Document:

exv10w35

 

Exhibit 10.35

February 17, 2005

James L. Fares

16 Spanish Bay Drive

Newport Beach, CA 92660

Dear Jim:

On behalf of the Board of Directors of Questcor Pharmaceuticals, Inc. (“Questcor” or the
“Company”), I am pleased to extend a formal offer to you regarding the position of President and
Chief Executive Officer of the Company. We are truly excited to have you as part of the team.

TITLE AND EFFECTIVE DATE OF EMPLOYMENT:

The formal effective date of this position is Friday, February 18, 2005, and if you accept this
offer to become the President & Chief Executive Officer, you will begin as an exempt employee on
that day reporting directly to the Board of Directors. You will also become a member of the Board
of Directors, effective as of this date. Should you leave your employment with Questcor for any
reason whatsoever, you will immediately resign from the Board of Directors effective the same date.

SALARY:

Your salary for the calendar year 2005 will be Twenty-Five Thousand Dollars and No Cents
($25,000.00) per month or Three Hundred Thousand Dollars and No Cents ($300,000.00) on an annual
basis. Your salary, and in fact your entire compensation package, will be reviewed at the end of
calendar 2005 by the Compensation Committee of the Board of Directors.

INCENTIVE BONUS PLAN:

As a senior executive you will be eligible to participate in the Company’s incentive bonus plan in
amounts and percentages as determined by the Company’s Board of Directors in its sole discretion.
For the year ending December 31, 2005, your targeted potential cash bonus, based on achievement of
goals to be agreed upon by 31 March, 2005, will be Seventy Five Thousand Dollars and No Cents
($75,000.00) and, if earned, would be payable in early 2006. For the year ending December 31,
2006, your targeted potential cash bonus will be at least One Hundred Thousand Dollars and No Cents
($100,000.00), would be based upon mutually agreed performance goals and, if earned, would be
payable in early 2007. Assessment of performance achievement and any bonus awards granted will be
at the sole discretion of the Compensation Committee and/or the Board of Directors of Questcor.

 

 

Albert Hansen

Questcor Pharmaceuticals, Inc.

February 17, 2005

Page 2

Your salary and any bonuses will be subject to the customary withholding and employment taxes as
required by law with respect to compensation paid by an employer to an employee, including the
requirement that you provide to the Company sufficient cash to satisfy the Company’s withholding
obligations with respect to any stock you receive.

STOCK OPTIONS:

As President and Chief Executive Officer you will participate in the Company’s Stock Option Plan.
Subject to the Board of Directors’ approval and in compliance with applicable state and Federal
securities laws, upon commencement of employment, you will be granted stock options to purchase 1.5
million shares of the common stock of the Company. The exercise price will be equal to the fair
market value of the Company’s common stock on the date of grant (as determined pursuant to the
Company’s Stock Option Plan).

The stock options will be “incentive stock options” to the extent permitted by applicable law and
will be subject to a four (4) year vesting schedule, which is as follows:

During the first full year of employment there will be no vesting until you have reached the
last day of One (1) full year and upon that date you will vest Twenty-Five Percent (25%) of
the Grant. Thereafter, the options will vest at a rate of 1/36 per month for the remaining
Thirty-Six (36) months.

The options will have a ten (10) year term. A copy of the Company’s Stock Option Plan will be sent
to you under separate cover.

Based upon your performance, you may also qualify for additional grants of options to acquire
common stock of the Company subject to determination by the Board of Directors in its sole
discretion.

In a separate agreement to be provided to you under separate cover, the Company will agree that
upon a Change of Control of the Company, if your employment is terminated by the Company other than
for “cause” (as defined in such agreement) or if you resign your employment upon 30 days’ prior
written notice to the Company for “good reason” (as defined in such agreement) within six months of
the Change of Control, one-half of your unvested stock options will accelerate and become
immediately vested and exercisable.

OTHER BENEFITS:

You and your family will be eligible for the health and dental benefits provided by the Company,
subject to the underwriting requirements of the providers of those plans. Copies of the plans will
be provided under separate cover.

As President and Chief Executive Officer you will be entitled to Four (4) weeks of paid vacation
per year.

 

 

Albert Hansen

Questcor Pharmaceuticals, Inc.

February 17, 2005

Page 3

The Company agrees to reimburse you for reasonable commuting and temporary living expenses incurred
during 2005 as a result of your current permanent residence in Newport Beach, CA. The Company and
you will mutually agree to a budget to cover such expenses.

INDEMNIFICATION:

The Company agrees to provide you with indemnification equivalent to that provided to other senior
management and pursuant to the Company’s Directors and Officers insurance policies as in place from
time to time.

SEVERANCE:

In the event (i) your employment is terminated by the Company other than (x) for Cause (as defined
below) or (y) as a result of your disability, or (ii) you resign your employment upon 30 days’
prior written notice to the Company for Good Reason (as defined below), during your first three
years of employment, you will receive severance compensation totaling Six (6) months of base
salary. In the event (i) your employment is terminated by the Company other than (x) for Cause
(as defined below) or (y) as a result of your disability, or (ii) you resign your employment upon
30 days’ prior written notice to the Company for Good Reason (as defined below), after your first
three years of employment, you will receive severance compensation totaling Twelve (12) months of
base salary.

As a condition to receiving severance compensation, you will need to execute a general release of
claims against the Company and its officers, directors, agents and shareholders. Such general
release will not include rights to vested options or claims for any compensation earned (including,
without limitation, accrued vacation), or reimbursement of expenses incurred, through the date of
termination. Severance compensation will be paid in accordance with normal payroll procedures. If
you are reemployed at any time during the severance period, all further severance compensation
payments shall immediately cease.

“Cause” will mean termination of your employment for any one or more of the following: (i) habitual
or material neglect of your assigned duties (other than by reason of disability) or intentional
refusal to perform your assigned duties (other than by reason of disability) which continues
uncured for 30 days following receipt of written notice of such deficiency or “Cause” event from
the Board of Directors, specifying in detail the scope and nature of the deficiency or the “Cause”
event; (ii) an act of dishonesty intended to result in your gain or personal enrichment; (iii)
personally engaging in illegal conduct which causes material harm to the reputation of the Company
or its affiliates; (iv) committing a felony or gross misdemeanor directly relating to, an act of
dishonesty or fraud against, or a misappropriation of property belonging to, the Company or its
affiliates; (v) personally engaging in any act of moral turpitude that causes material harm to the
reputation of the Company; (vi) intentionally breaching in any material respect the terms of any
nondisclosure agreement with the Company; or (vii) commencement of employment with another Company
while an employee of the Company without the prior consent of the Board of Directors. Any
determination of “Cause” as used

 

 

Albert Hansen

Questcor Pharmaceuticals, Inc.

February 17, 2005

Page 4

herein will be made only in good faith by the Board of Directors.

