall not affect any right or obligation arising prior to
termination or which survives termination of the Lease.

         SECTION 17.14. OPTION TO RELOCATE AND TERMINATE. Provided Tenant is not
in default hereunder and provided Tenant enters into an agreement with Landlord
to expand its business operations in another building which is owned by
Landlord, Tenant shall have the option to terminate this Lease effective as of
the commencement of rent under the new lease. If such option is validly
exercised, then upon such termination, Tenant shall surrender the Leased
Premises to Landlord in accordance with the terms of this Lease and each party
shall be released from further liability hereunder; provided, however, that such
termination shall not affect any right or obligation arising prior to
termination or which survives termination of the Lease. Landlord hereby agrees
to use commercially reasonable efforts to accommodate Tenant's expansion needs
by locating space in another building owned by Landlord, if available.

         SECTION 17.15. TERMINATION OF EXISTING LEASE. Landlord and Tenant
hereby agree that the Lease between RREEF MA-III Pakwa Park, Inc., as
predecessor in interest to Duke Realty Minnesota, LLC, and Tenant, dated June
21, 1995, shall be terminated as of the Commencement Date of this Lease and each
party shall be released from further liability thereunder; provided, however,
that such termination shall not affect any right or obligation arising prior to
termination or which survives termination of the lease.


                                       21
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.

                                LANDLORD:

                                DUKE REALTY MINNESOTA, LLC, a Minnesota limited
                                liability company


                                By:
                                   -------------------------------------------
                                    Robert H. Johnson
                                    Chief Manager



                                TENANT:

                                AUGUST TECHNOLOGY CORPORATION, a Minnesota
                                corporation


                                By:
                                   -------------------------------------------

                                Printed:
                                        --------------------------------------

                                Title:
                                      ----------------------------------------


                                       22
<PAGE>

STATE OF _____________     )
                           )  SS:
COUNTY OF __________       )

Before me, a Notary Public in and for said County and State, personally appeared
______________________, by me known and by me known to be the ______________ of
August Technology Corporation, a Minnesota corporation, who acknowledged the
execution of the above and foregoing Lease Agreement for and on behalf of said
corporation.

         WITNESS my hand and Notarial Seal this _____ day of _______________,
1998.

1998.

                                                   --------------------------
                                                   Notary Public


                                                   --------------------------
                                                   (Printed Signature)

My Commission Expires:
                      ------------------------------

My County of Residence:
                      ------------------------------


                                       23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>17
<DESCRIPTION>EXHIBIT 10.13
<TEXT>

<PAGE>

                                                                   Exhibit 10.13

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, FLEDGED, HYPOTHECATED,
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (1) REGISTRATION IN COMPLIANCE WITH
SAID ACT AND SUCH STATE LAWS OR (2) THE OPINION OF COUNSEL, SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.

                               STOCK PURCHASE WARRANT

                              TO PURCHASE 6,250 SHARES
                                 OF COMMON STOCK OF

                           AUGUST TECHNOLOGY CORPORATION

                                   JULY 24, 1998

     THIS CERTIFIES THAT, for other good and valuable consideration, III-D
Capital, LLC or its registered assigns, is entitled to subscribe for and
purchase from August Technology Corporation, a Minnesota corporation (the
"Company"), at any time to and including July 23, 2005 (seven years from the
date of this Warrant), six thousand two hundred fifty (6,250) shares (the
"Shares") of the Company's Common Stock, $.01 par value, at the warrant purchase
price of $1.80 per Share, or such greater or lesser number of such Shares as may
be determined by the anti-dilution provisions of this Warrant.

     This Warrant is subject to the following provisions, terms and conditions:

     The holder, by acceptance hereof, represents and warrants that (a) it is
acquiring this Warrant for its own account for investment purposes only and not
with a view to its resale or distribution and (b) it has no present intention to
resell or otherwise dispose of all or any part of this Warrant.  Other than
pursuant to registration under federal and applicable state securities laws or
an exemption from such registration, the availability of which the Company shall
determine in its sole discretion, neither this Warrant nor any shares of Shares
may be sold, pledged, assigned, or otherwise disposed of (whether voluntarily or
involuntarily).  The Company may condition such sale, pledge, assignment, or
other disposition on the receipt from the party to whom this Warrant is to be so
transferred or to whom Shares are to be issued or so transferred of any
representations and agreements requested by the Company in order to permit such
issuance or transfer to be made pursuant to exemptions from registration under
federal and applicable state securities laws.  Each certificate representing the
Warrant (or any part thereof and any Shares shall be stamped with appropriate
legends setting forth these restrictions on transferability.

     1.   EXERCISE.  The rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part (but not as to a fractional Share), by
written notice of exercise (in the form attached hereto), together with the
surrender of this Warrant (properly endorsed if required)


                                       1
<PAGE>

at the principal office of the Company and payment to the Company of the
purchase price for such Shares as follows: at the time of exercise of this
Warrant the holder may determine whether to pay the total purchase price of
the Shares to be purchased solely in cash (including a personal check or a
certified or bank cashier's check, payable to the order of the Company) or by
transfer from the holder to the Company of previously acquired shares of
Common Stock of the Company with a then current aggregate Fair Market Value
equal to such total purchase price, or by a combination of cash and such
previously acquired shares of Common Stock. The Company may reject the
holder's election to pay all or part of the purchase price under this Warrant
with previously acquired shares of Common Stock and may require such purchase
price to be paid entirely in cash if, in the sole discretion of the Company,
payment in previously acquired shares would cause the Company to be required
to recognize a charge to earnings in connection therewith.  For purposes of
this Warrant, (a) "previously acquired shares" shall include both shares of
Common Stock of the Company that are already owned by the holder at the time
of exercise and Shares which are to be acquired pursuant to the exercise of
this Warrant, and (b) "Fair Market Value" will be determined in good faith by
the Company.

     2.   TRANSFERABILITY.  This Warrant may be transferred, or divided into two
or more Warrants of smaller denominations, subject to the following conditions:
the issuance of this Warrant has not been registered under the Securities Act of
1933 and, accordingly, no transfer of this Warrant may be made without
registration in compliance with such act and laws or an opinion, satisfactory to
the Company and its counsel, to the effect that such registration is not
required.

     3.   ISSUANCE OF SHARES.  The Company agrees that, the Shares purchased by
the exercise of this Warrant shall be and are deemed to be issued to the record
holder hereof as of the which this Warrant shall have been surrendered and the
payment made for such Shares as aforesaid.  Subject to the provisions of the
next paragraph and to Section 7 of this Warrant, certificates for the Shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding fifteen (15) days after the rights represented by this Warrant shall
have been so exercised, and, unless this Warrant has expired, a new Warrant
representing the right to purchase the number of Shares, if any, with respect to
which this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.

     Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for Shares upon exercise of this Warrant except in
accordance with the provisions, and subject to the limitations, of Section 7
hereof.

     4.   COVENANTS OF COMPANY.  The Company covenants and. agrees that:

          (a)  All Shares which may be issued upon the exercise of this Warrant,
will, upon issuance, be duly authorized and issued, fully paid, nonassessable,
and free from all taxes, liens, and charges with respect to the issue thereof;

          (b)  During the period within which this Warrant may be exercised, the
Company will at all times have authored, and reserved for the purpose of issue
or transfer upon


                                       2
<PAGE>

exercise of this Warrant, a sufficient number of Shares to provide for the
exercise of this Warrant.

     5.   ANTI-DILUTION ADJUSTMENTS.  The above provisions are, however, subject
to the following:

          (a)  In case the Company shall (i) pay a dividend in Common Stock or
make a distribution in Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number of Shares purchasable upon exercise
of this Warrant immediately prior thereto shall be adjusted so that the holder
or holders of this Warrant shall be entitled to receive the kind and number of
Shares of the Company which it would have owned or would have been entitled to
receive immediately after the happening of any of the events described above,
had the Warrants (and each underlying security) been exercised immediately prior
to the happening of such event or any record date with respect thereto.  Any
adjustment made pursuant to this subsection 4(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.

          (b)  No fractional Shares are to be issued upon the exercise of this
Warrant, but the Company shall pay a cash adjustment in respect of any fraction
of a Share which would otherwise be issuable in an amount equal to the same
traction of the market price per Share on the day of exercise as determined in
good faith by the Company.

          (c)  If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or assets with respect to or in
exchange for Common Stock or such warrants, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful and
adequate provision shall be made whereby the holder hereof shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities, or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant (and each underlying security) had such
reorganization, reclassification, consolidation, merger, or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the holder of this Warrant to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.  The Company shall not effect any such consolidation,
merger, or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing such assets, shall assume by written
instrument executed and mailed to the registered holder hereof at the last
address of such holder appearing on the books of the Company, the obligation to
deliver to such holder such shares of


                                       3
<PAGE>

stock, Warrants, securities, or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.

          (d)  Upon any adjustment of the Warrant purchase price, then and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder as shown on the books
of the Company, which notice shall state the Warrant purchase price resulting
from such adjustment and the increase or decrease, if any, in the number of
Shares purchasable at such price upon the exercise of this Warrant, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.

          (e)  As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized common stock, $.01 par value, and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or up o the Company.

