Exhibit 10.14

AGREEMENT

          This amended and restated Agreement (the “Agreement”) is entered into
by and between KLA-Tencor Corporation (the “Company”) and Kenneth L. Schroeder
(“Executive”) effective as of December 21, 2005 (the “Effective Date”).

Recitals:

          A.          The Company desires to continue to retain the services of
Executive as set forth in this Agreement and Executive desires to continue to
provide services to the Company upon the terms and conditions set forth herein.

          B.          The Company desires to ensure that Executive does not
compete with and is available to continue to provide services to the Company as
set forth herein.

Agreement:

          In consideration of the covenants and agreements contained herein, the
parties agree as follows:

          1.          Effectiveness of Agreement.  This Agreement shall become
effective upon the Effective Date and amends and restates in its entirety the
Agreement entered into by and between the Company and Executive dated February
23, 2005 (the “Prior Agreement”).  The Company and Executive agree that this
Agreement shall govern the terms and conditions of Executive’s provision of
services to the Company from and after the Effective Date.

          2.          Term.  This Agreement shall commence on the Effective Date
and shall end on the date that all obligations hereunder have been fully
discharged.

          3.          Duties.

                       a.          Responsibilities.  From and after the
Effective Date until the earlier of the commencement of any Part-Time Employment
Term (as defined in Section 7 of this Agreement) or termination of Executive’s
full-time employment hereunder (the “Full-Time Employment Period”), the Company
shall employ the Executive as Chief Executive Officer with such duties and
responsibilities as are commensurate with such position.  It is understood and
agreed that Executive will be considered an employee of the Company for tax
withholding and all other purposes for the duration of both the Full-Time
Employment Period and the Part-Time Employment Term.  Executive acknowledges
that during the Part-Time Employment Term he shall not have the power to bind
the Company.

                       b.          Board Membership.  If Executive is serving as
a member of the Company’s Board of Directors (the “Board”) on the date of
termination of the Full-Time Employment Period, he shall tender to the Board his
resignation from the Board effective as of such date.  The Board shall not be
obligated to accept such resignation, unless Executive requires it.

          4.          Obligations.  Executive agrees, during the Full-Time
Employment Period, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board; provided, however, that Executive may serve in any
capacity with any civic, educational or charitable organization, or as a member
of corporate Boards of Directors or committees thereof without the approval of
the Board.

          5.          Employee Benefits.  During the Full-Time Employment
Period, Executive shall be eligible to participate in (i) all employee benefit
plans currently and hereafter maintained by the Company for senior management
according to their terms, and (ii) such other employee benefits as are set forth
in this Agreement or as may otherwise be awarded by the Board or its
Compensation Committee.  During any Part-Time Employment Term, Executive shall
only be eligible to participate in the Company’s group health, vision and dental
plans or in alternative arrangements providing at least the same level of
benefits and shall not be eligible to participate in the Company’s other
employee benefit plans and arrangements.  Subject to the other provisions
hereof, Executive and his spouse shall, during the Full-Time Employment Period,
the Part-Time Employment Term and thereafter, but no later than the earlier of
Executive’s death or his obtaining the age of 65, be entitled to the same
medical and other health benefits as senior active executives (and their
respective spouses) and on the same contribution basis as such senior active
executives.  Such benefits shall at all times be made available on a nontaxable
basis to Executive and his spouse (except to the extent active senior executives
(and their respective spouses) would be taxed on receipt of the same benefit as
active executives (the “Retiree Health Benefit”)).  The standard form of
indemnification agreement for officers and directors that Executive has entered
into and any fiduciary insurance maintained by the Company shall remain in
effect to the same extent that said indemnification or fiduciary insurance
remains in effect for all officers and directors of the Company.

          6.          Full Time Employment Period Compensation.

                       a.          Base Salary.  During the Full-Time Employment
Period, and during certain Part-Time Employment Terms as specified in Section 7
hereof, the Company shall pay the Executive as compensation for his services a
base salary at an initial annualized rate (which initial rate shall in no event
be less than the Executive’s base salary as of the Effective Date) recommended
by the Compensation Committee of the Board and approved by the Board, as may be
increased (but not decreased) from time to time by the Board or its Compensation
Committee (the “Base Salary”).  The Base Salary shall be paid periodically in
accordance with normal Company payroll practices and subject to the usual,
required withholding.  References to Base Salary herein as it relates to the
Part-Time Employment Term shall mean the last full-time salary as of the
beginning of the Part-Time Employment Term. 

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                       b.          Bonus.  During the Full-Time Employment
Period and during certain Part-Time Employment Terms as specified in Section 7
hereof, Executive shall participate in bonus programs generally available to
senior management of the Company and shall be eligible to receive bonuses as
determined by the Board or its Compensation Committee.  Subject to Section 7(c),
the Company shall have the obligation to pay any and all bonuses referred to in
this Agreement only at the same time as bonuses are normally paid to senior
management of the Company and contingent in each case upon the Company’s payment
of bonuses to senior officers of the Company for such fiscal year; provided,
however, that any bonus due Executive upon his transition to Part-Time
Employment or becoming due in the six-month period thereafter shall be paid to
Executive six months and one day following his transition to Part-Time
Employment.