“Good Reason” will mean the removal of your title of Chief Executive Officer without your written
consent; provided, however, that Good Reason shall not exist as a result of any reduction of your
authority, duties or responsibilities so long as you retain the title of Chief Executive Officer of
the Company.

This Agreement shall be interpreted, construed and administered in a manner that satisfies the
requirements of Sections 409A of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations thereunder.

MISCELLANEOUS:

Your employment pursuant to this offer is contingent upon your execution of Questcor’s standard
employee Confidentiality Information and Invention Assignment Agreement and completion of U.S.
Department of Justice Form I-9 (which verifies your U.S. citizenship). You should also be aware
that, your employment with the Company is “at will.” This means that the Company has the right to
terminate your employment at any time with or without Cause.

Any controversy, claim or dispute involving the parties (or their affiliated persons) directly or
indirectly concerning this Letter Agreement, or otherwise, shall be finally settled by binding
arbitration held in Union City, California, by one arbitrator in accordance with the rules of
employment arbitration then followed by the American Arbitration Association or any successor to
the functions thereof. The arbitrator shall apply California law in the resolution of all
controversies, claims and disputes. Any decision or award of the arbitrator shall be final and
conclusive on the parties to this Letter Agreement and their respective affiliates. The Company
shall bear all costs of the arbitrator in any action brought under this section. The parties
hereto agree that any action to compel arbitration pursuant to this Agreement may be brought in the
appropriate California court and in connection with such action the laws of the State of California
shall control. Application may also be made to such court for confirmation of any decision or award
of the arbitrator, for an order of the enforcement and for any other remedies, which may be
necessary to effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrator and of such court and waive any objection to the jurisdiction of
such arbitrator and court.

Jim, I hope this offer of employment with Questcor meets with your expectations and approval. If it
does please indicate your acceptance of this offer of employment by returning a signed copy of this
letter to me at your earliest opportunity.

This offer, if not accepted or previously withdrawn, will expire at 4:00 PM, PST on Friday,
February 18, 2005.

 

 

Albert Hansen

Questcor Pharmaceuticals, Inc.

February 17, 2005

Page 5

If you have any questions or require amplification please call me. I look forward to hearing from
you soon.

Sincerely,

/s/ Albert Hansen

Albert Hansen

Chairman of the Board and

Acting Chief Executive Officer

	 	 	 
	

	 	Accepted by:
	 
	 	 
	

	 	/s/ James L. Fares
	

	 	Mr. James L. Fares
	 
	 	 
	

	 	Date: February 18, 2005exv10w01

 

Exhibit 10.01

AGREEMENT

     This Agreement (the “Agreement”) is entered into by and between KLA-Tencor Corporation (the
“Company”) and Kenneth L. Schroeder (“Executive”) effective as of February 23, 2005 (the
“Effective Date”).

Recitals:

     A. The Company desires to continue to retain the services of Executive as set forth in this
Agreement and Executive desires to continue to provide services to the Company upon the terms and
conditions set forth herein.

     B. The Company desires to ensure that Executive does not compete with and is available to
continue to provide services to the Company as set forth herein.

Agreement:

     In consideration of the covenants and agreements contained herein, the parties agree as
follows:

     1. Effectiveness of Agreement. This Agreement shall become effective upon the
Effective Date and amends and restates in its entirety that first Amended Retention and
Non-Competition Agreement dated April 29, 1998 (the “First Amended Agreement”) and amends and
incorporates the Addendum to the Amended Retention and Non-Competition Agreement dated November 15,
2001. The Company and Executive agree that this Agreement shall govern the terms and conditions of
Executive’s provision of services to the Company from and after the Effective Date.

     2. Term. This Agreement shall commence on the Effective Date and shall end on the
date that all obligations hereunder have been fully discharged.

     3. Duties.

          a. Responsibilities. From and after the Effective Date until the earlier of the
commencement of any Part-Time Employment Term (as defined in Section 7 of this Agreement) or
termination of Executive’s full-time employment hereunder (the “Full-Time Employment Period”), the
Company shall employ the Executive as Chief Executive Officer and President with such duties and
responsibilities as are commensurate with such position. It is understood and agreed that
Executive will be considered an employee of the Company for tax withholding and all other purposes
for the duration of both the Full-Time Employment Period and the Part-Time Employment Term.
Executive acknowledges that during the Part-Time Employment Term he shall not have the power to
bind the Company.

 

 

          b. Board Membership. If Executive is serving as a member of the Company’s Board of
Directors (the “Board”) on the date of termination of the Full-Time Employment Period, he
shall tender to the Board his resignation from the Board effective as of such date. The Board
shall not be obligated to accept such resignation, unless Executive requires it.

     4. Obligations. Executive agrees, during the Full-Time Employment Period, not to
actively engage in any other employment, occupation or consulting activity for any direct or
indirect remuneration without the prior approval of the Board; provided, however, that Executive
may serve in any capacity with any civic, educational or charitable organization, or as a member of
corporate Boards of Directors or committees thereof without the approval of the Board.

     5. Employee Benefits. During the Full-Time Employment Period, Executive shall be
eligible to participate in (i) all employee benefit plans currently and hereafter maintained by the
Company for senior management according to their terms, and (ii) such other employee benefits as
are set forth in this Agreement or as may otherwise be awarded by the Board or its Compensation
Committee. During any Part-Time Employment Term, Executive shall only be eligible to participate
in the Company’s group health, vision and dental plans and shall not be eligible to participate in
the Company’s other employee benefit plans and arrangements. Subject to the other provisions
hereof, Executive and his spouse shall, during the Full-Time Employment Period, the Part-Time
Employment Term and thereafter, but no later than the earlier of Executive’s death or his obtaining
the age of 65, be entitled to the same medical and other health benefits as senior active
executives (and their respective spouses) and on the same contribution basis as such senior active
executives. Such benefits shall at all times be made available on a nontaxable basis to Executive
and his spouse (except to the extent active senior executives (and their respective spouses) would
be taxed on receipt of the same benefit as active executives (the “Retiree Health Benefit”)). The
standard form of indemnification agreement for officers and directors that Executive has entered
into and any fiduciary insurance maintained by the Company shall remain in effect to the same
extent that said indemnification or fiduciary insurance remains in effect for all officers and
directors of the Company.

