<PAGE>

                                                                    Exhibit 10.8
                                                                    ------------


                                LEASE AGREEMENT

                           (Single Tenant Industrial)

                          MELCHOR INVESTMENT COMPANY,

                        a California general partnership

                                  ("Landlord")

                                      and

                            APPLIED MATERIALS, INC.

                             a Delaware corporation

                                   ("Tenant")

                                January 27, 1996

                            4600 Old Ironsides Drive

                             Santa Clara California
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

                                                                            Page
                                                                            ----


1.     Parties.............................................................  1

2.     Definitions.........................................................  1

3.     Property Leased.....................................................  1
       3.1  Premises.......................................................  1
            (a) Land.......................................................  1
            (b) Building...................................................  1
            (c) Landlord's Improvements....................................  2
            (d) Tenant's Improvement.......................................  2
            (e) Other Improvements.........................................  2
       3.2  Acceptance of the Premises.....................................  2
       3.3  Landlord's Improvements........................................  2
       3.4  Tenant's Improvements..........................................  2

4.     Term................................................................  2
       4.1  Initial Lease Term.............................................  2
       4.2  Lease Termination..............................................  2

5.     Rent................................................................  2
       5.1  Base Rent......................................................  2
       5.2  Increase in Base Rent..........................................  3
            (a) Adjustment Date Calculation................................  3
            (b) Landlord Calculation.......................................  4
       5.3  Security Deposit...............................................  4
       5.4  Absolute Lease.................................................  5
       5.5  Additional Rent................................................  5
       5.6  Interest.......................................................  5

6.     Use of Premises.....................................................  5
       6.1  Permitted Uses.................................................  5
       6.2  Suitability....................................................  5
       6.3  Tenant to Comply with Legal Requirements.......................  5
       6.4  Uses Prohibited................................................  6
            (a) Effect on Insurance........................................  6
            (b) Hazardous Uses and Nuisances...............................  7
       6.5  Environmental Matters/Hazardous Materials......................  7
            (a) Hazardous Materials Disclosure Certificate.................  7
            (b) Definition of Hazardous Materials..........................  7
            (c) Prohibition; Environmental Laws............................  7
            (d) Tenant's Environmental Obligations.........................  8
            (e) Tenant's Environmental Indemnity...........................  8
            (f) Landlord's Obligation......................................  9
            (g) Survival...................................................  9
       6.6  Landlord's Access to Premises..................................  9
       6.7  Signs.......................................................... 10

                                     - i -
<PAGE>

                               TABLE OF CONTENTS
                               -----------------
                                  (continued)


<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>     <C>                                                                                             <C>
7.      Utilities.......................................................................................  10

8.      Taxes...........................................................................................  11
        8.1  Tenant's Obligation........................................................................  11
        8.2  Right to Contest...........................................................................  12
        8.3  Impound Account............................................................................  12
        8.4  General....................................................................................  12

9.      Insurance.......................................................................................  13
        9.1  Tenant's Insurance Coverage................................................................  13
        9.2  Form of Liability Insurance................................................................  13
        9.3  Form of Policies in General................................................................  14
        9.4  Landlord's Liability Insurance Coverage....................................................  14
        9.5  Right of Landlord to Obtain Insurance......................................................  15
        9.6  Waiver of Subrogation Rights...............................................................  15

10.     Indemnity and Exculpation.......................................................................  15
        10.1  Indemnification of Landlord...............................................................  15
        10.2  Landlord as Party Defendant............................................................... 15A
        10.3  Waiver of Claims.......................................................................... 15A

11.     Damage or Destruction...........................................................................  16
        11.1  Landlord's Election.......................................................................  16
        11.2  Insufficient Proceeds.....................................................................  16
        11.3  Adjustment of Insurance Deficit Amount....................................................  17
        11.4  Termination of Lease......................................................................  17
        11.5  Exercise of Election to Terminate Lease...................................................  18
        11.6  Waiver of Civil Code Remedies.............................................................  18
        11.7  No Abatement of Rentals...................................................................  18
        11.8  Liability for Personal Property...........................................................  18