     6.   NO VOTING RIGHTS.  This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company.

     7.   NOTICE OF TRANSFER OF WARRANT OR RESALE OF WARRANT SHARES.

          (a)  The holder of this Warrant by acceptance hereof, agrees that if
the Shares are not issued to the holder of this Warrant in a transaction
consummated pursuant to an effective registration under the Securities Act of
1933, as amended (the "33 Act"), such holder will give written notice to the
Company before exercising this Warrant or transferring such Shares, as the case
may be, of such holder's intention to do so, describing briefly the manner of
any proposed exercise or transfer (on the form attached hereto).  Promptly upon
receiving such written notice, the Company shall present copies thereof to the
Company's counsel and to counsel to the original purchaser of this Warrant.  If
in the opinion of each such counsel the proposed exercise or transfer may be
effected without registration or qualification (under any federal or state law),
the Company, as promptly as practicable, shall notify such holder of such
opinion, whereupon such holder shall be entitled to exercise this Warrant or
shall be entitled to transfer such Shares, as the case may be, all in accordance
with the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend may be endorsed on such Shares respecting
restrictions upon exercise and transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent transfer exercises and
transfers which would be in violation of Section 5 of the Act and applicable
state laws.

          (b)  If in the opinion of the counsel referred to in this Section 7,
the proposed exercise, transfer, or disposition described in the written notice
given pursuant to this Section 7 may not be effected without registration or
qualification under the 33 Act, the Company shall promptly give written notice
thereof to the holder hereof, and such holder will limit its activities in
respect to such as, in the opinion of both such counsel, are permitted by law.


                                       4
<PAGE>

     IN WITNESS WHEREOF, August Technology Corporation has caused this Warrant
to be signed by its duly authorized officer and to be dated as of July 24, 1998.


                              AUGUST TECHNOLOGY CORPORATION


                              By  ________________________________________
                                  Jeffrey L. O'Dell, President

































                                       5

<PAGE>

                              FULL EXERCISE OF WARRANT

                     TO BE EXECUTED BY THE REGISTERED HOLDER IF
                 HE DESIRES TO EXERCISE IN FULL THE WITHIN WARRANT


The undersigned hereby exercises the right to purchase the 6,250 shares of
Common Stock covered by the attached Warrant at the date of this subscription
and herewith makes payment of the sum of $11,250 representing the Purchase Price
of $1.80 per share in effect at that date.  Certificates for such shares shall
be issued in the name of and delivered to the undersigned, unless otherwise
specified by written instructions, signed by the undersigned and accompanying
this subscription.


Dated:__________________



                              Signature:

                              _______________________________________

                              _______________________________________
                                                       (Print Name)


                              Address:

                              _______________________________________

                              _______________________________________

                              _______________________________________
















                                       6

<PAGE>


                            PARTIAL EXERCISE OF WARRANT

                   TO BE EXECUTED BY THE REGISTERED HOLDER IF HE
                 DESIRES TO EXERCISE IN PART ONLY THE WITHIN WARRANT


The undersigned hereby exercises the right to purchase ___________ shares of the
total shares of Common Stock covered by the within Warrant at the date of this
subscription and herewith makes payment of the sum of $____________ representing
the Purchase Price of $1.80 per share in effect at this date.  Certificates for
such shares and a new Warrant of like tenor and date for the balance of the
shares not subscribed for shall be issued in the name of and delivered to the
undersigned, unless otherwise specified by written instructions, signed by the
undersigned and accompanying this subscription.

(The following paragraph need be completed only if the Purchase Price and number
of shares of Common Stock specified in the within Warrant have been adjusted
pursuant to Section 7.)

The shares hereby subscribed for constitute ___________ shares of Common Stock
(to the nearest whole share) resulting from adjustment of __________ shares of
the total of _________ shares of Common Stock covered by the within Warrant, as
said shares were constituted at the date of the Warrant.


Dated:__________________

                              Signature:

                              _______________________________________

                              _______________________________________
                                                      (Print Name)


                              Address:

                              _______________________________________

                              _______________________________________

                              _______________________________________


                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>18
<DESCRIPTION>EXHIBIT 10.15
<TEXT>

<PAGE>

                                                                   Exhibit 10.15

                                  OEM AGREEMENT
                                     BETWEEN
                              AUGUST TECHNOLOGY AND
                         SANTOK SOFTWARE SOLUTIONS INC.


This OEM Agreement is entered by Santok Software Solutions Inc., and August
Technology Corporation as of the effective date set forth below. Santok Software
Solutions Inc. (herein after referred to as "Supplier"), a MA corporation,
registered at 70 Walnut Street, Wellesley, MA 02481, shall provide software
product to August Technology Corporation (hereinafter referred to as the "OEM
Partner"), a Minnesota corporation, with a principal place of business at 5237
Edina Industrial Blvd., Edina, MN 55439, U.S.A.

Accordingly, in consideration of the premises and the promise set forth in this
Agreement, August Technology Corporation and Santok Software Solutions agree as
follows:

1.       DEFINITIONS

"Copy" means (i) a single copy of the Software on a single central processing
unit or (ii) a single copy of the software on a single local area network server
with one active client user.

"Software Product" means software which is developed, maintained and marketed by
Santok.

2.       GENERAL

Supplier is aiming at specializing in its technology and maintaining a leading
edge through continuous product development to meet customers requirements and
satisfy evolving market needs.

The cooperation with partners will be based upon NON-EXCLUSIVE OEM relations.
These relations will be established on grounds of the following principles:

         -    Supplier will not maintain any formal business relations with
              end-customers. All customer-vendor monetary relations will be done
              through the OEM Partner.
         -    Supplier will be eligible to maintain direct marketing relations
              with the end-customers, in coordination with its OEM partner.
         -    Supplier will be free to sell the Product to companies other than
the OEM Partner.

3.       EFFECTIVE DATE; TERM

The effective date of this Agreement is January 26, 2000. The initial term of
this Agreement shall be for five (5) years, unless terminated earlier in
accordance with the provisions of the Section 9 below. This Agreement shall
automatically renew for successive one-year terms; PROVIDED, HOWEVER, that
during the ninety (90) day period prior to any such renewal date, either party
may terminate this Agreement upon at least thirty (30) days prior written
notice.


                                       1
<PAGE>

4.       PRODUCT DEFINITION

Supplier's products to be included within the framework of this OEM agreement
are the following (referred to hereafter as the "Product"):


         PRODUCT:  WAFERBROWSER

6.       NON RECURRENT ENGINEERING (NRE)

There will be a one time NRE charge for dedicated engineering effort for
integrating the Product with the Partner's system.

The Partner will pay Supplier a one time engineering cost of $30,000. The agreed
upon sum will be broken into 4 payments which will be paid at the following
milestones:

<TABLE>
         <S>      <C>                                                                   <C>
         (1)      Approval of the specifications and project initiation                 25%
         (2)      Delivery of the tailored product to the Partner                       15%
         (3)      End of the integration ((alpha))                                      35%
         (4)      End of the (beta)-site                                                25%
                  (End if Beta site is defined as the time at which the first
                  installation is accepted by an August Technology customer)
         (5)      Includes single copy license for first Beta customer.
</TABLE>

At such time as the specifications of the Smart Sampler have been agreed upon
by the parties, such specifications will be attached as Schedule A to this
agreement, which will be incorporated herein and made a part hereof.

7.       PRICING

         PRODUCT:  SMART SAMPLER

         (a)      Product Price                     at $12,000 per software copy
                  (Price for a single copy on a single central processing unit,
                  or (ii) a single copy of the software on a single local area
                  network server with one active client users. Each additional
                  concurrent active client user is charged as an additional copy
                  at the prices as follows:)

<TABLE>
<CAPTION>
                                     NO. OF UNITS         UNIT PRICE ($ US)
                                     <S>                  <C>
                                           1                   12,000
                                         2-10                  10,000
                                          >10                   8,000
</TABLE>
         (b)      Prices will be effective for thirty-six (36) months (from
                  product introduction) and will be then reviewed every 12
                  months thereafter. If necessary, prices will be


                                       2
<PAGE>

                  updated by Supplier on any such anniversary date to reflect
                  the market situation at that time. Supplier will not
                  increase prices by more than 10% in any one year except
                  upon the occurrence of exceptional circumstances, and, if
                  such occurs, the parties will negotiate in good faith the
                  amount of any such price increase, provided, however, that
                  if they are unable to agree, either party may terminate
                  this Agreement.

         (c)      Payment schedule for Beta customers 2-n will be 50% on start
                  of Beta and 50% on installation of production release.

8.       SUPPORT CONTRACT

Supplier will provide the OEM Partner with a comprehensive support program,
comprising the following:

         SOFTWARE SUPPORT PACKAGE

The Software Support Package (SSP), is intended to provide the OEM Partner with
all the assistance necessary to advertise, demonstrate, sell, and provide
after-sale support to its customers.

Under such SSP, Supplier's provisions will include:

         -  Bug fixes
         -  Application consulting over phone or email
         -  4 software releases per year
         -  Minor software changes (software updates)

         SSP                        at $ 6,000 per year

(but subject to the same provisions as are set forth in (b) of Section 6 above)

         Subject to the following terms:

                  -   Independent of product sales
                  -   To be paid in advance before the applicable year or
                      alternatively, broken into 2 equal payments to be
                      paid every six months.
                  -   First payment upon acceptance of first customer
                      installation.
                  -   To include bug fixing and standard software updates.
                  -   All August specific feature upgrades to be done on time &
                      materials basis.

