Credence Systems
Corporation

215 Fourier Avenue
Fremont, CA 94539
(510) 657-7400
FAX (510) 623-2560
                                    CREDENCE
                               SYSTEMS CORPORATION




July 29, 1999


Mr. Graham J. Siddall

Dear Graham,

On  behalf  of the Board of  Directors  of  Credence  Systems  Corporation  (the
"Company"),  I am pleased to extend to you an offer to become  the  President  &
Chief Executive Officer of the Company. Under your leadership,  Credence has the
opportunity to become the company that shapes the future of  Semiconductor  Test
Equipment. Our offer consists of the following benefits, terms and conditions:

POSITION: Upon commencement of your employment with the Company, you will become
the  President  and Chief  Executive  Officer of the  Company,  responsible  for
leading and managing the Company in all regards. You will also be appointed as a
member of the Board of  Directors of the Company and shall be nominated to serve
on the Company's board as long as you serve as Chief Executive Officer. You will
report directly to the Board of Directors of the Company.

SALARY: You will receive a base salary paid at the rate of $33,333.33 per month,
an annualized rate of $400,000.00,  which will be reviewed  annually on or about
your employment  anniversary date. You will be paid  semi-monthly,  less payroll
deductions and required  withholdings,  in accordance with the Company's regular
payroll practices.

BONUS:  Your annual  target bonus for FY 2000 is up to  $250,000.00.  A prorated
portion of your bonus will be guaranteed for nine (9) months and will be paid in
three (3) equal quarterly  installments of $62,500.00 each. This period includes
the fourth  quarter of FY 1999,  ending  October  31, 1999 and the first six (6)
months of FY 2000, ending April 30, 2000. The balance of your bonus will also be
paid quarterly based upon your  achievement of relevant  performance  objectives
that you will propose to the Board of Directors by December 31, 1999, subject to
their approval.
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Special  Bonuses:   Before  December  31,  1999,  you  will  design  and  submit
performance  objectives to the Board of Directors for the balance of FY 2000 for
their approval. With extraordinary accomplishment,  beyond a base plan, you have
the opportunity to participate in an additional bonus of up to $100,000.00. This
Special  Bonus will be paid  following  the end of FY 2000 and  before  December
31,2000.

On September 9, 1999, the Company will pay you $125,000.00 as a sign-on bonus.

STOCK OPTIONS: Subject to approval by the Board of Directors,  upon commencement
of your employment with Credence Systems Corporation, which is expected to occur
on or before July 29, 1999,  you will be granted an incentive  stock option,  to
the maximum extent permitted by law, to purchase five hundred thousand (500,000)
shares of the  Company's  Common  Stock at an  option  price set by the Board of
Directors and reflecting  current market price at that time. The Company intends
to evaluate your  performance  at the end of each Fiscal Year for the purpose of
additional stock option grants. Such grants will be subject to the sole approval
of the Board of Directors of the Company.

VESTING:  Your option will vest over a four (4) year period, with 1/48th vesting
at the end of each continuous month of employment with the Company.

TERMINATION BENEFITS:  Provided the parties enter into a mutual general release,
mutual  nondisparagement and nonsolicitation and confidentiality  agreement,  if
you are involuntarily terminated by the Company (but not a successor) prior to a
Change of Control without  "Cause," or if you terminate your employment with the
Company (but not a successor), prior to a Change of Control for "Good Reason" on
or before June 30, 2000,  the Company will provide you with your then  effective
base salary and target bonus in accordance with the Company's  standard  payroll
policy  until June 30,  2001 and the Company  will  immediately  accelerate  the
vesting of all such unvested  stock options as if you were a full-time  employee
as of June 30, 2001 and ceased  employment on June 30, 2001, and will extend the
final exercise date of your options as if you were employed at that date.

Provided   the   parties   enter   into  a  mutual   general   release,   mutual
nondisparagement and nonsolicitation and confidentiality  agreement,  if you are
involuntarily  terminated by the Company (but not a successor) prior to a Change
of Control  without "Cause" or if you terminate your employment with the Company
(but not a successor)  prior to a Change of Control for "Good Reason" after June
30,  2000,  or if you die, the Company will provide you or your estate with your
then  effective  base salary and target bonus in  accordance  with the Company's
standard  payroll  policy,  for a period of twelve (12) months after the date of
such termination, and the Company will accelerate immediately the vesting of all
such unvested stock options for an additional twelve (12) months after such date
of
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termination  and will extend the final  exercise  date of your options as if you
were employed for such 12-month period.

In addition,  regardless of the dates of termination  referred to above,  in the
event of a  termination  without  Cause or for Good  Reason,  if you  choose  to
continue  your health care  pursuant to COBRA,  the Company would pay your COBRA
premiums during such period of severance referred to above.

For  the  purposes  of  this  Offer,  a  termination  for  "Cause"  will  mean a
termination  initiated by the Company (or a successor)  for any of the following
reasons:  (i) repeated  failure to perform any essential  duty of your position,
other than for a medical  reason  documented  by a physician,  after being given
written notice of such failure by the Board of Directors and thirty (30) days in
which to cure your  performance;  (ii) an act committed by you which constitutes
gross  misconduct  and which is injurious to the Company or any  subsidiary or a
successor;  (iii) your being  convicted of a crime;  (iv)  committing  an act of
fraud against, or the  misappropriation of property belonging to, the Company or
any  subsidiary  or a successor;  (v) an act of  dishonesty  committed by you in
connection with your  responsibilities  as an employee and intended to result in
the personal  enrichment of yourself,  your family or others; or (vi) a material
breach of any  confidentiality  or  proprietary  information  or other  material
agreement  between you and the Company or any  subsidiary or any  successor.  If
your  employment is terminated by the Company (or a successor) for "Cause" or if
you leave  voluntarily  without "Good Reason," you will be paid your base salary
and all unused and unpaid vacation earned through your date of termination,  but
no other benefits.  In such event,  all stock vesting and benefits will cease on
your date of termination.