12.     Mechanic's Liens................................................................................  18
        12.1  Payment by Tenant for Services............................................................  18
        12.2  Premises Free From Liens..................................................................  19

13.     Repairs and Maintenance.........................................................................  19
        13.1  Landlord's Maintenance Obligations........................................................  19
        13.2  Tenant's Maintenance Obligations..........................................................  20
        13.3  Waiver of Civil Code Remedies.............................................................  21
        13.4  Surrender of Premises.....................................................................  21

14.     Alterations and Additions.......................................................................  22
        14.1  Prohibitions in General...................................................................  22
        14.2  Surrender of Alterations and Additions....................................................  22
        14.3  Personal Property.........................................................................  22
        14.4  Repair of Premises........................................................................  23
</TABLE>

                                    - ii -
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>     <C>                                                                                             <C>
16.     Subsurface......................................................................................  23

17.     Assignment and Subletting.......................................................................  23
        17.1  Prohibitions in General...................................................................  23
        17.2  Collection of Rent........................................................................  24
        17.3  Assumption Agreement......................................................................  24
        17.4  Request for Transfer......................................................................  24
        17.5  Bonus Value...............................................................................  25
        17.6  Landlord's Rights.........................................................................  25
              (a)  Terminate Lease......................................................................  25
              (b)  Acquisition of Tenant's Interest.....................................................  25
        17.7  Tenant's Rights...........................................................................  25
        17.8  Reasonable Provisions.....................................................................  26
        17.9  Exceptions................................................................................  26
              (a)  Assignment...........................................................................  26

18.  Subordination; Lender Approval; Attornment; Estoppel Certificates; Financial Statements............  26
        18.1  Subordination.............................................................................  26
        18.2  Subordination Agreements..................................................................  26
        18.3  Attornment................................................................................  27
        18.4  Estoppel Certificates and Financial Statements............................................  27
              (a)  Delivery by Tenant...................................................................  27
              (b)  Failure to Deliver...................................................................  27

19.     Remedies Upon Default by Tenant.................................................................  28
        19.1  Events of Default.........................................................................  28
        19.2  Rights of Landlord Upon Tenant's Default..................................................  29
        19.3  Continuance of Lease......................................................................  29

20.     Condemnation....................................................................................  30
        20.1  Definition of Terms.......................................................................  30
        20.2  Rights....................................................................................  30
        20.3  Total Taking..............................................................................  30
        20.4  Partial Taking............................................................................  31
        20.5  Restoration Obligation....................................................................  31
        20.6  Temporary Taking..........................................................................  32

21.     Holding Over....................................................................................  32

22.     Flood Notification; National Flood Insurance Program............................................  32

23.     Alquist-Priolo Notification; Alquist-Priolo Special Earthquake Studies Zone Act.................  33

24.     Notices.........................................................................................  33
</TABLE>

                                    - iii -
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>                                                                                       <C>
25.     Attorneys' Fees.................................................................................  33

26.     Successors......................................................................................  34

27.     Landlord Default................................................................................  34

28.     Quiet Enjoyment.................................................................................  34

29.     Merger..........................................................................................  34

30.     Waiver..........................................................................................  34

31.     Entire Agreement................................................................................  35

32.     Landlord's Right to Perform Tenant's Covenants..................................................  35

33.     Authority.......................................................................................  35

34.     Landlord Not a Trustee..........................................................................  36

35.     Withholding of Landlord's Consent...............................................................  36

36.     Exhibits........................................................................................  36

37.     Broker's Fee....................................................................................  36

38.     General.........................................................................................  36
        38.1  Headings..................................................................................  36
        38.2  Definition of Landlord....................................................................  37
        38.3  Definition of Agents......................................................................  37
        38.4  Interpretation of Terms...................................................................  37
        38.5  Executed Copies...........................................................................  37
        38.6  Time of Essence...........................................................................  37
        38.7  Severability..............................................................................  37
        38.8  Governing Law.............................................................................  38
        38.9  Joint and Several Liability...............................................................  38
        38.10 Short Form of Lease.......................................................................  38

39.  Extension..........................................................................................  38
        39.1  Extended Term.............................................................................  38
        39.2  Effect of Renewal.........................................................................  38
        39.3  Base Rent Adjustment......................................................................  38