ON-SITE SUPPORT PACKAGES

The On-site Support Package is intended to provide local on-site support at OEM
Partner's site or its customers site with a Supplier's software programmer.


                                       3
<PAGE>

                  -   On-site Support Package are offered at $150/hour
                  -   Minimum 3 days charged
                  -   All travel, lodging and boarding cost inclusive

9.       LICENSE

Subject to the payment of the fees set forth in Sections 5 and 6 of this
Agreement, Supplier grants to OEM Partner a non-exclusive, worldwide right to
its end customers. Supplier shall retain all right, title and interest in and to
the Product, including all rights under any applicable patents, copyrights,
trademarks and trade secrets.

10.      TERMINATION OF THE AGREEMENT

Either party may terminate this Agreement in the event of material breach by the
other party, where such breach remains uncorrected sixty (60) days after written
notice of the breach to the breaching party.

Termination by either party will not relieve OEM Partner of the obligation to
pay any amounts due Supplier with respect to pre-termination commitments from
OEM Partner's customers even though such amounts may be paid to Supplier after
termination.

11.      LIMITATIONS OF WARRANTY

THE WARRANTY GIVEN IN SCHEDULE B TO THIS AGREEMENT IS THE SOLE AND EXCLUSIVE
WARRANTY GIVEN BY SUPPLIER WITH RESPECT TO THE PRODUCT, AND SUPPLIER MAKES NO
OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, OTHER THAN
AS EXPRESSLY SET FORTH IN SCHEDULE B. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, (A) SUPPLIER GIVES NO IMPLIED WARRANTY OF MERCHANTABILITY OR
IMPLIED WARRANTY OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT
THE SOFTWARE TO BE PROVIDED WILL WITHOUT DEFECT OR ERROR OR THAT THE USE OF
THE SOFTWARE PRODUCT WILL BE UNINTERRUPTED, AND (B) NO IMPLIED WARRANT
ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE SHALL
ARISE BY OR IN CONNECTION WITH ANY ENGINEERING, MANUFACTURING OR USE OF THE
PRODUCT.

12.      LIMITATIONS ON LIABILITY

THE SOLE REMEDY OF OEM PARTNER OR ANY END CUSTOMER FOR A BREACH OF ANY
REPRESENTATION OR WARRANTY OF SUPPLIER OR A DEFECT IN ANY PRODUCT SHALL BE
EITHER (A) TO CAUSE SUPPLIER TO USE ITS COMMERCIALLY REASONABLE EFFORTS TO
REMEDY SUCH BREACH AS QUICKLY AS REASONABLY PRACTICABLE, OR (B) A REFUND OF
THE PRICE PAID FOR THE PRODUCT. IN NO EVENT SHALL SUPPLIER BE LIABLE TO OEM
PARTNER OR ANY END CUSTOMER FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OR PROFITS) ARISING
OUT OF


                                       4
<PAGE>

ANY PERFORMANCE OF THIS AGREEMENT OR THE SALE, MANUFACTURE OR USE OF
THE PRODUCT. THE FOREGOING EXCLUSION OF DAMAGES SHALL APPLY REGARDLESS OF
WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL
THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND WITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.

13.      LABELING

OEM Partner will not remove from the Product any copyright notices contained
therein.

14.      ESCROW

Supplier agrees that it will enter into an escrow agreement as soon as
practicable with a reputable, third party escrow agent, and shall, pursuant to
such escrow agreement, deliver to the escrow agent a complete copy of the source
code version of the Product to be held in escrow under such terms and conditions
as are standard in the industry.

15.      OEM PARTNER AGREEMENTS WITH END CUSTOMERS

The OEM Partner agrees to cause all end customers of the Product to enter into
an agreement that provides Supplier with the same limitations on warranty and
liability as are contained in Sections 11 and 12 of this Agreement. Supplier
agrees that such end customers have no use limitations on the Product including
the software even if Supplier and OEM Partner should terminate this Agreement.

16.      MISCELLANEOUS

         (a)  ENTIRE AGREEMENT. This Agreement, together with the Schedules
hereto, constitutes the entire understanding between the parties with respect to
the subject matter hereof.

         (b)  AMENDMENT; WAIVER. This Agreement may be amended and any of its
terms or conditions may be waived only by a written agreement executed by the
parties or, in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its rights at a later time to enforce
the same. No waiver by either party of any condition shall be deemed as a
further or continuing waiver of such condition or term or of any other condition
or term.

         (c)  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.

         (d)  FORCE MAJEURE. Any delays in or failures of performance by either
party under this Agreement shall not be considered a breach of this Agreement if
and to the extent caused by occurrences beyond the reasonable control of the
party affected, including but not limited to: Acts of God; acts, regulations or
laws of any government; strikes or their concerted acts of


                                       5
<PAGE>

worker; fires; floods; explosions; riots; wars; rebellion; and sabotage. Any
time for performance hereunder shall be extended by the actual time of delay
caused by such occurrence.

         (e)  GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the internal, substantive laws of the
Commonwealth of Massachusetts, without reference to rules or principles of
conflicts or choice of law.

         (f)  SEVERABILITY. If any provision(s) of this Agreement are or become
invalid, are ruled illegal by any court of competent jurisdiction or are deemed
unenforceable under then current applicable law from time to time in effect
during the term hereof, it is the intention of the parties that the remainder of
this Agreement shall not be affected thereby. It is further the intention of the
parties that in lieu of each such provision which is invalid, illegal or
unenforceable, there be substituted or added as part of this Agreement a
provision which shall be as similar as possible in economic and business
objectives as intended by the parties to such invalid, illegal or enforceable
provision, but shall be valid, legal and enforceable.

         (g) COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which will form one Agreement.


IN WITNESS WHEREOF, the parties have signed this Agreement as of the Effective
Date.


Santok Software Solutions, Inc.                   August Technology Corporation


By:____________________________                   By:__________________________

Print Name:____________________                   Print Name:__________________

Title:_________________________                   Title:_______________________




                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>19
<DESCRIPTION>EXHIBIT 10.16
<TEXT>

<PAGE>

                                                                   Exhibit 10.16

                        AUGUST TECHNOLOGY CORPORATION

                  1998 BOARD OF DIRECTOR COMPENSATION PLAN


                     ARTICLE 1.       ESTABLISHMENT AND PURPOSE

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

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

                            ARTICLE 2.  DEFINITIONS

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

     a.        "AWARD" means the grant of cash compensation or Options by the
          Board of Directors of the Company.

     b.        "BOARD" means the Board of Directors of the Company.

     c.        "CODE"  means the Internal Revenue Code of 1986, as amended.

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

     e.        "ELIGIBLE PERSONS" means individuals who are (I) directors and
          who are also employees of the Company, and (ii) Non-Employee Directors
          of the Company.

     f.        "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
          amended.



<PAGE>

     g.        "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
          granted to a Recipient pursuant to the Company's 1997 Stock Option
          Plan that qualifies as an incentive stock option within the meaning of
          Section 422 of the Code.

     h.        "NON-EMPLOYEE DIRECTOR" means any member of the Board who is not
          an employee of the Company or any Subsidiary.

     i.        "NON-STATUTORY STOCK OPTION" means a right to purchase Common
          Stock granted to an Recipient pursuant to the Company's 1997 Stock
          Option Plan that does not qualify as an Incentive Stock Option.

     j.        "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
          Option.

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

     l.        "PLAN" means this 1998 Board of Director Compensation Plan, as
          may be amended from time to time.

     m.        "RECIPIENT" means an Eligible Person who receives one or more
          awards of cash compensation or Options under the Company's 1997 Stock
          Option Plan.

     n.        "SECURITIES ACT" means the Securities Act of 1933, as amended.

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

                          ARTICLE 3.       ADMINISTRATION

     The Plan shall be administered by the Board or by a Committee of the Board
consisting of not less than two persons. Members of a Committee, if established,
shall be appointed from time to time by the Board, shall serve at the pleasure
of the Board and may resign at any time upon written notice to the Board.  A
majority of the members of the Committee shall constitute a quorum.  The
Committee shall act by majority approval of its members, shall keep minutes of
its meetings and shall provide copies of such minutes to the Board.  Action of
the Committee may be taken without a meeting if unanimous written consent
thereto is given.  Copies of minutes of the Committee's meetings and of its
actions by written consent shall be provided to the Board and kept with the
corporate records of the Company.  As used in this Plan, the term "Committee"
will refer either to the Board or to such a Committee, if established.  From and
after the date on which the Company first registers a class of its equity
securities under Section 12 of the Exchange Act, no member of the Committee
shall be eligible, or shall have been eligible at any



<PAGE>

time within the lesser of one year or the period since the Company first
registered a class of its equity securities under Section 12 of the Exchange
Act, to receive an Incentive Stock Option or a Non-Statutory Stock Option
under the Plan, unless pursuant to action taken by a majority of the entire
Board, with such Committee member abstaining from participating in such
action.

