**EXHIBIT10.5**

 

**EMPLOYMENT AGREEMENT**

 

This EmploymentAgreement (the “Agreement”) is made and entered into effective as of May 1,2003 by and between Brian C. Klene (the “Employee”) and Cymer, Inc.,a Nevada corporation (the “Company”).

 

**RECITALS**

 

A.                                   TheCompany may from time to time need to address the possibility of an acquisitiontransaction or change of control event. The Board of Directors of the Company (the “Board”) recognizes that suchevents can be a distraction to the Employee and can cause the Employee toconsider alternative employment opportunities. The Board has determined that it is in the best interests of the Companyand its stockholders to assure that the Company will have the continueddedication and objectivity of the Employee, notwithstanding the possibility,threat or occurrence of a Change of Control (as defined below) of the Company,although no such Change of Control is now contemplated.

 

B.                                     TheBoard believes that it is in the best interests of the Company and itsstockholders to provide the Employee with an incentive to continue hisemployment and to motivate the Employee to maximize the value of the Companyupon a Change of Control for the benefit of its stockholders.

 

C.                                     TheBoard believes that it is imperative to provide the Employee with certainbenefits upon a Change of Control and, under certain circumstances, upontermination of the Employee’s employment in connection with a Change ofControl, which benefits are intended to provide the Employee with financialsecurity and provide sufficient incentive and encouragement to the Employee toremain with the Company notwithstanding the possibility of a Change of Control.

 

D.                                    Toaccomplish the foregoing objectives, the Board has directed the Company, uponexecution of this Agreement by the Employee, to agree to the terms providedherein.

 

E.                                      Certaincapitalized terms used in this Agreement are defined in Section 7 below.

 

**AGREEMENT**

 

In considerationof the mutual covenants herein contained, and in consideration of thecontinuing employment of the Employee by the Company, the parties agree asfollows:

 

**1.****                                      Dutiesand Scope of Employment**.  TheCompany shall employ the Employee in the position of Executive Vice President,Emerging Technologies and Applications Business Unit, as

 

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such position has beendefined in terms of responsibilities and compensation as of the effective dateof this Agreement; provided, however, that the Board shall have the right, atany time prior to the occurrence of a Change of Control, to revise suchresponsibilities and compensation as the Board in its discretion may deemnecessary or appropriate.  The Employeeshall comply with and be bound by the Company’s operating policies, proceduresand practices from time to time in effect during his employment.  During the term of the Employee’s employmentwith the Company, the Employee shall continue to devote his full time, skilland attention to his duties and responsibilities, and shall perform themfaithfully, diligently and competently, and the Employee shall use his bestefforts to further the business of the Company and its affiliated entities.

 

**2.****                                      BaseCompensation**.  The Company shall paythe Employee as compensation for his services a base salary at the annualizedrate of $240,000.00 (“Base Compensation”). Such salary shall be paid periodically in accordance with normal Companypayroll practices.  The Board or theCompensation Committee of the Board shall review the base salary of theEmployee according to normal Company practice, but no less frequently thanannually, and may in its discretion increase but not decrease the base salarybelow the amount specified in this agreement.

 

**3.****                                      AnnualIncentive**.  Beginning with theCompany’s current fiscal year and for each fiscal year thereafter during theterm of this Agreement, the Employee shall be eligible to receive an annualbonus under the Company’s annual incentive plan (the “Annual Incentive”) basedupon performance targets approved by the Compensation Committee of the Board(the “Target Incentive”) in its sole discretion.  The Annual Incentive payable hereunder shall be payable inaccordance with the Company’s normal practices and policies.

 

**4.****                                      EmployeeBenefits**.  The Employee shall beeligible to participate in the employee benefit plans and executive compensa­tionprograms maintained by the Company applicable to other key executives of theCompany, including (without limitation) retirement plans, savings orprofit-sharing plans, stock option, incentive or other bonus plans, life,disability, health, accident and other insurance programs, paid vacations, andsimilar plans or programs, subject in each case to the generally applicableterms and conditions of the applicable plan or program in question and to thesole determination of the Board or any committee administering such plan orprogram.

 

**5.****                                      EmploymentRelationship**.  The Company and theEmployee acknowledge that the Employee’s employment is and shall continue to beat-will, as defined under applicable law. If the Employee’s employment terminates for any reason, the Employeeshall not be entitled to any payments, benefits, damages, awards orcompensation other than as provided by this Agreement, or as may otherwise beavailable in accordance with any Company plan or policy approved by the Board.