          7.          Termination of Employment; Transition to Part-Time
Employment.

                       a.          Part-Time Employment Term Definition;
Obligations.  The periods of part-time employment specified in this Section 7
shall be defined as the “Part-Time Employment Term” and Executive may be
referred to as a “Part-Time Employee” while employed thereunder for the purposes
of this Agreement.  During any Part-Time Employment Term, Executive shall be
required to devote such time in rendering services to the Company as shall be
mutually agreed upon and acceptable to Executive and the Company; provided,
however, that such services shall not include any service relating to the
discharge of Executive’s duties as a member of the Board.  The parties expect
the Company will utilize Executive’s services during the Part-Time Employment
Term between five to ten hours per month.  Such services may be rendered by
Executive at his residence, to the extent practicable.  During the Part-Time
Employment Term, Executive shall be free to serve as a director, employee,
consultant or advisor to any other corporation or other business enterprise
without the prior written consent of the Company so long as such activities do
not interfere with his duties and obligations under this Agreement, including,
without limitation, Executive’s obligations under Section 8 hereof.  In
consideration of Executive’s not working for a non-Competing Company or a
Competing Company and being available to provide the mutually agreed upon
services required hereunder during the Part-Time Employment Term, the Executive
shall receive the compensation specified in this Section 7.  At the end of such
Part-Time Employment Term, the Executive’s employment with the Company shall
terminate.

                       b.          Termination of Full-Time Employment for
Cause.  The Company may at any time terminate Executive’s full-time employment
hereunder for “Cause.”  For the purposes of this Agreement “Cause” shall mean
(i) Executive’s gross negligence or willful misconduct in connection with the
performance of his duties, (ii) Executive’s conviction of or plea of nolo
contendere to, any felony in a court of competent jurisdiction, or
(iii) Executive’s embezzlement or misappropriation of Company property.  If the
Executive’s full-time employment is terminated by the Company for Cause, then,
subject to Executive entering into and not revoking a release of claims
agreement with the Company substantially in the form attached hereto as Exhibit
A (the “Release”), the Executive will receive a lump-sum payment equal to 25% of
Base Salary and Executive shall not be entitled to any other benefits hereunder.

                       c.          Voluntary Termination of Full-Time Employment
by Executive.  If the Executive desires to voluntarily terminate his full-time
employment with the Company, then Executive shall provide the Company with
written notice of such termination.  Subject to Executive entering into and not
revoking the Release, Executive shall remain employed by the Company as a
Part-Time Employee on the terms described herein.  The Part-Time Employment Term
shall be 60 months.  During such 60-month period, Executive shall be paid
(i) Base Salary for the first 30 months,

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paid in accordance with the Company’s normal payroll practices (except as
provided in the succeeding paragraph), (ii) a mutually agreeable level of
compensation per month which is no lower than an hourly rate determined by
dividing the annual Base Salary dollar amount by 2080 for the final 36 months,
paid monthly, (iii) an annual bonus equal to the amount that would otherwise
have been payable to Executive upon Executive’s achievement of 100% of his
individual bonus objectives (in distinction to Company bonus objectives, which
shall be based upon actual Company performance for such fiscal year) for the
Company’s fiscal year in which Executive’s transition to Part-Time Employment
occurs (the “Target Bonus”), (iv) for the Company’s fiscal year ending in the
period between the first anniversary of the date of termination of Executive’s
full-time employment and the second anniversary of the date of termination of
Executive’s full-time employment with the Company, an amount equal to the amount
that would otherwise have been payable to Executive upon Executive’s achievement
of 100% of his individual bonus objectives (in distinction to Company bonus
objectives, which shall be based upon actual Company performance for such fiscal
year) under the Company’s bonus plan for such fiscal year (the “Second Year
Bonus”), (v) for the Company’s fiscal year ending in the period between the
second anniversary of the date of termination of Executive’s full-time
employment and the third anniversary of the date of termination of Executive’s
full-time employment with the Company, an amount equal to the amount that would
otherwise have been payable to Executive upon Executive’s achievement of 100% of
his individual bonus objectives (in distinction to Company bonus objectives,
which shall be based upon actual Company performance for such fiscal year) under
the Company’s bonus plan for such fiscal year (the “Third Year Bonus”), and
(vi) for the Company’s fiscal year ending in the period between the third
anniversary of the date of termination of Executive’s full-time employment and
the fourth anniversary of the date of termination of Executive’s full-time
employment with the Company, an amount equal to the amount that would otherwise
have been payable to Executive upon Executive’s achievement of 100% of his
individual bonus objectives (in distinction to Company bonus objectives, which
shall be based upon actual Company performance for such fiscal year) under the
Company’s bonus plan for such fiscal year (the “Fourth Year Bonus”).  Executive
will not be eligible to receive an annual bonus for the remainder of the
Part-Time Employment Term.  Any bonuses to be paid pursuant to clauses (iii),
(iv), (v) and (vi) of this paragraph will be paid no later than the later of (A)
two and one half months following the completion of the Company’s relevant
fiscal year, or (B) the date that is six months and one day following the
commencement of the Part-Time Employment Term.

          Any Base Salary to be paid pursuant to clause (i) of the preceding
paragraph will not be paid during the six-month period following the
commencement of the Part-Time Employment Term.  Instead, on the first day
following such six-month period, the Company will pay Executive a lump-sum
amount equal to the cumulative amounts that would have otherwise been paid to
Executive under clause (i) of the preceding paragraph.  Thereafter, Executive
will receive his Base Salary pursuant to clause (i) of the preceding paragraph
in accordance with the Company’s normal payroll practices.

          With respect to any stock options held by Executive (or his
affiliates) as of the commencement of the Part-Time Employment Period other than
options granted on and after September 21, 2004 (“Prior Options”), such Prior
Options shall terminate and be without further force and effect on the earliest
of (i) December 31 of the calendar year in which falls the date that is thirty
days following the third anniversary of the Part-Time Employment Period
commencement date (the “37-Month Anniversary Date”) , but only if Executive
remains a Part-Time Employee through such third anniversary date, (ii) on the
date specified in the relevant Prior Option agreement, in the event that
Executive does not remain a Part-Time Employee through the third anniversary
date, (iii) the last day of the original Prior Option term.