     In accordance with the provisions of this Plan, the Committee shall select
the Recipients from Eligible Persons; shall determine the type and amount of the
Award granted pursuant to the Plan, the time at which such Awards are granted,
if the Awards consist of Options, the Option exercise price, Option period and
the manner in which each such Option vests or becomes exercisable; and shall fix
such other provisions  as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan.  The Committee shall determine the form
or forms of the agreements with Recipients which shall evidence the particular
terms, conditions, rights and duties of the Company and the Recipients under
Awards granted pursuant to the Plan.  The Committee shall have the authority,
subject to the provisions of the Plan, to establish, adopt and revise such rules
and regulations relating to the Plan as it may deem necessary or advisable for
the administration of the Plan.  With the consent of the Recipient affected
thereby, the Committee may amend or modify the terms of any outstanding Award in
any manner, provided that the amended or modified terms are permitted by the
Plan as then in effect.

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

           ARTICLE 4.  EFFECTIVE DATE OF THE BOARD COMPENSATION PLAN

     a.        EFFECTIVE DATE.  The Board Compensation Plan is effective as of
          October 14, 1998, the  effective date it was adopted by the Board.

     b.        PRIORITY OF THE BOARD COMPENSATION PLAN.  The Board Compensation
          Plan hereby supersedes and replaces any prior compensation plan
          applicable to any Board member in his or her capacity as a Board
          member.

             ARTICLE 5.  AWARDS UNDER THE BOARD COMPENSATION PLAN

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



<PAGE>

                           ARTICLE 6.  MISCELLANEOUS

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

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

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

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

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



<PAGE>

                                      Schedule 1
                              Board Compensation Awards

-------------------------------------------------------------------------------
 Name of Director                      Compensation Award
-------------------------------------------------------------------------------
 James A. Bernards                     Non-statutory option to purchase 15,000
                                       shares of the Company's Common Stock at
                                       $1.80 per share, having an duration of
                                       5 years from date of grant, vesting on
                                       a level basis of 33 1/3% immediately,
                                       and 33 1/3% on the 1st and 2nd
                                       anniversary of the date of grant,
                                       provided Recipient is still a director
                                       at such time.

                                       Non-statutory option to purchase 5,000
                                       shares of the Company's Common Stock at
                                       the fair market price as determined by
                                       the Board of Directors at the time of
                                       grant, options to be granted at the end
                                       of each calendar year, assuming
                                       optionee continues to serve as a
                                       director, with the 1998 grant to enjoy
                                       a strike price of $1.80 per share,
                                       having a duration of 5 years from date
                                       of grant and vesting immediately at
                                       time of grant.
-------------------------------------------------------------------------------
 Roger Gower                           Non-statutory option to purchase 15,000
                                       shares of the Company's Common Stock at
                                       $1.80 per share, having an duration of
                                       5 years from date of grant, vesting on
                                       a level basis of 33 1/3% immediately,
                                       and 33 1/3% on the 1st and 2nd
                                       anniversary of the date of grant,
                                       provided Recipient is still a director
                                       at such time.

                                       Non-statutory option to purchase 5,000
                                       shares of the Company's Common Stock at
                                       the fair market price as determined by
                                       the Board of Directors at the time of
                                       grant, options to be granted at the end
                                       of each calendar year, assuming
                                       optionee continues to serve as a
                                       director, with the 1998 grant to enjoy
                                       a strike price of $1.80 per share,
                                       having a duration of 5 years from date
                                       of grant and vesting immediately at
                                       time of grant.
-------------------------------------------------------------------------------



<PAGE>

-------------------------------------------------------------------------------
 Bradley Slye                          Non-statutory option to purchase 15,000
                                       shares of the Company's Common Stock at
                                       $1.80 per share, having an duration of
                                       5 years from date of grant, vesting on
                                       a level basis of 33 1/3% immediately,
                                       and 33 1/3% on the 1st and 2nd
                                       anniversary of the date of grant,
                                       provided Recipient is still a director
                                       at such time.

                                       Non-statutory option to purchase 15,000
                                       shares of the Company's Common Stock at
                                       $1.80 per share, in recognition of
                                       three year's past service, having an
                                       duration of 5 years from date of grant,
                                       vesting immediately.

                                       Non-statutory option to purchase 5,000
                                       shares of the Company's Common Stock at
                                       the fair market price as determined by
                                       the Board of Directors at the time of
                                       grant, options to be granted at the end
                                       of each calendar year, assuming
                                       optionee continues to serve as a
                                       director, with the 1998 grant to enjoy
                                       a strike price of $1.80 per share,
                                       having a duration of 5 years from date
                                       of grant and vesting immediately at
                                       time of grant.
-------------------------------------------------------------------------------



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>20
<DESCRIPTION>EXHIBIT 10.17
<TEXT>

<PAGE>

                                                                   Exhibit 10.17

                         AUGUST TECHNOLOGY CORPORATION
                        2000 EMPLOYEE STOCK PURCHASE PLAN


                        ARTICLE I - ESTABLISHMENT OF PLAN

1.01              ADOPTION BY BOARD OF DIRECTORS. By action of the Board of
                  Directors of August Technologies, Inc. (the "Corporation") on
                  March ___, 2000, subject to approval by its shareholders, the
                  Corporation has adopted an employee stock purchase plan
                  pursuant to which eligible employees of the Corporation and
                  certain of its Subsidiaries may be offered the opportunity to
                  purchase shares of Stock of the Corporation. The terms and
                  conditions of this Plan are set forth in this plan document,
                  as amended from time to time as provided herein. The
                  Corporation intends that the Plan shall qualify as an
                  "employee stock purchase plan" under Section 423 of the
                  Internal Revenue Code of 1986, as amended from time to time,
                  (the "Code") and shall be construed in a manner consistent
                  with the requirements of Code Section 423 and the regulations
                  thereunder.

1.02              SHAREHOLDER APPROVAL AND TERM. This Plan shall become
                  effective upon its adoption by the Board of Directors and
                  shall terminate DECEMBER 31, 2010; provided, however, that the
                  Plan shall be subject to approval by the shareholders of the
                  Corporation within twelve (12) months after the Plan is
                  adopted by the Board in the manner provided under Code Section
                  423 and the regulations thereunder; and provided, further that
                  the Board of Directors may extend the term of the Plan for
                  such period as the Board, in its sole discretion, deems
                  advisable. In the event the shareholders fail to approve the
                  Plan within twelve (12) months after the Plan is adopted by
                  the Board, this Plan shall not become effective and shall have
                  no force and effect, participation in the Plan shall
                  immediately cease, all outstanding options shall immediately
                  be canceled and all payroll deductions shall be returned to
                  the Participants without interest. No shares of stock shall be
                  issued to any Participant for any Phase unless and until the
                  shareholders approve the Plan within such twelve-month period.


                              ARTICLE II - PURPOSE

2.01              PURPOSE. The primary purpose of the Plan is to provide an
                  opportunity for Eligible Employees of the Corporation to
                  become shareholders of the Corporation, thereby providing them
                  with an incentive to remain in the Corporation's employ, to
                  improve operations, to increase profits and to contribute more
                  significantly to the Corporation's success.



                                       -1-
<PAGE>

                            ARTICLE III - DEFINITIONS

3.01              "ADMINISTRATOR" means the Board of Directors or such Committee
                  appointed by the Board of Directors to administer the Plan.
                  The Board or the Committee may, in its sole discretion,
                  authorize the officers of the Corporation to carry out the
                  day-to-day operation of the Plan. In its sole discretion, the
                  Board may take such actions as may be taken by the
                  Administrator, in addition to those powers expressly reserved
                  to the Board under this Plan.

3.02              "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors
                  of August Technologies, Inc.

3.03              "COMPENSATION" means the Participant's base compensation,
                  excluding bonuses but including overtime and commissions.

3.04              "CORPORATION" means August Technologies, Inc., a Minnesota
                  corporation.

3.05              "ELIGIBLE EMPLOYEE" means any employee who, as determined on
                  or immediately prior to an Enrollment Period, is a United
                  States full-time or part-time employee of the Corporation or
                  one of its Subsidiaries.

3.06              "ENROLLMENT PERIOD" means the period determined by the
                  Administrator for purposes of accepting elections to
                  participate during a Phase from Eligible Employees.

3.07              "FISCAL YEAR" means the fiscal year of the Corporation, which
                  is the twelve-month period beginning January 1 and ending
                  December 31 each year.

3.08              "PARTICIPANT" means an Eligible Employee who has been granted
                  an option and is participating during a Phase through payroll
                  deductions, but shall exclude those employees subject to the
                  limitations described in Section 9.03 below.

3.09              "PHASE" means the period beginning on the date that the option
                  was granted, otherwise referred to as the commencement date of
                  the Phase, and ending on the date that the option was
                  exercised, otherwise referred to as the termination date of
                  the Phase.

3.10              "PLAN" means the August Technologies, Inc. 2000 Employee Stock
                  Purchase Plan.

3.11              "STOCK" means the voting common stock of the Corporation.

3.12              "SUBSIDIARY" means any corporation defined as a subsidiary of
                  the Corporation in Code Section 424(f) as of the effective
                  date of the Plan, and such other corporations


                                       -2-
<PAGE>


                  that qualify as subsidiaries of the Corporation under Code
                  Section 424(f) as the Board approves to participate in this
                  Plan from time to time.