     6. Full Time Employment Period Compensation.

          a. Base Salary. During the Full-Time Employment Period, and during certain Part-Time
Employment Terms as specified in Section 7 hereof, the Company shall pay the Executive as
compensation for his services a base salary at an initial annualized rate (which initial rate shall
in no event be less than the Executive’s base salary as of the Effective Date) recommended by the
Compensation Committee of the Board and approved by the Board, as may be increased (but not
decreased) from time to time by the Board or its Compensation Committee (the “Base Salary”). The
Base Salary shall be paid periodically in accordance with normal Company payroll practices and
subject to the usual, required withholding. References to Base Salary herein as it relates to the
Part-Time Employment Term shall mean the last full-time salary as of the beginning of the Part-Time
Employment Term.

          b. Bonus. During the Full-Time Employment Period and during certain Part-Time
Employment Terms as specified in Section 7 hereof, Executive shall participate in bonus

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programs
generally available to senior management of the Company and shall be eligible to receive bonuses as
determined by the Board or its Compensation Committee. Subject to Section 7(c), the Company shall
have the obligation to pay any and all bonuses referred to in this Agreement only at
the same time as bonuses are normally paid to senior management of the Company and contingent
in each case upon the Company’s payment of bonuses to senior officers of the Company for such
fiscal year.

     7. Termination of Employment; Transition to Part-Time Employment.

          a. Part-Time Employment Term Definition; Obligations. The periods of part-time
employment specified in this Section 7 shall be defined as the “Part-Time Employment Term” and
Executive may be referred to as a “Part-Time Employee” while employed thereunder for the purposes
of this Agreement. During any Part-Time Employment Term, Executive shall be required to devote
such time in rendering services to the Company as shall be mutually agreed upon and acceptable to
Executive and the Company; provided, however, that such services shall not include any service
relating to the discharge of Executive’s duties as a member of the Board. The parties expect the
Company will utilize Executive’s services during the Part-Time Employment Term between five to ten
hours per month. Such services may be rendered by Executive at his residence, to the extent
practicable. During the Part-Time Employment Term, Executive shall be free to serve as a director,
employee, consultant or advisor to any other corporation or other business enterprise without the
prior written consent of the Company so long as such activities do not interfere with his duties
and obligations under this Agreement, including, without limitation, Executive’s obligations under
Section 8 hereof. In consideration of Executive’s not working for a non-Competing Company or a
Competing Company and being available to provide the mutually agreed upon services required
hereunder during the Part-Time Employment Term, the Executive shall receive the compensation
specified in this Section 7. At the end of such Part-Time Employment Term, the Executive’s
employment with the Company shall terminate.

          b. Termination of Full-Time Employment for Cause. The Company may at any time
terminate Executive’s full-time employment hereunder for “Cause.” For the purposes of this
Agreement “Cause” shall mean (i) Executive’s gross negligence or willful misconduct in connection
with the performance of his duties, (ii) Executive’s conviction of or plea of nolo
contendere to, any felony in a court of competent jurisdiction, or (iii) Executive’s
embezzlement or misappropriation of Company property. If the Executive’s full-time employment is
terminated by the Company for Cause, then, subject to Executive entering into and not revoking a
release of claims agreement with the Company substantially in the form attached hereto as
Exhibit A (the “Release”), the Executive will receive a lump-sum payment equal to 25% of
Base Salary and Executive shall not be entitled to any other benefits hereunder.

          c. Voluntary Termination of Full-Time Employment by Executive. If the Executive
desires to voluntarily terminate his full-time employment with the Company, then Executive shall
provide the Company with written notice of such termination. Subject to Executive entering into
and not revoking the Release, Executive shall remain employed by the Company as a Part-Time
Employee on the terms described herein. The Part-Time Employment Term shall be 60

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months. During
such 60-month period, Executive shall be paid (i) Base Salary for the first 24 months, paid in
accordance with the Company’s normal payroll practices (except as provided in the succeeding
paragraph), (ii) a mutually agreeable level of compensation per month which is no lower than an
hourly rate determined by dividing the annual Base Salary dollar amount by 2080 for the final 36
months, paid monthly, (iii) an annual bonus equal to the amount that would otherwise have
been payable to Executive upon Executive’s achievement of 100% of his individual bonus
objectives (in distinction to Company bonus objectives, which shall be based upon actual Company
performance for such fiscal year) for the Company’s fiscal year in which Executive’s transition to
part-time employment occurs (the “Target Bonus”), (iv) for the Company’s fiscal year ending in the
period between the first anniversary of the date of termination of Executive’s full-time employment
and the second anniversary of the date of termination of Executive’s full-time employment with the
Company, an amount equal to the amount that would otherwise have been payable to Executive upon
Executive’s achievement of 100% of his individual bonus objectives (in distinction to Company bonus
objectives, which shall be based upon actual Company performance for such fiscal year) under the
Company’s bonus plan for such fiscal year (the “Second Year Bonus”), (v) for the Company’s fiscal
year ending in the period between the second anniversary of the date of termination of Executive’s
full-time employment and the third anniversary of the date of termination of Executive’s full-time
employment with the Company, an amount equal to the amount that would otherwise have been payable
to Executive upon Executive’s achievement of 100% of his individual bonus objectives (in
distinction to Company bonus objectives, which shall be based upon actual Company performance for
such fiscal year) under the Company’s bonus plan for such fiscal year (the “Third Year Bonus”), and
(vi) a pro-rated bonus for the Company’s fiscal year during which the third anniversary of the
Part-Time Employment Term occurs determined by multiplying the amount that would otherwise have
been payable to Executive upon Executive’s achievement of 100% of his individual bonus objectives
(in distinction to Company bonus objectives, which shall be based upon actual Company performance
for such fiscal year) for such Company fiscal year by a fraction, the numerator of which is the
number of days between the first day of such Company fiscal year and the three-year anniversary of
the Part-Time Employment Term and the denominator of which is three hundred and sixty-five (the
“Pro-Rated Bonus”). Executive will not be eligible to receive an annual bonus for the fourth and
fifth years of the Part-Time Employment Term. Any bonuses to be paid pursuant to clauses (iii),
(iv), (v) and (vi) of this paragraph will be paid no later than two and one half months following
the completion of the Company’s relevant fiscal year.

     Any Base Salary to be paid pursuant to clause (i) of the preceding paragraph will not be paid
during the six-month period following the commencement of the Part-Time Employment Term, unless the
parties (acting in good faith) mutually agree that paying such amounts immediately following his
transition to a Part-Time Employee would not be in violation of Section 409A (“Section 409A”) of
the Internal Revenue Code of 1986, as amended (the “Code”), in which case such amounts shall be
paid in accordance with normal payroll practices. If no Base Salary is paid to Executive as a
result of the previous sentence, on the first day following such six-month period (or such other
time as may be necessary under Section 22 hereof), the Company will pay Executive a lump-sum amount
equal to the cumulative amounts that would have otherwise been paid to Executive under clause (i)
of the preceding paragraph. Thereafter, Executive will receive his Base

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Salary
pursuant to clause
(i) of the preceding paragraph in accordance with the Company’s normal payroll practices.

          d. Termination of Full-Time Employment by Company Other than for Cause. If the
Company desires to terminate Executive’s full-time employment with the Company other than for
Cause, then the Company shall provide Executive with written notice of such termination. If the
Executive’s full-time employment is terminated by the Company other than for Cause, then, subject
to Executive entering into and not revoking a Release, Executive shall remain
employed by the Company as a Part-Time Employee on the terms described herein and shall
receive the same benefits as set forth in subsection (c) above.