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          In the event that Executive remains a Part-Time Employee through
October 1st of the calendar year in which falls the 37-Month Anniversary Date,
then any then outstanding Prior Options shall have their vesting automatically
accelerated as of such date to an additional twenty-one months’ vesting, as
measured from such October 1 date (but in no event as to more shares than are
subject to each Prior Option).

          In the event that Executive remains a Part-Time Employee through the
end of the Part-Time Employment Period, then Option Nos. 70866 and 82422 shall
have their vesting automatically accelerated as of such date to an additional
six months’ vesting (but in no event as to more shares than are subject to each
option).

                       d.          Termination of Full-Time Employment by
Company Other than for Cause.  If the Company desires to terminate Executive’s
full-time employment with the Company other than for Cause, then the Company
shall provide Executive with written notice of such termination.  If the
Executive’s full-time employment is terminated by the Company other than for
Cause, then, subject to Executive entering into and not revoking a Release,
Executive shall remain employed by the Company as a Part-Time Employee on the
terms described herein and shall receive the same benefits as set forth in
subsection (c) above.

                       e.          Reduction of Part-Time Employment Term
Compensation and Benefits If Executive Becomes Employed by a Non-Competing
Company.  If during the Part-Time Employment Term, Executive becomes a full-time
employee (or equivalent thereof) of an entity that is not a “Competing Company”
(as defined in Section 8 hereof), Executive (i) shall have his Base Salary
reduced to a mutually agreeable amount per month (determined based on the level
of services expected to be rendered to the Company) in exchange for Executive
providing mutually agreed upon services to the Company, (ii) shall not be
eligible to receive any Target Bonus, Second Year Bonus, Third Year Bonus or
Fourth Year Bonus to the extent not already earned by Executive, and (iii) shall
not be eligible to participate or receive benefits under any other employee
benefit plans, policies, practices or arrangements of the Company or its
predecessors (except that Executive and his spouse shall continue receiving the
Retiree Health Benefit (as defined in Section 5), and subject to Section 7(f)
below with respect to the vesting of Executive’s equity awards and Section 11
hereof relating to the treatment of any Retention Option/SAR Grants and
Retention Restricted Stock/Unit Grants, as such terms are defined in Section 11
hereof).  For the purposes of the foregoing, the Target Bonus, Second Year
Bonus, Third Year Bonus and Fourth Year Bonus shall be deemed earned, to the
extent otherwise payable, if Executive is a Part-Time Employee and is not
employed by a non-Competing Company as a full-time employee (or equivalent
thereof) through the last day of the fiscal year to which such bonuses relate.

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                       f.          Vesting of Equity Awards During Part-Time
Employment Term.  Except as provided in Section 7(c) hereof, during the
Part-Time Employment Term, all equity awards that were granted to Executive
prior to the termination of Executive’s full-time employment shall continue to
vest in accordance with the terms and conditions of the original agreements
relating to such awards, except any Retention Option/SAR Grants and Retention
Restricted Stock/Unit Grants, as such terms are defined in Section 11 hereof,
which shall be treated in accordance with Section 11 hereof.  The term “equity
award” as used herein does not include any right to participate in the employee
stock purchase plans of the Company, which right shall terminate immediately
upon the termination of the Full-Time Employment Period.

                       g.          Termination of Employment Relationship. 
Executive’s Part-Time Employment relationship with the Company may not be
terminated by the Company prior to the end of the Part-Time Employment Term,
except (i) upon the death or permanent disability of Executive, (ii) by written
agreement between both of the parties hereto; provided, however, that
Executive’s employment with the Company, whether full-time or part-time, shall
immediately and automatically terminate upon Executive’s breach of Section 8
hereof.  No additional benefits or payments will become payable to Executive
hereunder upon a termination of Executive’s Part-Time Employment Term in
accordance with the prior sentence.

                       h.          Breach of Covenant Not to Compete. 
Executive’s employment with the Company hereunder, whether full-time or
part-time, shall immediately and automatically terminate upon Executive’s breach
of Section 8 hereof.  Notwithstanding anything to contrary set forth herein, no
additional benefits or payments will become payable to Executive hereunder upon
any such termination.

                       i.          Death or Disability.  Subject to Section 11
hereof relating to the treatment of any Retention Option/SAR Grants and the
Retention Restricted Stock/Unit Grants, as such terms are defined in Section 11
hereof, in the event of Executive’s death or permanent Disability, this
Agreement shall terminate, unless otherwise decided by the Board.

                       j.          No Duty to Mitigate; No Right of Set-Off.  In
the case of any claim or action by Executive as a result of the purported breach
of this Agreement by the Company, Executive will not be required to mitigate the
amount of any payments, benefits or rights contemplated by this Agreement
(whether during the Full-Time Employment Period or Part-Time Employment Term),
nor will any earnings that Executive may receive from any other source reduce
any such payments, benefits or rights and the Company will have no right of
set-off for amounts Executive may owe the Company against amounts the Company
may owe Executive hereunder.

          8.          Covenant Not to Compete.

                       a.          Covenant Not to Compete.  During the
Full-Time Employment Period and the Part-Time Employment Term, Executive will
not render services as an employee, consultant, director, partner, owner to, or
participate as more than a two percent shareholder in, any Competing Company in
a Restricted Territory, as such terms are defined immediately below; provided,
however, that (i) Executive shall be permitted to work for a division, entity,
or subgroup of any of such Competing Company so long as such division, entity,
or subgroup does not engage in a business (including, without limitation,
development, manufacturing, marketing, sales or technical or sales support) that
makes such entity a Competing Company, and (ii) Executive may also receive and
hold in such situation equity in the Competing Company that he obtains in
connection with such service on the same basis as other employees similarly
situated to Executive.