                           ARTICLE IV - ADMINISTRATION

4.01              ADMINISTRATION. Except for those matters expressly reserved to
                  the Board pursuant to any provisions of the Plan, the
                  Administrator shall have full responsibility for
                  administration of the Plan, which responsibility shall
                  include, but shall not be limited to, the following:

                           (a)      The Administrator shall, subject to the
                                    provisions of the Plan, establish, adopt and
                                    revise such rules and procedures for
                                    administering the Plan, and shall make all
                                    other determinations as it may deem
                                    necessary or advisable for the
                                    administration of the Plan;

                           (b)      The Administrator shall, subject to the
                                    provisions of the Plan, determine all terms
                                    and conditions that shall apply to the grant
                                    and exercise of options under this Plan,
                                    including, but not limited to, the number of
                                    shares of Stock that may be granted, the
                                    date of grant, the exercise price and the
                                    manner of exercise of an option. The
                                    Administrator may, in its discretion,
                                    consider the recommendations of the
                                    management of the Corporation when
                                    determining such terms and conditions;

                           (c)      The Administrator shall have the exclusive
                                    authority to interpret the provisions of the
                                    Plan, and each such interpretation or
                                    determination shall be conclusive and
                                    binding for all purposes and on all persons,
                                    including, but not limited to, the
                                    Corporation and its Subsidiaries, the
                                    shareholders of the Corporation and its
                                    Subsidiaries, the Administrator, the
                                    directors, officers and employees of the
                                    Corporation and its Subsidiaries, and the
                                    Participants and the respective
                                    successors-in-interest of all of the
                                    foregoing; and

                           (d)      The Administrator shall keep minutes of its
                                    meetings or other written records of its
                                    decisions regarding the Plan and shall, upon
                                    requests, provide copies to the Board.

                         ARTICLE V - PHASES OF THE PLAN

5.01              PHASES. The Plan shall be carried out in one or more Phases of
                  six (6) months each. Unless otherwise determined by the
                  Administrator, in its discretion, Phases shall commence on
                  January 1 and July 1 of each fiscal year during the term of
                  the Plan; provided, however, that the first phase shall
                  commence on July 1, 2000, and end December 31, 2000. No two
                  Phases shall run concurrently.



                                       -3-
<PAGE>

5.02              LIMITATIONS. The Administrator may, in its discretion, limit
                  the number of shares available for option grants during any
                  Phase as it deems appropriate. Without limiting the foregoing,
                  in the event all of the shares of Stock reserved for the grant
                  of options under Section 12.01 is issued pursuant to the terms
                  hereof prior to the commencement of one or more Phases or the
                  number of shares of Stock remaining is so small, in the
                  opinion of the Administrator, as to render administration of
                  any succeeding Phase impracticable, such Phase or Phases may
                  be canceled or the number of shares of Stock limited as
                  provided herein. In addition, if, based on the payroll
                  deductions authorized by Participants at the beginning of a
                  Phase, the Administrator determines that the number of shares
                  of Stock which would be purchased at the end of a Phase
                  exceeds the number of shares of Stock remaining reserved under
                  Section 12.01 hereof for issuance under the Plan, or if the
                  number of shares of Stock for which options are to be granted
                  exceeds the number of shares designated for option grants by
                  the Administrator for such Phase, then the Administrator shall
                  make a pro rata allocation of the shares of Stock remaining
                  available in as nearly uniform and equitable a manner as the
                  Administrator shall consider practicable as of the
                  commencement date of the Phase or, if the Administrator so
                  elects, as of the termination date of the Phase. In the event
                  such allocation is made as of the commencement date of a
                  Phase, the payroll deductions which otherwise would have been
                  made on behalf of Participants shall be reduced accordingly.


                            ARTICLE VI - ELIGIBILITY

6.01              ELIGIBILITY. Subject to the limitations described in Section
                  9.03, each employee who is an Eligible Employee on or
                  immediately prior to the commencement of a Phase shall be
                  eligible to participate in such Phase. If, in the discretion
                  of the Administrator, any Phase commences on a date other than
                  January 1 or July 1, whether an employee is an Eligible
                  Employee shall be determined on a date selected by the
                  Administrator, which date shall be at least thirty (30) days
                  prior to the commencement date of the Phase.


                           ARTICLE VII - PARTICIPATION

7.01              PARTICIPATION. Participation in the Plan is voluntary. An
                  Eligible Employee who desires to participate in any Phase of
                  the Plan must complete the Plan enrollment form provided by
                  the Administrator and deliver such form to the Administrator
                  or its designated representative during the Enrollment Period
                  established by the Administrator prior to the commencement
                  date of the Phase.

7.02              SUBSEQUENT PHASES. An Eligible Employee who elects to
                  participate in a Phase of a fiscal year shall be deemed to
                  have elected to participate in each subsequent Phase unless
                  such Participant elects to discontinue payroll deductions
                  during a Phase or exercises his or her right to withdraw
                  amounts previously withheld, as provided


                                       -4-
<PAGE>

                  under Article X  hereof. In such event, such Participant must
                  complete a change of election form or a new Plan enrollment
                  form and file such form with the Administrator during the
                  Enrollment Period prior to the next Phase with respect to
                  which the Eligible Employee wishes to participate.


                   ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS

8.01              ENROLLMENT. Each Eligible Employee electing to participate
                  shall indicate such election on the Plan enrollment form and
                  designate therein a percentage of such Participant's
                  Compensation during each pay period during the Phase. Subject
                  to the Participant's right to discontinue payroll deductions
                  as provided in Section 10.02, such percentage shall be at
                  least one percent (1%) but not more than ten percent (10%) of
                  such Participant's Compensation to be paid during such Phase,
                  or such other maximum percentage as the Administrator may
                  establish from time to time. In order to be effective, such
                  Plan enrollment form must be properly completed and received
                  by the Administrator by the due date indicated on such form,
                  or by such other date established by the Administrator.

8.02              PAYROLL DEDUCTIONS. Payroll deductions for a Participant shall
                  commence with the paycheck issued immediately after the
                  commencement date of the Phase and shall terminate with the
                  paycheck issued immediately prior to the termination date of
                  that Phase, unless the Participant elects to discontinue
                  payroll deductions or exercises his or her right to withdraw
                  all accumulated payroll deductions previously withheld during
                  the Phase as provided in Article X hereof. The authorized
                  payroll deductions shall be made over the pay periods of such
                  Phase by deducting from the Participant's Compensation for
                  each such pay period that dollar amount specified by the
                  Participant in the Plan enrollment form.

                  Unless the Participant elected to discontinue payroll
                  deductions or exercised his or her right to withdraw all
                  accumulated payroll deductions previously withheld during the
                  preceding Phase (in which event the Participant must complete
                  a change of election form or a new Plan enrollment form, as
                  the case may be, to continue participation for any subsequent
                  Phase), the Corporation shall continue to withhold from such
                  Participant's Compensation the same designated percentage
                  specified by the Participant in the most recent Plan
                  enrollment form previously completed by the Participant for
                  all subsequent Phases; provided, however, that the Participant
                  may, if he or she so chooses, discontinue payroll deductions
                  for any or all such subsequent Phases by properly completing a
                  new enrollment form during the Enrollment Period for such
                  subsequent Phase and delivering such form to the Administrator
                  by the due date for receipt of such forms for that Phase.

8.03              CHANGE IN COMPENSATION DURING A PHASE. In the event that the
                  Participant's Compensation is increased or decreased during a
                  Phase for any reason so that the amount actually withheld on
                  behalf of the Participant as of the termination date of the
                  Phase is different from the amount anticipated to be withheld
                  as determined on


                                       -5-
<PAGE>

                  the commencement date of the Phase, then the extent to
                  which the Participant may exercise his or her option
                  shall be based on the amounts actually withheld on his or her
                  behalf, subject to the limitations in Article IX. In the event
                  of a change in the pay period of any Participant, such as from
                  biweekly to monthly, an appropriate adjustment shall be made
                  to the deduction in each new pay period so as to insure the
                  deduction of the proper amount authorized by the Participant.

8.04              DECREASES DURING A PHASE. In addition to the right to
                  discontinue or withdraw payroll deductions during a Phase as
                  provided in Article X, a Participant may decrease the
                  percentage of Compensation designated to be deducted as
                  payroll deductions during a Phase (but not below 1%) by
                  completing and filing such forms as the Administrator may
                  require. Such decrease shall be effective with the next
                  payroll period beginning after the date that the Administrator
                  receives such forms and shall apply to all remaining
                  Compensation paid during the Phase. The Participant may
                  exercise the right to decrease his or her payroll deductions
                  only once during each Phase.


                              ARTICLE IX - OPTIONS

9.01              GRANT OF OPTION. Subject to Article X, a Participant who has
                  elected to participate in the manner described in Article VIII
                  and who is employed by the Corporation or a Subsidiary as of
                  the commencement date of a Phase shall be granted an option as
                  of such date to purchase that number of whole shares of Stock
                  determined by dividing the total amount to be credited to the
                  Participant's account by the option price per share set forth
                  in Section 9.02(a) below. The option price per share for such
                  Stock shall be determined under Section 9.02 hereof, and the
                  number of shares exercisable shall be determined under Section
                  9.03 hereof.

