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                                                                   EXHIBIT 10.56

                                LEASE AGREEMENT,
                     DEED OF TRUST WITH ASSIGNMENT OF RENTS,
                      SECURITY AGREEMENT AND FIXTURE FILING

      THIS LEASE AGREEMENT, DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (this "Agreement" herein), dated as of June 30,
1999 is entered into by and between:

            (1) SILICON VALLEY GROUP, INC., a Delaware corporation ("Lessee");
      and

            (2) SELCO SERVICE CORPORATION, an Ohio corporation doing business in
      California as Ohio SELCO Service Corporation, as lessor under this
      Agreement and as trustee under the deed of trust contained herein
      ("Lessor").

                                    RECITALS

      A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a lease facility pursuant to which:

            (1) Lessor would (a) purchase certain property, (b) lease such
      property to Lessee and (c) grant to Lessee the right to purchase such
      property; and

            (2) The Participants would participate in such lease facility by (a)
      funding the advance to be made by Lessor to purchase such property and (b)
      acquiring participation interests in the rental and certain other payments
      to be made by Lessee.

      B. Pursuant to a Participation Agreement dated of even date herewith (the
"Participation Agreement") among Lessee, Lessor, the Participants and KeyBank
National Association, as agent for the Participants (in such capacity, "Agent"),
Lessor and the Participants have agreed to provide such lease facility upon the
terms and subject to the conditions set forth therein, including without
limitation the execution and delivery of this Agreement setting forth the terms
of the lease by Lessor to Lessee of the property.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:


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SECTION 1. INTERPRETATION.

      1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01 to the
Participation Agreement, when used in this Agreement or any other Operative
Document, shall have the respective meaning given to that term in such Schedule
1.01 or in the provision of this Agreement or other document, instrument or
agreement referenced in such Schedule 1.01.

      1.02. Rules of Interpretation. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of interpretation set forth
in Schedule 1.02 to the Participation Agreement shall apply to this Agreement
and the other Operative Documents.

SECTION 2. BASIC PROVISIONS.

      2.01. Lease of the Property. Subject to the acquisition thereof by Lessor
pursuant to the Participation Agreement and the Acquisition Agreement (either as
of the date hereof or during the term hereof), Lessor agrees to lease to Lessee
and Lessee agrees to lease from Lessor the following property (the "Property")
to the extent of Lessor's estate, right, title and interest therein, thereto or
thereunder:

            (a) All lots, pieces, tracts and parcels of land described in
      Exhibit A (the "Land");

            (b) All Lessor Improvements located on the Land;

            (c) All Appurtenant Rights belonging, relating or pertaining to any
      of the Land or Lessor Improvements;

            (d) All Related Goods (including those described in Exhibit B),
      Related Permits and Related Agreements related to any of the foregoing
      Land, Lessor Improvements or Appurtenant Rights; and

            (e) All accessions and accretions to and replacements and
      substitutions for the foregoing.

      2.02. Term.

            (a) Original Term. The original term of this Agreement shall
      commence on the Closing Date (the "Commencement Date") and shall end on
      the fifth anniversary of the Closing Date (such date as it may be extended
      pursuant to Subparagraph 2.02(b) to be referred to as the "Scheduled
      Expiration Date").

            (b) Extensions. Lessee may request Lessor to extend the Scheduled
      Expiration Date in effect for three (3) additional periods of one (1) year
      each, as provided in Paragraph 2.09 of the Participation Agreement. If
      Lessor and each Participant consents to any such a request in accordance
      with such provision, the then current


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      Scheduled Expiration Date shall be deemed extended by one (1) year. Lessee
      acknowledges that neither Lessor nor any Participant has any obligation or
      commitment (either express or implied) to extend, or consent to the
      extension of, the Scheduled Expiration Date at any time.

      2.03. Rent.

            (a) Base Rent.

                  (i) Lessee shall pay to Lessor as base rent hereunder ("Base
            Rent") for each Rental Period for each Portion an amount equal to
            the product of (A) the Rental Rate for such Rental Period, times (B)
            the amount of the Portion on the first day of such Rental Period,
            times (C) a fraction, the numerator of which is the number of days
            in such Rental Period and the denominator of which is 360. If the
            Rental Rate shall change during any Rental Period, the Rental Rate
            for such Rental Period shall be the weighted average of the Rental
            Rates in effect from time to time during such Rental Period.

                  (ii) After the initial Rental Period, Lessee may select the
            number and amounts of the Portions into which the Outstanding Lease
            Amount is to be divided and the Rental Period for each such Portion
            by delivering to Lessor, at least three (3) Business Days prior to
            the last day of each Rental Period for a Portion, an irrevocable
            written notice in the form of Exhibit C, appropriately completed (a
            "Notice of Rental Period Selection"), subject to the following:

                        (A) Each Portion shall be in the amount of $2,000,000 or
                  an integral multiple of $100,000 in excess thereof; provided,
                  however, that (1) the total number of Portions outstanding at
                  any time shall not exceed two (2), and (2) the Outstanding
                  Lease Amount shall consist of a single Portion in the amount
                  of the Outstanding Lease Amount if the Outstanding Lease
                  Amount is less than $4,000,000.

                        (B) The initial and each subsequent Rental Period
                  selected by Lessee for each Portion shall be one (1) month, or
                  if the Synthetic Lease Swap Agreement is no longer in effect,
                  two (2), three (3) or six (6) months; provided, however, that
                  (1) each Rental Period shall begin and end on the first
                  Business Day of a calendar month, (2) no Rental Period shall
                  end after the Scheduled Expiration Date, (3) no Rental Period
                  shall be longer than one (1) month if an Event of Default has
                  occurred and is continuing on the date three (3) Business Days
                  prior to the first day of such Rental Period and (4) each
                  Rental Period after the initial Rental Period for any Portion
                  for which Lessee fails to make a selection by delivering a
                  Notice of Rental Period Selection in accordance with this
                  clause (ii) shall be one (1) month.


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                  Lessee shall deliver each Notice of Rental Period Selection by
                  overnight courier, first-class mail or facsimile as required
                  by Subparagraph 2.02(c) and Paragraph 7.01 of the
                  Participation Agreement; provided, however, that Lessee shall
                  promptly deliver the original of any Notice of Rental Period
                  Selection initially delivered by facsimile.

                        (iii) The rental rate for each Rental Period ("Rental
                  Rate") shall be the LIBOR Rental Rate for such Rental Period,
                  except as follows:

                              (A) The Rental Rate for the initial Rental Period
                        shall be the Alternate Rental Rate;

                              (B) If any other Rental Period is less than one
                        (1) month, the Rental Rate for such Rental Period shall
                        be the Alternate Rental Rate; or

                              (C) If the LIBOR Rental Rate is unavailable for
                        any Rental Period pursuant to Subparagraph 2.12(a) or
                        Subparagraph 2.12(b) of the Participation Agreement, the
                        Rental Rate for such Rental Period shall be the
                        Alternate Rental Rate.

                        (iv) Lessee shall pay Base Rent in arrears (A) for each
                  Portion, on the last day of each Rental Period therefor and,
                  in the case of any Rental Period which exceeds three (3)
                  months, each day occurring every three (3) months after the
                  first day of such Rental Period (individually, a "Scheduled
                  Rent Payment Date") and (B) for all Portions, on the
                  Expiration Date.

                  (b) Supplemental Rent. Lessee shall pay as supplemental rent
            hereunder ("Supplemental Rent") all amounts (other than Base Rent,
            the purchase price payable by Lessee for any purchase of the
            Property by Lessee pursuant to the Purchase Agreement and the
            Residual Value Guaranty Amount payable under the Purchase Agreement)
            payable by Lessee under this Agreement and the other Operative
            Documents. Lessee shall pay all Supplemental Rent amounts on the
            dates specified in this Agreement and the other Operative Documents
            for the payment of such amounts or, if no date is specified for the
            payment of any such amount, upon the demand of Lessor or any other
            Person to whom such amount is payable.

            2.04. Use. Lessee may use the Property for office purposes, and for
      any other purpose which is in compliance with applicable zoning laws and
      ordinances for the Property.

            2.05. "As Is" Lease. Lessee has conducted, or will conduct from time
      to time with regard to property that may be added hereto after the date
      hereof, all due diligence which it deems appropriate regarding the
      Property and agrees that no Lessor Party has any obligation to conduct any
      such due diligence. Lessee is leasing the Property "as is, with all
      faults" without any representation, warranty, indemnity or undertaking by
      any Lessor Party regarding any aspect of the Property, including (a) the
      condition of the Property (including the Lessor Improvements); (b) title
      to the Property (including possession of the Property by any Person or the
      existence of


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      any Lien or any other right, title or interest in or to any of the
      Property in favor of any Person); (c) the value, habitability, usability,
      design, operation or fitness for use of the Property; (d) the availability
      or adequacy of utilities and other services to the Property; (e) any
      latent, hidden or patent defect in the Property; (f) the zoning or status
      of the Property or any other restrictions on the use of the Property; (g)
      the economics of the Property; (h) any Casualty or Condemnation; or (i)
      the compliance of the Property with any applicable Governmental Rule or
      Insurance Requirement; provided, however, that Lessor shall be obligated
      to remove Lessor Liens to the extent required in Subparagraph 5.04(b) of
      the Participation Agreement. Without limiting the generality of the
      foregoing, Lessee specifically waives any covenant of quiet enjoyment
      except as otherwise provided in Subparagraph 5.04(b) of the Participation
      Agreement.

            2.06. Nature of Transaction. As more fully provided in Paragraph
      2.10 of the Participation Agreement, Lessee and the Lessor Parties intend
      that the transaction evidenced by this Agreement and the other Operative
      Documents constitute an operating lease for purposes of Lessee's financial
      and SEC reporting and a loan secured by the Property for purposes of state
      and local income tax and commercial, real estate and bankruptcy law.

            2.07. Security, Etc. In order to secure the Lessee Obligations and
      otherwise to assure the Lessor Parties the benefits hereof in the event
      that the transaction evidenced by this Agreement and the other Operative
      Documents is, pursuant to the intent of Lessee and the Lessor Parties,
      treated as a loan for certain purposes, Lessee hereby makes the following
      grants and agrees as follows:

                  (a) Real Property Security. As security for the Lessee
            Obligations, Lessee hereby irrevocably and unconditionally grants,
            conveys, transfers and assigns to Lessor, as beneficiary (in trust
            for the benefit of the Lessor Parties), with power of sale and right
            of entry and possession, all estate, right, title and interest of
            Lessee in the following property, whether now owned or leased or
            hereafter acquired, (collectively, the "Real Property Collateral"):

                        (i) The Land;

                        (ii) All Lessor Improvements located on the Land;

                        (iii) All Appurtenant Rights belonging, relating or
                  pertaining to any of the foregoing Land or Lessor
                  Improvements;

                        (iv) All Subleases of and all Issues and Profits
                  accruing from any of the foregoing Land, Lessor Improvements
                  or Appurtenant Rights to the extent that such Subleases and
                  Issues and Profits constitute real property;

                        (v) All Related Goods, Related Permits and Related
                  Agreements related to any of the foregoing Land, Lessor
                  Improvements or Appurtenant Rights to the extent that such
                  Related Goods, Related Agreements and Related Permits
                  constitute real property;


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                        (vi) All other Property to the extent that such property
                  constitutes real property; and

                        (vii) All proceeds of the foregoing, including Casualty
                  and Condemnation Proceeds.

                  (b) Personal Property Security. As security for the Lessee
            Obligations, Lessee hereby irrevocably and unconditionally assigns
            and grants to Lessor, for the benefit of the Lessor Parties, a
            security interest in all estate, right, title and interest of Lessee
            in the following property, whether now owned or leased or hereafter
            acquired, (collectively, the "Personal Property Collateral"):

                        (i) All Subleases of and all Issues and Profits accruing
                  from any of the Land, Lessor Improvements or Appurtenant
                  Rights to the extent that such Subleases and Issues and
                  Profits constitute personal property;

                        (ii) All Related Goods, Related Permits and Related
                  Agreements related to any of the Land, Lessor Improvements or
                  Appurtenant Rights to the extent that such Related Goods,
                  Related Agreements and Related Permits constitute personal
                  property;

                        (iii) All Cash Collateral and all other deposit
                  accounts, instruments, investment property and monies held by
                  any Lessor Party in connection with this Agreement or any
                  other Operative Document (including any Repair and Restoration
                  Account);

                        (iv) All other Property to the extent such Property
                  constitutes personal property; and

                        (v) All proceeds of the foregoing, including Casualty
                  and Condemnation Proceeds.