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                       b.          Competing Company.  “Competing Company” shall
mean another semiconductor capital equipment company, partnership, limited
liability corporation or other entity any portion of whose business, including,
without limitation, development, manufacturing, marketing, sales or technical or
sales support, competes with the Company’s business at that time.

                       c.          Restricted Territory.  “Restricted Territory”
means any county in the State of California, each state in the United States and
each country in the world.

          9.          Limitation on Payments.  If the benefits provided for in
this Agreement or otherwise payable to the Executive (i) constitute “parachute
payments” within the meaning of Section 280G of the Code and (ii) but for this
Section 9, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Executive’s benefits hereunder shall be either (i) delivered in
full, or (ii) delivered as to such lesser extent which, or at such later time
as, would result in no portion of such severance benefits being subject to
excise tax under Section 4999 of the Code, whichever of the foregoing amounts,
taking into account the applicable federal, state and local income taxes and the
excise tax imposed by Section 4999, results in the receipt by the Executive on
an after-tax basis, of the greatest amount of severance benefits,
notwithstanding that all or some portion of such benefits may (or might
otherwise) be taxable under Section 4999 of the Code.  Unless the Company and
the Executive otherwise agree in writing, any determination required under this
Section 9 shall be made in writing by the Company’s independent public
accountants (the “Accountants”), whose determination shall be conclusive and
binding upon the Executive and the Company for all purposes; provided that if
benefits are reduced or deferred, the Executive shall choose the order in which
such benefits are reduced or deferred.  For purposes of making the calculations
required by this Section 9, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code.  The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section.  In the event a determination is made
under this Section 9, the Company shall also require the Accountants to furnish
Executive with a tax opinion regarding the calculations performed under this
Section 9.  The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 9.

          10.        Double-Trigger Option Vesting Acceleration.  If, on or
after a Change of Control (as defined herein) or within 30 days prior to a
Change of Control, Executive’s employment with the Company terminates (whether
during the Full-Time Employment Period or the Part-Time Employment Term) due to
(i) a voluntary termination for “Good Reason” (as defined in Section 7(g) and
this Section 10), or (ii) an involuntary termination by the Company other than
for “Cause” (as defined in Section 7(b) hereof), then, subject to Executive
executing and not revoking a Release and not breaching the terms of Section 8
hereof, all of Executive’s Company stock options and other equity compensation
awards shall immediately accelerate vesting as to 100% of the then unvested
shares. 

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          For purposes of this Agreement, “Change of Control” shall mean the
occurrence of any of the following events:

                              (i)          Any “person” (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company’s then
outstanding voting securities; or

                              (ii)         The consummation of the sale or
disposition by the Company of all or substantially all the Company’s assets; or

                              (iii)        The consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or

                              (iv)         A change in the composition of the
Board occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors.  “Incumbent Directors” shall
mean directors who either (A) are directors of the Company as of the date upon
which this Agreement was entered into, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those directors whose election or nomination was not in connection with any
transaction described in subsections (i), (ii), or (iii) above, or in connection
with an actual or threatened proxy contest relating to the election of directors
to the Company.

                    For purposes of this Agreement, during the Full-Time
Employment Period, “Good Reason” means, without Executive’s express consent, (i)
a material reduction of Executive’s duties, title, authority or
responsibilities, relative to Executive’s duties, title, authority or
responsibilities as in effect immediately prior to such reduction, or the
assignment to Executive of such reduced duties, title, authority or
responsibilities, (ii) a material reduction of the facilities and perquisites
(including office space and location) available to Executive immediately prior
to such reduction, other than a reduction generally applicable to all senior
management of the Company; (iii) a reduction by the Company in the Base Salary
of Executive as in effect immediately prior to such reduction; (iv) a material
reduction by the Company in the aggregate level of employee benefits, including
target bonuses, to which Executive was entitled immediately prior to such
reduction with the result that Executive’s aggregate benefits package is
materially reduced (other than a reduction that generally applies to Company
employees); (v) the relocation of Executive to a facility or a location more
than thirty-five (35) miles from Executive’s then present location; or (vi) any
act or set of facts or circumstances which would, under California case law or
statute constitute a constructive termination of Executive.

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          11.          Retention Awards. 

          (a)          Retention Option/SAR Grants.  With respect to Company
stock options or stock appreciation rights granted to Executive on and after
September 21, 2004, other than (i) 75,800 shares subject to the September 21,
2004 stock option grant that are scheduled to vest  as to 20% on September 21,
2008 and as to 1/48th of the remaining shares vesting monthly thereafter, and
(ii) 75,800 shares subject to any stock option or stock appreciation right
granted to Executive in 2005 vesting as to 20% four years after the date of
grant and as to 1/48th of the remaining shares vesting monthly thereafter (the
stock options and stock appreciation rights covered by this Section 11(a) are
referred to herein as “Retention Option/SAR Grants”), notwithstanding any other
provisions of this Agreement, including, without limitation, Section 7(f)
hereof, the following terms shall apply:

                         (i)          In the event that (i) Executive’s
full-time employment is terminated for Cause or breach of Section 8 hereof, or
(ii) Executive’s Part-Time Employment is terminated for breach of Section 8
hereof, then the Retention Option/SAR Grants shall immediately, to the extent
then unvested, expire and become without further force and effect and Executive
shall have thirty (30) days following the date of such termination (but in no
event beyond an award’s original term) in which to exercise any vested portion
of the Retention Option/SAR Grants following which they shall expire and become
without further force and effect.

                         (ii)         Subject to Section 11(a)(ix), in the event
that, prior to July 1, 2006, Executive voluntarily terminates his position as
Chief Executive Officer other than for Good Reason, even if Executive remains a
Service Provider, as such term is defined in the Company’s 2004 Equity Incentive
Plan (“Service Provider”), the Retention Option/SAR Grants shall immediately, to
the extent then unvested, expire and become without further force and effect and
Executive shall have thirty (30) days following the date of such termination
(but in no event beyond an award’s original term) in which to exercise any
vested portion of the Retention Option/SAR Grants following which they shall
expire and become without further force and effect.