9.02              OPTION PRICE. Subject to the limitations hereinbelow, the
                  option price for such Stock shall be the lower of the amounts
                  determined under paragraphs (a) and (b) below:

                           (a)  Eighty-five percent (85%) of the closing price
                           for a share of the Corporation's Stock as reported on
                           the Nasdaq National Market, Nasdaq SmallCap Market or
                           on an established securities exchange as of the
                           commencement date of the Phase; or

                           (b)  Eighty-five percent (85%) of the closing price
                           for a share of the Corporation's Stock as reported on
                           the Nasdaq National Market, Nasdaq SmallCap Market or
                           on an established securities exchange as of the
                           termination date of the Phase.

                  In the event that the commencement or termination date of a
                  Phase is a Saturday, Sunday or holiday, the amounts determined
                  under the foregoing subsections shall be determined using the
                  price as of the last preceding trading day.


                                       -6-
<PAGE>


                  If the Corporation's Stock is not listed on the Nasdaq
                  National Market, Nasdaq SmallCap Market or on an established
                  securities exchange, then the option price shall equal the
                  lesser of (i) eighty-five percent (85%) of the fair market
                  value of a share of the Corporation's Stock as of the
                  commencement date of the Phase; or (ii) eighty-five percent
                  (85%) of the fair market value of such stock as of the
                  termination date of the Phase. Such "fair market value" shall
                  be determined by the Board.

9.03             LIMITATIONS.  No employee shall be granted an option hereunder:

                           (a) Which permits his or her rights to purchase Stock
                           under all employee stock purchase plans of the
                           Corporation or its Subsidiaries to accrue at a rate
                           which exceeds Twenty-Five Thousand Dollars ($25,000)
                           of fair market value of such Stock (determined at the
                           time such option is granted) for each calendar year
                           in which such option is outstanding at any time;

                           (b)  If such employee would own and/or hold,
                           immediately after the grant of the option, Stock
                           possessing five percent (5%) or more of the total
                           combined voting power or value of all classes of
                           stock of the Corporation or of any Subsidiary. For
                           purposes of determining stock ownership under this
                           paragraph, the rules of Section 424(d) of the Code
                           and the regulations thereunder shall apply.

                           (c)  Which, if exercised, would cause the limits
                           established by the Administrator under Section 5.02
                           to be exceeded.

9.04              EXERCISE OF OPTION. Subject to a Participant's right to
                  withdraw in the manner provided in Section 10.01, a
                  Participant's option for the purchase of shares of Stock will
                  be exercised automatically on the termination date of that
                  Phase. However, in no event shall a Participant be allowed to
                  exercise an option for more shares of Stock than can be
                  purchased with the payroll deductions accumulated by the
                  Participant in his or her bookkeeping account during such
                  Phase.

9.05              DELIVERY OF SHARES. As promptly as practicable after the
                  termination of any Phase, the Corporation's transfer agent or
                  other authorized representative shall deliver to each
                  Participant herein certificates for that number of whole
                  shares of Stock purchased upon the exercise of the
                  Participant's option. The Corporation may, in its sole
                  discretion, arrange with the Corporation's transfer agent or
                  other authorized representative to establish, at the direction
                  of the Participant, individual securities accounts to which
                  will be credited that number of whole shares of Stock that are
                  purchased upon such exercise, such securities account to be
                  subject to such terms and conditions as may be imposed by the
                  transfer agent or authorized representative.

                  The shares of the Corporation's common stock to be delivered
                  to a Participant pursuant to the exercise of an option under
                  Section 9.04 of the Plan will be



                                       -7-
<PAGE>

                  registered in the name of the Participant or, if the
                  Participant so directs by written notice to the
                  Administrator prior to the termination date of the Phase,
                  in the names of the Participant and one other person the
                  Participant may designate as his joint tenant with
                  rights of survivorship, to the extent permitted by law.

                  Any accumulated payroll deductions remaining after the
                  exercise of the Participant's option shall be returned to the
                  Participant, without interest, on the first paycheck issued
                  for the payroll period which begins on or immediately after
                  the commencement date of next Phase; provided, however, that
                  the Corporation may, under rules of uniform application,
                  retain such remaining amount in the Participant's bookkeeping
                  account and apply it toward the purchase of shares of Stock in
                  the next succeeding Phase, unless the Participant requests a
                  withdrawal of such amount pursuant to Section 10.01.


                            ARTICLE X - WITHDRAWAL OR
                     DISCONTINUATION OF PAYROLL WITHHOLDINGS

10.01             WITHDRAWAL. Once during the Phase, a Participant may request a
                  withdrawal of all accumulated payroll deductions then credited
                  to the Participant's bookkeeping account by completing a
                  change of election form and filing such form with the
                  Administrator. The Participant's request shall be effective as
                  of the beginning of the next payroll period immediately
                  following the date that the Administrator receives the
                  Participant's properly completed change of election form. As
                  soon as administratively feasible after the end of the Phase,
                  all payroll deductions credited to a bookkeeping account for
                  the Participant will be paid to such Participant, without
                  interest, and no further payroll deductions will be made
                  during that Phase or any future Phase unless the Participant
                  completes a new Plan enrollment form as provided in Section
                  8.02 above. If the Participant requests a withdrawal, the
                  option granted to the Participant under that Phase of the Plan
                  shall immediately lapse and shall not be exercisable. Partial
                  withdrawals of payroll deductions are not permitted.

                  Notwithstanding the foregoing, in order to be effective for a
                  particular Phase, the Participant's request for withdrawal
                  must be properly completed and received by the Administrator
                  on or before such date immediately preceding the termination
                  date of the Phase established by the Administrator. Requests
                  for withdrawal that are received after that due date shall not
                  be effective and no withdrawal shall be made, unless otherwise
                  determined by the Administrator.

10.02             DISCONTINUATION. At any time during the Phase, a Participant
                  may also request that the Administrator discontinue any
                  further payroll deductions that would otherwise be made during
                  the remainder of the Phase by completing a change of election
                  form and filing such form with the Administrator on or before
                  such date immediately preceding the termination date of the
                  Phase established by the Administrator. The Participant's
                  request shall be effective as of the beginning of the next
                  payroll period immediately following the date that the
                  Administrator receives the Participant's


                                       -8-
<PAGE>

                  properly completed change of election form. Upon the effective
                  date of the Participant's request, the Corporation will
                  discontinue making payroll deductions for such Participant for
                  that Phase, and all future Phases, unless the Participant
                  completes another change of election form as provided above.


                     ARTICLE XI - TERMINATION OF EMPLOYMENT

11.01             TERMINATION. If, on or before the termination date of any
                  Phase, a Participant's employment terminates with the
                  Corporation for any reason, voluntarily or involuntarily,
                  including by reason of retirement or death, the payroll
                  deductions credited to such Participant's bookkeeping account
                  for such Phase, if any, will be returned to the Participant,
                  without interest, and any options granted to such Participant
                  under the Plan shall immediately lapse and shall not be
                  exercisable. The return of such payroll deductions shall be
                  made to the Participant as soon as administratively
                  practicable following the end of the Phase in which the
                  Participant terminates employment. In the event that such
                  termination occurs near the end of a Phase and the Corporation
                  is unable to discontinue payroll deductions for such
                  Participant for his or her final paycheck(s), such deductions
                  shall still be made but shall be returned to the Participant
                  as provided herein. In no event shall the accumulated payroll
                  deductions be used to purchase any shares of Stock.

                  If the option lapses as a result of the Participant's death,
                  any accumulated payroll deductions credited to the
                  Participant's bookkeeping account will be paid to the
                  Participant's estate, without interest. In the event a
                  Participant dies after exercise of the Participant's option
                  but prior to delivery of the Stock to be transferred pursuant
                  to the exercise of the option under Section 9.04 above, any
                  such Stock and/or accumulated payroll deductions remaining
                  after such exercise shall be paid by the Corporation to the
                  Participant's estate.

                  The Corporation will not be responsible for or be required to
                  give effect to the disposition of any cash or Stock or the
                  exercise of any option in accordance with any will or other
                  testamentary disposition made by such Participant or in
                  accordance with the provisions of any law concerning
                  intestacy, or otherwise. No person shall, prior to the death
                  of a Participant, acquire any interest in any Stock, in any
                  option or in the cash credited to the Participant's
                  bookkeeping account during any Phase of the Plan.

11.02             SUBSIDIARIES. In the event that any Subsidiary ceases to be a
                  Subsidiary of the Corporation, the employees of such
                  Subsidiary shall be considered to have terminated their
                  employment for purposes of Section 11.01 hereof as of the date
                  the Subsidiary ceased to be a Subsidiary of the Corporation.



                                       -9-
<PAGE>


                    ARTICLE XII - STOCK RESERVED FOR OPTIONS

12.01             SHARES RESERVED. Two Hundred Fifty Thousand (250,000) shares
                  of Stock, which may be authorized but unissued shares of the
                  Corporation (or the number and kind of securities to which
                  said shares may be adjusted in accordance with Section 14.01
                  hereof) are reserved for issuance upon the exercise of options
                  to be granted under the Plan. Shares subject to the
                  unexercised portion of any lapsed or expired option may again
                  be subject to option under the Plan.