"Good Reason" means (i) failure by the Company or any subsidiary or successor to
comply with any material  terms of this letter  agreement or any other  material
agreement  between you and the Company or any  subsidiary or  successor,  (ii) a
diminution in the nature or scope of your authority,  title, function or duties,
(iii) a reduction in your base salary or benefits (unless such reduction is part
of an  officer-wide  program  to reduce  expenses)  or (iv)  relocation  of your
principal office to a location outside Silicon Valley.

CHANGE OF CONTROL:  Provided the parties  enter into a Mutual  general  release,
mutual  nondisparagement and nonsolicitation and confidentiality  agreement,  in
the  event of a (i)  Change of  Control  (as  defined  in the  Credence  Systems
Corporation Addendum to the Stock Option Agreement),  and (ii) at any time after
such Change of  Control,  the Company or its  successor  terminates  you without
Cause or you leave for Good  Reason or you die,  the  Company  or its  successor
shall pay you or your estate as soon as soon as  practicable  after such date of
termination  an amount equal to 200% of your then  effective  annual base salary
and 200% of your target bonus and the Company shall  immediately  accelerate the
vesting on all your unvested stock options through the twenty-four (24)
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month  period  following  such  termination  date,  and shall  extend  the final
exercise date of your options as if you were employed for such 24-month period.

In the event that you become  entitled to termination  benefits  within one year
following a Change of Control,  if any of the  payments or benefits to which you
are entitled  will be subject to an excise tax under the Internal  Revenue Code,
the Company will "gross up" the amount of such  payments and benefits so that on
an after-tax  basis you will receive the same amount of payments and benefits as
you would have received absent the imposition of such excise tax.

In the event of a Change of Control and a subsequent  termination  without Cause
or for Good Reason,  other then as set forth in this section  entitled Change of
Control,  you shall not be entitled to any other benefits or  compensation  from
the Company or any successor.  If, after a Change of Control, your employment is
terminated by the Company or any  successor  for Cause or you leave  voluntarily
without a Good  Reason,  you will be paid your base  salary  and for all  unused
vacation earned through your date of termination but no other benefits.  In such
event, all stock vesting and benefits will cease on your date of termination.

MISCELLANEOUS:  You will be  entitled  to  participate  in the  Company's  other
benefit plans as a full-time employee to the extent set forth in such plans.

You shall have no duty to seek other  employment  or  otherwise  take  action to
mitigate  payments  the Company may be required to make in  connection  with any
termination  of your  employment.  If your  termination  from the  Company  or a
successor would give rise to termination  payments under this letter  agreement,
the Company or its successor shall enter into a mutual general  release,  mutual
nondisparagement and nonsolicitation and confidentiality agreement on reasonable
terms;  the term of the  nonsolicit shall be the same as the term for which base
salary is paid if the  termination  is prior to a Change of Control and shall be
24 months if the termination is after a Change of Control.

The Company shall reimburse you for your  reasonable  attorneys fees incurred in
connection with the review of this agreement.

The employment terms in this letter constitute the complete, final and exclusive
embodiment of the entire agreement between you and Credence Systems  Corporation
with  respect  to the terms  and  conditions  of your  employment.  These  terms
supercede any other  agreements or promises made to you by anyone,  whether oral
or written.  This  agreement is governed by  California  law and,  except as set
forth herein, and shall be binding on the Company's successor and assigns.

California is an "at-will" employment state, and Credence Systems Corporation is
an at-will employer.  This means that either you or the Company or any successor
has the right
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to terminate the employment  relationship  at any time, for any reason,  with or
without cause.  This is the full and final agreement between you and the Company
or any successor on these terms. Although your job duties,  title,  compensation
and  benefits,  and the  personnel  policies  and  procedures  may  change  from
time-to-time,  the at-will  nature of your  employment  may only be changed in a
document signed by you and the Chairman of the Board of Directors.

As required by law, this offer is subject to satisfactory proof of your right to
work in the United  States of  America.  You will also be  required  to sign the
Company's  standard   proprietary   assignment  of  information  and  inventions
agreement.

Graham,  we are very excited  about your  joining the Credence  Systems team and
look forward to a mutually  rewarding  relationship.  We are convinced that your
experience and  commitment to develop a great company is an excellent  match for
both you and Credence  Systems  Corporation.  We look  forward to your  positive
acceptance of this offer.

This offer will remain open to you until Thursday, July 29, 1999. If you wish to
accept  employment at Credence  Systems  Corporation  under the terms  described
above,  please  sign,  date and  return a copy of this  letter to  signify  your
approval.

START DATE: You will start full-time  employment at Credence Systems Corporation
on or before Thursday, July 29, 1999.

I look forward to your  favorable  reply and to a productive  and enjoyable work
relationship with you.

Sincerely,

Credence Systems Corporation,


William G. Howard, Jr.
Chairman


Accepted:


Graham J. Siddall                                      July 29, 1999

cc:      Board of Directors, Credence Systems Corporation
         Michael V. Parsells
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