                         (iii)        Subject to Section 11(a)(ix), in the event
that, on and after July 1, 2006 and prior to July 1, 2007, Executive voluntarily
terminates as a Service Provider other than for Good Reason (whether during the
Full-Time Employment Period or Part-Time Employment Term), the Retention
Option/SAR Grants shall immediately, to the extent then unvested, expire and
become without further force and effect and Executive shall have thirty (30)
days following the date of such event (but in no event beyond an award’s
original term) in which to exercise any vested portion of the Retention
Option/SAR Grants following which they shall expire and become without further
force and effect.

                         (iv)        Subject to Section 11(a)(ix), in the event
that, on and after July 1, 2007, Executive (i) voluntarily terminates as a
Service Provider other than for Good Reason (whether during the Full-Time
Employment Period or Part-Time Employment Term), the Retention Option/SAR Grants
shall immediately, to the extent then unvested, expire and become without
further force and effect and Executive shall have five years following the date
of such event (but in no event beyond an award’s original term) in which to
exercise any vested portion of the Retention Option/SAR Grants following which
they shall expire and become without further force and effect.

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                         (v)         Subject to the other provisions of this
Section 11(a), in the event that, on and after July 1, 2006, Executive
transitions to a Part-Time Employee or otherwise remains a Service Provider and
does not remain as Chief Executive Officer, the Retention Option/SAR Grants
shall continue to vest according to their terms and the terms of this Agreement
and, subject to Sections 11(a)(iii), (ix) and (x), Executive shall have five
years from the date his employment as a Part-Time Employee terminates (but in no
event beyond an award’s original term) to exercise the Retention Option/SAR
Grants, after which period they shall expire and become without further force
and effect.  In the event that Executive remains as Chief Executive Officer, the
Retention Option/SAR Grants shall also continue to vest according to their terms
and the terms of this Agreement.

                         (vi)        In the event that (i) Executive’s full-time
employment is terminated without Cause and other than for breach of Section 8
hereof, or (ii) Executive voluntarily terminates his full-time employment for
Good Reason, then Executive shall become a Part-Time Employee (pursuant to
Sections 7(c) or (d), respectively) and any Retention Option/SAR Grants shall
continue to vest according to their terms and the terms of this Agreement. 
Subject to Sections 11(a)(iii), (ix) and (x), Executive shall have five years
from the date his employment as a Part-Time Employee terminates (but in no event
beyond an award’s original term) in which to exercise the Retention Option/SAR
Grants, after which period they shall expire and become without further force
and effect. 

                         (vii)       Subject to Section 11(a)(ii), in the event
Executive’s status as a Part-Time Employee terminates for any reason (including,
without limitation, upon Executive’s voluntary termination for any reason) other
than (A) upon the death or permanent Disability of Executive, (B) upon
Executive’s breach of Section 8, or (C) by written agreement between both
parties hereto, all of the Retention Option/SAR Grants shall immediately
accelerate vesting as to 100% of the then unvested shares.  Notwithstanding the
accelerated vesting provided for in the previous sentence, any such Retention
Option/SAR Grants will not become exercisable (though they will be vested) until
they would have otherwise become exercisable pursuant to their original vesting
terms.  Subject to Sections11(a)(iii), (ix) and (x), Executive shall have five
years from the date his employment as a Part-Time Employee terminates (but in no
event beyond an award’s original term) in which to exercise the Retention
Option/SAR Grants, after which period they shall expire and become without
further force and effect. 

                         (viii)      In the event that Executive’s employment
terminates due to the Executive’s death or Disability (as defined herein)
(whether during the Full-Time Employment Period or Part-Time Employment Term),
then (A) the Retention Option/SAR Grants shall have their vesting accelerated as
to a pro rata fraction of the initially covered shares less any shares that have
already vested, which pro rata fraction shall be determined by dividing the
number of days elapsed from the grant date to the employment termination date by
the number of days between the grant date and July 1, 2007, and (B) Executive
(or his estate or personal representative) shall have five years from the date
of such employment termination (but in no event beyond an award’s original term)
in which to exercise the Retention Option/SAR Grants, after which period they
shall expire.

-10-

          For the purposes of this Agreement, “Disability” means that Executive
has been unable to perform his employment duties as the result of his incapacity
due to physical or mental illness, and such inability, at least twenty-six (26)
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to Executive or
his legal representative (such agreement as to acceptability not to be
unreasonably withheld).

                         (ix)        In the event of a Change of Control
occurring during the Full-Time Employment Period, then Executive may at his
election transition to Part-Time Employment and continue to vest in his
Retention Stock Option/SAR Grants during such period of Part-Time Employment. 
In the event of a Change of Control occurring while Executive is a Service
Provider, then the Retention Option/SAR Grants shall remain exercisable, to the
extent they are or become vested, through July 1, 2012 (but in no event beyond
an award’s original term).

                         (x)         Notwithstanding any other provisions of
this Agreement, in the event that Executive renders services as an employee,
consultant, director, partner, owner to, or participates as more than a two
percent shareholder in, any Competing Company in a Restricted Territory, as such
terms are defined in Section 8 hereof, then Executive shall promptly notify the
Company in writing of such competitive activity.  The Company, at any time
following it first becoming aware of such competitive activity, shall deliver a
notice to Executive specifying the reasons for its belief that Executive is
engaging in such competitive activity.  Executive shall have thirty (30) days
following the receipt of such notice in which to cease such competitive activity
to the Company’s satisfaction.  In the event Executive fails to cease such
activity to the Company’s satisfaction within the thirty-day notice period, then
any five (5) year post-termination exercise period for the Retention Option/SAR
Grants to which Executive would otherwise be entitled shall be shortened to
thirty (30) days following the date upon which the thirty-day notice period
expires (but in no event beyond an award’s original term), following which
period such Retention Option/SAR grants shall expire and be without further
force and effect.  However, this Section 11(a)(x) limitation shall not apply to
the extended post-termination exercise provisions arising pursuant to a Change
of Control under Section 11(a)(ix) hereof.