          e. Reduction of Part-Time Employment Term Compensation and Benefits If Executive Becomes
Employed by a Non-Competing Company. If during the Part-Time Employment Term, Executive
becomes a full-time employee (or equivalent thereof) of an entity that is not a “Competing Company”
(as defined in Section 8 hereof), Executive (i) shall have his Base Salary reduced to a mutually
agreeable amount per month (determined based on the level of services expected to be rendered to
the Company) in exchange for Executive providing mutually agreed upon services to the Company, (ii)
shall not be eligible to receive any Target Bonus, Second Year Bonus, Third Year Bonus or Pro-Rated
Bonus to the extent not already earned by Executive, and (iii) shall not be eligible to participate
or receive benefits under any other employee benefit plans, policies, practices or arrangements of
the Company or its predecessors (except that Executive and his spouse shall continue receiving the
Retiree Health Benefit (as defined in Section 5), and subject to Section 7(f) below with respect to
the vesting of Executive’s equity awards and Section 11 hereof relating to the treatment of any
Retention Option/SAR Grants and Retention Restricted Stock/Unit Grants, as such terms are defined
in Section 11 hereof). For the purposes of the foregoing, the Target Bonus, Second Year Bonus and
Third Year Bonus shall be deemed earned, to the extent otherwise payable, if Executive is a
Part-Time Employee and is not employed by a non-Competing Company through the last day of the
fiscal year to which such bonuses relate, and the Pro-Rated Bonus shall be deemed earned, to the
extent otherwise payable, on the date of the third anniversary of the Part-Time Employment Term if
Executive is not employed by a non-Competing Company through the date of such anniversary.

          f. Vesting of Equity Awards During Part-Time Employment Term. During the Part-Time
Employment Term, all equity awards that were granted to Executive prior to the termination of
Executive’s full-time employment shall continue to vest in accordance with the terms and conditions
of the original agreements relating to such awards, except any Retention Option/SAR Grants and
Retention Restricted Stock/Unit Grants, as such terms are defined in Section 11 hereof, which shall
be treated in accordance with Section 11 hereof. The term “equity award” as used herein does not
include any right to participate in the employee stock purchase plans of the Company, which right
shall terminate immediately upon the termination of the Full-Time Employment Period.

          g. Termination During the Part-Time Employment Term. In the event Executive’s status
as a Part-Time Employee terminates prior to the end of the Part-Time Employment Term as the result
of Executive’s voluntary termination for Good Reason or by the

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Company for any reason other than
(i) upon the death or permanent Disability, as defined in Section 11(a)(viii) hereof, of Executive,
(ii) by written agreement between both of the parties hereto, or (iii) pursuant to Section 7(h),
Executive will become entitled, subject to Executive entering into and not revoking a Release, to
(A) a lump-sum payment equal to the Base Salary he would have otherwise received pursuant to clause
(i) of Section 7(c) through the end of the two-year anniversary of the Part-Time Employment Term to
be paid upon the later of the date of termination or the effectiveness of the Release, (B) a
lump-sum payment equal to all bonuses pursuant to clauses (iii), (iv), (v) and (vi) of Section 7(c)
to the extent not yet earned assuming each such bonus was equal to the Target Bonus (prorated for
partial fiscal years), to be paid upon the later of date of termination or the effectiveness of the
Release, (C) the accelerated vesting as to 100% of the then unvested shares
of all of Executive’s Company stock options and other equity compensation awards, subject to
Section 11 relating to the treatment of any Retention Option/SAR Grants and Retention Restricted
Stock/Unit Grants, (D) have five years from the date his employment as a Part-Time Employee
terminates to exercise any equity awards that are then outstanding (other than any Retention
Option/SAR Grants and Retention Restricted Stock/Unit Grants, which shall be treated in accordance
with Section 11), but in no event beyond the original term of any such equity award, and (E)
continue receiving the Retiree Health Benefit (as defined in Section 5) for he and his spouse.
Subject to Section 11 hereof relating to the treatment of any Retention Option/SAR Grants and
Retention Restricted Stock/Unit Grants, as such terms are defined in Section 11 hereof, or as the
Board may determine under Section 7(i), no additional benefits or payments will become payable to
Executive hereunder upon a termination of Executive’s Part-Time Employment Term following (i) the
death or permanent Disability of Executive, or (ii) the written agreement between both of the
parties hereto.

          For purposes of this Agreement, during the Part-Time Employment Term, “Good Reason” means a
material breach of this Agreement by the Company. Prior to Executive being able to resign for Good
Reason during the Part-Time Employment Term, he shall be required to provide the Company with
written notice setting forth in detail why he believes Good Reason exists. The Company will have
thirty (30) days to cure any such breach (to the extent a breach exists) after which Executive will
have the right to resign for Good Reason.

          h. Breach of Covenant Not to Compete. Executive’s employment with the Company
hereunder, whether full-time or part-time, shall immediately and automatically terminate upon
Executive’s breach of Section 8 hereof. Notwithstanding anything to contrary set forth herein, no
additional benefits or payments will become payable to Executive hereunder upon any such
termination, including, without limitation, the Retiree Health Benefit.

          i. Death or Disability. Subject to Section 11 hereof relating to the treatment of any
Retention Option/SAR Grants and the Retention Restricted Stock/Unit Grants, as such terms are
defined in Section 11 hereof, in the event of Executive’s death or permanent Disability, this
Agreement shall terminate, unless otherwise decided by the Board.

          j. No Duty to Mitigate; No Right of Set-Off. Executive will not be required to
mitigate the amount of any payment contemplated by this Agreement (whether during the Full-Time

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Employment Period or Part-Time Employment Term), nor will any earnings that Executive may receive
from any other source reduce any such payment and the Company will have no right of set-off for
amounts Executive may owe the Company against amounts the Company may owe Executive hereunder.

     8. Covenant Not to Compete.

          a. Covenant Not to Compete. During the Full-Time Employment Period and the Part-Time
Employment Term, Executive will not render services as an employee, consultant, director, partner,
owner to, or participate as more than a two percent shareholder in, any Competing Company in a
Restricted Territory, as such terms are defined immediately below; provided, however, that (i)
Executive shall be permitted to work for a division, entity, or subgroup of any of
such Competing Company so long as such division, entity, or subgroup does not engage in a
business (including, without limitation, development, manufacturing, marketing, sales or technical
or sales support) that makes such entity a Competing Company, and (ii) Executive may also receive
and hold in such situation equity in the Competing Company that he obtains in connection with such
service on the same basis as other employees similarly situated to Executive.

          b. Competing Company. “Competing Company” shall mean another semiconductor capital
equipment company, partnership, limited liability corporation or other entity any portion of whose
business, including, without limitation, development, manufacturing, marketing, sales or technical
or sales support, competes with the Company’s business at that time.

          c. Restricted Territory. “Restricted Territory” means any county in the State of
California, each state in the United States and each country in the world.

