EXHIBIT
10.5


 


EMPLOYMENT AGREEMENT


 


This Employment
Agreement (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.                                   The
Company may from time to time need to address the possibility of an acquisition
transaction or change of control event. 
The Board of Directors of the Company (the “Board”) recognizes that such
events can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. 
The Board has determined that it is in the best interests of the Company
and its stockholders to assure that the Company will have the continued
dedication 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.                                     The
Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.


 


C.                                     The
Board believes that it is imperative to provide the Employee with certain
benefits upon a Change of Control and, under certain circumstances, upon
termination of the Employee’s employment in connection with a Change of
Control, which benefits are intended to provide the Employee with financial
security and provide sufficient incentive and encouragement to the Employee to
remain with the Company notwithstanding the possibility of a Change of Control.


 


D.                                    To
accomplish the foregoing objectives, the Board has directed the Company, upon
execution of this Agreement by the Employee, to agree to the terms provided
herein.


 


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


 


AGREEMENT


 


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


 


1.                                      Duties
and Scope of Employment.  The
Company 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 been
defined in terms of responsibilities and compensation as of the effective date
of this Agreement; provided, however, that the Board shall have the right, at
any time prior to the occurrence of a Change of Control, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate.  The Employee
shall comply with and be bound by the Company’s operating policies, procedures
and practices from time to time in effect during his employment.  During the term of the Employee’s employment
with the Company, the Employee shall continue to devote his full time, skill
and attention to his duties and responsibilities, and shall perform them
faithfully, diligently and competently, and the Employee shall use his best
efforts to further the business of the Company and its affiliated entities.


 


2.                                      Base
Compensation.  The Company shall pay
the Employee as compensation for his services a base salary at the annualized
rate of $240,000.00 (“Base Compensation”). 
Such salary shall be paid periodically in accordance with normal Company
payroll practices.  The Board or the
Compensation Committee of the Board shall review the base salary of the
Employee according to normal Company practice, but no less frequently than
annually, and may in its discretion increase but not decrease the base salary
below the amount specified in this agreement.


 


3.                                      Annual
Incentive.  Beginning with the
Company’s current fiscal year and for each fiscal year thereafter during the
term of this Agreement, the Employee shall be eligible to receive an annual
bonus under the Company’s annual incentive plan (the “Annual Incentive”) based
upon 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 in
accordance with the Company’s normal practices and policies.


 


4.                                      Employee
Benefits.  The Employee shall be
eligible to participate in the employee benefit plans and executive compensa­tion
programs maintained by the Company applicable to other key executives of the
Company, including (without limitation) retirement plans, savings or
profit-sharing 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 applicable plan or program in question and to the
sole determination of the Board or any committee administering such plan or
program.


 


5.                                      Employment
Relationship.  The Company and the
Employee acknowledge that the Employee’s employment is and shall continue to be
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, or as may otherwise be
available in accordance with any Company plan or policy approved by the Board.


 


6.                                      Termination
Benefits.


 


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


 


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(i)                                    Pay
Continuation.  The Employee shall be
entitled to monthly payments equal to the Employee’s monthly Base Compensation
as 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 to
the three previous calendar years.  Such
monthly amounts shall be paid according to the normal payroll practice of the
Company for 12 months following the date of termination (the “Termination
Period”).


 


(ii)                                Annual
Incentive.  The Employee shall be
entitled to receive a percentage of the Employee’s Target Incentive for the calendar
year 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 to
and including the date of such termination and the denominator of which shall
be the number of days in such calendar year. 
Such amount shall be payable according to the normal practice of the
Company with respect to the payment of bonuses.


 


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


 


(iv)                               Medical
Benefits. The Company shall reimburse the Employee for the cost of the
Employee’s group health, vision and dental plan coverage in effect until the
end of the Termination Period.  The
Employee may use this payment, as well as any other payment made under this
Section 6, for such continuation coverage or for any other purpose.  To the extent the Employee pays the cost of
such coverage, and the cost of such coverage is not deductible as a medical
expense by the Employee, the Company shall “gross-up” the amount of such reimbursement
for all taxes payable by the Employee on the amount of such reimbursement and
the amount of such gross-up.


 


(b)                                  In
the event the Employee voluntarily resigns his employment with the Company
within the 30-day period beginning one year after a Change of Control, the
Employee shall receive the severance and other benefits set forth in Sections
6(a)(i)-(iv) above.