          (b)          Retention Grants – Restricted Stock Units.  With respect
to the 100,000 share restricted stock unit award granted to Executive effective
October 18, 2004 and any award of restricted stock, restricted stock units or
other similar award granted on or after such date (awards of restricted stock,
restricted stock units or other similar awards covered by this Section 11(b) are
referred to herein as “Retention Restricted Stock/Unit Grants”), notwithstanding
any other provisions of this Agreement, the following terms shall apply:

                         (i)          In the event that (i) Executive’s
full-time employment is terminated for Cause or breach of Section 8 hereof, or
(ii) Executive’s Part-Time Employment is terminated for breach of Section 8
hereof, then any Retention Restricted Stock/Unit Grants shall immediately, to
the extent then unvested, be forfeited to the Company.

                         (ii)         Subject to Section 11(b)(ix), in the event
that, prior to July 1, 2006, Executive voluntarily terminates his position as
Chief Executive Officer other than for Good Reason, even if Executive remains a
Service Provider, any Retention Restricted Stock/Unit Grants shall immediately
be forfeited to the Company.

-11-

                         (iii)        Subject to Section 11(b)(ix), in the event
that, on and after July 1, 2006 and prior to July 1, 2007, Executive voluntarily
terminates as a Service Provider other than for Good Reason (whether during the
Full-Time Employment Period or Part-Time Employment Term), any Retention
Restricted Stock/Unit Grants shall immediately be forfeited to the Company.

                         (iv)        In the event that, on and after July 1,
2007, Executive voluntarily terminates as a Service Provider other than for Good
Reason (whether during the Full-Time Employment Period or Part-Time Employment
Term), any Retention Restricted Stock/Unit Grants shall immediately, but only if
then unvested, be forfeited to the Company.

                         (v)         Subject to the other provisions of this
Section 11(b), in the event that, on and after July 1, 2006, Executive
transitions to a Part-Time Employee or otherwise remains a Service Provider and
does not remain as Chief Executive Officer, any Retention Restricted Stock/Unit
Grants shall continue to vest according to its terms and the terms of this
Agreement.  In the event that Executive remains as Chief Executive Officer, any
Retention Restricted Stock/Unit Grants shall also continue to vest according to
its terms and the terms of this Agreement.

                         (vi)        In the event that (i) Executive’s full-time
employment is terminated without Cause and other than for breach of Section 8
hereof, or (ii) Executive voluntarily terminates his full-time employment for
Good Reason, then Executive shall become a Part-Time Employee (pursuant to
Sections 7(c) or (d), respectively) and any Retention Restricted Stock/Unit
Grants shall continue to vest according to its terms and the terms of this
Agreement. 

                         (vii)       Subject to Section 11(b)(ii), in the event
Executive’s status as a Part-Time Employee terminates for any reason (including,
without limitation, upon Executive’s voluntary termination for any reason) other
than (A) upon the death or permanent Disability of Executive, (B) upon
Executive’s breach of Section 8, or (C) by written agreement between both
parties hereto, any Retention Restricted Stock/Unit Grants shall immediately
accelerate vesting as to 100% of the then unvested shares. 

                         (viii)      In the event that Executive’s employment
terminates due to the Executive’s death or Executive’s becoming “disabled,” as
such term is defined in Code Section 409A(c) and proposed or final Treasury
Regulations (as applicable) promulgated thereunder (a “409A Disability”), then
any Retention Restricted Stock/Unit Grants shall have their vesting accelerated
as to a pro rata fraction of the initially covered shares, which pro rata
fraction shall be determined by dividing the number of days elapsed from the
grant date to the employment termination date by the number of days between the
grant date and July 1, 2007.

                         (ix)        In the event of a Change of Control
occurring during the Full-Time Employment Period, then Executive may at his
election transition to the Part-Time Employment Period and continue to vest in
his Retention Restricted Stock/Unit Grants during such period of Part-Time
Employment. 

                         (x)         Any vested Retention Restricted Stock/Unit
Grants shall be delivered to Executive (or, in the event of Executive’s death or
409A disability, as defined below, his estate or personal representative) on the
earliest to occur of (i) July 1, 2007, (ii) Executive’s death, or (iii)
Executive’s 409A Disability.

-12-

          12.          Attorneys’ Fees.  The Company will pay all of Executive’s
reasonable attorneys’ fees in connection with the negotiation, preparation and
execution of this Agreement (including the November, 2005 restatement thereof)
with the Company.

          13.          Assignment.  Executive’s rights and obligations under
this Agreement shall not be assignable by Executive.  The Company’s rights and
obligations under this Agreement shall not be assignable by the Company except
as incident to the transfer, by merger, liquidation, or otherwise, of all or
substantially all of the business of the Company.  Any such assignee of the
Company shall deliver Executive a written confirmation confirming its assumption
of this Agreement.

