[GIDDINGS & LEWIS, INC. LETTERHEAD]



                                December 3, 1996




   Personal & Confidential

   Mr. Richard C. Kleinfeldt
   66 Pheasant Drive
   Fond du Lac, WI  54936

   Dear Dick:

             This letter agreement confirms our mutual understanding
   regarding your retirement from employment with Giddings & Lewis, Inc. (the
   "Company").  In return for your compliance with all of the terms of this
   agreement, the Company will provide the following additional consideration
   and benefits:

             1.   Retirement.  (a)  Upon execution of this agreement by you
   on or before December 14, 1996, you shall advise the Company in writing
   (substantially in the form of Exhibit A to this agreement) that you are
   retiring from the Company effective as of a specific date not later than
   April 1, 1997 (your "Retirement Date") and that you are resigning as an
   executive officer and director of the Company effective immediately.  You
   also agree to provide additional resignations from such other positions as
   the Company deems necessary, including positions as officer or director of
   any affiliated company or as member of any committee or administrative
   body relating to the Company and its businesses.  During the period from
   your execution of this agreement to your Retirement Date no changes will
   be made in your current base salary, benefit plans, or fringe benefits as
   a result of your resignation as an executive officer of the Company.  Upon
   execution of this agreement and receipt by the Company of your notice of
   retirement and the related resignations, the Company will issue a press
   release, in a form acceptable to you, announcing your retirement effective
   as of your Retirement Date.

             (b)  Provided that you sign this agreement and do not execute
   your revocation rights, you will be a consulting employee of the Company
   during the period beginning on your Retirement Date and ending on the
   first to occur of March 31, 1999, or the last day of the month in which
   your death occurs (the "Consulting Employment Period") during which time
   the covenants and obligations set forth in this agreement continue to be
   satisfied in full.

             2.   Executive Compensation Programs.  (a)  Any stock options
   and/or restricted stock awards previously issued to you shall remain in
   effect during your employment with the Company, including any Consulting
   Employment Period, according to their terms.  To the extent applicable in
   connection with your transactions in the Company's securities, you agree
   to make all necessary filings and execute all appropriate documents in
   order to comply with the provisions of Section 16 of the Securities
   Exchange Act of 1934, as amended.

             (b)  Your coverage under the Company's Supplemental Executive
   Retirement Plan and its Deferred Compensation Plan will also continue
   during your employment with the Company, including any Consulting
   Employment Period.

             (c)  Your Key Executive Employment and Severance Agreement shall
   cease to be effective as of December 3, 1996.  You will not be eligible to
   participate in any management incentive or other incentive compensation
   plan after December 31, 1996.

             (d)  Except as provided in Paragraph 2(c) your status as a
   "consulting employee" shall not limit, waive or adversely affect any
   rights regarding any Company benefit plans which you would have had had
   you not tendered you resignation pursuant to Paragraph 1(a) and continued
   to remain a regular employee through the Consulting Employment Period. 
   Except as provided in Paragraph 2(c), your "Retirement Date" will not
   control or be derminative respecting your rights under any such plans and
   your rights under such plans shall credit you with service provided the
   Company during the Consulting Employment Period, regardless of the hours
   which you work during the Consulting Employment Period.

             (e)  On or immediately following April 1, 1997, the Company will
   transfer to you title of the Company automobile which you have been using. 
   You will be responsible for sales tax and any income taxes due from you as
   the result of the transfer.  Thereafter during the Consulting Employment
   Period you will be eligible for the Company's monthly automobile allowance
   upon submission of appropriate mileage and expense reports as required by
   applicable rules and procedures.

             3.   Duties During Consulting Employment Period.  During the
   Consulting Employment Period, your employment duties will be as determined
   from time to time by the Chief Executive Officer of the Company.  Such
   duties shall be consistent with your present skills and training and with
   your stature in the Company as a long-service, senior management employee
   of the Company.  Your assigned duties will be in the nature of consulting
   employee services and will not require you to maintain regular office
   hours at Company offices and should not conflict with other
   entrepreneurial activities of interest to you which are not in violation
   of this agreement.  In order to assure you substantial control over your
   schedule during the Consulting Employment Period you will not be obligated
   to perform any services requested by the Company on less than thirty (30)
   days advance written notice.

             4.   Consideration.  (a)  During the Consulting Employment
   Period the Company will pay you a monthly salary equal to your current
   base salary, payable in the same manner as compensation is provided to
   other salaried employees at the Company's Fond du Lac, Wisconsin,
   location.  In addition, during the Consulting Employment Period, you will
   continue to participate in the employee benefit plans and fringe benefits
   for the Company's salaried employees located in Fond du Lac Wisconsin, on
   the same basis as such other salaried employees.  In addition, the Company
   will continue to pay dues on your behalf to the South Hills Golf and
   Country Club through March 31, 1999.  You may, at that time and to the
   extent permitted by applicable rules of the country club, elect to
   continue membership thereafter at your own expense without reimbursing the
   Company for membership fees previously paid by the Company.  You shall
   retain ownership of stock in the South Hills Golf and Country Club and are
   under no obligation to assign such shares to the Company.