     9. Limitation on Payments. If the benefits provided for in this Agreement or
otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of
Section 280G of the Code and (ii) but for this Section 9, would be subject to the excise tax
imposed by Section 4999 of the Code, then the Executive’s benefits hereunder shall be either (i)
delivered in full, or (ii) delivered as to such lesser extent which, or at such later time as,
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, notwithstanding
that all or some portion of such benefits may (or might otherwise) be taxable under Section 4999 of
the Code. Unless the Company and the Executive otherwise agree in writing, any determination
required under this Section 9 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; provided that if benefits are reduced or deferred, the
Executive shall choose the order in which such benefits are reduced or deferred. For purposes of
making the calculations required by this Section 9, 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

-7-

 

determination under this Section. In the event a
determination is made under this Section 9, the Company shall also require the Accountants to
furnish Executive with a tax opinion regarding the calculations performed under this Section 9. The
Company shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 9.

     10. Double-Trigger Option Vesting Acceleration. If, on or after a Change of Control
(as defined herein) or within 30 days prior to a Change of Control, Executive’s employment with the
Company terminates (whether during the Full-Time Employment Period or the Part-Time Employment
Term) due to (i) a voluntary termination for “Good Reason” (as defined in Section 7(g) and this
Section 10), or (ii) an involuntary termination by the Company other than for “Cause” (as defined
in Section 7(b) hereof), then, subject to Executive executing and not revoking a Release and not
breaching the terms of Section 8 hereof, all of Executive’s Company stock options and other
equity compensation awards shall immediately accelerate vesting as to 100% of the then
unvested shares.

     For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the
following events:

               (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended) becomes the “beneficial owner” (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) The consummation of the sale or disposition by the Company of all or substantially all
the Company’s assets; or

               (iii) The consummation of 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; or

               (iv) A change in the composition of the Board 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 upon which this
Agreement was entered into, or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of those directors whose election or nomination was not in
connection with any transaction described in subsections (i), (ii), or (iii) above, or in
connection with an actual or threatened proxy contest relating to the election of directors to the
Company.

          For purposes of this Agreement, during the Full-Time Employment Period, “Good Reason” means,
without Executive’s express consent, (i) a material reduction of Executive’s duties,

-8-

 

title,
authority or responsibilities, relative to Executive’s duties, title, authority or responsibilities
as in effect immediately prior to such reduction, or the assignment to Executive of such reduced
duties, title, authority or responsibilities, (ii) a material reduction of the facilities and
perquisites (including office space and location) available to Executive immediately prior to such
reduction, other than a reduction generally applicable to all senior management of the Company;
(iii) a reduction by the Company in the Base Salary of Executive as in effect immediately prior to
such reduction; (iv) a material reduction by the Company in the aggregate level of employee
benefits, including target bonuses, to which Executive was entitled immediately prior to such
reduction with the result that Executive’s aggregate benefits package is materially reduced (other
than a reduction that generally applies to Company employees); (v) the relocation of Executive to a
facility or a location more than thirty-five (35) miles from Executive’s then present location; or
(vi) any act or set of facts or circumstances which would, under California case law or statute
constitute a constructive termination of Executive.

     11. Retention Awards.

          (a) Retention Option/SAR Grants. With respect to Company stock options or stock
appreciation rights granted to Executive on and after September 21, 2004, other than (i) 75,800
shares subject to the September 21, 2004 stock option grant that are scheduled to vest as to 20%
on September 21, 2008 and as to 1/48th of the remaining shares vesting monthly
thereafter, and (ii) 75,800 shares subject to any stock option or stock appreciation right granted
to Executive in 2005 vesting as to 20% four years after the date of grant and as to
1/48th of the remaining shares vesting monthly thereafter (the stock options and stock
appreciation rights covered by this Section 11(a) are referred to herein as “Retention Option/SAR
Grants”), notwithstanding any other provisions of this Agreement, including, without limitation,
Section 7(f) hereof, the following terms shall apply:

               (i) In the event that
(i) Executive’s full-time employment is terminated for Cause or breach of Section 8 hereof, or (ii)
Executive’s part-time employment is terminated for breach of Section 8 hereof, then the Retention
Option/SAR Grants shall immediately, to the extent then unvested, expire and become without further
force and effect and Executive shall have thirty (30) days following the date of such termination
(but in no event beyond an award’s original term) in which to exercise any vested portion of the
Retention Option/SAR Grants following which they shall expire and become without further force and
effect.

               (ii) Subject to Section 11(a)(ix), in the event that, prior to July 1, 2006, Executive
voluntarily terminates his position as Chief Executive Officer other than for Good Reason, even if
Executive remains a Service Provider, as such term is defined in the Company’s 2004 Equity
Incentive Plan (“Service Provider”), the Retention Option/SAR Grants shall immediately, to the
extent then unvested, expire and become without further force and effect and Executive shall have
thirty (30) days following the date of such termination (but in no event beyond an award’s original

-9-

 

term) in which to exercise any vested portion of the Retention Option/SAR Grants following which
they shall expire and become without further force and effect.

               (iii) Subject to Section 11(a)(ix), in
the event that, on and after July 1, 2006 and prior to July 1, 2007, Executive voluntarily
terminates as a Service Provider other than for Good Reason (whether during the Full-Time
Employment Period or Part-Time Employment Term), the Retention Option/SAR Grants shall immediately,
to the extent then unvested, expire and become without further force and effect and Executive shall
have thirty (30) days following the date of such event (but in no event beyond an award’s original
term) in which to exercise any vested portion of the Retention Option/SAR Grants following which
they shall expire and become without further force and effect.

               (iv)  Subject
to Section 11(a)(ix), in the event that, on and after July 1, 2007, Executive (i) voluntarily
terminates as a Service Provider other than for Good Reason (whether during the Full-Time
Employment Period or Part-Time Employment Term), the Retention Option/SAR Grants shall immediately,
to the extent then unvested, expire and become without further force and effect and
Executive shall have five years following the date of such event (but in no event beyond an
award’s original term) in which to exercise any vested portion of the Retention Option/SAR Grants
following which they shall expire and become without further force and effect.

               (v)  Subject to the other
provisions of this Section 11(a), in the event that, on and after July 1, 2006, Executive
transitions to a Part-Time Employee or otherwise remains a Service Provider and does not remain as
Chief Executive Officer, the Retention Option/SAR Grants shall continue to vest according to their
terms and the terms of this Agreement and, subject to Sections 11(a)(iii), (ix) and (x), Executive
shall have five years from the date his employment as a Part-Time Employee terminates (but in no
event beyond an award’s original term) to exercise the Retention Option/SAR Grants, after which
period they shall expire and become without further force and effect. In the event that Executive
remains as Chief Executive Officer, the Retention Option/SAR Grants shall also continue to vest
according to their terms and the terms of this Agreement.