          14.          Notices.  Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed to have been effectively
made or given if personally delivered, or if sent by facsimile, or mailed or
sent via Federal Express to the other party at its address set forth below in
this Section 14, or at such other address as such party may designate by written
notice to the other party hereto.  Any effective notice hereunder shall be
deemed given on the date personally delivered or on the date sent by facsimile
or deposited in the United States mail (sent by certified mail, return receipt
requested), as the case may be, at the following addresses:

 

If to the Company:

KLA-Tencor Corporation

 

 

160 Rio Robles

 

 

San Jose, CA 95134

 

 

Attn: General Counsel

 

 

 

 

If to Executive:

Kenneth L. Schroeder

 

 

at the last primary residential address known to the Company

          15.          Arbitration.  The parties hereto agree that any dispute
or controversy arising out of, relating to, or in connection with this
Agreement, or the interpretation, validity, construction, performance, breach,
or termination thereof, shall be finally settled by binding arbitration to be
held in Santa Clara County, California under the Employment Dispute Resolution
Rules of the American Arbitration Association as then in effect (the “Rules”). 
The arbitrator may grant injunctions or other relief in such dispute or
controversy.  The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration, and judgment may be entered on the
decision of the arbitrator in any court having jurisdiction.

          The arbitrator shall apply California law to the merits of any dispute
or claim, without reference to rules of conflicts of law, and the arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law.

          The Company shall pay the costs and expenses of such arbitration, and
each party shall pay its own counsel fees and expenses.

-13-

 

THE PARTIES HERETO HAVE READ AND UNDERSTAND THIS SECTION 15, WHICH DISCUSSES
ARBITRATION.  THE PARTIES HERETO UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY
AGREE TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EACH PARTY’S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO EXECUTIVE’S RELATIONSHIP WITH THE
COMPANY.

          16.          Withholding.  The Company shall be entitled to withhold,
or cause to be withheld, from payment any amount of withholding taxes required
by law with respect to payments made to Executive in connection with his
employment hereunder.

          17.          Severability.  If any term or provision of this Agreement
shall to any extent be declared illegal or unenforceable by arbitrator(s) or by
a duly authorized court of competent jurisdiction, then the remainder of this
Agreement or the application of such term or provision in circumstances other
than those as to which it is so declared illegal or unenforceable, shall not be
affected thereby, each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law and the illegal or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term of provision.

          18.          Entire Agreement.  This Agreement and the agreements
relating to the Retention Option/SAR Grants, the Retention Restricted Stock/Unit
Grants and any other equity compensation agreements represent the entire
agreement of the parties with respect to the matters set forth herein, and to
the extent inconsistent with other prior contracts, arrangements or
understandings between the parties, supersedes all such previous contracts,
arrangements or understandings between the Company and Executive, including
without limitation the Prior Agreement.  The Agreement may be amended at any
time only by mutual written agreement signed by the parties hereto.

          19.          Governing Law.  This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of California
without reference to rules relating to conflict of law (other than any such
rules directing application of California law).

          20.          Headings.  The headings of sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.

          21.          Counterparts.  This Agreement may be executed by either
of the parties hereto in counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.

-14-

          22.          Code Section 409A.  This Agreement will be deemed amended
to the extent necessary to avoid imposition of any additional tax or income
recognition prior to actual payment to Executive under Code section 409A and any
proposed or final Treasury Regulations and guidance promulgated thereunder.

EXECUTIVE

 

KLA-TENCOR CORPORATION

 

 

 

/s/ Kenneth L. Schroeder

 

/s/ Stuart J. Nichols

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

Kenneth L. Schroeder

 

Stuart J. Nichols

 

 

Vice-President, General Counsel

-15-

EXHIBIT A

RELEASE OF CLAIMS

          This Release of Claims (“Release”) is made by and between KLA-Tencor
Corporation (the “Company”), and _______________ (“Employee”).

          WHEREAS, Employee has agreed to enter into a release of claims in
favor of the Company in return for obtaining certain severance benefits
specified in the agreement by and between the Company and Employee dated
November __, 2005 which amended and restated in its entirety that Agreement
dated February 23, 2005 (the “Agreement”).

          NOW THEREFORE, in consideration of the mutual promises made herein,
the Parties hereby agree as follows:

          1.          Termination.  Employee’s employment from the Company
terminated on ________________ (the “Termination Date”).

          2.          Consideration.  Pursuant to the terms of Section __ of the
Agreement, upon the Effective Date of this Release, Executive will be entitled
to severance payments and benefits as provided therein.

          3.          Confidential Information.  Employee shall continue to
maintain the confidentiality of all confidential and proprietary information of
the Company and shall continue to comply with the terms and conditions of the
[Confidentiality Agreement] between Employee and the Company.  Employee shall
return all the Company property and confidential and proprietary information in
his possession to the Company on the Effective Date of this Release.

          4.          Payment of Salary.  Employee acknowledges and represents
that the Company has paid all severance, salary, wages, bonuses, accrued
vacation, commissions and any and all other benefits due to Employee as of the
date hereof.

          5.          Release of Claims.  Employee agrees that the foregoing
consideration represents settlement in full of all outstanding obligations owed
to Employee by the Company.  Employee, on behalf of himself, and his respective
heirs, family members, executors and assigns, hereby fully and forever releases
the Company and its past, present and future officers, agents, directors,
employees, investors, shareholders, administrators, affiliates, divisions,
subsidiaries, parents, predecessor and successor corporations, and assigns,
from, and agrees not to sue or otherwise institute or cause to be instituted any
legal or administrative proceedings concerning any claim, duty, obligation or
cause of action relating to any matters of any kind, whether presently known or
unknown, suspected or unsuspected, that he may possess arising from any
omissions, acts or facts that have occurred up until and including the Effective
Date of this Release including, without limitation,

                       a.          any and all claims relating to or arising
from Employee’s employment relationship with the Company and the termination of
that relationship;

-16-

                       b.          any and all claims relating to, or arising
from, Employee’s right to purchase, or actual purchase of shares of stock of the
Company, including, without limitation, any claims for fraud, misrepresentation,
breach of fiduciary duty, breach of duty under applicable state corporate law,
and securities fraud under any state or federal law;

                       c.          any and all claims for wrongful discharge of
employment; termination in violation of public policy; discrimination; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; promissory estoppel; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic
advantage; unfair business practices; defamation; libel; slander; negligence;
personal injury; assault; battery; invasion of privacy; false imprisonment; and
conversion;

                       d.          any and all claims for violation of any
federal, state or municipal statute, including, but not limited to, Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of
1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act
of 1974, The Worker Adjustment and Retraining Notification Act, the California
Fair Employment and Housing Act, and Labor Code section 201, et seq. and section
970, et seq. and all amendments to each such Act as well as the regulations
issued thereunder;

                       e.          any and all claims for violation of the
federal, or any state, constitution;

                       f.          any and all claims arising out of any other
laws and regulations relating to employment or employment discrimination; and

                       g.          any and all claims for attorneys’ fees and
costs.