 


7.                                      Definition
of Terms.  The following terms
referred 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 his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Employee, (ii) conviction of a felony that is injurious to
the Company, (iii) a willful act by the Employee which constitutes gross
misconduct and which is injurious to the Company, or (iv) continued violations
by the Employee of the Employee’s obligations under Section 1 of this Agreement
after there has been delivered to the Employee a written demand for performance
from the Company which describes the basis for the Company’s belief that the
Employee has not substantially performed his duties.


 


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


 


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(i)                                    The
acquisition 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 or
indirectly controls, is controlled by, or is under common control with, the
Company) of the “beneficial ownership” (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)                                A
change in the composition of the Board of Directors of the Company 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 hereof, or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative votes
of at least a majority of the Incumbent Directors at the time of such election
or nomination (but shall not include an individual not otherwise an Incumbent
Director whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or


 


(iii)                            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.


 


(c)                                  Disability.  “Disability” shall mean that the Employee
has been unable to substantially perform his duties under this Agreement as the
result of his incapacity due to physical or mental illness, and such inability,
at least 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 the Employee or the Employee’s legal representative (such agreement as to
acceptability not to be unreasonably withheld).


 


(d)                                  Exchange
Act.  “Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.


 


(e)                                  Involuntary
Termination.  “Involuntary
Termination” shall mean (i) without the Employee’s express written consent, the
significant reduction of the Employee’s duties or responsibilities relative to
the Employee’s duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely 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 such
following a Change of Control and is not made the Chief Financial Officer of
the 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 (including
office space and location) available to the Employee immediately prior to such
reduction; (iii) without the Employee’s express written consent, a material
reduction by the Company in the Base Compensation or Target Incentive of the
Employee as in effect immediately prior to such reduction, or the ineligibility
of the Employee to continue to participate in any long-term incentive plan of
the Company; (iv) a material reduction by the Company in the kind or level of


 


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


 


8.                                      Limitation
on Payments.


 


(a)                                  In
the event that the severance and other benefits provided for in this Agreement
or otherwise payable to the Employee (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 8 would be subject to the excise tax
imposed by Section 4999 of the Code, then the Employee’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 Employee 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.


 


(b)                                  If
a reduction in the payments and benefits that would otherwise be paid or
provided to the Employee under the terms of this Agreement is necessary to
comply with the provisions of Section 8(a), the Employee 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 8(a) are met).  Within thirty (30) days after the amount of
any required reduction in payments and benefits is finally determined in
accordance with the provisions of Section 8(c), the Employee shall notify the
Company 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 Employee
is entitled, the Employee will promptly return the excess amount to the
Company.


 


(c)                                  Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section 8 shall be made in writing by the Company’s
independent public accountants (the “Accountants”), whose determination shall
be conclusive and binding upon the Employee and the Company for all purposes.  For purposes of making the calculations
required by this Section 8, 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 Employee 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 8.


 


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9.                                      Certain
Business Combinations.  In the event
it is determined by the Board, upon receipt of a written opinion of the
Company’s independent public accountants, that the enforcement of any Section
or subsection of this Agreement, including, but not limited to, Section 6(b)
hereof, which allows for the acceleration of vesting of options to purchase shares
of the Company’s common stock upon a termination in connection with a Change of
Control, would preclude accounting for any proposed business combination of the
Company involving a Change of Control as a pooling of interests, and the Board
otherwise desires to approve such a proposed business transaction which
requires as a condition to the closing of such transaction that it be accounted
for as a pooling of interests, then any such Section of this Agreement shall be
null and void, but only if the absence of enforcement of such Section would
preserve the pooling treatment.  For
purposes of this Section 9, the Board’s determination shall require the
unanimous approval of the disinterested Board members.


 


10.                               Successors.


 


(a)                                  Company’s
Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. 
For all purposes under this Agreement, the term “Company” shall include
any successor to the Company’s business and assets which executes and delivers
the assumption agreement described in this Section 10(a) or which becomes bound
by the terms of this Agreement by operation of law.


 


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


 


11.                               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 Company in writing. 
In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.


 


12.                               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 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 the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.


 


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(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 the subject matter hereof.


 


(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.


 


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


 


(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
Section 12(g) shall be void.


 


(g)                                 Assignment
by Company.  The Company 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 Company or to the
Company; provided, however, that no assignment shall be made if the net worth
of the assignee is less than the net worth of the Company at the time of
assignment.  In the case of any such assignment,
the term “Company” when used in a section of this Agreement shall mean the
corporation that actually employs the Employee.


 


(h)                                 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.


 


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


 


 


	
  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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