 

**6.****                                      TerminationBenefits.**

 

**(a)****                                 **Subjectto Sections 8 and 9 below, in the event the Employee’s employment terminates asa result of an Involuntary Termination other than for Cause upon or withineighteen (18) months after a Change of Control, then the Employee shall beentitled to receive severance and other benefits as follows:

 

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**(i)****                                    PayContinuation. **The Employee shall beentitled to monthly payments equal to the Employee’s monthly Base Compensationas in effect immediately prior to the Change of Control plus one-twelfth (1/12)of the average of the annual bonus amount paid to the Employee with respect tothe three previous calendar years.  Suchmonthly amounts shall be paid according to the normal payroll practice of theCompany for 12 months following the date of termination (the “TerminationPeriod”).

 

**(ii)****                                AnnualIncentive.**  The Employee shall beentitled to receive a percentage of the Employee’s Target Incentive for the calendaryear in which such termination occurs. Such percentage shall equal a fraction,the numerator of which shall be the number of days in such calendar year up toand including the date of such termination and the denominator of which shallbe the number of days in such calendar year. Such amount shall be payable according to the normal practice of theCompany with respect to the payment of bonuses.

 

**(iii)****                            Options. **The unvested portion of any stockoption(s) held by the Employee under the Company’s stock option plans shallvest and become exercisable in full upon the date of such termination. Employeeshall have one year from the date of such termination to exercise any vestedoptions.

 

**(iv)****                               MedicalBenefits.** The Company shall reimburse the Employee for the cost of theEmployee’s group health, vision and dental plan coverage in effect until theend of the Termination Period.  TheEmployee may use this payment, as well as any other payment made under thisSection 6, for such continuation coverage or for any other purpose.  To the extent the Employee pays the cost ofsuch coverage, and the cost of such coverage is not deductible as a medicalexpense by the Employee, the Company shall “gross-up” the amount of such reimbursementfor all taxes payable by the Employee on the amount of such reimbursement andthe amount of such gross-up.

 

**(b)****                                 **Inthe event the Employee voluntarily resigns his employment with the Companywithin the 30-day period beginning one year after a Change of Control, theEmployee shall receive the severance and other benefits set forth in Sections6(a)(i)-(iv) above.

 

**7.****                                      Definitionof Terms.**  The following termsreferred to in this Agreement shall have the following meanings:

 

**(a)****                                  Cause.**  “Cause” shall mean any of the following: (i)any act of personal dishonesty taken by the Employee in connection with hisresponsibilities as an employee and intended to result in substantial personalenrichment of the Employee, (ii) conviction of a felony that is injurious tothe Company, (iii) a willful act by the Employee which constitutes grossmisconduct and which is injurious to the Company, or (iv) continued violationsby the Employee of the Employee’s obligations under Section 1 of this Agreementafter there has been delivered to the Employee a written demand for performancefrom the Company which describes the basis for the Company’s belief that theEmployee has not substantially performed his duties.

 

**(b)****                                  Changeof Control. **“Change of Control”shall mean the occurrence of any of the following events:

 

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**(i)****                                   **Theacquisition by any “person” (as such term is used in Sections 13(d) and 14(d)of the Exchange Act) (other than the Company or a person that directly orindirectly controls, is controlled by, or is under common control with, theCompany) of the “beneficial ownership” (as defined in Rule 13d-3 under saidAct), directly or indirectly, of securities of the Company representing fiftypercent (50%) or more of the total voting power represented by the Company’sthen outstand­ing voting securities; or

 

**(ii)****                               **Achange in the composition of the Board of Directors of the Company occurringwithin a two-year period, as a result of which fewer than a majority of thedirectors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directorsof the Company as of the date hereof, or (B) are elected, or nominated forelection, to the Board of Directors of the Company with the affirmative votesof at least a majority of the Incumbent Directors at the time of such electionor nomination (but shall not include an individual not otherwise an IncumbentDirector whose election or nomination is in connection with an actual orthreatened proxy contest relating to the election of directors to the Company);or

 

**(iii)****                           **Amerger or consolidation of the Company with any other corporation, other than amerger or consolidation which would result in the voting securities of theCompany outstanding immediately prior thereto continuing to represent (eitherby remaining outstanding or by being converted into voting securities of thesurviving entity) at least fifty percent (50%) of the total voting powerrepresented by the voting securities of the Company or such surviving entityoutstanding immediately after such merger or consolidation.

 

**(c)****                                  Disability.**  “Disability” shall mean that the Employeehas been unable to substantially perform his duties under this Agreement as theresult of his incapacity due to physical or mental illness, and such inability,at least 26 weeks after its commencement, is determined to be total andpermanent by a physician selected by the Company or its insurers and acceptableto the Employee or the Employee’s legal representative (such agreement as toacceptability not to be unreasonably withheld).

 

**(d)****                                  ExchangeAct.**  “Exchange Act” shall mean theSecurities Exchange Act of 1934, as amended.