               (vi) In the event that (i) Executive’s full-time employment is
terminated without Cause and other than for breach of Section 8 hereof, or (ii) Executive
voluntarily terminates his full-time employment for Good Reason, then Executive shall become a
Part-Time Employee (pursuant to Sections 7(c) or (d), respectively) and any Retention Option/SAR
Grants shall continue to vest according to their terms and the terms of this Agreement. Subject to
Sections 11(a)(iii), (ix) and (x), Executive shall have five years from the date his employment as
a Part-Time Employee terminates (but in no event beyond an award’s original term) in which to
exercise the Retention Option/SAR Grants, after which period they shall expire and become without
further force and effect.

               (vii) Subject to Section 11(a)(ii), in the
event Executive’s status as a Part-Time Employee terminates for any reason

-10-

 

(including, without
limitation, upon Executive’s voluntary termination for any reason) other than (A) upon the death or
permanent Disability of Executive, (B) upon Executive’s breach of Section 8, or (C) by written
agreement between both parties hereto, all of the Retention Option/SAR Grants shall immediately
accelerate vesting as to 100% of the then unvested shares. Notwithstanding the accelerated vesting
provided for in the previous sentence, any such Retention Option/SAR Grants will not become
exercisable (though they will be vested) until they would have otherwise become exercisable
pursuant to their original vesting terms. Subject to Sections11(a)(iii), (ix) and (x), Executive
shall have five years from the date his employment as a Part-Time Employee terminates (but in no
event beyond an award’s original term) in which to exercise the Retention Option/SAR Grants, after
which period they shall expire and become without further force and effect.

               (viii) In the event that Executive’s employment terminates due
to the Executive’s death or Disability (as defined herein) (whether during the Full-Time Employment
Period or Part-Time Employment Term), then (A) the Retention Option/SAR Grants shall have their
vesting accelerated as to a pro rata fraction of the initially covered shares less any shares that
have already vested, which pro rata fraction shall be determined by dividing the number of days
elapsed from the grant date to the employment termination date by the number of days between the
grant date and July 1, 2007, and (B) Executive (or his estate or personal
representative) shall have five years from the date of such employment termination (but in no
event beyond an award’s original term) in which to exercise the Retention Option/SAR Grants, after
which period they shall expire.

     For
the purposes of this Agreement, “Disability” means that Executive has been
unable to perform his employment duties as the result of his incapacity due to physical or mental
illness, and such inability, at least twenty-six (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
Executive or his legal representative (such agreement as to acceptability not to be unreasonably
withheld).

               (ix) In the event of a Change of Control occurring during the
Full-Time Employment Period, then Executive may at his election transition to Part-Time Employment
and continue to vest in his Retention Stock Option/SAR Grants during such period of Part-Time
Employment. In the event of a Change of Control occurring while Executive is a Service Provider,
then the Retention Option/SAR Grants shall remain exercisable, to the extent they are or become
vested, through July 1, 2012 (but in no event beyond an award’s original term).

               (x) Notwithstanding any
other provisions of this Agreement, in the event that Executive renders services as an employee,
consultant, director, partner, owner to, or participates as more than a two percent shareholder in,
any Competing Company in a Restricted Territory, as such terms are defined in Section 8 hereof,
then Executive shall promptly notify the Company in writing of such competitive activity. The
Company, at any time following it first becoming aware of such competitive activity, shall deliver
a notice to Executive specifying the reasons for its belief that Executive is engaging in such
competitive activity. Executive shall have thirty (30) days following the receipt of such notice
in which to cease such competitive activity to the Company’s satisfaction. In the event Executive

-11-

 

fails to cease such activity to the Company’s satisfaction within the thirty-day notice period,
then any five (5) year post-termination exercise period for the Retention Option/SAR Grants to
which Executive would otherwise be entitled shall be shortened to thirty (30) days following the
date upon which the thirty-day notice period expires (but in no event beyond an award’s original
term), following which period such Retention Option/SAR grants shall expire and be without further
force and effect. However, this Section 11(a)(x) limitation shall not apply to the extended
post-termination exercise provisions arising pursuant to a Change of Control under Section
11(a)(ix) hereof.

          (b) Retention Grants – Restricted Stock Units. With respect to the 100,000 share
restricted stock unit award granted to Executive effective October 18, 2004 and any award of
restricted stock, restricted stock units or other similar award granted on or after such date
(awards of restricted stock, restricted stock units or other similar awards covered by this Section
11(b) are referred to herein as “Retention Restricted Stock/Unit Grants”), notwithstanding any
other provisions of this Agreement, the following terms shall apply:

               (i) In the event that
(i) Executive’s full-time employment is terminated for Cause or breach of Section 8 hereof, or (ii)
Executive’s part-time employment is terminated for breach of Section 8
hereof, then any Retention Restricted Stock/Unit Grants shall immediately, to the extent then
unvested, be forfeited to the Company.

               (ii) Subject to Section 11(b)(ix), in the event that, prior to July 1, 2006, Executive
voluntarily terminates his position as Chief Executive Officer other than for Good Reason, even if
Executive remains a Service Provider, any Retention Restricted Stock/Unit Grants shall immediately
be forfeited to the Company.

               (iii) Subject to Section 11(b)(ix), in
the event that, on and after July 1, 2006 and prior to July 1, 2007, Executive voluntarily
terminates as a Service Provider other than for Good Reason (whether during the Full-Time
Employment Period or Part-Time Employment Term), any Retention Restricted Stock/Unit Grants shall
immediately be forfeited to the Company.

               (iv) In the
event that, on and after July 1, 2007, Executive voluntarily terminates as a Service Provider other
than for Good Reason (whether during the Full-Time Employment Period or Part-Time Employment Term),
any Retention Restricted Stock/Unit Grants shall immediately, but only if then unvested, be
forfeited to the Company.

               (v) Subject to the other
provisions of this Section 11(b), in the event that, on and after July 1, 2006, Executive
transitions to a Part-Time Employee or otherwise remains a Service Provider and does not remain as
Chief Executive Officer, any Retention Restricted Stock/Unit Grants shall continue to vest
according to its terms and the terms of this Agreement. In the event that Executive remains as
Chief

-12-

 

Executive Officer, any Retention Restricted Stock/Unit Grants shall also continue to vest
according to its terms and the terms of this Agreement.

               (vi) In the event that (i) Executive’s full-time employment is
terminated without Cause and other than for breach of Section 8 hereof, or (ii) Executive
voluntarily terminates his full-time employment for Good Reason, then Executive shall become a
Part-Time Employee (pursuant to Sections 7(c) or (d), respectively) and any Retention Restricted
Stock/Unit Grants shall continue to vest according to its terms and the terms of this Agreement.