            This Agreement constitutes a fixture filing for purposes of the
            California Commercial Code with respect to the Related Goods and
            Modifications which are or are to become fixtures on the Land or
            Lessor Improvements.

                  (c) Absolute Assignment of Subleases, Issues, and Profits.
            Lessee hereby irrevocably assigns to Lessor, for the benefit of the
            Lessor Parties, all of Lessee's estate, right, title and interest
            in, to and under the Subleases and the Issues and Profits, whether
            now owned or hereafter acquired. This is a present and absolute
            assignment, not an assignment for security purposes only, and
            Lessor's right to the Subleases and Issues and Profits is not
            contingent upon, and may be exercised without possession of, the
            Property.

                        (i) If no Event of Default has occurred and is
                  continuing, Lessee shall have a revocable license to collect
                  and retain the Issues and Profits as they become due. Upon the
                  occurrence and during the continuance of an Event of


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                  Default, such license shall automatically terminate, and
                  Lessor may collect and apply the Issues and Profits pursuant
                  to Subparagraph 5.02(d) without further notice to Lessee or
                  any other Person and without taking possession of the
                  Property. All Issues and Profits thereafter collected by
                  Lessee shall be held by Lessee as trustee in a constructive
                  trust for the benefit of Lessor. Lessee hereby irrevocably
                  authorizes and directs the sublessees under the Subleases,
                  without any need on their part to inquire as to whether an
                  Event of Default has actually occurred or is then existing, to
                  rely upon and comply with any notice or demand by Lessor for
                  the payment to Lessor of any rental or other sums which may
                  become due under the Subleases or for the performance of any
                  of the sublessees' undertakings under the Subleases.
                  Collection of any Issues and Profits by Lessor shall not cure
                  or waive any default or notice of default hereunder or
                  invalidate any acts done pursuant to such notice, but shall be
                  applied by Lessor to pay Lessee Obligations in such order as
                  Lessor shall determine in accordance with the Operative
                  Documents.

                        (ii) The foregoing irrevocable assignment shall not
                  cause any Lessor Party to be (A) a mortgagee in possession;
                  (B) responsible or liable for (1) the control, care,
                  management or repair of the Property or for performing any of
                  Lessee's obligations or duties under the Subleases, (2) any
                  waste committed on the Property by the sublessees under any of
                  the Subleases or by any other Persons, (3) any dangerous or
                  defective condition of the Property, or (4) any negligence in
                  the management, upkeep, repair or control of the Property
                  resulting in loss or injury or death to any sublessee,
                  licensee, employee, invitee or other Person; or (C)
                  responsible for or impose upon any Lessor Party any duty to
                  produce rents or profits. No Lessor Party, in the absence of
                  gross negligence or willful misconduct on its part, shall be
                  liable to Lessee as a consequence of (y) the exercise or
                  failure to exercise any of the rights, remedies or powers
                  granted to Lessor hereunder or (z) the failure or refusal of
                  Lessor to perform or discharge any obligation, duty or
                  liability of Lessee arising under the Subleases.

      SECTION 3. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.

            3.01. Maintenance, Repair, Etc.

                  (a) General. Lessee shall not permit any waste of the
            Property, except for ordinary wear and tear, and shall, at its sole
            cost and expense, maintain the Property in good working order,
            mechanical condition and repair and make all necessary repairs
            thereto, of every kind and nature whatsoever, whether interior or
            exterior, ordinary or extraordinary, structural or nonstructural or
            foreseen or unforeseen, in each case as required by all applicable
            Governmental Rules and Insurance Requirements and on a basis
            consistent with the operation and maintenance of commercial
            properties comparable in type and location to the Property and in
            compliance with prudent industry practice.


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                  (b) Modifications. Lessee, at its sole cost and expense, may
            from time to time make alterations, renovations, improvements and
            additions to the Property and substitutions and replacements
            therefor (collectively, except for any such property removed in
            accordance with Paragraph 3.10, "Modifications"); provided that:

                        (i) No Modification materially impairs the value,
                  utility or useful life of the Property or any part thereof
                  from that which existed immediately prior to such
                  Modification;

                        (ii) All Modifications are made expeditiously and, in
                  all cases, unless Lessee currently is exercising either the
                  Term Purchase Option or the Expiration Date Purchase Option,
                  completed not later than six (6) months prior to the Scheduled
                  Expiration Date;

                        (iii) All Modifications are made in a good and
                  workmanlike manner and in compliance with all applicable
                  Governmental Rules and Insurance Requirements;

                        (iv) Subject to Paragraph 3.12 relating to permitted
                  contests, Lessee pays all costs and expenses and discharges
                  (or cause to be insured or bonded over) any Liens arising in
                  connection with any Modification not later than the earlier of
                  (A) sixty (60) days after the same shall be filed (or
                  otherwise becomes effective) and (B) unless Lessee currently
                  is exercising either the Term Purchase Option or the
                  Expiration Date Purchase Option, six (6) months prior to the
                  Scheduled Expiration Date;

                        (v) At least one (1) month prior to the commencement of
                  (A) any Modifications which are anticipated to cost $1,000,000
                  or more in the aggregate, or (B) any Modifications which cause
                  the total of all Modifications undertaken during the previous
                  twelve-month period to exceed an aggregate cost of $2,500,000,
                  Lessee shall deliver to Lessor, with sufficient copies for
                  Agent and each Participant, a brief written description of
                  such Modifications; and

                        (vi) All Modifications otherwise comply with this
                  Agreement and the other Operative Documents.

                  (c) Abandonment. Lessee shall not abandon the Property or any
            material portion thereof for any period in excess of thirty (30)
            consecutive days during the term hereof, except as a part of any
            Modifications as permitted herein or in the other Operative
            Documents.

                  (d) Maintenance. Lessee shall maintain the Property and each
            material portion thereof in a manner consistent with other similar
            properties in the same area.

            3.02. Risk of Loss. Lessee assumes all risks of loss arising from
      any Casualty or Condemnation which arises or occurs prior to the
      Expiration Date or while Lessee is in


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      possession of the Property and all liability for all personal injuries and
      deaths and damages to property suffered by any Person or property on or in
      connection with the Property which arises or occurs prior to the
      Expiration Date or while Lessee is in possession of the Property, except
      in each case to the extent any such loss or liability is primarily caused
      by the gross negligence or willful misconduct of a Lessor Party. Lessee
      hereby waives the provisions of California Civil Code Sections 1932(1),
      1932(2) and 1933(4), and any and all other applicable existing or future
      Governmental Rules permitting the termination of this Agreement as a
      result of any Casualty or Condemnation, and Lessor shall in no event be
      answerable or accountable for any risk of loss of or decrease in the
      enjoyment and beneficial use of the Property as a result of any such
      event.

            3.03. Insurance.

                  (a) Coverage. Lessee, at its sole cost and expense, shall
            carry and maintain the insurance coverage not less than set forth in
            Schedule 3.03 and such additional insurance of the types (including
            the types set forth in Schedule 3.03), in amounts, in a form and
            with deductibles customarily carried by a reasonably prudent Person
            owning or operating properties similar to the Property in the same
            geographic area as the Property.

                  (b) Carriers. Any insurance carried and maintained by Lessee
            pursuant to this Paragraph 3.03 shall be underwritten by an
            insurance company which (i) has, at the time such insurance is
            placed and at the time of each renewal thereof, a general
            policyholder rating of "A" and a financial rating of at least 13
            from A.M. Best and Company or any successor thereto (or if there is
            none, an organization having a similar national reputation) or (ii)
            is otherwise approved by Lessor and Required Participants.

                  (c) Terms. Each insurance policy maintained by Lessee pursuant
            to this Paragraph 3.03 shall provide as follows, whether through
            endorsements or otherwise:

                        (i) Lessor and Agent shall be named as additional
                  insureds, in the case of each policy of liability insurance
                  and property insurance, and additional loss payees, in the
                  case of each policy of property insurance.

                        (ii) In respect of the interests of Lessor in the
                  policy, the insurance shall not be invalidated by any action
                  or by inaction of Lessee or by any Person having temporary
                  possession of the Property while under contract with Lessee to
                  perform maintenance, repair, alteration or similar work on the
                  Property, and shall insure the interests of Lessor regardless
                  of any breach or violation of any warranty, declaration or
                  condition contained in the insurance policy by Lessee, Lessor
                  or any other additional insured (other than by such additional
                  insured, as to such additional insured); provided, however,
                  that the foregoing shall not be deemed to (A) cause such
                  insurance policies to cover matters otherwise excluded from
                  coverage by the terms of such policies or (B) require any
                  insurance to remain in force notwithstanding non-payment of
                  premiums except as provided in clause (iii) below.


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                        (iii) If the insurance policy is cancelled for any
                  reason whatsoever, or substantial change is made in the
                  coverage that affects the interests of Lessor, or if the
                  insurance coverage is allowed to lapse for non-payment of
                  premium, such cancellation, change or lapse shall not be
                  effective as to Lessor for thirty (30) days after receipt by
                  Lessor of written notice from the insurers of such
                  cancellation, change or lapse.

                        (iv) No Lessor Party shall have any obligation or
                  liability for premiums, commissions, assessments, or calls in
                  connection with the insurance.

                        (v) The insurer shall waive any rights of set-off or
                  counterclaim or any other deduction, whether by attachment or
                  otherwise, that it may have against any Lessor Party.

                        (vi) The insurance shall be primary without right of
                  contribution from any other insurance that may be carried by
                  any Lessor Party with respect to its interest in the Property.

                        (vii) The insurer shall waive any right of subrogation
                  against any Lessor Party.

                        (viii) All provisions of the insurance, except the
                  limits of liability, shall operate in the same manner as if
                  there were a separate policy covering each insured party.

                        (ix) The insurance shall not be invalidated should
                  Lessee or any Lessor Party waive, in writing, prior to a loss,
                  any or all rights of recovery against any Person for losses
                  covered by such policy, nor shall the insurance in favor of
                  any Lessor Party or Lessee, as the case may be, or their
                  respective rights under and interests in said policies be
                  invalidated or reduced by any act or omission or negligence of
                  any Lessor Party or Lessee, as the case may be, or any other
                  Person having any interest in the Property.

                        (x) All insurance proceeds with a value of less than one
                  million Dollars ($1,000,000) in respect of any loss or
                  occurrence with respect to the Property shall be paid to and
                  adjusted solely by Lessee and all other insurance proceeds
                  shall be paid to Lessor and adjusted jointly by Lessor and
                  Lessee, except that, from and after the date on which the
                  insurer receives written notice from Lessor that an Event of
                  Default has occurred and is continuing (and unless and until
                  such insurer receives written notice from Lessor that all
                  Events of Default have been waived), all losses shall be
                  adjusted solely by, and all insurance proceeds shall be paid
                  solely to, Lessor.

                        (xi) Each policy of property insurance shall contain a
                  standard form mortgagee endorsement in favor of Lessor.


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                        (xii) Each insurance policy shall provide that the
                  coverage to be provided thereunder shall not be invalidated in
                  the event Lessee or any Lessor Party fails to maintain other
                  insurance covering losses of a similar type or types.

                        (xiii) Each insurance policy shall contain a
                  "severability of interest" provision.

                        (xiv) Each insurance policy which is written as "excess
                  insurance" shall contain a provision that it will drop down in
                  the event that any underlying insurance coverage has been
                  reduced or exhausted by reason of losses paid thereunder.

                        (xv) In the event of claims, losses and damages arising
                  from a single incident or occurrence (or related incidents or
                  occurrences) that relate to the Property and other property of
                  Lessee and that are covered by a "blanket" policy, claims,
                  losses and damages relating to the Property shall be
                  separately adjusted.

                  (d) Evidence of Insurance. Lessee, at its sole cost and
            expense, shall furnish to Lessor from time to time upon the request
            of Lessor such certificates or other documents as Lessor may
            reasonably request to evidence Lessee's compliance with the
            insurance requirements set forth in this Paragraph 3.03.