Employee agrees that the release set forth in this section shall be and remain
in effect in all respects as a complete general release as to the matters
released.  Notwithstanding the previous sentence, the Parties agree that
Employee will continue to be covered by the terms and conditions of the
[Indemnity Release] entered into between Employee and the Company on [DATE] (the
“Indemnity Release”) and the terms of the Company’s D&O insurance policy for
claims against Employee that arise out of matters or events that occurred prior
to the Termination Date.  This release does not extend to any severance benefits
due Employee under the Agreement or any rights to indemnification Employee may
have under the Indemnification Release or the Company’s D&O insurance policy.

          6.          Acknowledgment of Waiver of Claims under ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
the ADEA after the Effective Date of this Release.  Employee acknowledges that
the consideration given for this Release is in addition to anything of value to
which Employee was already entitled.  Employee further acknowledges that he has
been advised by this writing that (a) he should consult with an attorney prior
to executing this Release;

-17-

(b) he has at least twenty-one (21) days within which to consider this Release;
(c) he has seven (7) days following the execution of this Release by the parties
to revoke the Release; (d) this Release shall not be effective until the
revocation period has expired; and (e) nothing in this Release prevents or
precludes Employee from challenging or seeking a determination in good faith of
the validity of this waiver under the ADEA, nor does it impose any condition
precedent, penalties or costs for doing so, unless specifically authorized by
federal law.  Any revocation should be in writing and delivered to the General
Counsel at the Company by close of business on the seventh day from the date
that Employee signs this Release.

          7.          Civil Code Section 1542.  Employee represents that he is
not aware of any claims against the Company other than the claims that are
released by this Release.  Employee acknowledges that he has been advised by
legal counsel and is familiar with the provisions of California Civil Code 1542,
below, which provides as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

                    Employee, being aware of said code section, agrees to
expressly waive any rights he may have thereunder, as well as under any statute
or common law principles of similar effect.

          8.        No Pending or Future Lawsuits.  Employee represents that he
has no lawsuits, claims, or actions pending in his name, or on behalf of any
other person or entity, against the Company or any other person or entity
referred to herein.  Employee also represents that he does not intend to bring
any claims on his own behalf or on behalf of any other person or entity against
the Company or any other person or entity referred to herein.

          9.        Application for Employment.  Employee understands and agrees
that, as a condition of this Release, he shall not be entitled to any employment
with the Company, its subsidiaries, or any successor, and he hereby waives any
right, or alleged right, of employment or re-employment with the Company.

          10.      No Cooperation.  Employee agrees that he will not counsel or
assist any attorneys or their clients in the presentation or prosecution of any
disputes, differences, grievances, claims, charges, or complaints by any third
party against the Company and/or any officer, director, employee, agent,
representative, shareholder or attorney of the Company, unless under a subpoena
or other court order to do so.

          11.      Costs.  The Parties shall each bear their own costs, expert
fees, attorneys’ fees and other fees incurred in connection with this Release.

-18-

          12.        Authority.  Employee represents and warrants that he has
the capacity to act on his own behalf and on behalf of all who might claim
through him to bind them to the terms and conditions of this Release.

          13.        No Representations.  Employee represents that he has had
the opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Release.  Neither
party has relied upon any representations or statements made by the other party
hereto which are not specifically set forth in this Release.

          14.        Severability.  In the event that any provision hereof
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Release shall continue in full force and effect
without said provision.

          15.        Entire Release.  This Release, along with the Agreement,
the Employee Proprietary Information and Investors Agreement and the
Indemnification Agreement, represents the entire agreement and understanding
between the Company and Employee concerning Employee’s separation from the
Company.

          16.        No Oral Modification.  This Release may only be amended in
writing signed by Employee and the Chairman of the Board of Directors of the
Company.

          17.        Governing Law.  This Release shall be governed by the
internal substantive laws, but not the choice of law rules, of the State of
California.

          18.        Effective Date.  This Release is effective after it has
been signed by both Parties, but no sooner than seven (7) days have passed since
Employee has signed the Release (the “Effective Date”), unless revoked by
Employee prior to the Effective Date.

          19.        Counterparts.  This Release may be executed in
counterparts, and each counterpart shall have the same force and effect as an
original and shall constitute an effective, binding agreement on the part of
each of the undersigned.

          20.        Voluntary Execution of Release.  This Release is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims.  The Parties
acknowledge that:

                       a.          They have read this Release;

                       b.          They have been represented in the
preparation, negotiation, and execution of this Release by legal counsel of
their own choice or that they have voluntarily declined to seek such counsel;

                       c.          They understand the terms and consequences of
this Release and of the releases it contains; and

                       d.          They are fully aware of the legal and binding
effect of this Release.

-19-

          IN WITNESS WHEREOF, the Parties have executed this Release on the
respective dates set forth below.

 

KLA-Tencor Corporation

 

 

 

 

 

 

Dated: __________, 20__

By

 

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

Dated: __________, 20__

 

 

 

 

--------------------------------------------------------------------------------

 

 

Kenneth L. Schroeder

 

 

 

-20-