12.02             RIGHTS AS SHAREHOLDER. The Participant shall have no rights as
                  a shareholder with respect to any shares of Stock subject to
                  the Participant's option until the date of the issuance of a
                  stock certificate evidencing such shares as provided in
                  Section 9.05. No adjustment shall be made for dividends
                  (ordinary or extraordinary, whether in cash, securities or
                  other property), distributions or other rights for which the
                  record date is prior to the date such stock certificate is
                  actually issued, except as otherwise provided in Section 14.01
                  hereof.


                   ARTICLE XIII - ACCOUNTING AND USE OF FUNDS

13.01             BOOKKEEPING ACCOUNT. Payroll deductions for Participants shall
                  be credited to bookkeeping accounts, established by the
                  Corporation for each such Participant under the Plan. A
                  Participant may not make any cash payments into such account.
                  Such account shall be solely for bookkeeping purposes and
                  shall not require the Corporation to establish any separate
                  fund or trust hereunder. All funds from payroll deductions
                  received or held by the Corporation under the Plan may be
                  used, without limitation, for any corporate purpose by the
                  Corporation, which shall not be obligated to segregate such
                  funds from its other funds. In no event shall Participants be
                  entitled to interest on the amounts credited to such
                  bookkeeping accounts.


                       ARTICLE XIV - ADJUSTMENT PROVISION

14.01             GENERAL. Subject to any required action by the shareholders of
                  the Corporation, in the event of an increase or decrease in
                  the number of outstanding shares of Stock or in the event the
                  Stock is changed into or exchanged for a different number or
                  kind of shares of stock or other securities of the Corporation
                  or another corporation by reason of a reorganization, merger,
                  consolidation, divestiture (including a spin-off),
                  liquidation, recapitalization, reclassification, stock
                  dividend, stock split, combination of shares, rights offering
                  or any other change in the corporate structure or shares of
                  the Corporation, the Board (or, if the Corporation is not the
                  surviving corporation in any such transaction, the board of
                  directors of the surviving corporation), in its sole
                  discretion, shall adjust the number and kind of


                                       -10-
<PAGE>

                  securities subject to and reserved under the Plan and, to
                  prevent the dilution or enlargement of rights of those
                  Eligible Employees to whom options have been granted, shall
                  adjust the number and kind of securities subject to such
                  outstanding options and,where applicable, the exercise price
                  per share for such securities.

                  In the event of sale by the Corporation of substantially all
                  of its assets and the consequent discontinuance of its
                  business, or in the event of a merger, exchange,
                  consolidation, reorganization, divestiture (including a
                  spin-off), liquidation, reclassification or extraordinary
                  dividend (collectively referred to as a "transaction"), after
                  which the Corporation is not the surviving corporation, the
                  Board may, in its sole discretion, at the time of adoption of
                  the plan for such transaction, provide for one or more of the
                  following:

                           (a)  The acceleration of the exercisability of
                                outstanding options granted at the
                                commencement of the Phase then in effect, to
                                the extent of the accumulated payroll
                                deductions made as of the date of such
                                acceleration pursuant to Article VIII
                                hereof;

                           (b)  The complete termination of this Plan and a
                                refund of amounts credited to the
                                Participants' bookkeeping accounts
                                hereunder; or

                           (c)  The continuance of the Plan only with
                                respect to completion of the then current
                                Phase and the exercise of options
                                thereunder. In the event of such
                                continuance, Participants shall have the
                                right to exercise their options as to an
                                equivalent number of shares of stock of the
                                corporation succeeding the Corporation by
                                reason of such transaction.

                  In the event of a transaction where the Corporation survives,
                  then the Plan shall continue in effect, unless the Board takes
                  one or more of the actions set forth above. The grant of an
                  option pursuant to the Plan shall not limit in any way the
                  right or power of the Corporation to make adjustments,
                  reclassifications, reorganizations or changes in its capital
                  or business structure or to merge, exchange or consolidate or
                  to dissolve, liquidate, sell or transfer all or any part of
                  its business or assets.


                   ARTICLE XV - NONTRANSFERABILITY OF OPTIONS

15.01             NONTRANSFERABILITY. Options granted under any Phase of the
                  Plan shall not be transferable and shall be exercisable only
                  by the Participant during the Participant's lifetime.

15.02             NONALIENATION. Neither payroll deductions granted to a
                  Participant's account, nor any rights with regard to the
                  exercise of an option or to receive Stock under any Phase of
                  the Plan may be assigned, transferred, pledged or otherwise
                  disposed of in any way by the Participant. Any such attempted
                  assignment, transfer, pledge or other disposition shall be
                  null and void and without effect, except that the



                                       -11-
<PAGE>
                  Corporation may, at its option, treat such act as an election
                  to withdraw in accordance with Section 10.01.


                     ARTICLE XVI - AMENDMENT AND TERMINATION

16.01             GENERAL. The Plan may be terminated at any time by the Board
                  of Directors, provided that, except as permitted in Section
                  14.01 hereof, no such termination shall take effect with
                  respect to any options then outstanding. The Board may, from
                  time to time, amend the Plan as it may deem proper and in the
                  best interests of the Corporation or as may be necessary to
                  comply with Code Section 423, as amended, and the regulations
                  thereunder, or other applicable laws or regulations; provided,
                  however, no such amendment shall, without the consent of a
                  Participant, materially adversely affect or impair the right
                  of a Participant with respect to any outstanding option; and
                  provided, further, that no such amendment shall:

                           (a)  increase the total number of shares for
                                which options may be granted under the Plan
                                (except as provided in Section 14.01
                                herein);

                           (b)  modify the group of Subsidiaries whose
                                employees may be eligible to participate in
                                the Plan or materially modify any other
                                requirements as to eligibility for
                                    participation in the Plan; or

                           (c)  materially increase the benefits accruing to
                                Participants under the Plan;

                  without the approval of the Corporation's shareholders, if
                  such approval is required for compliance with Code Section
                  423, as amended, and the regulations thereunder, or other
                  applicable laws or regulations.


                             ARTICLE XVII - NOTICES

17.01             GENERAL. All notices, forms, elections or other communications
                  in connection with the Plan or any Phase thereof shall be in
                  such form as specified by the Corporation or the Administrator
                  from time to time, and shall be deemed to have been duly given
                  when received by the Participant or his or her personal
                  representative or by the Corporation or its designated
                  representative, as the case may be.




                                       -12-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>21
<DESCRIPTION>EXHIBIT 10.18
<TEXT>

<PAGE>



                     MARQUETTE CAPITAL BANK, N.A. - GUARANTY

                                                          Minneapolis, Minnesota
                                                          Date: November 4, 1999

         For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in consideration of and to induce financial
accommodations of any kind, with or without security, given or to be given or
continued at any time and from time to time by Marquette Capital Bank, NA.
(hereinafter called the "Bank") to or for the account of August Technology
Corporation (hereinafter called the "Borrower"), the undersigned guarantor
(called the "Guarantor") absolutely and unconditionally guarantees to the
Bank the full and prompt payment when due, whether at maturity or earlier by
reason of acceleration or otherwise, of the following (called the
"Indebtedness"):

         Any and all debts, obligations and liabilities of the Borrower (and
any and all successors of the Borrower) to the Bank, including but not
limited to all principa4 interest and other charges, fees, expenses and
amounts, now or hereafter existing, absolute or contingent, independent joint
several or joint and several, secured or unsecured, due or to become due, con
or tortious, liquidated or unliquidated arising by assignment or otherwise,
including without limitation all indebtedness, obligations and liabilities
owed by the Borrower (and any and all successors of the Borrower) as a member
of any partnership, syndicate, association or other group,, and whether
incurred by the Borrower (or any successor of the Borrower) as principal,
surety, endorser, guarantor, accommodation party or otherwise.

         Notwithstanding the aggregate amount of Indebtedness which able at
any time or from time to time, the liability of the Guarantor hereunder shall
not exceed the principal sum of $500,000 plus accrued interest thereon and
the costs, expenses and attorneys' fees described herein. Such liability
shall not be released, impaired or affected if at any time the Indebtedness
exceeds that amount, and the Bank may apply first in payment of such excess
all stuns received from the Borrower, from security for the Indebtedness, or
from any other source without releasing, impairing or affecting such
liability. If the liability of the Guarantor is limited by this p h, any
payment made by the Guarantor under this guaranty shall be effective to
reduce or discharge such liability only if accompanied by a written statement
received by the advising the Bank that such payment is made under this
guaranty for such purpose.