                  (e) Release of Lessor Parties. Lessee hereby waives, releases
            and discharges each Lessor Party and its directors, officers,
            employees, agents and advisors from all claims whatsoever arising
            out of any loss, claim, expense or damage to or destruction covered
            or coverable by insurance required under this Paragraph 3.03 to the
            extent the policies for such insurance permit such waiver,
            notwithstanding that such loss, claim, expense or damage may have
            been caused by any such Person, and, as among Lessee and such
            Persons, Lessee agrees to look to the insurance coverage only in the
            event of such loss.

                  (f) Insurance to be Maintained Pursuant to the Fixed Price
            Remediation Agreement. In addition to the other insurance
            requirements set forth in this Paragraph 3.03 and in Subparagraph
            5.01(d) of the Purchase Agreement , Lessee shall:

                        (i) Within ninety (90) days after the Commencement Date,
                  provide Lessor with evidence in form and substance
                  satisfactory to Lessor that (A) the policies of insurance of
                  the types and in the amounts required to be carried and
                  maintained by the Remediator pursuant to the Fixed Price
                  Remediation Agreement as indicated in the binders therefor
                  delivered to Lessor on the Commencement Date pursuant to
                  Schedule 3.01 of the Participation Agreement have been
                  obtained; and (B) that Lessor has been named additional
                  insured or loss payee (as applicable) with respect to all such
                  policies of insurance to the extent required pursuant to the
                  Fixed Price Remediation Agreement;


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                        (ii) Cause the Remediator to continue to carry and
                  maintain at all times such insurance of the types and in the
                  amounts required pursuant to the Fixed Price Remediation
                  Agreement; and;

                        (iii) Deliver to Lessor from time to time, as Lessor may
                  reasonably request, schedules setting forth all such insurance
                  then in effect.

            With respect to all such insurance to be maintained pursuant to the
            Remediation Agreement, Lessee acknowledges and agrees that neither
            Lessor nor the other Lessor Parties shall be responsibility for
            co-payments, deductibles and/or self-insured retentions to paid by
            any Person with respect thereto.

            3.04. Casualty and Condemnation.

                  (a) Notice. Lessee shall give Lessor prompt written notice of
            the occurrence of any Casualty affecting, or the institution of any
            proceedings for the Condemnation of, the Property or any portion
            thereof.

                  (b) Repair or Purchase Option. After the occurrence of any
            Casualty or any Condemnation affecting the Property or any portion
            thereof, Lessee shall either (i) repair and restore the Property as
            required by Subparagraph 3.04(c) or (ii) exercise the Term Purchase
            Option and purchase the Property pursuant to the Purchase Agreement;
            provided, however, that Lessee may not elect to repair and restore
            the Property if such Casualty or Condemnation is a Major Casualty or
            Major Condemnation or if any other Event of Default has occurred and
            is continuing, unless Lessor and the Required Participants shall
            consent in writing. Not later than one (1) month after the
            occurrence of any Casualty or any Condemnation, Lessee shall deliver
            to Lessor a written notice indicating whether it elects to repair
            and restore or purchase the Property.

                  (c) Repair and Restoration. If Lessee elects to repair and
            restore the Property following any Casualty or any Condemnation,
            Lessee shall diligently proceed to repair and restore the Property
            to the condition in which it existed immediately prior to such
            Casualty or such Condemnation and shall complete all such repairs
            and restoration as soon as reasonably practicable, but not later
            than the earlier of (y) six (6) months after the occurrence of the
            Casualty or the Condemnation and (z) six (6) months prior to the
            Scheduled Expiration Date unless Lessee currently is exercising
            either the Term Purchase Option or the Expiration Date Purchase
            Option. Lessee shall use its own funds to make such repairs and
            restoration, except to the extent any Casualty and Condemnation
            Proceeds are available and are released to Lessee for such purpose
            pursuant to Subparagraph 3.04(f). Lessee's exercise of the repair
            and restoration option shall, if Lessor or Required Participants
            direct, be subject to satisfaction of the following conditions:

                        (i) Within one (1) month after the occurrence of the
                  Casualty or the Condemnation, Lessee shall deposit in an
                  interest bearing deposit account acceptable to and controlled
                  by Lessor (a "Repair and Restoration Account")


                                       12
<PAGE>   13
                  funds (including any Casualty and Condemnation Proceeds which
                  are available and are released to Lessee pursuant to
                  Subparagraph 3.04(f)) in the amount which Lessor determines is
                  needed to complete and fully pay all costs of the repair or
                  restoration (including taxes, financing charges, insurance and
                  rent during the repair period).

                        (ii) As soon as reasonably possible and in no event
                  later than two (2) months after the occurrence of the Casualty
                  or the Condemnation, Lessee shall establish an arrangement for
                  lien releases and disbursement of funds acceptable to Lessor
                  and in a manner and upon such terms and conditions as would be
                  required by a prudent interim construction lender.

                        (iii) As soon as reasonably possible and in no event
                  later than two (2) months after the occurrence of the Casualty
                  or the Condemnation, Lessee shall deliver to Lessor the
                  following, each in form and substance acceptable to Lessor:

                              (A) Evidence that the Property can, in Lessor's
                        reasonable judgment, with diligent restoration or
                        repair, be returned to a condition at least equal to the
                        condition thereof that existed prior to the Casualty or
                        Condemnation causing the loss or damage within the
                        earlier to occur of (A) six (6) months after the
                        occurrence of the Casualty or Condemnation and (B)
                        unless Lessee currently is exercising either the Term
                        Purchase Option or the Expiration Date Purchase Option,
                        six (6) months prior to the Scheduled Expiration Date;

                              (B) Evidence that all necessary governmental
                        approvals can be timely obtained to allow the rebuilding
                        and reoccupancy of the Property;

                              (C) Copies of all plans and specifications for the
                        work;

                              (D) Copies of contracts for all material aspects
                        of the work, signed by a contractor reasonably
                        acceptable to Lessor;

                              (E) A cost breakdown for the work;

                              (F) A payment and performance bond for the work or
                        other security satisfactory to Lessor;

                              (G) Evidence that, upon completion of the work,
                        the size, capacity and total value of the Property will
                        be at least as great as it was before the Casualty or
                        Condemnation occurred; and

                              (H) Evidence of satisfaction of any additional
                        conditions that Lessor or Required Participants may
                        reasonably establish to protect their rights under this
                        Agreement and the other Operative Documents.


                                       13
<PAGE>   14
                  All plans and specifications for the work must be reasonably
                  acceptable to Lessor, except that Lessor's approval shall not
                  be required if the restoration work is based on the same plans
                  and specifications as were originally used to construct the
                  Property. To the extent that the funds in a Repair and
                  Restoration Account include both Casualty and Condemnation
                  Proceeds and other funds deposited by Lessee, the other funds
                  deposited by Lessee shall be used first. Lessee acknowledges
                  that the specific conditions described above are reasonable.

                  (d) Prosecution of Claims for Casualty and Condemnation
            Proceeds. Lessee shall proceed promptly and diligently to prosecute
            in good faith the settlement or compromise of any and all claims for
            Casualty and Condemnation Proceeds; provided, however, that any
            settlement or compromise of any such claim shall, except as
            otherwise provided in clause (x) of Subparagraph 3.03(c), be subject
            to the written consent of Lessor and Required Participants, which
            consents shall not be unreasonably withheld. Lessor may participate
            in any proceedings relating to such claims, and, after the
            occurrence and during the continuance of any Event of Default,
            Lessor is hereby authorized, in its own name or in Lessee's name, to
            adjust any loss covered by insurance or any Casualty or Condemnation
            claim or cause of action, and to settle or compromise any claim or
            cause of action in connection therewith, and Lessee shall from time
            to time deliver to Lessor any and all further assignments and other
            instruments required to permit such participation.

                  (e) Assignment of Casualty and Condemnation Proceeds. As
            security for the Lessee Obligations, Lessee hereby absolutely and
            irrevocably assigns to Lessor all Casualty and Condemnation Proceeds
            and all claims relating thereto. Except as otherwise provided in
            clause (x) of Subparagraph 3.03(c), Lessee agrees that all Casualty
            and Condemnation Proceeds are to be paid to Lessor and Lessee hereby
            authorizes and directs any insurer, Governmental Authority or other
            Person responsible for paying any Casualty and Condemnation Proceeds
            to make payment thereof directly to Lessor alone, and not to Lessor
            and Lessee jointly. If Lessee receives any Casualty and Condemnation
            Proceeds payable to Lessor hereunder, Lessee shall promptly pay over
            such Casualty and Condemnation Proceeds to Lessor. Lessee hereby
            covenants that until such Casualty and Condemnation Proceeds are so
            paid over to Lessor, Lessee shall hold such Casualty and
            Condemnation Proceeds in trust for the benefit of Lessor and shall
            not commingle such Casualty and Condemnation Proceeds with any other
            funds or assets of Lessee or any other Person. Except as otherwise
            provided in clause (x) of Subparagraph 3.03(c), Lessor may commence,
            appear in, defend or prosecute any assigned right, claim or action,
            and may adjust, compromise, settle and collect all rights, claims
            and actions assigned to Lessor, but shall not be responsible for any
            failure to collect any such right, claim or action, regardless of
            the cause of the failure.

                  (f) Use of Casualty and Condemnation Proceeds.

                        (i) If (A) no Event of Default has occurred and is
                  continuing, (B) Lessee exercises the repair and restoration
                  option pursuant to Subparagraphs


                                       14
<PAGE>   15
                  3.04(b) and 3.04(c) and (C) Lessee complies with any
                  conditions imposed pursuant to Subparagraph 3.04(c); then
                  Lessor shall (1) deposit all Casualty and Condemnation
                  Proceeds it receives into a Repair and Restoration Account,
                  (2) release to Lessee such Casualty and Condemnation Proceeds
                  from the Repair and Restoration Account for repair and
                  restoration of the Property and (3) if any proceeds remain in
                  the Repair and Restoration Account after the completion of the
                  repair and restoration of the Property in accordance with this
                  Agreement and the other Operative Documents, released such
                  proceeds to Lessee.

                        (ii) If (A) an Event of Default has occurred and is
                  continuing, (B) Lessee fails to or is unable to comply with
                  any conditions imposed pursuant to Subparagraph 3.04(c) or (C)
                  Lessee elects to exercise the Term Purchase Option and
                  purchase the Property pursuant to the Purchase Agreement;
                  then, at the absolute discretion of Lessor and the Required
                  Participants, regardless of any impairment of security or lack
                  of impairment of security, but subject to applicable
                  Governmental Rules governing the use of Casualty and
                  Condemnation Proceeds, if any, Lessor may (1) apply all or any
                  of the Casualty and Condemnation Proceeds it receives to the
                  expenses of Lessor Parties in obtaining such proceeds; (2)
                  apply the balance to the payment of Rent and/or the reduction
                  of the Outstanding Lease Amount, notwithstanding that such
                  amounts are not then due and payable or that such amounts are
                  otherwise adequately secured and/or (3) release all or any
                  part of such proceeds to Lessee upon any conditions Lessor and
                  the Required Participants may elect.

                        (iii) Lessor shall apply any Casualty and Condemnation
                  Proceeds which are to be used to reduce the Outstanding Lease
                  Amount only on the last day of a Rental Period unless an Event
                  of Default has occurred and is continuing.

                        (iv) Application of all or any portion of the Casualty
                  and Condemnation Proceeds, or the release thereof to Lessee,
                  shall not cure or waive any Default or notice of default or
                  invalidate any acts done pursuant to such notice.

            3.05. Taxes. Subject to Paragraph 3.12 relating to permitted
      contests, Lessee shall promptly pay when due all Indemnified Taxes imposed
      on or payable by Lessee or any Lessor Party in connection with the
      Property, this Agreement or any of the other Operative Documents, or any
      of the transactions contemplated hereby or thereby. As promptly as
      possible after any Indemnified Taxes are payable by Lessee, Lessee shall
      send to Lessor for the account of the applicable Lessor Party a certified
      copy of an original official receipt received by Lessee showing payment
      thereof. If Lessee fails to pay any such Indemnified Taxes when due to the
      appropriate taxing authority or fails to remit to Lessor the required
      receipts or other required documentary evidence, Lessee shall indemnify
      the Lessor Parties for any incremental taxes, interest or penalties that
      may become payable by the Lessor Parties as a result of any such failure.
      The obligations of Lessee under this Paragraph 3.05 shall survive the
      payment and performance of the Lessee Obligations and the termination of
      this Agreement.


