<PAGE>   1

                                                                   EXHIBIT 10.42

                              EMPLOYMENT AGREEMENT

        THIS AGREEMENT, effective as of the first day of August, 1997, by and
between Papken S. Der Torossian (the "Employee") and Silicon Valley Group, Inc.,
a Delaware corporation (the "Corporation").

        It is the intent of the parties that this Agreement shall supersede and
replace that certain Employment Agreement by and between the parties dated as of
August 1, 1994.

        In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Corporation, the
parties agree as follows:

        1.     Duties and Scope of Employment.

               (a)  Position. The Corporation agrees to employ the Employee for
the term of his employment under this Agreement in the position of Chief
Executive Officer, as such position was defined in terms of responsibilities and
compensation as of the effective date of this Agreement.

               (b)  Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time to the
Corporation and its subsidiaries. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious activities
or from devoting a reasonable amount of time to private investments or from
serving on the boards of directors of other entities, as long as such activities
and service do not interfere or conflict with his responsibilities to the
Corporation.

        2.     Base Compensation. During the term of his employment under this
Agreement, the Corporation agrees to pay the Employee as compensation for his
services a base salary at the annual rate of $600,000, or at such higher rate as
the Corporation's Board of Directors may determine from time to time, along with
such performance bonus amounts and car allowances, if any, as the Board shall
authorize, in its discretion, from time to time. Such salary shall be payable in
approximately equal bi-weekly installments. (The annual compensation specified
in this Section 2, together with any increases in such compensation that the
Board of Directors may grant from time to time, is referred to in this Agreement
as "Base Compensation.")


<PAGE>   2

        3.     Employee Benefits.

               (a)  General. During the term of his employment under this
Agreement, the Employee shall be eligible to participate in the employee benefit
plans and executive compensation programs maintained by the Corporation,
including (without limitation) pension plans, savings or profit-sharing plans,
deferred compensation plans, supplemental retirement or excess-benefit plans,
stock option, incentive or other bonus plans, life, disability, health, accident
and other insurance programs, paid vacations, and similar plans or programs,
subject in each case to the generally applicable terms and conditions of the
plan or program in question and to the determination of any committee
administering such plan or program.

               (b)  Stock Options. The Corporation has granted to the Employee
options to purchase certain shares of the Common Stock of the Corporation. The
terms of the options shall be governed by the Corporation's Stock Option
Agreement attached hereto as Exhibit A.

        4.     Business Expenses and Travel. During the term of his employment 
under this Agreement, the Employee shall be authorized to incur necessary and
reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Corporation shall reimburse the Employee for such
expenses upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Corporation's generally applicable
policies.

        5.     Term of Employment.

               (a)  Basic Rule. The Corporation agrees to continue the 
Employee's employment, and the Employee agrees to remain in employment with the
Corporation, from the effective date of this Agreement until the date when the
Employee's employment terminates pursuant to the provisions of this Agreement.

               (b)  Termination by the Corporation. The Corporation may 
terminate Employee's employment at any time, for any reason whatsoever, by
giving the Employee thirty (30) days' advance notice in writing.


                                      -2-
<PAGE>   3
                    (i)  Termination Without Cause. If the Corporation 
terminates Employee's employment without Cause, the provisions of Section 6(a) 
shall apply.

                    (ii) Termination Upon Disability. If the Corporation
terminates the Employee's employment for Disability, the provisions of Section
6(a) shall apply. For all purposes under this Agreement, "Disability" shall mean
that the Employee, at the time notice is given, has been unable to perform his
duties under this Agreement for a period of not less than six consecutive months
as the result of his incapacity due to physical or mental illness. In the event
that the Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment under this subsection (ii)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked. 

                    (iii) Termination Within Twelve (12) Months of a Change in
Control. If the Corporation terminates Employee's employment within twelve (12)
months after a Change in Control, whether such termination is with or without
Cause, is due to Employee's death or Disability, or constitutes a Constructive
Termination (as defined in Section 5(c) below), the provisions of Sections 6(a)
and 6(b) shall apply. For all purposes under this Agreement, "Change in Control"
shall mean the occurrence of any of the following events:

                          (x) Any "person" (as such term is used in Sections 
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Corporation representing fifty
percent (50%) or more of the total voting power represented by the Corporation's
then outstanding voting securities except pursuant to a negotiated agreement
with the Corporation and pursuant to which such securities are purchased from
the Corporation; or

                          (y) A change in the composition of the Board of
Directors of the Corporation, as a result of which fewer than a majority of the
incumbent directors are directors who either (A) had been directors of the
Corporation thirty-six (36) months prior to such change or (B) were elected, or
nominated for election, to the Board of Directors of the Corporation with the
affirmative votes of at least a majority of the directors who had been directors
of the Corporation thirty-six (36) months prior to such change and who were
still in office at the time of the election or nomination; or 


                                      -3-
<PAGE>   4

                          (z) The shareholders of the Corporation approve a
merger or consolidation of the Corporation with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Corporation 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 Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the corporation approve a plan of complete liquidation of the Corporation or
an agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets. 