             (b)  The Consulting Employment Period, including the
   compensation and benefits provided during such period, is mutually agreed
   by us to be additional consideration to you from the Company for your
   granting to the Company the covenants and releases set forth in paragraphs
   5, 6, and 7, below.

             5.   Noncompetition.  (a)  In consideration for the payments and
   benefits to be provided to you under paragraph 4, you agree that during
   the period from December 3, 1996, to the conclusion of any Consulting
   Employment Period (the "Restricted Period"), regardless of whether you
   have forfeited rights under this agreement due to breach of its terms, you
   will not be employed directly or indirectly by, be a sole proprietor or
   partner of, or act as a consultant to, any person or entity which is or is
   about to be engaged in any business in North America or Europe which is
   substantially similar to or will in any material respect compete with any
   portion of the business of the Company and its subsidiaries as currently
   conducted, in any capacity where confidential information concerning the
   Company which was acquired by you during your employment with the Company
   would reasonably be considered to be useful.

             (b)  You further agree that during the Restricted Period, you
   will not join in or participate with any action that would require any
   person to file a Schedule 13d (or any successor schedule thereto) under
   the Securities Exchange Act of 1934, as amended, with respect to the
   Company; you will not make, or participate with any other person who
   makes, any proposal for a business combination involving the Company or
   the acquisition of the Company, and you will not be a proponent in any
   solicitation of proxies with respect to a meeting of shareholders of the
   Company.

             (c)  You further agree to reasonably cooperate with the Company,
   its financial and legal advisors and/or government officials, in any
   claims, investigations, administrative proceedings including without
   limitation environmental proceedings, lawsuits, and other legal, internal
   or business matters, as reasonably requested by the Company during the
   Restricted Period and for 2 years thereafter.  You will be paid a
   reasonable daily fee, determined by the Company, for each day after the
   Consulting Employment Period on which such service is performed at the
   request of the Company and, to the extent you incur travel or other
   expenses with respect to such activities, the Company will reimburse you
   for such reasonable expenses when submitted according to regular corporate
   procedures.

             (d)  You agree that the Company will suffer irreparable damage
   in the event the provisions of this paragraph 5 are breached and your
   acceptance of the provisions of this paragraph 5 was a material factor in
   your decision to enter into this agreement.  You further agree that the
   Company shall be entitled as a matter of right to injunctive relief to
   prevent a breach by you.  Resort to such equitable relief, however, shall
   not constitute a waiver of any other rights or remedies the Company may
   have.  In addition to such equitable relief, and not in limitation of any
   other rights or remedies the Company may have, if you breach the
   provisions of this paragraph 5 during the Restricted Period the Company
   shall have the remedies set forth in paragraph 8 hereof.

             6.   Nonsolicitation; Confidentiality.  (a)  You agree that
   during the Restricted Period, regardless of whether you have forfeited
   rights under this agreement due to breach of its terms, you shall not,
   except as provided herein, directly or indirectly solicit for employment
   or advise or recommend to any other person that he or she solicit for
   employment any person employed at that time by the Company, its
   subsidiaries or affiliates.  You further agree at all times, whether
   during the Restricted Period and for 2 years thereafter, not to exploit,
   use, sell, publish, disclose, communicate or divulge to any person any
   trade secrets or confidential information, knowledge or data regarding the
   Company, its subsidiaries or affiliates or any of their respective
   directors, advisors, officers, employees or agents for so long as such
   trade secrets or confidential information, knowledge, or data have not
   become generally known to the public or the Company's competitors without
   your fault or participation.  You agree that the Company will suffer
   irreparable damage in the event the provisions of this paragraph 6 are
   breached and that your acceptance of the provisions of this paragraph 6
   was a material factor in your decision to enter into this agreement.  You
   further agree that the Company shall be entitled as a matter of right to
   injunctive relief to prevent a breach by you.  Resort to such equitable
   relief, however, shall not constitute a waiver of any other rights or
   remedies the Company may have.  In addition to such equitable relief, and
   not in limitation of any other rights or remedies the Company may have, if
   you breach the provisions of this paragraph 6 during the Restricted Period
   the Company shall have the remedies set forth in paragraph 8 hereof.  The
   provisions of this paragraph 6 shall not apply to any truthful statement
   required to be made by you in any legal proceeding or government or
   regulatory investigation, provided, however, that prior to making such
   statement you will give the Company reasonable notice and, to the extent
   you are legally entitled to do so, afford the Company the ability to seek
   a confidentiality order.  Nothing herein modifies or reduces your
   obligation to comply with applicable laws relating to trade secrets,
   confidential information, or unfair competition.