                                       15
<PAGE>   16
            3.06. Environmental Matters.

                  (a) Lessee's Covenants. Lessee shall not cause or, except as
            previously disclosed to the Lessor Parties in the Environmental
            Reports, permit Hazardous Materials to be used, generated,
            manufactured, stored, treated, disposed of, transported or present
            on or released or discharged from the Property in any manner that is
            reasonably likely to have a Material Adverse Effect. Lessee may use
            Hazardous Materials in connection with the operation of its business
            (or the business of permitted subtenants) so long as such use is
            consistent with the preceding sentence. Lessee shall immediately
            notify Lessor in writing of (i) the discovery of any Hazardous
            Materials on, under or about the Property not previously disclosed
            to Lessor Parties pursuant to the Environmental Reports; (ii) any
            knowledge by Lessee that the Property does not comply with any
            Environmental Laws not previously disclosed to Lessor Parties
            pursuant to the Environmental Reports; (iii) any claims against
            Lessee or the Property relating to Hazardous Materials or pursuant
            to Environmental Laws; (iv) to the extent not previously disclosed
            to Lessor Parties pursuant to the Environmental Reports, the
            discovery of any occurrence or condition on any real property
            adjoining or in the vicinity of the Property that could cause the
            Property or any part thereof to be designated as "border zone
            property" under the provisions of California Health and Safety Code
            Sections 25220 et seq. or any regulation adopted in accordance
            therewith; and (v) any material dispute or potential material
            dispute among any of Lessee, Seller, Remediator or any other Person
            in connection with the remediation of the Property pursuant to the
            Fixed Price Remediation Agreement and the other Remediation
            Agreements (including, without limitation, disputes with insurers
            with respect to the insurance coverage to be maintained by
            Remediator pursuant to the Fixed Price Remediation Agreement). In
            response to the presence of any Hazardous Materials on, under or
            about the Property not previously disclosed to Lessor Parties
            pursuant to the Environmental Reports and which are not being
            remediated pursuant to the Fixed Price Remediation Agreement and the
            other Remediation Agreements, Lessee shall immediately take, at
            Lessee's sole expense, all remedial action required by any
            Environmental Laws or any judgment, consent decree, settlement or
            compromise in respect to any claim based thereon.

                  (b) Inspection By Lessor. Upon reasonable prior notice to
            Lessee, Lessor, its employees and agents, may from time to time
            (whether before or after the commencement of a nonjudicial or
            judicial foreclosure proceeding), enter and inspect the Property
            (including, without limitation, the contents of any groundwater
            monitoring wells on the Property, which groundwater monitoring wells
            Lessee shall periodically sample as required by Environmental Laws)
            for the purpose of determining the existence, location, nature and
            magnitude of any past or present release or threatened release of
            any Hazardous Materials into, onto, beneath or from the Property.

                  (c) Indemnity. Without in any way limiting any other indemnity
            contained in this Agreement or any other Operative Document, Lessee
            agrees to defend, indemnify and hold harmless the Lessor Parties and
            the other Indemnitees from and against any claim, loss, damage,
            cost, expense or liability directly or indirectly arising out of (i)
            the


                                       16
<PAGE>   17
            use, generation, manufacture, storage, treatment, release,
            threatened release, discharge, disposal (including off-site
            disposal), transportation or presence of any Hazardous Materials
            which have not been previously disclosed to Lessor Parties pursuant
            to the Environmental Reports and which are not being remediated
            pursuant to the Fixed Price Remediation Agreement and the other
            Remediation Agreements and which are hereafter found in, on, under
            or about the Property or which are hereafter discovered off of the
            Property for which Lessee has an obligation to remediate, or (ii)
            the breach of any covenant, representation or warranty of Lessee
            relating to Hazardous Materials or Environmental Laws contained in
            this Agreement or any Operative Document, except to the extent such
            liability arises from any act or occurrence which first occurs after
            the Expiration Date and Lessee is no longer in possession of the
            Property. This indemnity shall include (A) the costs, whether
            foreseeable or unforeseeable, of any investigation, repair, cleanup
            or detoxification of the Property which is required by any
            Governmental Authority or is otherwise necessary to render the
            Property in compliance with all Environmental Laws; (B) all other
            direct or indirect consequential damages (including any third party
            claims, claims by any Governmental Authority, or any fines or
            penalties against the Indemnitees; and (C) all court costs and
            attorneys' fees (including expert witness fees and the cost of any
            consultants) paid or incurred by the Indemnitees. Lessee shall pay
            immediately upon Lessor's demand any amounts owing under this
            indemnity. Lessee shall use legal counsel reasonably acceptable to
            Lessor in any action or proceeding arising under this indemnity.
            Lessee further acknowledges and agrees that Lessor shall be entitled
            to the benefit of any and all indemnification and related rights
            that Lessee may have obtained from Seller (including, without
            limitation, the indemnification and related rights set forth in the
            Acquisition Agreement or any other document, instrument or agreement
            related thereto) with respect to pre-existing environmental matters
            (including, without limitation, such environmental matters as has
            been previously disclosed to Lessor Parties pursuant to the
            Environmental Reports and which are to be remediated pursuant to the
            Fixed Price Remediation Agreement and the other Remediation
            Agreements). The obligations of Lessee under this Subparagraph
            3.06(c) shall survive the payment and performance of the Lessee
            Obligations and the termination of this Agreement.

                  (d) Legal Effect of Section. Lessee and Lessor agree that (i)
            this Paragraph 3.06 and clause (vi) of Subparagraph 4.01(t) of the
            Participation Agreement are intended as Lessor's written request for
            information (and Lessee's response) concerning the environmental
            condition of the real property security as required by California
            Code of Civil Procedure Section 726.5 and (ii) each representation
            and warranty and covenant herein and therein (together with any
            indemnity applicable to a breach of any such representation and
            warranty) with respect to the environmental condition of the
            Property is intended by Lessor and Lessee to be an "environmental
            provision" for purposes of California Code of Civil Procedure
            Section 736.

            3.07. Liens, Easements, Etc.


                                       17
<PAGE>   18
                  (a) Lessee's Covenants. Subject to Paragraph 3.12 relating to
            permitted contests, Lessee shall not create, incur, assume or permit
            to exist any Lien or easement on or with respect to any of the
            Property of any character, whether now owned or hereafter acquired,
            except for the following ("Permitted Property Liens"):

                        (i) Liens in favor of a Lessor Party securing the Lessee
                  Obligations and other Lessor Liens;

                        (ii) Liens and easements in existence on the
                  Commencement Date to the extent reflected in the title
                  insurance policies delivered to Agent pursuant to Paragraph
                  3.01 of and Schedule 3.01 to the Participation Agreement and
                  approved by Lessor;

                        (iii) Liens for taxes or other Governmental Charges not
                  at the time delinquent or thereafter payable without penalty;
                  and

                        (iv) Liens of carriers, warehousemen, mechanics,
                  materialmen and vendors and other similar Liens imposed by law
                  incurred in the ordinary course of business for sums not
                  overdue.

            Subject to Paragraph 3.12 relating to permitted contests, Lessee
            shall promptly (A) pay all Indebtedness of Lessee and other
            obligations prior to the time the non-payment thereof would give
            rise to a Lien on the Property and (B) discharge, at its sole cost
            and expense, any Lien on the Property which is not a Permitted
            Property Lien.

                  (b) No Consents. Nothing contained in this Agreement shall be
            construed as constituting the consent or request of any Lessor
            Party, express or implied, to or for the performance by any
            contractor, mechanic, laborer, materialman, supplier or vendor of
            any labor or services or for the furnishing of any materials for any
            construction, alteration, addition, repair or demolition of or to
            the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO
            LESSOR PARTY IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR
            MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE
            HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE,
            AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES
            OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF ANY LESSOR
            PARTY IN AND TO THE PROPERTY.

            3.08. Subletting. Lessee may, in the ordinary course of business,
      sublease the Property or any portion thereof to any Person, provided, that
      (a) Lessee remains directly and primarily liable for performing its
      obligations under this Agreement and all other Lessee Obligations; (b)
      each sublease is subject to and subordinated to this Agreement; (c) each
      sublease has a term which expires on or prior to the Scheduled Expiration
      Date (or, if longer, includes a provision that the sublease terminates on
      the Expiration Date if such Expiration Date occurs prior to the Scheduled
      Expiration Date unless Lessee purchases the Property on the Expiration
      Date pursuant to the Purchase Agreement); (d) each sublease prohibits the
      sublessee from engaging in any


                                       18
<PAGE>   19
      activities on the Property other than those permitted by Paragraph 2.04;
      and (e) no sublease has a Material Adverse Effect. Any sublease which does
      not satisfy each of the requirements of the immediately preceding sentence
      shall be null and void as to the Lessor Parties and their successor and
      assigns. Except for such permitted subleases, Lessee shall not assign any
      of its rights or interests under this Agreement to any other Person. (No
      consolidation or merger by Lessee with any other Person or acquisition by
      Lessee of any other Person shall constitute an assignment by Lessee of its
      rights or interests under this Agreement unless such merger, consolidation
      or acquisition is prohibited by Subparagraph 5.02(d) of the Participation
      Agreement or constitutes a Change of Control.)

            3.09. Utility Charges. Lessee shall pay all charges for electricity,
      power, gas, oil, water, telephone, sanitary sewer service and all other
      utilities and services to, on or in connection with the Property during
      the Term.

            3.10. Removal of Property.

                  (a) Lessor Improvements, Etc. Lessee shall not remove any
            Lessor Improvements from the Land or any Related Good or
            Modification from the Land or Lessor Improvements, except that,
            during the Term, if no Event of Default has occurred and is
            continuing:

                        (i) Lessee may remove any Lessor Improvement,
                  Modification or Related Good to make a Modification if such
                  Modification is made in accordance with Subparagraph 3.01(b);
                  and

                        (ii) Lessee may remove any Modification or Related Good
                  if:

                              (A) Such Modification or Related Good (1) was not
                        financed by an Acquisition Advance, (2) is not required
                        for the remaining Property to comply with any applicable
                        Governmental Rule or Insurance Requirement, and (3) is
                        removed without impairing the condition or useful life
                        of the remaining Property; and

                              (B) The value of the remaining Property after such
                        removal is not less than (1) the Expiration Date
                        Appraisal of the Property and (2) the value of the
                        Property prior to such removal.

                  (b) Lessee Improvements, Etc. Lessee may remove any Lessee
            Improvement from the Land or any other property not constituting
            Property from the Land or Lessor Improvements at any time during the
            Term if such Lessee Improvement or other property (collectively,
            "Lessee Property") (i) was not financed by an Acquisition Advance,
            (ii) is not required for the Property to comply with any applicable
            Governmental Rule or Insurance Requirement, and (iii) is removed
            without impairing the condition, useful life or value of the
            Property. If Lessor shall so request, Lessee shall remove all Lessee
            Property (or any portion thereof specified by Lessor) from the
            Property not later than the Expiration Date. If Lessee fails to
            remove any such Lessee Property which Lessor has


                                       19
<PAGE>   20
            requested Lessee to remove prior to the Expiration Date, Lessor may
            remove such Lessee Property or elect to treat such property as
            abandoned pursuant to Subparagraph 3.10(c). Lessee shall pay all
            costs incurred by Lessor in removing any such Lessee Property.

                  (c) Title. All Lessor Improvements, Modifications and Related
            Goods removed by Lessee in accordance with this Paragraph 3.10 shall
            cease to be part of the Property, and Lessee shall be the owner
            thereof after such removal. Lessor acknowledges that Lessee is the
            owner of the Lessee Property, except that Lessor may (unless Lessee
            purchases the Property pursuant to the Purchase Agreement) treat any
            Lessee Property remaining on the Property after the Expiration Date
            as abandoned and part of the Property, without compensation to
            Lessee. Lessor and Lessee shall execute and deliver to each other
            such conveyancing and release documents and acknowledgements as the
            other party may reasonably request to evidence the rights and title
            of the parties in the Property and the Lessee Property.