40.     Notice Of Offers................................................................................  39
        40.1  Offering Notice...........................................................................  39
        40.2  Unsolicited Offer.........................................................................  39
        40.3  Multiple Properties.......................................................................  40
</TABLE>

                                    - iv -
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>     <C>                                                                                       <C>
41.     Grant of Option to Lease..................................................................  40
        41.1  Notice of Intention to Lease........................................................  42

EXHIBITS

A       Legal Description
B       Construction Addendum
C       Commencement Date Memorandum
D       Hazardous Materials Disclosure Certificate
E       Estoppel Certificate
F       Memorandum of Lease
</TABLE>

                                     - v -
<PAGE>

                                LEASE AGREEMENT
                                ---------------

                           (Single Tenant Industrial)

     1.   Parties.  The Parties are to this Lease Agreement (the "Lease") are
          -------
MELCHOR INVESTMENT COMPANY, a California general partnership (" Landlord" ), and
APPLIED MATERIALS, INC., a Delaware corporation ("Tenant"). This Lease dated by
the parties as of January 27, 1996.

     2.   Definitions.  The following terms shall have the meanings described in
          -----------
the referenced sections:

                 (a)  Additional Rent - Section 5.5.

                 (b)  Applicable Laws - Section 6.3.

                 (c)  Base Rent - Section 5.1.

                 (d)  Commencement Date - Section 4.1.

                 (e)  Default - Section 19.1.

                 (f)  Extended Term - Section 39.1.

                 (g)  Hazardous Material - Section 6.5.

                 (h)  Landlord's Improvements - Section 3.3.

                 (i)  Rentals - Section 5.5.

                 (j)  Tenant's -Improvements - Section 3.4.

                 (k)  Tenant's Personal Property  Section 14.3.

                 (l)  Transfer - Section 17.1.

     3.   Property Leased.
          ---------------

          3.1  Premises.  Landlord hereby leases to Tenant, and Tenant leases
from Landlord, upon the terms and conditions set forth herein, the following
property (collectively the "Premises")

               (a)  Land.  The real Property (the "Land") located in the City of
                    ----
Santa Clara, County of Santa Clara, State of California, which Land is more
particularly described in Exhibit A attached hereto;
                          ---------

               (b)  Building.  The building (the "Building") situated on the
                    --------
Land, commonly known as 4600 Old Ironsides Drive, Santa Clara, California; and
<PAGE>

               (c)  Landlord's Improvements.  The improvements (the "Landlord's
                    -----------------------
Improvements") to be constructed within the Building by Landlord pursuant
Section 3.3.
-----------

               (d)  Tenant's Improvement.  The improvements (the "Tenant's
                    --------------------
Improvements") to be constructed within the Building by Tenant pursuant to
Section 3.4.
-----------

               (e)  Other Improvements.  Any other improvements constructed at
                    ------------------
any time during the term on the Land or in the Building.

          3.2  Acceptance of the Premises.  Subject to Landlord's obligation to
               --------------------------
construct Landlord's Improvements, Tenant shall accept the Premises on the
Commencement Date in its "as is" condition.

          3.3  Landlord's Improvements.  Landlord shall contract with South Bay
               -----------------------
Construction Company to construct Landlord's Improvements pursuant to the
provisions of the Construction Addendum attached hereto as Exhibit B.
                                                           ---------

          3.4  Tenant's Improvements.  Tenant shall contract directly with a
               ---------------------
licensed contractor of Tenant's choice to construct Tenant's Improvements
pursuant to the provisions of the Construction Addendum attached hereto as
Exhibit B.
---------

     4.   Term.
          ----

          4.1  Initial Lease Term. The term of this Lease (the "Lease Term")
               ------------------
shall be for a period of five (5) years and ninety (90) days commencing on the
date Landlord delivers to Tenant possession of the Premises in accordance in
Section 2 of Exhibit B (the "Commencement Date").
---------    ---------

          4.2  Lease Termination.  The Lease Term shall terminate sixty (60)
               -----------------
months and ninety (90) days after the Commencement Date, unless sooner
terminated pursuant to the terms of this Lease or unless extended in accordance
with Section 39. The expiration of the Lease Term or sooner termination of this
Lease is referred to herein as the "Lease Termination."