 

**(e)****                                  InvoluntaryTermination. **“InvoluntaryTermination” shall mean (i) without the Employee’s express written consent, thesignificant reduction of the Employee’s duties or responsibilities relative tothe Employee’s duties or responsibilities in effect immediately prior to suchreduction; provided, however, that a reduction in duties or responsibilitiessolely by virtue of the Company being acquired and made part of a larger entity(as, for example, when the Chief Financial Officer of Company remains as suchfollowing a Change of Control and is not made the Chief Financial Officer ofthe acquiring corporation) shall not constitute an “Involuntary Termination”;(ii) without the Employee’s express written consent, a substantial reduction,without good business reasons, of the facilities and perquisites (includingoffice space and location) available to the Employee immediately prior to suchreduction; (iii) without the Employee’s express written consent, a materialreduction by the Company in the Base Compensation or Target Incentive of theEmployee as in effect immediately prior to such reduction, or the ineligibilityof the Employee to continue to participate in any long-term incentive plan ofthe Company; (iv) a material reduction by the Company in the kind or level of

 

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employee benefits towhich the Employee is entitled immediately prior to such reduction with theresult that the Employee’s overall benefits package is significantly reduced;(v) the relocation of the Employee to a facility or a location more than 50miles from the Employee’s then present location, without the Employee’s expresswritten consent; (vi) any purported termination of the Employee by the Companywhich is not effected for death or Disability or for Cause; or (vii) thefailure of the Company to obtain the assumption of this agreement by anysuccessors contemplated in Section 10 below.

 

**8.****                                      Limitationon Payments.**

 

**(a)****                                 **Inthe event that the severance and other benefits provided for in this Agreementor otherwise payable to the Employee (i) constitute “parachute payments” withinthe meaning of Section 280G of the Internal Revenue Code of 1986, as amended(the “Code”) and (ii) but for this Section 8 would be subject to the excise taximposed by Section 4999 of the Code, then the Employee’s severance benefitsunder Section 6 shall be payable either (i) in full, or (ii) as to such lesseramount which would result in no portion of such severance benefits beingsubject to excise tax under Section 4999 of the Code, whichever of theforegoing amounts, taking into account the applicable federal, state and localincome taxes and the excise tax imposed by Section 4999, results in the receiptby the Employee on an after-tax basis, of the greatest amount of severancebenefits under this Agreement, notwithstanding that all or some portion of suchseverance benefits may be taxable under Section 4999 of the Code.

 

**(b)****                                 **Ifa reduction in the payments and benefits that would otherwise be paid orprovided to the Employee under the terms of this Agreement is necessary tocomply with the provisions of Section 8(a), the Employee shall be entitled toselect which payments or benefits will be reduced and the manner and method ofany such reduction of such payments or benefits (including but not limited tothe number of options that would vest under Section 6(b) subject to reasonablelimitations (including, for example, express provisions under the Company’sbenefit plans) (so long as the requirements of Section 8(a) are met).  Within thirty (30) days after the amount ofany required reduction in payments and benefits is finally determined inaccordance with the provisions of Section 8(c), the Employee shall notify theCompany in writing regarding which payments or benefits are to be reduced.  If no notification is given by the Employee,the Company will determine which amounts to reduce.  If, as a result of any reduction required by Section 8(a),amounts previously paid to the Employee exceed the amount to which the Employeeis entitled, the Employee will promptly return the excess amount to theCompany.

 

**(c)****                                 **Unlessthe Company and the Employee otherwise agree in writing, any determinationrequired under this Section 8 shall be made in writing by the Company’sindependent public accountants (the “Accountants”), whose determination shallbe conclusive and binding upon the Employee and the Company for all purposes.  For purposes of making the calculationsrequired by this Section 8, the Accountants may make reasonable assumptions andapproximations concerning applicable taxes and may rely on reasonable, goodfaith interpretations concerning the application of Sections 280G and 4999 ofthe Code. The Company and the Employee shall furnish to the Accountants suchinformation and documents as the Accountants may reasonably request in order tomake a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur inconnection with any calculations contemplated by this Section 8.

 

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**9.****                                      CertainBusiness Combinations. **In the eventit is determined by the Board, upon receipt of a written opinion of theCompany’s independent public accountants, that the enforcement of any Sectionor subsection of this Agreement, including, but not limited to, Section 6(b)hereof, which allows for the acceleration of vesting of options to purchase sharesof the Company’s common stock upon a termination in connection with a Change ofControl, would preclude accounting for any proposed business combination of theCompany involving a Change of Control as a pooling of interests, and the Boardotherwise desires to approve such a proposed business transaction whichrequires as a condition to the closing of such transaction that it be accountedfor as a pooling of interests, then any such Section of this Agreement shall benull and void, but only if the absence of enforcement of such Section wouldpreserve the pooling treatment.  Forpurposes of this Section 9, the Board’s determination shall require theunanimous approval of the disinterested Board members.