                  (d) Repair of Damage. Lessee shall, at its expense, promptly
            repair any damage to the remaining Property caused by its removal of
            Lessor Improvements, Modifications and Related Goods pursuant to
            Subparagraph 3.10(a) and any damage to the Property caused by its
            removal of Lessee Property pursuant to Subparagraph 3.10(b).

            3.11. Compliance with Governmental Rules and Insurance Requirements.
      Lessee, at its sole cost and expense, shall, unless its failure is not
      reasonably likely to have a Material Adverse Effect, (a) comply, and cause
      its agents, sublessees, assignees, employees, invitees, licensees,
      contractors and tenants, and the Property to comply, with all Governmental
      Rules and Insurance Requirements relating to the Property (including the
      construction, use, operation, maintenance, repair and restoration thereof,
      whether or not compliance therewith shall require structural or
      extraordinary changes in the Lessor Improvements or interfere with the use
      and enjoyment of the Property), and (b) procure, maintain and comply with
      all licenses, permits, orders, approvals, consents and other
      authorizations required for the construction, use, maintenance and
      operation of the Property and for the use, operation, maintenance, repair
      and restoration of the Lessor Improvements.

            3.12. Permitted Contests. Lessee, at its sole cost and expense, may
      contest any alleged Lien or easement on any of the Property or any alleged
      Governmental Charge, Indebtedness or other obligation which is payable by
      Lessee hereunder to Persons other than the Lessor Parties or which, if
      unpaid, would give rise to a Lien on any of the Property, provided that
      (a) each such contest is diligently pursued in good faith by appropriate
      proceedings; (b) the commencement and continuation of such proceedings
      suspends the enforcement of such Lien or easement or the collection of
      such Governmental Charge, Indebtedness or obligation; (c) Lessee has
      established adequate reserves for the discharge of such Lien or easement
      or the payment of such Governmental Charge, Indebtedness or obligation in
      accordance with GAAP and, if the failure to discharge such Lien or
      easement or the failure to pay such Governmental Charge, Indebtedness or
      obligation might result in any civil liability for any Lessor Party,
      Lessee has provided to such Lessor Party a bond or other security
      satisfactory to such Lessor Party; (d) the failure to discharge such Lien
      or easement or the failure to pay such Governmental Charge, Indebtedness


                                       20
<PAGE>   21
      or obligation could not result in any criminal liability for any Lessor
      Party; (e) the failure to discharge such Lien or easement or the failure
      to pay such Governmental Charge, Indebtedness or obligation is not
      otherwise reasonably likely to have a Material Adverse Effect; and (f)
      unless Lessee currently is exercising either the Term Purchase Option or
      the Expiration Date Purchase Option, any such contest is completed and
      such Lien or easement is discharged (either pursuant to such proceedings
      or otherwise) or such Governmental Charge, Indebtedness or obligation is
      declared invalid, paid or otherwise satisfied not later than six (6)
      months prior to the Scheduled Expiration Date.

            3.13. Lessor Obligations; Right to Perform Lessee Obligations. No
      Lessor Party shall have any obligation to (a) maintain, repair or make any
      improvements to the Property, (b) maintain any insurance on the Property,
      (c) perform any other obligation of Lessee under this Agreement or any
      other Lessee Obligation, (d) make any expenditure on account of the
      Property (except to make the Acquisition Advance as required by the
      Participation Agreement) or (e) take any other action in connection with
      the Property, this Agreement or any other Operative Document, except as
      expressly provided herein or in another Operative Document; provided
      however, that Lessor may, in its sole discretion and without any
      obligation to do so, perform any Lessee Obligation not performed by Lessee
      when required. Lessor may enter the Property or exercise any other right
      of Lessee under this Agreement or any other Operative Document to the
      extent Lessor determines in good faith that such entry or exercise is
      reasonably necessary for Lessor to perform any such Lessee Obligation not
      performed by Lessee when required. Lessee shall reimburse Lessor and the
      other Lessor Parties, within five (5) Business Days after demand, for all
      reasonable fees, costs and expenses incurred by them in performing any
      such obligation or curing any Default.

            3.14. Inspection Rights. During the Term, Lessee shall permit any
      Person designated by Lessor, upon reasonable notice and during normal
      business hours, to visit and inspect any of the Property.

            3.15. Cooperation of Lessor to Facilitate Operation, Etc. During the
      Term, Lessor shall take any action reasonably requested by Lessee to
      facilitate the operation, management, development or repair of the
      Property, including joining in or consenting to any of the following:

                  (a) The grant of easements, licenses, rights of way, and other
            rights in the nature of easements encumbering the Property;

                  (b) The release or termination of easements, licenses, rights
            of way or other rights in the nature of easements which are for the
            benefit of the Property or any portion thereof;

                  (c) The dedication or transfer of portions of the Land not
            improved with a building, for road, highway or other public
            purposes;

                  (d) Agreements for the use and maintenance of common areas,
            for reciprocal rights of parking, for ingress and egress and for
            amendments to any Related Agreements (including amendments to the
            Related Agreements that Lessee may reasonably request to


                                       21
<PAGE>   22
            facilitate construction or development on land owned by it or its
            Affiliates other than the Land);

                  (e) Instruments necessary or desirable for the exercise or
            enforcement of rights under the Related Agreements or any contract,
            permit, license, franchise or other right included within the term
            "Property";

                  (f) Permit applications or other documents reasonably required
            to accommodate the construction or alteration of Lessor Improvements
            otherwise permitted by this Agreement;

                  (g) Confirmations of Lessee's rights under any particular
            provisions of this Agreement which Lessee may wish to provide to a
            third party;

                  (h) The execution or filing of a tract or parcel map
            subdividing the Property into lots or parcels or reconfiguring
            existing parcels; or

                  (i) Agreements providing development incentives or tax
            abatements with respect to the Property;

      Provided that (i) no Event of Default has occurred and is continuing at
      the time of any such action and (ii) neither such action alone nor such
      action cumulatively with any other actions is reasonably likely to have a
      Material Adverse Effect or materially increase the obligations or
      potential liability of any Lessor Party.

            3.16. Survey and Title Matters . Lessee, at its sole cost and
      expense, shall promptly take steps to diligently pursue in good faith and
      by appropriate proceedings to address the following survey and title
      matters as disclosed by that certain ALTA/ACSM survey prepared by Dunbar
      and Craig, Job No. 99166, dated June 1999: (a) recordation of an access
      and easement agreement and consent to encroachment from the City of Scotts
      Valley to provide access from Bluebonnet Lane and Kings Village Road to
      the Property as contemplated by that certain Agreement dated August 1,
      1967, by and among the City of Scotts Valley, the City of Santa Cruz, and
      Watkins-Johnson Company; (b) recordation of an easement agreement for a
      sanitary sewer easement from the City of Scotts Valley along the route
      described in the unrecorded easement prepared by George Dunbar, LS 3666,
      in 1987; (c) recordation of an easement agreement or consent to
      encroachment as to the existing route of the overhead electric line
      running along the access road described in clause (a) above; and (d)
      recordation of an agreement from the Scotts Valley Water District to
      relocate a water line around the building located on Parcel 2 as
      contemplated by that certain unrecorded water line easement by and between
      Watkins-Johnson Company and Scotts Valley Water District dated June 26,
      1989.

      SECTION 4. EXPIRATION DATE.

            4.01. Termination by Lessee Prior to Scheduled Expiration Date.
      Subject to the terms and conditions of the Purchase Agreement, Lessee may,
      at any time prior to the Scheduled Expiration Date, terminate this
      Agreement and purchase the Property pursuant to Section 2 of the


                                       22
<PAGE>   23
      Purchase Agreement. Lessee shall notify Lessor of Lessee's election so to
      terminate this Agreement and purchase the Property by delivering to Agent
      a Notice of Term Purchase Option Exercise pursuant to and in accordance
      with the provisions of Paragraph 2.02 of the Purchase Agreement.

            4.02. Return of Property.

                  (a) Upon the expiration or earlier termination of this
            Agreement (unless Lessee, a Designated Purchase or an Assignee
            Purchaser has purchased the Property on or prior to the Expiration
            Date pursuant to the Purchase Agreement), Lessee shall vacate,
            surrender and deliver possession of the Property to Lessor in broom
            clean condition and in the condition required pursuant to Paragraph
            3.01 hereof. Lessee shall remove from the Property on or prior to
            the expiration or earlier termination of this Agreement, all Lessee
            Modifications (other than those which Lessor has agreed in writing
            will be surrendered) and all of Lessee's personal property,
            furniture and fixtures situated thereon which is not the property of
            Lessor under the terms of this Lease Agreement, and shall repair any
            damages caused by such removal. Property not so removed shall become
            the property of Lessor, and Lessor may cause such property to be
            removed from the Property and disposed of, and Lessee shall pay the
            reasonable cost of any such removal and disposition and of repairing
            any damage caused by such removal.

                  (b) Except for surrender upon the expiration or earlier
            termination of the Term, no surrender to Lessor of this Lease
            Agreement shall be valid or effective unless agreed to and accepted
            in writing by Lessor or any assignee of Lessor.

                  (c) Without limiting the generality of the foregoing, upon the
            surrender and return of the Property to Lessor pursuant to this
            Paragraph 4.02 (unless Lessee, a Designated Purchase or an Assignee
            Purchaser has purchased the Property on or prior to the Expiration
            Date pursuant to the Purchase Agreement), the Property shall (i) be
            returned in a condition suitable for redevelopment and capable of
            being immediately utilized by a third-party purchaser or third-party
            lessee without further inspection, construction, repair,
            replacement, alterations or improvements, licenses, permits, or
            approvals, except for any of the foregoing required solely by virtue
            of the change in ownership (other than to Lessor or an assignee of
            Lessor), use or occupancy of the Property, (ii) be in accordance and
            compliance with all Requirements of Law and Environmental Laws
            including, without limitation, any of the foregoing required by
            virtue of a change in ownership, use or occupancy of the Property
            other than to Lessee, (iii) be free and clear of all Liens, other
            than any Lessor Liens and Permitted Property Liens.

                  (d) On or prior to the date of such surrender and return of
            the Property (unless Lessee, a Designated Purchase or an Assignee
            Purchaser has purchased the Property on or prior to the Expiration
            Date pursuant to the Purchase Agreement), Lessor shall have received
            from Lessee, at Lessee's expense, evidence satisfactory to Lessor,
            of compliance with the provisions of this Paragraph 4.02, including
            without limitation, an environmental


                                       23
<PAGE>   24
            assessment for the Property addressed in form and substance
            satisfactory to Lessor and each assignee of Lessor or, in lieu of
            addressing to such parties directly, accompanied by a letter
            permitting Lessor and each assignee of Lessor to rely thereon,
            performed by an independent, licensed professional engineer
            satisfactory to Lessor and each assignee of Lessor, and which
            assessment (i) shall be sufficient in scope to determine compliance
            with Environmental Laws, (ii) shall reveal no actual or potential
            environmental liabilities which cannot be remediated by Lessee as
            provided in the following clause (iii), and (iii) if such
            environmental assessment reveals the need for additional review,
            Lessee shall have provided such additional information or
            environmental assessments as are required by Lessor and each
            assignee of Lessor and, subject to Subparagraph 3.06 hereof, any
            remediation recommended therein to be performed shall have been
            performed, and evidence of compliance with clause (ii) of
            Subparagraph 4.02(c).

                  (e) Upon such return of the Property to Lessor or any assignee
            of Lessor, Lessee shall deliver to Lessor a then current title
            insurance policy or a binding commitment to issue a title insurance
            policy written by a title insurance company reasonably acceptable to
            Lessor, insuring good and marketable title in the Property in an
            amount equal to the Outstanding Lease Amount as determined as of the
            Expiration Date, unencumbered except for Lessor Liens or Permitted
            Liens. Upon the request of Lessor, Lessee shall continue to maintain
            its insurance policies for the Property required under Subparagraph
            3.03 hereof if able to do so on a commercially reasonable basis,
            provided that Lessor shall pay or reimburses Lessee for its pro rata
            costs thereof.