             (b)  You represent and warrant that you will, on or before your
   Retirement Date, deliver to the Company the original and all copies of all
   documents, records, and property of any nature whatsoever which are in
   your possession or control and which are the property of the Company or
   which relate to the business activities, facilities, or customers of the
   Company, its subsidiaries, or its affiliates, including any records,
   documents or property created by you.

             7.   Release and Covenants.  (a) In consideration of the
   benefits and payments provided and to be provided by the Company, you, on
   behalf of yourself, your spouse, heirs, executors, administrators, agents,
   successors, assigns and representatives of any kind (hereinafter
   collectively referred to as the "Releasors") confirm that Releasors have
   released the Company, and each of its subsidiaries, affiliates, their
   employees, successors, assigns, executors, trustees, directors, advisors,
   agents and representatives, and all their respective predecessors and
   successors (hereinafter collectively referred to as the "Releasees"), from
   any and all actions, causes of action, charges, debts, liabilities,
   accounts, demands, damages and claims of any kind whatsoever including,
   but not limited to, those arising out of the changes in the terms and
   conditions of your relationship with the Company described in this
   agreement and those arising under any labor, employment discrimination
   (including, without limitation, the Age Discrimination in Employment Act
   of 1967, as amended, Title VII of the Civil Rights Act of 1964, as
   amended, the Wisconsin Fair Employment Act, as amended), contract or tort
   laws, equity or public policy, or negligence standard, whether known or
   unknown, certain or speculative, which against any of the Releasees, any
   of the Releasors ever had, now has, or hereafter shall have or can have. 
   You further covenant that you will not initiate any action, claim or
   proceeding against any of the Releasees for any of the foregoing, nor will
   you participate, assist, or cooperate in any such action, claim, or
   proceeding unless required to do so by law.

             (b)  Notwithstanding the foregoing, this agreement does not
   waive rights, if any, you or your successors and assigns may have under or
   pursuant to, or release any member of Releasees from obligations, if any,
   it may have to you or to your successors and assigns on claims arising out
   of, related to or asserted under or pursuant to, this agreement, any
   insurance contract, or any indemnity agreement or obligation contained in
   or adopted or acquired pursuant to any provision of the charter or by-laws
   of the Company or its subsidiaries or affiliates or in any applicable
   insurance policy carried by the Company or its affiliates for any matter
   which arises or may arise in the future in connection with your employment
   with the Company.  The Company also agrees to provide such indemnification
   and insurance coverage to you for services rendered during the Consulting
   Employment Period as is customarily provided to active executive employees
   of the Company.  Notwithstanding the foregoing, this agreement does not
   waive any rights under the Wisconsin Workers' Compensation Act or for any
   claim arising after the execution of this agreement.

             (c)  You hereby acknowledge that you have at least 21 days to
   review this agreement from the date you first receive it and you have been
   advised to review it with an attorney of your choice.  You further
   understand that the 21 day review period ends when you sign this
   agreement.  You also have 7 days after your signing of this agreement to
   revoke by so notifying the Company in writing.  Any revocation by you
   under this paragraph 7(c), however, does not revoke the resignations
   provided under paragraph 1(a), and your retirement with the Company shall
   remain in effect as set forth herein.  You further acknowledge that you
   have carefully read this agreement, know and understand the contents
   thereof and its binding legal effect.  You sign the same of your own free
   will and act, and it is your intention that you be legally bound thereby.

             (d)  You agree to keep this agreement confidential and not to
   reveal its contents to anyone other than your attorney, financial
   consultant, and immediate family members.  The provisions of this
   paragraph 7(d) shall not apply to any truthful statement required to be
   made by you in any legal proceeding or government or regulatory
   investigation, provided, however, that prior to making such statement you
   will give the Company reasonable notice and, to the extent you are legally
   entitled to do so, afford the Company the ability to seek a
   confidentiality order.

             (e)  The Company hereby releases you from any liability to the
   Company arising out of your employment with the Company through the date
   of this agreement except to the extent of the obligations set forth in
   this agreement.