     5.   Rent.
          ----

          5.1  Base Rent.  Tenant shall pay to Landlord as monthly rent for the
               ---------
Premises ("Base Rent"), in advance, on the first day of each calendar month
commencing on the ninety first (91st) day following the Commencement Date ("Rent
Commencement Date") and continuing throughout the Lease Term, Base Rent, which
initially shall be an amount equal to Sixty Nine Thousand Nine Hundred Dollars
and Cents ($69,900.000). In the event the Commencement Date is not on the first
day of a calendar month, the first installment of Base Rent shall be prorated by
multiplying the Base Rent by the

                                     - 2 -
<PAGE>

quotient obtained by dividing thirty (30) into the number of remaining in such
calendar month. Tenant shall pay Base Rent in lawful money of the United States
without deduction, offset, prior notice, or demand at 635 Emerson Street, Palo
Alto, California 94301 or at such other place(s) as Landlord from time to time
shall designate.

          5.2  Increase in Base Rent.  Beginning on the thirty first (31st)
month of the Lease Term, the Base Rent shall subject to upward adjustment based
upon increases in the "Consumer Price Index for All Urban Consumers (1984 =
100), in San Francisco-Oakland Metropolitan Area, All Items", published by the
United States Department of Labor, Bureau of Labor Statistics (the "CPI" or "CPI
Index"). If the present base of the CPI Index hereinafter changed, the new base
shall be converted to the base now used. If the Bureau of Labor Statistics fails
to publish the CPI Index throughout the Lease Term, the then most similar index
published by the Bureau or by any other branch or department of the U.S.
Government shall be used, and if none is so published, then another index using
the most closely comparable statistics on the purchasing power of the consumer
dollar and published by responsible financial authority shall be used. The
increases shall be calculated as follows:

                 (a)  Adjustment Date Calculation.  On the first day of the
                      ---------------------------
thirty-first month following the Commencement Date (the "Adjustment Date") a
calculation shall be made to determine the increase, if any, to be made to the
then Base Rent. Any increase so determined shall be added to the Base Rent for
the balance of the Lease Term. The adjusted Base Rent shall be determined as
follows:

                      (i)   the CPI ("Beginning Index") published immediately
prior to two months before the Commencement Date shall be determined. The CPI
("Adjustment Index") published immediately prior to the two months before the
Adjustment Date shall be determined.

                      (ii)  the change in the CPI shall be determined by
subtracting the Beginning index from the Adjustment Index. The numerical
difference shall be the "Index Change." If the Adjustment Index does not exceed
the Beginning Index, no adjustment shall be made to the Base Rent on the
Adjustment Date and the Base Rent shall not be changed;

                      (iii) the percentage increase ("Percentage Change") in the
CPI shall be determined by dividing the index Change by the Beginning Index;

                      (iv)  the increase in the Base Rent then shall be
determined by multiplying the Base Rent for the month immediately preceding the
Adjustment Date times the Percentage Change;

                                     - 3 -
<PAGE>

                      (v)  the increase, as determined above, be added to the
Base Rent payable immediately prior to Adjustment Date to determine the new Base
Rent. By way of example: assume the Commencement Date is March 1, 1996 and that
the published immediately prior to January 1996 is 300 and that Base Rent for
March 1, 1996 is $1,000. Further, assume that Adjustment Date is September 1,
1998 and that the CPI immediately prior to July 1998 is 360. The Base Rent for
the period commencing September 1, 1998 shall be determined as follows:
<TABLE>
<S>                  <C>                        <C>          <C>
                (1)  Adjustment Index                   360
                     Beginning Index                    300
                                                        ---
                     Index Change                        60

                (2)  Index change                        60  = 60 divided by 300 = 20%
                                                         --
                     Beginning Index                    300

                (3)  Base Rent                       $1,000
                     Percentage Change             x    .20
                                                   --------
                     Increase                        $  200

                (4)  Base Rent prior to
                     Adjustment Date                 $1,000
                     Increase rent                  +   200
                                                    -------
                     New Base Rent                   $1,200
</TABLE>

          (b)  Landlord Calculation.  Landlord shall compute the applicable
               --------------------
increase, if any, in Base Rent to be paid on an following the Adjustment Date
and shall provide to Tenant a copy o such calculation. Any delay by Landlord in
computing or delivering, the information hereunder shall not relieve Tenant from
it., obligation to pay Base Rent or any increase hereunder and Landlord shall
not be deemed to have waived any right to collect such rent by reason of any
delay by Landlord hereunder.