 

**10.****                               Successors.**

 

**(a)****                                  Company’sSuccessors. **Any successor to theCompany (whether direct or indirect and whether by purchase, lease, merger,consolidation, liquidation or otherwise) to all or substantially all of theCompany’s business and assets shall assume the obligations under this Agreementand agree expressly to perform the obligations under this Agreement in the samemanner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall includeany successor to the Company’s business and assets which executes and deliversthe assumption agreement described in this Section 10(a) or which becomes boundby the terms of this Agreement by operation of law.

 

**(b)****                                  Employee’sSuccessors. **The terms of thisAgreement and all rights of the Employee hereunder shall inure to the benefitof, and be enforceable by, the Employee’s personal or legal representatives,executors, administrators, successors, heirs, devisees and legatees.

 

**11.****                               Notice.**  Notices and all other communicationscontemplated by this Agreement shall be in writing and shall be deemed to havebeen duly given when personally delivered or when mailed by U.S. registered orcertified mail, return receipt requested and postage prepaid.  In the case of the Employee, mailed noticesshall be addressed to him at the home address which he most recentlycommunicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to itscorporate headquarters, and all notices shall be directed to the attention ofits Secretary.

 

**12.****                               MiscellaneousProvisions.**

 

**(a)****                                  Waiver.** No provision of this Agreementshall be modified, waived or discharged unless the modification, waiver ordischarge is agreed to in writing and signed by the Employee and by anauthorized officer of the Company (other than the Employee).  No waiver by either party of any breach of,or of compliance with, any condition or provision of this Agreement by theother party shall be considered a waiver of any other condition or provision orof the same condition or provision at another time.

 

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**(b)****                                  WholeAgreement. **No agreements,representations or understandings (whether oral or written and whether expressor implied) which are not expressly set forth in this Agreement have been madeor entered into by either party with respect to the subject matter hereof.

 

**(c)****                                  Choiceof Law.**  The validity,interpretation, construction and performance of this Agreement shall be governedby the laws of the State of California.

 

**(d)****                                  Severability. **The invalidity or unenforceability ofany provision or provisions of this Agreement shall not affect the validity orenforceability of any other provision hereof, which shall remain in full forceand effect.

 

**(e)****                                  Arbitration. **Any dispute or controversy arising outof, relating to or in connection with this Agreement shall be settledexclusively by binding arbitration in San Diego, California, in accordance withthe National Rules for the Resolution of Employment Disputes of the AmericanArbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court havingjurisdiction.  The arbitrator shall: a)have the authority to compel adequate discovery for the resolution of thedispute and to award such relief as would otherwise be permitted by law; and(b) issue a written arbitration decision including the arbitrator’s essentialfindings and conclusions and a statement of the award.  Both the Employee and the Company shall beentitled to all rights and remedies they would have in a court of law.  The Company shall pay all fees in excess ofthose which will be required if the dispute were decided in a court of law.

 

**(f)****                                    NoAssignment of Benefits. **The rightsof any person to payments or benefits under this Agreement shall not be madesubject to option or assignment, either by voluntary or involuntary assignmentor by operation of law, including (without limitation) bankruptcy, garnishment,attachment or other creditor’s process, and any action in violation of thisSection 12(g) shall be void.

 

**(g)****                                 Assignmentby Company. **The Company may assignits rights under this Agreement to an affiliate, and an affiliate may assignits rights under this Agreement to another affiliate of the Company or to theCompany; provided, however, that no assignment shall be made if the net worthof the assignee is less than the net worth of the Company at the time ofassignment.  In the case of any such assignment,the term “Company” when used in a section of this Agreement shall mean thecorporation that actually employs the Employee.

 

**(h)****                                 Counterparts. **This Agreement may be executed incounterparts, each of which shall be deemed an original, but all of whichtogether will constitute one and the same instrument.

 

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IN WITNESSWHEREOF, each of the parties has executed this Agreement, in the case of theCompany by its duly authorized officer, as of the day and year first abovewritten.

 

 
| COMPANY:  |   | CYMER, INC.                                                          |   |   |   |
|-----------|--------|----------------------------------------------------------------------|--------|--------|--------|
|      |   |                                                                 |   |   |   |
|      |   |                                                                 |   |   |   |
|      |   | By:  /s/ Wallace E. Breitman                                    |   |   |   |
|      |   |                                                                 |   |   |   |
|      |   | Title:  Sr. Vice President, Human Resources and  Administration |   |   |   |
|      |   |                                                                 |   |   |   |
|      |   |                                                                 |   |   |   |
|      |   |                                                                 |   |
|      |   |                                                                 |   |   |   |
|      |   |                                                                 |   |   |   |
|      |   |                                                                 |   |   |   |
| EMPLOYEE: |   | /s/ Brian C.  Klene                                                  |   |

 

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