               (vii)  Subject to Section 11(b)(ii), in the
event Executive’s status as a Part-Time Employee terminates for any reason (including, without
limitation, upon Executive’s voluntary termination for any reason) other than (A) upon the death or
permanent Disability of Executive, (B) upon Executive’s breach of Section 8, or (C) by written
agreement between both parties hereto, any Retention Restricted Stock/Unit Grants shall immediately
accelerate vesting as to 100% of the then unvested shares.

               (viii) 
In the event that Executive’s employment terminates due
to the Executive’s death or Disability (as defined herein), then (A) any Retention
Restricted Stock/Unit Grants shall have its vesting accelerated as to a pro rata fraction of
the initially covered shares, which pro rata fraction shall be determined by dividing the number of
days elapsed from the grant date to the employment termination date by the number of days between
the grant date and July 1, 2007.

               (ix) In the event of a Change of Control occurring during the
Full-Time Employment Period, then Executive may at his election transition to the Part-Time
Employment Period and continue to vest in his Retention Restricted Stock/Unit Grants during such
period of Part-Time Employment.

               (x) Shares subject to any Retention Restricted Stock/Unit
Grants will be distributed to Executive immediately upon vesting, except as may be necessary
pursuant to Section 22 hereof.

     12. Attorneys’ Fees. The Company will pay all of Executive’s reasonable attorneys’
fees in connection with the negotiation, preparation and execution of this Agreement with the
Company.

     13. Assignment. Executive’s rights and obligations under this Agreement shall not be
assignable by Executive. The Company’s rights and obligations under this Agreement shall not be
assignable by the Company except as incident to the transfer, by merger, liquidation, or otherwise,
of all or substantially all of the business of the Company. Any such assignee of the Company shall
deliver Executive a written confirmation confirming its assumption of this Agreement.

-13-

 

     14. Notices. Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed to have been effectively made or given if personally delivered, or if
sent by facsimile, or mailed or sent via Federal Express to the other party at its address set
forth below in this Section 14, or at such other address as such party may designate by written
notice to the other party hereto. Any effective notice hereunder shall be deemed given on the date
personally delivered or on the date sent by facsimile or deposited in the United States mail (sent
by certified mail, return receipt requested), as the case may be, at the following addresses:

	 	 	 
	If to the Company:

	 	KLA-Tencor Corporation
	

	 	160 Rio Robles
	

	 	San Jose, CA 95134
	

	 	Attn: General Counsel
	 
	 	 
	If to Executive:

	 	Kenneth L. Schroeder
	

	 	at the last primary residential address known to the Company

     15. Arbitration. The parties hereto agree that any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be finally settled by binding
arbitration to be held in Santa Clara County, California under the Employment Dispute Resolution
Rules of the American Arbitration Association as then in effect (the “Rules”). The arbitrator may
grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration, and judgment may be entered on the decision of the
arbitrator in any court having jurisdiction.

     The arbitrator shall apply California law to the merits of any dispute or claim, without
reference to rules of conflicts of law, and the arbitration proceedings shall be governed by
federal arbitration law and by the Rules, without reference to state arbitration law.

     The Company shall pay the costs and expenses of such arbitration, and each party shall pay its
own counsel fees and expenses.

THE PARTIES HERETO HAVE READ AND UNDERSTAND THIS SECTION 15, WHICH DISCUSSES
ARBITRATION. THE PARTIES HERETO UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY
AGREE TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS
AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR
TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF EACH PARTY’S RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO EXECUTIVE’S RELATIONSHIP WITH THE COMPANY.

-14-

 

     16. Withholding. The Company shall be entitled to withhold, or cause to be withheld,
from payment any amount of withholding taxes required by law with respect to payments made to
Executive in connection with his employment hereunder.

     17. Severability. If any term or provision of this Agreement shall to any extent be
declared illegal or unenforceable by arbitrator(s) or by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement or the application of such term or provision in
circumstances other than those as to which it is so declared illegal or unenforceable, shall not be
affected thereby, each term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law and the illegal or unenforceable term or provision shall be deemed
replaced by a term or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term of provision.

     18. Entire Agreement. This Agreement and the agreements relating to the Retention
Option/SAR Grants, the Retention Restricted Stock/Unit Grants and any other equity compensation
agreements represent the entire agreement of the parties with respect to the matters set forth
herein, and to the extent inconsistent with other prior contracts, arrangements or understandings
between the parties, supersedes all such previous contracts, arrangements or understandings between
the Company and Executive, including without limitation the First Amended Agreement and the
Addendum thereto. The Agreement may be amended at any time only by mutual written agreement signed
by the parties hereto.

     19. Governing Law. This Agreement shall be construed, interpreted, and governed in
accordance with the laws of the State of California without reference to rules relating to conflict
of law (other than any such rules directing application of California law).

     20. Headings. The headings of sections herein are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the provisions of this
Agreement.

     21. Counterparts. This Agreement may be executed by either of the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.

     22. Code Section 409A. This Agreement will be deemed amended to the extent necessary
to avoid imposition of any additional tax or income recognition prior to actual payment to
Executive under Code section 409A and any temporary or final Treasury Regulations and guidance
promulgated thereunder.

	 	 	 
	EXECUTIVE

	 	KLA-TENCOR CORPORATION
	 
	 	 
	/s/
Kenneth L. Schroeder

	 	/s/ Stuart J. Nichols
	

	 	

	Kenneth L. Schroeder

	 	Stuart J. Nichols
	

	 	Vice-President, General Counsel

-15-

 

EXHIBIT A

RELEASE OF CLAIMS

     This Release of Claims (“Release”) is made by and between KLA-Tencor Corporation (the
“Company”), and Kenneth L. Schroeder (“Employee”).

     WHEREAS, Employee has agreed to enter into a release of claims in favor of the Company in
return for obtaining certain severance benefits specified in the agreement by and between the
Company and Employee dated February 23, 2005 which amended and restated in its entirety that first
Amended Retention and Non-Competition Release dated April 29, 1998 and which also amended the
Addendum to the Amended Retention and Non-Competition Release dated November 15, 2001 (the
“Agreement”).

     NOW THEREFORE, in consideration of the mutual promises made herein, the Parties hereby agree
as follows:

     1. Termination. Employee’s employment from the Company terminated on                     
(the “Termination Date”).

     2. Consideration.
Pursuant to the terms of Section 7 of the Agreement, upon the
Effective Date of this Release, Executive will be entitled to severance payments and benefits as
provided therein.

     3. Confidential Information. Employee shall continue to maintain the confidentiality
of all confidential and proprietary information of the Company and shall continue to comply with
the terms and conditions of the Employee Proprietary Information and
Inventions Agreement between Employee and the Company.
Employee shall return all the Company property and confidential and proprietary information in his
possession to the Company on the Effective Date of this Release.