     5.3  Security Deposit.  On or before June 1, 2000, Tenant shall deliver to
          ----------------
Landlord an amount equal to one month's rent (as then calculated) to be held by
Landlord as a security deposit (the "Security Deposit"). The Security Deposit
shall be delivered to Landlord to secure the faithful performance of Tenant's
obligations under this Lease. If Tenant fails to pay the Rent promptly when due,
the Security Deposit, at the option of Landlord may be applied to any Rent due
and unpaid. If Tenant violates any of the other terms, covenants and conditions
of this Lease, the Security Deposit may be applied to the extent of the amount
of damages suffered by Landlord as a result of Tenant's default. If Tenant fails
to perform prior to Lease Termination all its obligations on surrender of the
Premises, Landlord may, but shall not be obligated to, use the Security Deposit
to remove Tenant's alterations, to restore the Premises or to repair or replace
portions of the Premises to fulfill Tenant's obligations under this Lease. The
fact that the Security Deposit may be used for such purposes shall not relieve
Tenant from its obligations hereunder nor shall such fact in any

                                     - 4 -
<PAGE>

way diminish or be construed as waiving any of Landlord's remedies No interest
shall accrue on the Security Deposit.

          5.4  Absolute Lease.  It is the intention of Landlord Tenant that the
               --------------
rent herein specified shall be net to Landlord Month during the Lease Term. All
costs, expenses and obligations of every kind relating to the Premises (except
as otherwise may be specifically provided in this Lease) shall be paid by
Tenant, and Tenant shall indemnify Landlord against all such costs, expenses and
obligations.

          5.5  Additional Rent.  All taxes, charges, costs, and expenses and
               ---------------
other sums which Tenant is required to pay hereunder (together with all interest
penalties that may accrue thereon in the event of Tenant's failure to pay the
same) and all damages, costs and expenses which Landlord may incur by reason of
any Default of Tenant shall be deemed to be additional rent hereunder
("Additional Rent"). In the event of nonpayment by Tenant of any Additional
Rent, Landlord shall have all of the rights and remedies available for the
nonpayment of Base Rent. The term "Rentals" as used in this Lease shall mean
Base Rent and Additional Rent.

          5.6  Interest.  Any payment due from Tenant to Landlord, including but
               --------
not limited to Rentals, if not paid within five (5) days after receipt of
written notice from Landlord that such payment was not paid when due, shall bear
interest from the date due until paid at an annual rate equal to the greater of:
ten percent (10%); or five percent (5%) plus the Federal Discount Rate of the
Federal Reserve Bank of San Francisco in effect as of the twenty-fifth (25th)
day of the month immediately preceding the due date.

     6.   Use of Premises.
          ---------------

          6.1  Permitted Uses.  Tenant shall use the Premises only in
               --------------
conformance with applicable governmental laws, regulations, ordinances and
orders for purposes permitted under applicable laws and for no other purpose
without the prior written consent of Landlord.

          6.2  Suitability.  Tenant acknowledges that neither Landlord nor any
               -----------
agent of Landlord has made any representation or warranty with respect to the
Premises or with respect to the suitability of the same for the conduct of
Tenant's business, nor has Landlord agreed to undertake modification, alteration
or improvement to the Premises, except as provided in this Lease.

          6.3  Tenant to Comply with Legal Requirements. Tenant shall, at its
               -----------------------------------------
sole cost, promptly comply with: all laws, statutes, ordinances, rules,
regulations or requirements of all municipal, county, state and federal
authorities relating to or affecting the condition, use or occupancy of the
Premises, now in force or which are in force at any time during the Lease Term
("Applicable Laws"),

                                     - 5 -
<PAGE>

the provisions of all recorded documents affecting the Premises; and the
requirements of any board of fire underwriters (or similar body now or hereafter
constituted) relating to or affecting the condition, use or occupancy of the
Premises.