                  (f) The provisions of this Paragraph 4.02 are of the essence
            of this Lease Agreement, and any breach thereof shall be deemed an
            Event of Default hereunder, and upon application to any court of
            equity having jurisdiction in the premises, Lessor shall be entitled
            to a decree against Lessee requiring specific performance of the
            covenants of Lessee set forth in this Paragraph 4.02.

            4.03. Holding Over. If (a) Lessee does not purchase the Property on
      the Expiration Date pursuant to the Purchase Agreement but continues in
      possession of any portion of the Property after the Expiration Date or (b)
      Lessee has failed to return the Property to Lessor in the condition
      required pursuant to Paragraph 4.02 hereof, Lessee shall pay rent for each
      day it so continues in possession, payable upon demand of Lessor, at a per
      annum rate equal to the Alternate Rental Rate plus two percent (2.0%) and
      shall pay and perform all of its other Lessee Obligations under this
      Agreement and the other Operative Documents in the same manner as though
      the Term had not ended; provided, however, that this Paragraph 4.03 shall
      not be interpreted to permit such holding over or to limit any right or
      remedy of Lessor for such holding over.


                                       24
<PAGE>   25

      SECTION 5. DEFAULT.

            5.01. Events of Default. The occurrence or existence of any one or
      more of the following shall constitute an "Event of Default" hereunder:

                  (a) Non-Payment. Lessee shall (i) fail to pay on the
            Expiration Date any amount payable by Lessee under this Agreement or
            any other Operative Document on such date, (ii) fail to pay within
            five (5) Business Days after the same becomes due, any Base Rent, or
            (iii) fail to pay within five (5) Business Days after delivery to
            Lessee of written demand therefor, any Supplemental Rent or other
            amount required under the terms of this Agreement or any other
            Operative Document (other than any such amount payable on the
            Expiration Date); or

                  (b) Specific Defaults. Lessee or any of its Subsidiaries shall
            fail to observe or perform any covenant, obligation, condition or
            agreement set forth in Paragraph 3.03 hereof or in clause (ii) of
            Subparagraph 2.11(a), Paragraph 5.02 (other than Subparagraph
            5.02(i)) or Paragraph 5.03 of the Participation Agreement; or

                  (c) Other Defaults. Lessee or any of its Subsidiaries shall
            fail to observe or perform any other covenant, obligation, condition
            or agreement contained in this Agreement or any other Operative
            Document and such failure shall continue until the earliest of (i)
            thirty (30) days after Lessee's written acknowledgement of such
            failure, (ii) thirty (30) days after any Lessor Party's written
            notice to Lessee of such failure and (iii) thirty (30) days prior to
            the Expiration Date, provided, however, that, in the event that any
            such failure cannot reasonably be cured within a thirty (30) day
            period, such failure shall not constitute an Event of Default
            hereunder if (A) such failure can reasonably be cured within one
            hundred, eighty (180) days, (B) Lessee promptly commences and
            diligently proceeds to cure such failure and (C) Lessee completes
            such cure not later than the earliest of (1) one hundred, eighty
            days (180) days after Lessee's written acknowledgement of such
            failure, (2) one hundred, eighty days (180) days after any Lessor
            Party's written notice to Lessee of such failure and (3) thirty (30)
            days prior to the Expiration Date; or

                  (d) Representations and Warranties. Any representation,
            warranty, certificate, information or other statement (financial or
            otherwise) made or furnished by or on behalf of Lessee or any of its
            Subsidiaries to any Lessor Party in or in connection with this
            Agreement or any other Operative Document, or as an inducement to
            any Lessor Party to enter into this Agreement or any other Operative
            Document, shall be false, incorrect, incomplete or misleading in any
            material respect when made or furnished and Lessee shall not have
            cured the facts or circumstances causing such representation,
            warranty, certificate or other statement to be false, incorrect,
            incomplete or misleading not later than the earliest of (i) thirty
            (30) days after Lessee's written acknowledgement thereof to Lessor,
            (ii) thirty (30) days after any Lessor Party's written notice to
            Lessee thereof, and (iii) thirty (30) days prior to the Expiration
            Date; or


                                       25
<PAGE>   26
                  (e) Cross-Default. (i) Lessee or any of its Subsidiaries shall
            fail to make any payment on account of any Indebtedness of such
            Person (other than the Lessee Obligations) when due (whether at
            scheduled maturity, by required prepayment, upon acceleration or
            otherwise) and such failure shall continue beyond any period of
            grace provided with respect thereto, if the amount of such
            Indebtedness exceeds $2,000,000 or the effect of such failure is to
            cause, or permit the holder or holders thereof to cause,
            Indebtedness of Lessee and its Subsidiaries (other than the Lessee
            Obligations) in an aggregate amount exceeding $2,000,000 to become
            due or payable (whether at scheduled maturity, by required
            prepayment or redemption, upon acceleration or otherwise) and/or to
            be secured by cash collateral or (ii) Lessee or any of its
            Subsidiaries shall otherwise fail to observe or perform any
            agreement, term or condition contained in any agreement or
            instrument relating to any Indebtedness of such Person (other than
            the Lessee Obligations), or any other event shall occur or condition
            shall exist, if the effect of such failure, event or condition is to
            cause, or permit the holder or holders thereof to cause,
            Indebtedness of Lessee and its Subsidiaries (other than the Lessee
            Obligations) in an aggregate amount exceeding $2,000,000 to become
            due or payable (whether at scheduled maturity, by required
            prepayment or redemption, upon acceleration or otherwise) and/or to
            be secured by cash collateral; or

                  (f) Insolvency, Voluntary Proceedings. Lessee or any of its
            Subsidiaries shall (i) apply for or consent to the appointment of a
            receiver, trustee, liquidator or custodian of itself or of all or a
            substantial part of its property, (ii) be unable, or admit in
            writing its inability, to pay its debts generally as they mature,
            (iii) make a general assignment for the benefit of its or any of its
            creditors, (iv) be dissolved or liquidated in full or in part, (v)
            become insolvent (as such term may be defined or interpreted under
            any applicable statute), (vi) commence a voluntary case or other
            proceeding seeking liquidation, reorganization or other relief with
            respect to itself or its debts under any bankruptcy, insolvency or
            other similar law now or hereafter in effect or consent to any such
            relief or to the appointment of or taking possession of its property
            by any official in an involuntary case or other proceeding commenced
            against it, or (vi) take any action for the purpose of effecting any
            of the foregoing; or

                  (g) Involuntary Proceedings. Proceedings for the appointment
            of a receiver, trustee, liquidator or custodian of Lessee or any of
            its Subsidiaries or of all or a substantial part of the property
            thereof, or an involuntary case or other proceedings seeking
            liquidation, reorganization or other relief with respect to Lessee
            or any of its Subsidiaries or the debts thereof under any
            bankruptcy, insolvency or other similar law now or hereafter in
            effect shall be commenced and an order for relief entered or such
            proceeding shall not be dismissed or discharged within sixty (60)
            days of commencement; or

                  (h) Judgments. (i) One or more judgments, orders, decrees or
            arbitration awards requiring Lessee and/or its Subsidiaries to pay
            an aggregate amount of $2,000,000 or more (exclusive of amounts
            covered by insurance issued by an insurer not an Affiliate of Lessee
            and otherwise satisfying the requirements set forth in Subparagraph
            3.03(b))


                                       26
<PAGE>   27
            shall be rendered against Lessee and/or any of its Subsidiaries in
            connection with any single or related series of transactions,
            incidents or circumstances and the same shall not be satisfied,
            vacated or stayed for a period of forty (40) consecutive days after
            issue or levy; (ii) any judgment, writ, assessment, warrant of
            attachment, tax lien or execution or similar process shall be issued
            or levied against a substantial part of the property of Lessee or
            any of its Subsidiaries and the same shall not be released, stayed,
            vacated or otherwise dismissed within fifteen (15) days after issue
            or levy; or (iii) any other judgments, orders, decrees, arbitration
            awards, writs, assessments, warrants of attachment, tax liens or
            executions or similar processes which, alone or in the aggregate,
            are reasonably likely to have a Material Adverse Effect are
            rendered, issued or levied; or

                  (i) Operative Documents. Any Operative Document or any
            material term thereof shall cease to be, or be asserted by Lessee or
            any of its Subsidiaries not to be, a legal, valid and binding
            obligation of Lessee or any of its Subsidiaries enforceable in
            accordance with its terms in a manner which could result in a
            Material Adverse Effect; or

                  (j) ERISA. Any Reportable Event which constitutes grounds for
            the termination of any Employee Benefit Plan by the PBGC or for the
            appointment of a trustee by the PBGC to administer any Employee
            Benefit Plan shall occur, or any Employee Benefit Plan shall be
            terminated within the meaning of Title IV of ERISA or a trustee
            shall be appointed by the PBGC to administer any Employee Benefit
            Plan; or

                  (k) Change of Control. Any Change of Control shall occur; or

                  (l) Major Casualty or Condemnation. Any Major Casualty or
            Major Condemnation affecting the Property shall occur and Lessee
            shall not purchase the Property pursuant to the Term Purchase Option
            in the Purchase Agreement within two (2) months after the occurrence
            thereof; or

                  (m) Material Adverse Effect. Any event(s) or condition(s)
            which is (are) reasonably likely to have a Material Adverse Effect
            shall occur or exist.

            5.02. General Remedies. In all cases, upon the occurrence or
      existence of any Event of Default and at any time thereafter unless such
      Event of Default is waived, Lessor may, with the consent of the Required
      Participants, or shall, upon instructions from the Required Participants,
      exercise any one or more of the following rights and remedies (except that
      the remedy set forth in the first sentence of Subparagraph 5.02(a) shall
      be automatic):

                  (a) Termination of Commitments. If such Event of Default is an
            Event of Default of the type described in Subparagraph 5.01(f) or
            Subparagraph 5.01(g) affecting Lessee, immediately and without
            notice the obligation of Lessor to make the Acquisition Advance and
            the obligations of the Participants to fund the Acquisition Advance
            shall automatically terminate. If such Event of Default is any other
            Event of Default, Lessor may by written notice to Lessee, terminate
            the obligation of Lessor to make the Acquisition Advance and the
            obligations of the Participants to fund the Acquisition Advance.


                                       27
<PAGE>   28
                  (b) Appointment of a Receiver. Lessor may apply to any court
            of competent jurisdiction for, and obtain appointment of, a receiver
            for the Property.

                  (c) Specific Performance. Lessor may bring an action in any
            court of competent jurisdiction to obtain specific enforcement of
            any of the covenants or agreements of Lessee in this Agreement or
            any of the other Operative Documents.

                  (d) Collection of Issues and Profits. Lessor may collect
            Issues and Profits as provided in Subparagraph 2.07(c) and apply the
            proceeds to pay Lessee Obligations.

                  (e) Protection of Property. Lessor may enter, manage and
            operate all or any part of the Property or take any other actions
            which it reasonably determines are necessary to protect the Property
            and the rights and remedies of the Lessor Parties under this
            Agreement and the other Operative Documents, including (i) taking
            and possessing all of Lessee's books and records relating to the
            Property; (ii) entering into or enforcing subleases on such terms
            and conditions as Lessor may consider proper; (iii) obtaining and
            evicting tenants; (iv) entering into agreements with subtenants to
            fix or modify sublease rents; (v) collecting and receiving any
            payment of money owing to Lessee with respect to the Property; (vi)
            completing any unfinished Lessor Improvements; and/or (vii)
            contracting for and making needed repairs and alterations to the
            Property.

                  (f) Other Rights and Remedies. In addition to the specific
            rights and remedies set forth above in this Paragraph 5.02 and in
            Paragraph 5.03 and Paragraph 5.04, Lessor may exercise any other
            right, power or remedy permitted to it by any applicable
            Governmental Rule, either by suit in equity or by action at law, or
            both.