     4. Payment of Salary. Employee acknowledges and represents that the Company has paid
all severance, salary, wages, bonuses, accrued vacation, commissions and any and all other benefits
due to Employee as of the date hereof.

     5. Release of Claims. Employee agrees that the foregoing consideration represents
settlement in full of all outstanding obligations owed to Employee by the Company. Employee, on
behalf of himself, and his respective heirs, family members, executors and assigns, hereby fully
and forever releases the Company and its past, present and future officers, agents, directors,
employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents,
predecessor and successor corporations, and assigns, from, and agrees not to sue or otherwise
institute or cause to be instituted any legal or administrative proceedings concerning any claim,
duty, obligation or cause of action relating to any matters of any kind, whether presently known or
unknown, suspected or unsuspected, that he may possess arising from any omissions, acts or facts
that have occurred up until and including the Effective Date of this Release including, without
limitation,

 

 

          a. any and all claims relating to or arising from Employee’s employment relationship with the
Company and the termination of that relationship;

          b. any and all claims relating to, or arising from, Employee’s right to purchase, or actual
purchase of shares of stock of the Company, including, without limitation, any claims for fraud,
misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law,
and securities fraud under any state or federal law;

          c. any and all claims for wrongful discharge of employment; termination in violation of public
policy; discrimination; breach of contract, both express and implied; breach of a covenant of good
faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; unfair business
practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of
privacy; false imprisonment; and conversion;

          d. any and all claims for violation of any federal, state or municipal statute, including, but
not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and
Retraining Notification Act, the California Fair Employment and Housing Act, and Labor Code section
201, et seq. and section 970, et seq. and all amendments to each such Act as well as the
regulations issued thereunder;

          e. any and all claims for violation of the federal, or any state, constitution;

          f. any and all claims arising out of any other laws and regulations relating to employment or
employment discrimination; and

          g. any and all claims for attorneys’ fees and costs.

Employee agrees that the release set forth in this section shall be and remain in effect in all
respects as a complete general release as to the matters released. Notwithstanding the previous
sentence, the Parties agree that Employee will continue to be covered by the terms and conditions
of the [Indemnity Release] entered into between Employee and the Company on [DATE] (the “Indemnity
Release”) and the terms of the Company’s D&O insurance policy for claims against Employee that
arise out of matters or events that occurred prior to the Termination Date. This release does not
extend to any severance benefits due Employee under the Agreement or any rights to indemnification
Employee may have under the Indemnification Release or the Company’s D&O insurance policy.

     6. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges that he is
waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967
(“ADEA”) and that this waiver and release is knowing and voluntary. Employee and the Company agree
that this waiver and release does not apply to any rights or claims that may arise

2

 

under the ADEA
after the Effective Date of this Release. Employee acknowledges that the
consideration given for this Release is in addition to anything of value to which Employee was
already entitled. Employee further acknowledges that he has been advised by this writing that (a)
he should consult with an attorney prior to executing this Release; (b) he has at least
twenty-one (21) days within which to consider this Release; (c) he has seven (7) days following the
execution of this Release by the parties to revoke the Release; (d) this Release shall not be
effective until the revocation period has expired; and (e) nothing in this Release prevents or
precludes Employee from challenging or seeking a determination in good faith of the validity of
this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for
doing so, unless specifically authorized by federal law. Any revocation should be in writing and
delivered to the General Counsel at the Company by close of business on the seventh day from the
date that Employee signs this Release.

     7. Civil Code Section 1542. Employee represents that he is not aware of any claims
against the Company other than the claims that are released by this Release. Employee acknowledges
that he has been advised by legal counsel and is familiar with the provisions of California Civil
Code 1542, below, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.

          Employee, being aware of said code section, agrees to expressly waive any rights he may have
thereunder, as well as under any statute or common law principles of similar effect.

     8. No Pending or Future Lawsuits. Employee represents that he has no lawsuits,
claims, or actions pending in his name, or on behalf of any other person or entity, against the
Company or any other person or entity referred to herein. Employee also represents that he does
not intend to bring any claims on his own behalf or on behalf of any other person or entity against
the Company or any other person or entity referred to herein.

     9. Application for Employment. Employee understands and agrees that, as a condition
of this Release, he shall not be entitled to any employment with the Company, its subsidiaries, or
any successor, and he hereby waives any right, or alleged right, of employment or re-employment
with the Company.

     10. No Cooperation. Employee agrees that he will not counsel or assist any attorneys
or their clients in the presentation or prosecution of any disputes, differences, grievances,
claims, charges, or complaints by any third party against the Company and/or any officer, director,
employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or
other court order to do so.

3

 

     11. Costs. The Parties shall each bear their own costs, expert fees, attorneys’ fees
and other fees incurred in connection with this Release.

     12. Authority. Employee represents and warrants that he has the capacity to act on
his own behalf and on behalf of all who might claim through him to bind them to the terms and
conditions of this Release.

     13. No Representations. Employee represents that he has had the opportunity to
consult with an attorney, and has carefully read and understands the scope and effect of the
provisions of this Release. Neither party has relied upon any representations or statements made
by the other party hereto which are not specifically set forth in this Release.

     14. Severability. In the event that any provision hereof becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this Release shall continue
in full force and effect without said provision.

     15. Entire Release. This Release, along with the Agreement, the Employee Proprietary Information
and Investors Agreement and the Indemnification Agreement, represents the entire agreement and understanding
between the Company and Employee concerning Employee’s separation from the Company.

     16. No Oral Modification. This Release may only be amended in writing signed by
Employee and the Chairman of the Board of Directors of the Company.

     17. Governing Law. This Release shall be governed by the internal substantive laws,
but not the choice of law rules, of the State of California.

     18. Effective Date. This Release is effective after it has been signed by both
Parties, but no sooner than seven (7) days have passed since Employee has signed the Release (the
“Effective Date”), unless revoked by Employee prior to the Effective Date.

     19. Counterparts. This Release may be executed in counterparts, and each counterpart
shall have the same force and effect as an original and shall constitute an effective, binding
agreement on the part of each of the undersigned.

     20. Voluntary Execution of Release. This Release is executed voluntarily and without
any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of
releasing all claims. The Parties acknowledge that:

          a. They have read this Release;

          b. They have been represented in the preparation, negotiation, and execution of this Release
by legal counsel of their own choice or that they have voluntarily declined to seek such counsel;

4

 

          c. They understand the terms and consequences of this Release and of the releases it contains;
and

          d. They are fully aware of the legal and binding effect of this Release.

     IN WITNESS WHEREOF, the Parties have executed this Release on the respective dates set forth
below.

	 	 	 
	

	 	KLA-Tencor Corporation
	 
	 	 
	Dated:                     , 20___

	 	By                                                                           
	 
	 	 
	Dated:                     , 20___

	 	                                                                                
	

	 	Kenneth L. Schroeder

5

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