                 (a)  Tenant shall Pay the full cost of any structural and non-
structural alterations or additions to the Premises which are required by
Applicable Laws or recorded documents due to Tenant's particular use of the
Premises.

                 (b)  Landlord shall pay the full cost of any structural and
non-structural alterations or additions required by Applicable Laws or recorded
documents to be made to the Landlord's Improvements or the shell of the Building
which are generally applicable to real property, or are required to comply with
changed interpretations of existing laws after the Term Commencement Date. Any
such alterations or additions shall be treated as capital improvements, the cost
of which shall be paid initially by Landlord. The cost of such alterations or
additions shall amortized over the useful life of the improvement, according to
generally accepted accounting principles using straight line amortization and an
interest rate equal to ten percent (10%), and Tenant shall reimburse Landlord
Monthly as additional rent for the monthly amortized cost of the alteration or
addition.

                 (c)  Except as otherwise required by Sections (a) or (b) above,
                                                      -------------------
Tenant shall pay the full cost of any non-structural alterations or additions to
the Premises which are required by Applicable Laws, for any reason, to be made
to the Premises, whether as a result of Tenant's particular use or which are
generally applicable to real property.

Tenant shall obtain, prior to taking possession of the Premises, any permits,
licenses or other authorizations required for the lawful operation of its
business at the Premises.  The judgment of any court of competent jurisdiction
or the admission of Tenant in any action or proceeding against Tenant,
regardless of whether Landlord is a party thereto, that Tenant has violated any
Applicable Law or recorded document relating to condition, use and occupancy of
the Premises shall be conclusive of the fact of such violation by Tenant.
Tenant shall indemnify, defend, and hold Landlord harmless from and against any
loss expense, cost, damage attorneys, fees, penalties or liability arising out
the failure of Tenant to comply with any Applicable Law or recorded document.

          6.4  Uses Prohibited.
               ---------------

               (a)  Effect On Insurance.  Tenant shall not do or permit anything
                    -------------------
to be done in or about the Premises nor bring or keep anything on the Premises
which will in any way cause a cancellation of any insurance policy covering the
Premises or any part thereof or any of its contents, nor shall Tenant sell or
permit to be kept, used or sold in or about the Premises any

                                     - 6 -
<PAGE>

articles which may be prohibited by a standard form policy of fire insurance.

                 (b)  Hazardous Uses and Nuisances. Tenant shall not do or
                      ----------------------------
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with occupants of neighboring property or injure or annoy
them. Tenant shall not use or allow the Premises to be used for any unlawful or
hazardous purpose, nor shall Tenant cause, maintain or permit any nuisance in,
on or a the Premises. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises. Tenant shall at all times cooperate with Landlord
and Landlord's agents in the performance of their duties and responsibilities.

          6.5    Environmental Matters/Hazardous Materials.
                 -----------------------------------------

                 (a)  Hazardous Materials Disclosure Certificate. Within sixty
                      ------------------------------------------
(60) days following execution of this Lease, and within thirty (30) days
following request from Landlord, Tenant shall execute, and deliver to Landlord,
the Hazardous Materials Disclosure Certificate (the "HazMat Certificate") in
substantial the form attached hereto as Exhibit D.
                                        ---------

                 (b)  Definition of Hazardous Materials. As used this Lease,
                      ---------------------------------
the term Hazardous Materials shall mean and include (i) any hazardous or toxic
wastes, materials or substances, and other pollutants or contaminants, which are
or become regulated by an Environmental Law (defined below); (ii) petroleum,
petroleum by products, crude oil or any fraction thereof; (iii) asbestos; (iv)
polychlorinated biphenyls; (v) radioactive materials; or (vi) any other material
or substance displaying toxic, reactive ignitable or corrosive characteristics,
as all such terms are used in their broadest sense, and are defined or become
defined by any Environmental Law (defined below).