            5.03. Lease Remedies. If a court of competent jurisdiction
      determines that the transaction evidenced by this Agreement and the other
      Operative Documents is a lease, upon the occurrence or existence of any
      Event of Default and at any time thereafter unless such Event of Default
      is waived, Lessor may, with the consent of the Required Participants, or
      shall, upon instructions from the Required Participants, exercise any one
      or more of the following rights and remedies in addition to those rights
      and remedies set forth in Paragraph 5.02:

                  (a) Termination of Lease. Lessor may, by written notice to
            Lessee, terminate this Agreement on a Termination Date which is
            prior to the Scheduled Expiration Date and take possession of the
            Property. Such Termination Date shall be the last day of a Rental
            Period unless Required Participants shall otherwise direct. On such
            Termination Date (which shall then be the Expiration Date), subject
            to the limitations set forth in the Purchase Agreement, Lessee shall
            pay all unpaid Base Rent accrued through such date and all
            Supplemental Rent due and payable on or prior to such date and all
            other amounts payable by Lessee on the Expiration Date pursuant to
            this Agreement and the other Operative Documents, together with the
            worth at the time of such payment of the amount by which the unpaid
            Base Rent through the Scheduled Expiration Date exceeds the amount
            of such rental loss for the same period that Lessee proves could
            reasonably be avoided.


                                       28
<PAGE>   29
                  (b) Continuation of Lease. Lessor may exercise the rights and
            remedies provided by California Civil Code Section 1951.4, including
            the right to continue this Agreement in effect after Lessee's breach
            and abandonment and recover Rent as it becomes due. Acts of
            maintenance or preservation, efforts to relet the Property, the
            appointment of a receiver upon Lessor's initiative to protect its
            interest under this Agreement or withholding consent to or
            terminating a sublease shall not of themselves constitute a
            termination of Lessee's right to possession.

                  (c) Removal and Storage of Property. Lessor may enter the
            Property and remove therefrom all Persons and property, store such
            property in a public warehouse or elsewhere at the cost of and for
            the account of Lessee and sell such property and apply the proceeds
            therefrom pursuant to applicable California law.

                  (d) Marketing. Notwithstanding the termination of Lessee's
            tenancy hereunder, Lessor is subject to the duties and obligations
            to Lessee set forth in Subparagraph 3.03(b) of the Purchase
            Agreement.

            5.04. Loan Remedies. Unless a court of competent jurisdiction
      determines that the transaction evidenced by this Agreement and the other
      Operative Documents is a lease, upon the occurrence or existence of any
      Event of Default and at any time thereafter unless such Event of Default
      is waived, Lessor may, with the consent of the Required Participants, or
      shall, upon instructions from the Required Participants, exercise any one
      or more of the following rights and remedies in addition to those rights
      and remedies set forth in Paragraph 5.02:

                  (a) Acceleration of Lessee Obligations. Lessor may, by written
            notice to Lessee, declare all unpaid Lessee Obligations due and
            payable on a Termination Date prior to the Scheduled Expiration
            Date. Such Termination Date shall be the last day of a Rental Period
            unless Required Participants shall otherwise direct. On such
            Termination Date (which shall then be the Expiration Date), subject
            to the limitations set forth in the Purchase Agreement, Lessee shall
            pay all unpaid Base Rent accrued through such date, all Supplemental
            Rent due and payable on or prior to such date and all other amounts
            payable by Lessee on the Expiration Date pursuant to this Agreement
            and the other Operative Documents.

                  (b) Uniform Commercial Code Remedies. Lessor may exercise any
            or all of the remedies granted to a secured party under the
            California Uniform Commercial Code.

                  (c) Judicial Foreclosure. Lessor may bring an action in any
            court of competent jurisdiction to foreclose the security interest
            in the Property granted to Lessor by this Agreement or any of the
            other Operative Documents.

                  (d) Power of Sale. Lessor may cause some or all of the
            Property, including any Personal Property Collateral, to be sold
            under a power of sale or otherwise disposed of in any combination
            and in any manner permitted by applicable Governmental Rules.


                                       29
<PAGE>   30
                        (i) Sales of Personal Property. Lessor may dispose of
                  any Personal Property Collateral separately from the sale of
                  Real Property Collateral, in any manner permitted by Division
                  9 of the California Uniform Commercial Code, including any
                  public or private sale, or in any manner permitted by any
                  other applicable Governmental Rule. Any proceeds of any such
                  disposition shall not cure any Event of Default or reinstate
                  any Lessee Obligation for purposes of Section 2924c of the
                  California Civil Code. In connection with any such sale or
                  other disposition of Personal Property Collateral, Lessee
                  agrees that the following procedures constitute a commercially
                  reasonable sale:

                              (A) Lessor shall mail written notice of the sale
                        to Lessee not later than thirty (30) days prior to such
                        sale.

                              (B) Once per week during the three (3) weeks
                        immediately preceding such sale, Lessor will publish
                        notice of the sale in a local daily newspaper of general
                        circulation.

                              (C) Upon receipt of any written request, Lessor
                        will make the Property available to any bona fide
                        prospective purchaser for inspection during reasonable
                        business hours.

                              (D) Notwithstanding, Lessor shall be under no
                        obligation to consummate a sale if, in its judgment,
                        none of the offers received by it equals the fair value
                        of the Property offered for sale.

                              (E) If Lessor so requests, Lessee shall assemble
                        all of the Personal Property Collateral and make it
                        available to Lessor at the site of the Land. Regardless
                        of any provision of this Agreement or any other
                        Operative Document, Lessor shall not be considered to
                        have accepted any property other than cash or
                        immediately available funds in satisfaction of any
                        Lessee Obligation, unless Lessor has given express
                        written notice of its election of that remedy in
                        accordance with California Uniform Commercial Code
                        Section 9505.

                  The foregoing procedures do not constitute the only procedures
                  that may be commercially reasonable.

                        (ii) Lessor's Sales of Real Property or Mixed
                  Collateral. Lessor may choose to dispose of some or all of the
                  Property which consists solely of Real Property Collateral in
                  any manner then permitted by applicable Governmental Rules,
                  including without limitation a nonjudicial trustee's sale
                  pursuant to California Civil Code Sections 2924 et seq. In its
                  discretion, Lessor may also or alternatively choose to dispose
                  of some or all of the Property, in any combination consisting
                  of both Real Property Collateral and Personal Property
                  Collateral, together in one sale to be held in accordance with
                  the law and procedures applicable to real property, as
                  permitted by Section 9501(4) of the California


                                       30
<PAGE>   31
                  Uniform Commercial Code. Lessee agrees that such a sale of
                  Personal Property Collateral together with Real Property
                  Collateral constitutes a commercially reasonable sale of the
                  Personal Property Collateral. (For purposes of this power of
                  sale, either a sale of Real Property Collateral alone, or a
                  sale of both Real Property Collateral and Personal Property
                  Collateral together in accordance with California Uniform
                  Commercial Code Section 9501(4), will sometimes be referred to
                  as a "Lessor's Sale.")

                              (A) Before any Lessor's Sale, Lessor shall give
                        such notice of default and election to sell as may then
                        be required by applicable Governmental Rules.

                              (B) When all time periods then legally mandated
                        have expired, and after such notice of sale as may then
                        be legally required has been given, Lessor shall sell
                        the property being sold at a public auction to be held
                        at the time and place specified in the notice of sale.

                              (C) Neither Lessor nor Agent shall have any
                        obligation to make demand on Lessee before any Lessor's
                        Sale.

                              (D) From time to time in accordance with then
                        applicable law, Lessor may postpone any Lessor's Sale by
                        public announcement at the time and place noticed for
                        that sale.

                              (E) At any Lessor's Sale, Lessor shall sell to the
                        highest bidder at public auction for cash in lawful
                        money of the United States.

                              (F) Lessor shall execute and deliver to the
                        purchaser(s) a deed or deeds conveying the Property
                        being sold without any covenant or warranty whatsoever,
                        express or implied. The recitals in any such deed of any
                        matters or facts, including any facts bearing upon the
                        regularity or validity of any Lessor's Sale, shall be
                        conclusive proof of their truthfulness. Any such deed
                        shall be conclusive against all Persons as to the facts
                        recited in it.

                  (e) Foreclosure Sales.

                        (i) Single or Multiple. If the Property consists of more
                  than one lot, parcel or item of property, Lessor may:

                              (A) Designate the order in which the lots, parcels
                        and/or items shall be sold or disposed of or offered for
                        sale or disposition; and

                              (B) Elect to dispose of the lots, parcels and/or
                        items through a single consolidated sale or disposition
                        to be held or made under the power of sale granted in
                        Subparagraph 5.04(d), or in connection with judicial


                                       31
<PAGE>   32
                        proceedings, or by virtue of a judgment and decree of
                        foreclosure and sale; or through two or more such sales
                        or dispositions; or in any other manner Lessor may deem
                        to be in its best interests (any such sale or
                        disposition, a "Foreclosure Sale;" any two or more,
                        "Foreclosure Sales").

                  If Lessor chooses to have more than one Foreclosure Sale,
                  Lessor at its option may cause the Foreclosure Sales to be
                  held simultaneously or successively, on the same day, or on
                  such different days and at such different times and in such
                  order as it may deem to be in its best interests. No
                  Foreclosure Sale shall terminate or affect the security
                  interests granted to Lessor in the Property by this Agreement
                  on any part of the Property which has not been sold, until all
                  of the Lessee Obligations have been paid in full.

                        (ii) Credit Bids. At any Foreclosure Sale, any Person,
                  including any Lessor Party, may bid for and acquire the
                  Property or any part of it to the extent permitted by then
                  applicable Governmental Rules. Instead of paying cash for the
                  Property, Lessor may settle for the purchase price by
                  crediting the sales price of the Property against the Lessee
                  Obligations in any order and proportions as Lessor in its sole
                  discretion may choose.

                  (f) Marketing. Notwithstanding the termination of Lessee's
            tenancy hereunder, Lessor is subject to the duties and obligations
            to Lessee set forth in Subparagraph 3.03(b) of the Purchase
            Agreement.

            5.05. Remedies Cumulative. The rights and remedies of Lessor under
      this Agreement and the other Operative Documents are cumulative and may be
      exercised singularly, successively, or together.

            5.06. No Cure or Waiver. Neither the performance by Lessor of any of
      Lessee's obligations pursuant to Paragraph 3.13 nor the exercise by Lessor
      of any of its other rights and remedies under this Agreement or any other
      Operative Document (including the collection of Issues and Profits and the
      application thereof to the Lessee Obligations) shall constitute a cure or
      waiver of any Default or nullify the effect of any notice of default or
      sale, unless and until all Lessee Obligations are paid in full.

            5.07. Exercise of Rights and Remedies. The rights and remedies
      provided to Lessor under this Agreement may be exercised by Lessor itself,
      by Agent pursuant to Subparagraph 2.02(c) of the Participation Agreement,
      by a court-appointed receiver or by any other Person appointed by any of
      the foregoing to act on its behalf. All of the benefits afforded to Lessor
      under this Agreement and the other Operative Documents shall accrue to the
      benefit of Agent to the extent provided in Subparagraph 2.02(c) of the
      Participation Agreement.

      SECTION 6. MISCELLANEOUS.


                                       32
<PAGE>   33
            6.01. Notices. Except as otherwise specified herein, all notices,
      requests, demands, consents, instructions or other communications to or
      upon Lessee or Lessor under this Agreement shall be given as provided in
      Subparagraph 2.02(c) and Paragraph 7.01 of the Participation Agreement.

            6.02. Waivers; Amendments. Any term, covenant, agreement or
      condition of this Agreement may be amended or waived only as provided in
      the Participation Agreement. No failure or delay by any Lessor Party in
      exercising any right hereunder shall operate as a waiver thereof or of any
      other right nor shall any single or partial exercise of any such right
      preclude any other further exercise thereof or of any other right. Unless
      otherwise specified in any such waiver or consent, a waiver or consent
      given hereunder shall be effective only in the specific instance and for
      the specific purpose for which given.

            6.03. Successors and Assigns. This Agreement shall be binding upon
      and inure to the benefit of the Lessor Parties and Lessee and their
      permitted successors and assigns; provided, however, that the Lessor
      Parties and Lessee shall not sell, assign or delegate their respective
      rights and obligations hereunder except as provided in the Participation
      Agreement.

            6.04. No Third Party Rights. Nothing expressed in or to be implied
      from this Agreement is intended to give, or shall be construed to give,
      any Person, other than the Lessor Parties and Lessee and their permitted
      successors and assigns, any benefit or legal or equitable right, remedy or
      claim under or by virtue of this Agreement or under or by virtue of any
      provision herein.