             8.   Noncompliance.  The additional payments and benefits
   provided to you pursuant to paragraph 4 are conditioned upon your
   compliance with all of the terms and conditions of this agreement,
   particularly paragraphs 5, 6 and 7.  Each of the aforementioned provisions
   are material terms of this agreement, and (i) in the event of any
   violation of any such provision of this agreement by you or anyone acting
   at your direction or (ii) in the event you or anyone acting at your
   direction at any time shall substantially denigrate any of the Releasees,
   including without limitation by way of news media or the expression to
   news media of personal views, opinions or judgments, the Company shall be
   entitled to withhold and terminate all aforementioned payments and
   benefits provided or to be provided in paragraph 4, above, and you agree
   to repay to the Company all payments paid to you pursuant to such
   paragraph and/or the Company shall be entitled to recover any of the
   amounts paid to you pursuant to paragraph 4, without waiving the right to
   pursue any other available legal or equitable remedies.  The Company
   agrees that neither it, nor its officers, directors, or employees, whether
   past, present or future, will substantially denigrate you in any manner,
   including, but not limited to, statements made to the news media or an
   expression of such entities' or individuals' views opinions or judgments.

             9.   Tax Payments, Withholding and Reporting.  You recognize
   that the payments and benefits provided under this agreement including
   without limitation those provided pursuant to paragraph 4 may result in
   taxable income to you which the Company and its affiliates will report to
   their appropriate taxing authorities.  The Company and its affiliates
   shall have the right to deduct from any payment made under this agreement
   to you any federal, state, local or other income, employment or other
   taxes it determines are required by law to be withheld with respect to
   such payments or benefits provided hereunder or to require payment from
   you which you agree to pay upon demand, for the purpose of satisfying any
   such withholding requirement.

             10.  Severability.  In the event any one or more of the
   provisions of this agreement (or any part thereof) shall for any reason be
   held to be invalid, illegal or unenforceable, the remaining provisions of
   this agreement (or part thereof) shall be unimpaired, and the invalid,
   illegal or unenforceable provision (or part thereof) shall be replaced by
   a provision (or part thereof), which, being valid, legal and enforceable,
   comes closest to the intention of the parties underlying the invalid,
   illegal or unenforceable provisions.  However, in the event that any such
   provision of this agreement (or part thereof) is adjudged by a court of
   competent jurisdiction to be invalid, illegal or unenforceable, but that
   the other provisions (or part thereof) are adjudged to be valid, legal and
   enforceable if such invalid, illegal or unenforceable provision (or part
   thereof) were deleted or modified, then this agreement shall apply with
   only such deletions or modifications, or both, as the case may be, as are
   necessary to permit the remaining separate provisions (or part thereof) to
   be valid, legal and enforceable.

             11.  Other Agreements.  (a)  This agreement does not limit or
   restrict in any way your rights under the Company's employee benefit
   plans, including, but not limited to, the Retirement Plan, the Retirement
   Savings Plan and the Company's group medical plan.  During the Consulting
   Employment Period, you will be provided with the same medical benefits
   provided to the Company's active executive employees.  Thereafter, you and
   your spouse will be provided access to such medical coverage, provided you
   pay the full premium charges by the Company for such coverage, until you
   and your spouse have reached the age for Medicare eligibility as may then
   be provided by law.

             (b)  Subject to paragraph 11(a), and the provisions of this
   Agreement, all the terms of our agreement are embodied in this agreement,
   which incorporates by reference the Company's Supplemental Executive
   Retirement Plan, Deferred Compensation Plan, and Stock Option and
   Restricted Stock Plans, and it fully supersedes any and all prior
   agreements or understandings between you and any Releasee.  This agreement
   shall be governed by the substantive laws of the State of Wisconsin
   without regard to its conflict of laws provisions.  The parties agree that
   any proceeding to resolve any dispute arising hereunder will be brought
   only in the courts of the State of Wisconsin or in the courts of the
   United States of America for the Eastern District of Wisconsin, and that
   each party irrevocably submits to such jurisdiction, and hereby waives any
   and all objections as to venue, inconvenient forum and the like.  It is
   the intention of the parties hereto, however, that to the extent
   practicable, the parties will endeavor to settle any dispute arising
   hereunder first through the process of non-binding mediation to be
   conducted in Milwaukee, Wisconsin.  This agreement shall be binding upon
   and inure to the benefit of the parties hereto and their respective heirs,
   legal representatives, successors and assigns.

             12.  The Company represents that the Chairman and Chief
   Executive Officer has been authorized by the Company's Board of Directors
   to prepare and sign this Agreement.

             If you find that the foregoing satisfactorily states our mutual
   understanding, please sign and date the enclosed copy of this agreement in
   the spaces indicated below and return it to me.

                                 Sincerely yours,



                                 /s/ Joseph R. Coppola                       
                                 Joseph R. Coppola
                                 Chairman and Chief Executive Officer
                                 Giddings & Lewis, Inc.



   Agreed and Accepted this 3rd day of December, 1996.



                                 /s/ Richard C. Kleinfeldt                   
                                 Richard C. Kleinfeldt