        Any other provision of this Section notwithstanding, the term "Change in
Control" shall not include either of the following events undertaken at the
election of the Corporation:

                              (1) Any transaction, the sole purpose of which is
to change the state of the Corporation's incorporation;

                              (2) A transaction, the result of which is to sell
all or substantially all of the assets of the Corporation to another corporation
(the "surviving corporation"); provided that the surviving corporation is owned
directly or indirectly by the shareholders of the Corporation immediately
following such transaction in substantially the same proportions as their
ownership of the Corporation's common stock immediately preceding such
transaction; and provided, further, that the surviving corporation expressly
assumes this Agreement.

                    (iv) Death. Upon the event of the Employee's death,
Employee's employment with the Corporation shall be considered automatically
terminated and the provisions of Section 6(a) shall apply.

                    (v) Termination for Cause. Except as set forth in Section
5(b)(iii), if the Corporation terminates Employee's employment for Cause, the
provisions of Section 6(c) shall apply. For all purposes under this Agreement,
"Cause" shall mean (i) a willful failure by the Employee to substantially
perform his duties hereunder (other than a failure resulting from the Employee's
complete or partial incapacity due to physical or mental illness or impairment)
after there has been delivered to Employee a written demand for performance from
the Company which describes the basis for the Company's belief that Employee has
not substantially performed his duties


                                      -4-
<PAGE>   5

and sets forth specific performance goals to cure such defaults; provided that
upon any determination by the Company that Employee has willfully failed to
perform his duties, Employee shall have 120 days in which to cure such willful
failure to perform his duties, (ii) a willful act by the Employee which
constitutes gross misconduct and which is injurious to the Corporation, (iii) a
willful breach by the Employee of a material provision of this Agreement, or
(iv) a material and willful violation of a federal or state law or regulation
applicable to the business of the Corporation. No act, or failure to act, by the
Employee shall be considered "willful" unless committed without good faith and
without a reasonable belief that the act or omission was in the Corporation's
best interest.

               (c)  Voluntary Termination by the Employee. The Employee may
terminate his employment by giving the Corporation thirty (30) days' advance
notice in writing. If the Employee terminates his employment under the preceding
sentence other than as a result of a Constructive Termination, the provisions of
Section 6(d) shall apply. If the Employee terminates his employment pursuant to
this Section 5(c) as a result of a Constructive Termination, the provisions of
Section 6(a) shall apply. For all purposes under this Agreement, "Constructive
Termination" shall mean a material reduction in salary or benefits, a material
change in responsibilities, or a requirement to relocate, except for office
relocations that would not increase the Employee's one-way commute distance by
more than forty (40) miles.

               (d)  Waiver of Notice. Any waiver of notice shall be valid only 
if it is made in writing and expressly refers to the applicable notice
requirement in this Section 5.

        6.     Payments Upon Termination of Employment.

               (a)  Payments Upon Termination Pursuant to Section 5(b)(i)-(iv)
and Constructive Termination. If, during the term of this Agreement, the
Employee's employment is terminated pursuant to any of the reasons set forth in
Section 5(b)(i)-(iv) or voluntarily by Employee under Section 5(c) as a result
of a Constructive Termination, the Employee shall be entitled to receive a
severance payment from the Corporation (the "Severance Payment") in an amount
equal to the following:
                    
                    (i) an amount equal to three hundred percent (300%) of the
Employee's Base Compensation in effect on the date of employment termination;
plus


                                      -5-
<PAGE>   6

                    (ii) the greater of (x) an amount equal to three hundred
percent (300%) of the aggregate bonus and car allowance, if any, payable to the
employee for the immediately preceding 12-month period, and (y) an amount equal
to three hundred percent (300%) of the aggregate bonus and car allowance, if
any, paid to the employee for the immediately preceding fiscal year.

        The Severance Payment shall be made in a lump sum within thirty (30)
days following the date of the employment termination. The Severance Payment
shall be in lieu of any further payments to the Employee under Section 2 and any
further accrual of benefits under Section 3 with respect to periods subsequent
to the date of the employment termination. Notwithstanding the preceding
sentence, the Severance Payment shall not reduce or offset any benefits the
Employee may be entitled to under the specific terms of the benefit plans of the
Corporation, including but not limited to payments of premiums on a life
insurance policy for which the Employee or any designee of the Employee is the
beneficiary.

        The Employee shall not be required to mitigate the amount of any payment
contemplated by this Section 6(a) (whether by seeking new employment or in any
other manner), nor shall any such payment be reduced by any earnings that the
Employee may receive from any other source.