            6.05. Partial Invalidity. If at any time any provision of this
      Agreement is or becomes illegal, invalid or unenforceable in any respect
      under the law or any jurisdiction, neither the legality, validity or
      enforceability of the remaining provisions of this Agreement nor the
      legality, validity or enforceability of such provision under the law of
      any other jurisdiction shall in any way be affected or impaired thereby.

            6.06. Governing Law. This Agreement shall be governed by and
      construed in accordance with the laws of the State of California without
      reference to conflicts of law rules.

            6.07. Counterparts. This Agreement may be executed in any number of
      identical counterparts, any set of which signed by all the parties hereto
      shall be deemed to constitute a complete, executed original for all
      purposes.

            6.08. Nature of Lessee's Obligations.

                  (a) Independent Obligation. Except as otherwise provided in
            Section 2 of the Purchase Agreement, the obligation of Lessee to pay
            the amounts payable by Lessee under this Agreement and the other
            Operative Documents and to perform the other Lessee Obligation are
            absolute, unconditional and irrevocable obligations which are
            separate and independent of the obligations of the Lessor Parties
            under this Agreement and the other Operative Documents and all other
            events and circumstances, including the events and circumstances set
            forth in Subparagraph 6.08(c).


                                       33
<PAGE>   34
                  (b) No Termination or Abatement. This Agreement and the other
            Operative Documents and Lessee's obligation to pay Rent and to pay
            and perform all other Lessee Obligations shall continue in full
            force and effect without abatement notwithstanding the occurrence or
            existence of any event or circumstance, including any event or
            circumstance set forth in Subparagraph 6.08(c).

                  (c) Full Payment and Performance. Lessee shall make all
            payments under this Agreement and the other Operative Documents in
            the full amounts and at the times required by the terms of this
            Agreement and the other Operative Documents without setoff,
            deduction or reduction of any kind and shall perform all other
            Lessee Obligations as and when required, without regard to any event
            or circumstances whatsoever, including (i) the condition of the
            Property (including any Lessor Improvements to the Property made
            prior to the Commencement Date or during the Term); (ii) title to
            the Property (including possession of the Property by any Person or
            the existence of any Lien or any other right, title or interest in
            or to any of the Property in favor of any Person); (iii) the value,
            habitability, usability, design, operation or fitness for use of the
            Property; (iv) the availability or adequacy of utilities and other
            services to the Property; (v) any latent, hidden or patent defect in
            the Property; (vi) the zoning or status of the Property or any other
            restrictions on the use of the Property; (g) the economics of the
            Property; (vii) any Casualty or Condemnation; (viii) the compliance
            of the Property with any applicable Governmental Rule or Insurance
            Requirement; (ix) any failure by any Lessor Party to perform any of
            its obligations under this Agreement or any other Operative
            Document; or (x) the exercise by any Lessor Party of any of its
            remedies under this Agreement or any other Operative Document;
            provided, however, that this Paragraph 6.08 shall not abrogate any
            right which Lessee may have to recover damages from any Lessor Party
            for any material breach by such Lessor Party of its obligations
            under this Agreement or any other Operative Document to the extent
            permitted hereunder or thereunder.

                          [The signature page follows.]




                                       34
<PAGE>   35

      IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed as of the day and year first above written.


LESSEE:                                     SILICON VALLEY GROUP, INC.

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                               Title:
                                                     ---------------------------

LESSOR:                                     SELCO SERVICE CORPORATION

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                               Title:
                                                     ---------------------------













                                       35
<PAGE>   36

STATE OF CALIFORNIA            )
                               )        ss
COUNTY OF _____________________)

      On _____________, 1999, before me, ___________________ a Notary Public in
and for the State of California, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.

      Witness my hand and official seal.

[SEAL]


_____________________________


<PAGE>   37






STATE OF CALIFORNIA            )
                               )        ss
COUNTY OF _____________________)

      On _____________, 1999, before me, ___________________ a Notary Public in
and for the State of California, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.

      Witness my hand and official seal.

[SEAL]


_____________________________


<PAGE>   38






                                  SCHEDULE 3.03

                             INSURANCE REQUIREMENTS

            (i) At all times during the Term, commercial general liability
      insurance, umbrella insurance and excess liability insurance, each written
      on an "occurrence basis", including products and completed operation
      hazards, covering claims for bodily injury, personal injury or death
      sustained by persons or damage to property, in an amount of not less than
      $5,000,000 per occurrence and $10,000,000 annual aggregate;

            (ii) At all times during the Term, workers' compensation insurance
      for statutory limits and employer's liability insurance covering injury,
      death or disease sustained by employees, in an amount not less than
      $1,000,000 for disease and $1,000,000 for bodily injury or death by
      accident; and

            (iii) At all times during the Term, "all risk" property insurance
      covering (A) loss or damage by flood in an amount not less than the lesser
      of (1) the replacement cost of the Lessor Improvements and (2) the then
      current Outstanding Lease Amount if any portion of the Property is located
      in an area identified as a special flood hazard area by the Federal
      Emergency Management Agency or other applicable Governmental Authority,
      (B) loss or damage by fire in an amount not less than the lesser of (1)
      the replacement cost of the Lessor Improvements and (2) the then current
      Outstanding Lease Amount, and (C) loss or damage by earthquake in an
      amount not less than $3,500,000.


<PAGE>   39



                                    EXHIBIT A

                                      LAND
















                                       A-1

<PAGE>   40



                                    EXHIBIT B

                                  RELATED GOODS

                                      None
















                                       B-1


<PAGE>   41



                                    EXHIBIT C

                        NOTICE OF RENTAL PERIOD SELECTION

                                     [Date]

KeyBank National Association,
     as Agent
431 E. Park Center Boulevard
Boise, ID  83706
Attn:  Vicky Heineck or Margaret Herring

      1. Reference is made to (A) that certain Participation Agreement, dated as
of June 30, 1999 (the "Participation Agreement"), among Silicon Valley Group,
Inc. ("Lessee"), SELCO Service Corporation ("Lessor"), the financial
institutions listed in Schedule I to the Participation Agreement (the
"Participants") and KeyBank National Association, as agent for the Participants
(in such capacity, "Agent"); and (b) that certain Lease Agreement, dated as of
June 30, 1999 (the "Lease Agreement") between Lessee and Lessor. Unless
otherwise indicated, all terms defined in the Participation Agreement have the
same respective meanings when used herein.

      2. [Insert one of the following as appropriate]

            [Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably selects a new Rental Period for a Portion of the Outstanding
Lease Amount as follows:

            (a) The Portion for which a new Rental Period is to be selected is
      the Portion in the amount of $__________ with a current Rental Period
      which began on ________, ____ and ends on __________, ____; and

            (b) The next Rental Period for such Portion shall be __________
      month[s].]

            [Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably elects to divide a Portion of the Outstanding Lease Amount
into further Portions as follows:

            (a) The Portion which is to be divided is the Portion in the amount
      of $__________ with a current Rental Period which began on ________, ____
      and ends on __________, ____; and




                                       B-1
<PAGE>   42
            (b) On the last day of the current Rental Period for such Portion,
      such Portion is to be divided into the following Portions with the
      following initial Rental Periods:

                       Portion                    Rental Period
                    ------------                -----------------
                    $                                   month[s]
                     -----------                -------
                    $                                   month[s]
                     -----------                -------
                    $                                   month[s]
                     -----------                -------
                    $                                   month[s]]
                     -----------                -------

            [Pursuant to Subparagraph 2.03(a) of the Lease Agreement, Lessee
hereby irrevocably elects to combine into a single Portion certain Portions of
the Outstanding Lease Amount as follows:

            (a) The Portions which are to be combined are the Portions in the
      amounts of $__________, $_________ and $_______, each with a current
      Rental Period which ends on __________, ____; and

            (b) The initial Rental Period for such newly created Portion shall
      be __________ month[s].]

      3. Lessee hereby certifies to the Lessor Parties that, on the date of this
Notice of Rental Period Selection and after giving effect to the selection[s] as
described above:

            (a) The representations and warranties of Lessee set forth in
      Paragraph 4.01 of the Participation Agreement and in the other Operative
      Documents are true and correct in all material respects as if made on such
      date (except for representations and warranties expressly made as of a
      specified date, which shall be true as of such date);

            (b) No Default has occurred and is continuing; and

            (c) All of the Operative Documents are in full force and effect on
      such date.

      IN WITNESS WHEREOF, Lessee has executed this Notice of Rental Period
Selection on the date set forth above.

                                             SILICON VALLEY GROUP, INC.

                                             By:
                                                --------------------------------
                                                 Name:
                                                      --------------------------
                                                 Title:
                                                       -------------------------




                                       B-2
<PAGE>   43

Recording requested by and                                     EXECUTION VERSION
when recorded return to:

Dolph M. Hellman, Esq.
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California  94111

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------





                                LEASE AGREEMENT,

                     DEED OF TRUST WITH ASSIGNMENT OF RENTS,

                      SECURITY AGREEMENT AND FIXTURE FILING

                                     BETWEEN

                           SILICON VALLEY GROUP, INC.

                                       AND

                            SELCO SERVICE CORPORATION

                                  JUNE 30, 1999



--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                    THIS LEASE IS NOT INTENDED TO CONSTITUTE
                      A TRUE LEASE FOR INCOME TAX PURPOSES
                              (SEE PARAGRAPH 2.06)


<PAGE>   44
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                         PAGE
<S>             <C>                                                                                      <C>
SECTION 1.      INTERPRETATION.............................................................................1

1.01.           Definitions................................................................................1

1.02.           Rules of Interpretation....................................................................2

SECTION 2.      BASIC PROVISIONS...........................................................................2

2.01.           Lease of the Property......................................................................2

2.02.           Term.......................................................................................2

2.03.           Rent.......................................................................................3

2.04.           Use........................................................................................4

2.05.           "As Is" Lease..............................................................................4

2.06.           Nature of Transaction......................................................................5

2.07.           Security, Etc..............................................................................5

SECTION 3.      OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.............................................7

3.01.           Maintenance, Repair, Etc...................................................................7

3.02.           Risk of Loss...............................................................................8

3.03.           Insurance..................................................................................8

3.04.           Casualty and Condemnation.................................................................11

3.05.           Taxes.....................................................................................15

3.06.           Environmental Matters.....................................................................15

3.07.           Liens, Easements, Etc.....................................................................17

3.08.           Subletting................................................................................18

3.09.           Utility Charges...........................................................................18

3.10.           Removal of Property.......................................................................18

3.11.           Compliance with Governmental Rules and Insurance Requirements.............................19

3.12.           Permitted Contests........................................................................19

3.13.           Lessor Obligations; Right to Perform Lessee Obligations...................................20

3.14.           Inspection Rights.........................................................................20

3.15.           Cooperation of Lessor to Facilitate Operation, Etc........................................20

3.16.           Survey and Title Matters..................................................................21

SECTION 4.      EXPIRATION DATE...........................................................................22

4.01.           Termination by Lessee Prior to Scheduled Expiration Date..................................22
</TABLE>

                                      - i -
<PAGE>   45

                                TABLE OF CONTENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                         PAGE
<S>             <C>                                                                                      <C>
4.02.           Return of Property........................................................................22

4.03.           Holding Over..............................................................................23

SECTION 5.      DEFAULT...................................................................................23

5.01.           Events of Default.........................................................................23

5.02.           General Remedies..........................................................................26

5.03.           Lease Remedies............................................................................27

5.04.           Loan Remedies.............................................................................28

5.05.           Remedies Cumulative.......................................................................31

5.06.           No Cure or Waiver.........................................................................31

5.07.           Exercise of Rights and Remedies...........................................................31

SECTION 6.      MISCELLANEOUS.............................................................................31

6.01.           Notices...................................................................................31

6.02.           Waivers; Amendments.......................................................................31

6.03.           Successors and Assigns....................................................................31

6.04.           No Third Party Rights.....................................................................32

6.05.           Partial Invalidity........................................................................32

6.06.           Governing Law.............................................................................32

6.07.           Counterparts..............................................................................32

6.08.           Nature of Lessee's Obligations............................................................32



SCHEDULE

3.03     Insurance Requirements

EXHIBITS

A        Land (2.01(a))

B        Related Goods (2.01(d))

C        Notice of Rental Period Selection (2.03(a))

</TABLE>
                                     - ii -