         The Bank may at any time and from time to time, without consent of
or notice to the Guarantor, without incurring responsibility to the
Guarantor, without releasing, impairing or affecting the liability of the
Guarantor hereunder, upon or without any terms or conditions, and in whole or
in part: (1) sell pledge, surrender, compromise, settle, release, renew,
subordinate, extend, alter, substitute, exchange, change, modify or otherwise
dispose of or deal with in any manner and in any order any Indebtedness, any
evidence thereof or any security or other guaranty therefor, (2) accept any
security for or other guarantors of any Indebtedness; (3) fail neglect or
omit to obtain, realize upon or protect any Indebtedness or any security
therefor, to exercise any lien upon or right to any money, credit or property
toward the liquidation of the Indebtedness, or to exercise any other right
against the Borrower, the Guarantor, any other guarantor or any other person
or entity; and (4) apply any payments and credits to the



                                       13
<PAGE>

Indebtedness in any manner and in any order. No act, omission or thing,
except full payment and discharge of the Indebtedness, which but for this
provision could act as a release or impairment of the liability of the
Guarantor hereunder, shall in any way release, impair or otherwise affect the
liability of the Guarantor hereunder, and the Guarantor waives any and all
defenses of the Borrower pertaining to the Indebtedness, any evidence
thereof, and any security therefor, except the defense of discharge by
payment. The failure of any person or entity to execute this or any other
guaranty shall not release, impair or affect the liability of the Guarantor
hereunder. This guaranty is a primary obligation of the Guarantor and the
Bank shall not be required to resort for payment of the Indebtedness to the
Borrower or any other person or entity, their properties or estates, or any
security or other rights or remedies whatsoever. The Guarantor shall be and
remain liable for any deficiency remaining after foreclosure of any mortgage
or security interest securing the Indebtedness, whether or not the liability
of the Borrower or any other person or entity for such deficiency is
discharged pursuant to statute, judicial decision or otherwise.

         The liability of the Guarantor under this guaranty is in addition to
and shall be cumulative with all other liabilities of the Guarantor to the
Bank, as guarantor or otherwise, without any limitation as to amount, unless
the writing evidencing or creating such other liability specifically provides
to the contrary. If any payment applied by the Bank to the Indebtedness is
thereafter set aside, recovered, rescinded or required to be returned for any
reason (including without limitation the bankruptcy, insolvency or
reorganization of the Borrower or any other person or entity), the
Indebtedness to which such payment was applied shall for the purposes of this
guaranty be deemed to have continued in existence, notwithstanding such
application, and this guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.

         The Guarantor waives: (1) notice of acceptance of this guaranty and of
the creation and existence of the Indebtedness; (2) presentment, demand for
payment, notice of dishonor, notice of nonpayment and protest of any instrument
evidencing the Indebtedness; and (3) all other demands and notices to the
Guarantor or any other person or entity and all other actions to establish the
liability of the Guarantor hereunder. The Guarantor consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this guaranty or any transaction
or matter relating to this guaranty, waives any argument that venue in such
forums is not convenient and agrees that any litigation initiated by the
Guarantor against the Bank in connection with this guaranty or any transaction
or matter relating to this guaranty shall be venued in either the Minnesota
District Court of the county where the Bank is located, or the United States
District Court, District of Minnesota.

         The Guarantor hereby agrees that the Bank shall have no duty to advise
the Guarantor of information now or hereafter known to the Bank regarding the
financial or other condition of the Borrower or any other person or entity
primarily or secondarily liable on the Indebtedness or regarding any
circumstance bearing on the risk of nonpayment of the Indebtedness. The
Guarantor acknowledges and agrees that the Guarantor has conducted its own
investigation of the business and affairs of the Borrower and any other person
or entity primarily or secondarily liable on the Indebtedness to its
satisfaction, has not relied and will not rely on any information provided by
the Bank in determining whether to enter into or continue this guaranty, and is
and will continue to remain informed of the Borrower's financial condition, the
status and financial



                                       14
<PAGE>


condition of other guarantors, if any, and all other circumstances which bear
upon the risk of nonpayment of the Indebtedness.

         All property of the Guarantor now or hereafter in the possession,
control or custody of or in transit to the Bank for any purpose, including
without limitation the balance of every account of the Guarantor with and each
claim of the Guarantor against the Bank, shall be subject to a lien and security
interest in favor of the Bank, as security for all liabilities of the Guarantor
to the Bank, and shall be subject to be set off against any and all such
liabilities, and the Bank may at any time and from time to time at its option
and without notice appropriate and apply any such property toward the payment of
any and all such liabilities.

         The Guarantor agrees to promptly provide the Bank from time to time the
following, all in form and substance acceptable to the Bank:

         At least once every 12 months and as otherwise requested by the Bank,
the current signed personal financial statement of the Guarantor.

         Within 45 days after the same are filed with the United States Internal
Revenue Service, the annual federal income tax returns of the Guarantor, and all
schedules, attachments and amendments to such returns.

         The Guarantor also agrees to promptly provide the Bank from time to
time with such other information respecting the condition (financial and
otherwise), business and property of the Guarantor as the Bank may request, in
form and substance acceptable to the Bank.

         The Guarantor waives all claims, rights and remedies which the
Guarantor may now have or hereafter acquire against any person or entity at any
time now or hereafter liable to payment of any of the Indebtedness and as to any
collateral security, including but not limited to all claims, rights and
remedies of contribution, indemnification, exoneration, reimbursement recourse
and subrogation, whether or not such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise, whether or not the
Indebtedness has been fully paid, and all payments and recoveries under this
guaranty shall be considered equity investments by the Guarantor in the
Borrower, provided, nothing contained in this guaranty shall deprive the
Guarantor of any claim, right or remedy, after the Indebtedness has been fully
paid, against any person or entity other dm the Borrower. No delay or failure by
the Bank in exercising any right, and no partial or single exercise thereof
shall co a waiver thereof. No waiver of any rights hereunder, and no
modification or amendment of this guaranty shall be effective unless the same is
in writing duly executed by the Bank, and each such waiver, if any, shall apply
only with respect to the specific instance involved and shall not impair or
affect the rights of the Bank or the provisions of this guaranty in any other
respect at any other time. This guaranty shall continue until written notice of
revocation of this guaranty, executed by the Guarantor, has been received by the
Bank; provided, no revocation of this guaranty shall affect in any manner any
liability of the Guarantor under this guaranty with respect to Indebtedness
arising before the Bank receives such written notice of revocation, and the sole
effect of revocation of this guaranty shall be to exclude from this guaranty
Indebtedness thereafter arising which is unconnected with Indebtedness
theretofore arising or transactions theretofore entered into.



                                       15
<PAGE>



         Any invalidity or unenforceability of any provision or application of
this guaranty shall not affect other lawful provisions and applications hereof
and to this end the provisions of this guaranty are declared to be severable.
This guaranty shall bind the Guarantor and the heirs, representatives,
successors and assigns of the Guarantor, and of each o them respective an s all
benefit the Bank, its successors and assigns. This guaranty shall be governed by
and construed in accordance with the internal laws of the State of Minnesota
(excluding conflict of law rules).

         THE GUARANTOR REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE
GUARANTOR HAS READ ALL OF THIS GUARANTY AND UNDERSTANDS ALL OF THE PROVISIONS OF
TIES GUARANTY.



                                               _______________________________
                                               Jeff O'Dell
                                               11128 Rhode Island Avenue South
                                               Bloomington, Minnesota 55438



                                       16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>22
<DESCRIPTION>EXHIBIT 23.1
<TEXT>

<PAGE>

                                                                   Exhibit 23.1

                    Independent Auditors Report and Consent


         The audits referred to in our report dated March 10, 2000 include the
related financial statement schedule as of December 31, 1999, and for each of
the years in the three-year period ended December 31, 1999, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

         We consent to the use of our reports included herein and reference to
our firm under the heading "Experts" in the prospectus.


                                                            /s/ KPMG LLP

Minneapolis, Minnesota
March 16, 2000




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>23
<DESCRIPTION>EXHIBIT 27.1
<TEXT>

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUGUST
TECHNOLOGY CORPORATION DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>                     <C>
<PERIOD-TYPE>                   YEAR                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1998             DEC-31-1999
<PERIOD-START>                             JAN-01-1998             JAN-01-1999
<PERIOD-END>                               DEC-31-1998             DEC-31-1999
<CASH>                                               0                       0
<SECURITIES>                                         0                       0
<RECEIVABLES>                                1,297,395               3,163,318
<ALLOWANCES>                                    15,000                  45,000
<INVENTORY>                                  1,022,549               2,459,485
<CURRENT-ASSETS>                             2,360,147               5,754,912
<PP&E>                                         502,065               1,214,490
<DEPRECIATION>                                 176,658                 292,948
<TOTAL-ASSETS>                               2,685,554               6,676,454
<CURRENT-LIABILITIES>                        1,235,366               3,261,176
<BONDS>                                              0                       0
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                          0                       0
<COMMON>                                        55,487                  61,093
<OTHER-SE>                                   1,355,701               3,285,937
<TOTAL-LIABILITY-AND-EQUITY>                 2,685,554               6,676,454
<SALES>                                      5,787,433              12,057,822
<TOTAL-REVENUES>                             5,787,433              12,057,822
<CGS>                                        2,685,764               5,109,770
<TOTAL-COSTS>                                2,685,764               5,109,770
<OTHER-EXPENSES>                             3,098,057               7,055,667
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                               1,418                  41,878
<INCOME-PRETAX>                                  2,194               (149,493)
<INCOME-TAX>                                     2,300                (17,500)
<INCOME-CONTINUING>                              (106)               (131,993)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                     (106)               (131,993)
<EPS-BASIC>                                          0                  (0.02)
<EPS-DILUTED>                                        0                  (0.02)


</TABLE>
</TEXT>
</DOCUMENT>
</SUBMISSION>