               (b)  Option Acceleration Upon Termination on Change in Control.
If, during the term of this Agreement, the Employee's employment is terminated
pursuant to the reasons set forth in Section 5(b)(iii), then the unvested
portion of any stock option held by the Employee under the Company's stock
option plans shall automatically be accelerated as of the date of employment
termination and the Employee or the Employee's representative, as the case may
be, shall have the right to exercise all or any portion of such stock option, in
addition to any portion of the option exercisable prior to such termination. If
a termination of Employee's employment results in acceleration of vesting of any
option, the Employee shall have 90 days following the date of employment
termination to exercise such option, notwithstanding any contrary provision of
the option agreement.

               (c)  Termination For Cause. If the Employee's employment is
terminated for Cause pursuant to Section 5(b)(v), except as otherwise set forth
in Section 5(b)(iii), no compensation or payments will be paid or provided to
the Employee for the periods following the date when such a 


                                      -6-
<PAGE>   7

termination of employment is effective. Notwithstanding the preceding sentence,
nothing herein shall be interpreted to reduce or offset any benefits the
Employee may be entitled to under the terms of the benefit plans of the
Corporation.

               (d)  Payments Upon Voluntary Termination. In the event that,
during the term of this Agreement, the Employee's employment is terminated
pursuant to Section 5(c) other than as a result of a Constructive Termination,
no compensation or payments will be paid or provided to the Employee for the
periods following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, nothing herein shall be interpreted to
reduce or offset any benefits the Employee may be entitled to under the terms of
the benefit plans of the Corporation.

               (e)  Limitation on Payments.

                    (i)  In the event that the severance and other benefits 
provided for in this Agreement or otherwise payable to the Executive (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section would be subject to the excise tax imposed by Section 4999 of the Code,
then the Executive's severance benefits under Section 6 shall be payable either
(i) in full, or (ii) as to such lesser amount which 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 under this Agreement, notwithstanding that
all or some portion of such severance benefits may be taxable under Section 4999
of the Code. 

                    (ii)  If a reduction in the payments and benefits that would
otherwise be paid or provided to the Executive under the terms of this Agreement
is necessary to comply with the provisions of Section 6(e)(i), the Executive
shall be entitled to select which payments or benefits will be reduced and the
manner and method of any such reduction of such payments or benefits (including
but not limited to the number of options that would vest under Section 6(b)
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section
6(e)(i) are met). Within thirty (30) days after the amount of any required
reduction in payments and benefits is finally determined in accordance with 


                                      -7-
<PAGE>   8

the provisions of Section 6(e)(iii), the Executive shall notify the Company in
writing regarding which payments or benefits are to be reduced. If no
notification is given by the Executive, the Company will determine which amounts
to reduce. If, as a result of any reduction required by Section 6(e)(i), amounts
previously paid to the Executive exceed the amount to which the Executive is
entitled, the Executive will promptly return the excess amount to the Company.

                    (iii) Unless the Company and the Executive otherwise agree
in writing, any determination required under this Section 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. For purposes of making the calculations required by
this Section, 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. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.

        7.     Successors.
               (a)  Corporation's Successors. Any successor to the Corporation
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Corporation's business and/or assets shall assume this Agreement and agree
expressly to perform this Agreement in the same manner and to the same extent as
the Corporation would be required to perform it in the absence of a succession.
For all purposes under this Agreement, the term "Corporation" shall include any
successor to the Corporation's business and/or assets which executes and
delivers the assumption agreement described in this subsection (a) or which
becomes bound by this Agreement by operation of law.

               (b)  Employee's Successors. This Agreement and all rights of the
Employee hereunder shall continue to benefit, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.


                                      -8-
<PAGE>   9

        8.     Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Corporation in writing. In the case of the Corporation,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.

        9.     Termination of Agreement. This Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied or (ii) August 1, 2004. A termination of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of this Agreement.

        10.    Miscellaneous Provisions.

               (a)  Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Corporation (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 the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.

               (b)  Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to employment matters.

               (c)  Choice of Law. The validity, interpretation, construction 
and performance of this Agreement shall be governed by the laws of the State of
California. 

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


                                      -9-
<PAGE>   10

               (e)  Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
San Jose, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Punitive damages shall not be awarded.

               (f)  No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.

               (g)  Employment At Will; Limitation of Remedies. The Corporation
and the Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement.

               (h)  Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable taxes.

               (i)  Assignment of Agreement by Corporation. The Corporation may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Corporation
or to the Corporation. In the case of any such assignment, the term
"Corporation" when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.

               (j)  Counterparts. This Agreement may be executed in 
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.


                                      -10-
<PAGE>   11

        IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Corporation by its duly authorized officer, as of the day and
year first above written.

                                     SILICON VALLEY GROUP, INC.



                                     By: /s/ WILLIAM A. HIGHTOWER
                                        -----------------------------------
                                     Title: President and COO
                                            -------------------------------
                                     /s/ LARRY W. SONSINI
                                         Secretary

                                     /s/ PAPKEN S. DER TOROSSIAN
                                     --------------------------------------
                                     PAPKEN S. DER TOROSSIAN

                                      -11-