                 (c)  Prohibition; Environmental Laws. Subject to the remaining
                      -------------------------------
provisions of this Section, Tenant shall be entitled to use and store only those
Hazardous Materials that are ordinary office supplies and cleaning products and
other Hazardous Materials to the extent disclosed in the HazMat Certificate,
provided that such usage and storage is only to the extent of the quantities of
Hazardous Materials as specified in the then applicable HazMat Certificate and
provided further that such usage and storage is in full compliance with any and
all local, state and federal environmental, health and/or safety-related laws,
statutes, orders, standards, courts' decisions, ordinances, rules and
regulations (as interpreted by judicial and administrative decisions), decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which are or become applicable
to Tenant or all or any portion of the Premises (collectively, the
"Environmental Laws"). Tenant agrees that any material changes to the type
and/or quantities of Hazardous Materials specified in the most recent HazMat
certificate

                                     - 7 -
<PAGE>

may be implemented only with the prior written consent of Land which consent
shall not be unreasonably withheld. Tenant shall not be entitled nor permitted
to install any tanks under, on or about the Premises for the storage of
Hazardous Materials without express written consent of Landlord, which may be
given or withheld in Landlord's sole discretion. Landlord shall have the right
at all times during the term of this Lease to (i) inspect Premises, (ii) conduct
tests and investigations to determine whether Tenant is in compliance with the
provisions of this Section, and (iii) request lists of all Hazardous Materials
used, stored or otherwise located on, under or about any portion of Premises;
provided that such , inspections and tests and investigations shall not
unreasonably interfere with Tenant's operations at the Premises. If any such
inspection, test or investigation reveals a material violation by Tenant or
Tenant's Agents of Environmental Laws, Tenant shall pay the cost of such
inspection, test or investigation.

          (d)    Tenant's Environmental Obligations. Upon discovery thereof by
                 ----------------------------------
Tenant, Tenant shall give to Landlord immediate verbal and follow-up written
notice of any spill releases, discharges, disposals, emissions, migrations,
removals or transportation of Hazardous Materials by Tenant or Tenant's Agents
on, under or about any portion of the Premises. Tenant, at Tenant's sole cost
and expense, covenants and warrants to promptly investigate, clean up, remove,
restore and otherwise remediate (including, without limitation, preparation of
any feasibility studies or reports and the performance of any and all closures)
any spill, release, discharge, disposal, emission, migration or transportation
of Hazardous Materials arising from or related to the intentional or negligent
acts or omissions of Tenant or Tenant's Agents. Tenant shall respond to
emergencies immediately. Tenant, at its sole cost and expense, shall conduct and
perform, or cause to be conducted and performed, all closures for Tenant's
activities as required by any Environmental Laws or any agencies or other
governmental authorities having jurisdiction thereof. If Tenant fails to so
promptly investigate, clean up, remove, restore, provide closure or otherwise so
remediate, Landlord may after not less than thirty (30) days prior written
notice to Tenant, but without obligation to do so, take any and all steps
necessary to rectify the same and Tenant shall promptly reimburse Landlord, upon
demand, for all costs and expenses to Landlord of performing investigation,
clean up, removal, restoration, closure and remediation work.

          (e)    Tenant's Environmental Indemnity. In addition to Tenant's
                 --------------------------------
obligations as set forth hereinabove, Tenant agrees to, and shall, protect,
indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord and Landlord's partners, employees, representatives, property
management company (if other than Landlord), harmless from and against any and
all claims, judgments, damages, foreseeable and unforeseeable consequential
damages, penalties, fines, liabilities, losses, suits,

                                     - 8 -
<PAGE>

administrative proceedings and costs (including, but not limited to, attorneys'
and consultant fees and court costs) arising in connection with or directly
related to, the use, presence, transportation, storage, disposal, migration,
removal, spill, release or discharge of Hazardous Materials on, in or about any
portion of the Premises as a result of the intentional or negligent acts or
omissions of Tenant or Tenant's Agents which are in violation of Environmental
Laws.

          (f)    Landlord's Obligation. Landlord shall responsible for all
                 ---------------------
investigation, removal, remediation, clean and monitoring that is ordered by
governmental agencies having jurisdiction over the Premises ("Applicable
Governmental Agency") with regard to (1) any Hazardous Materials released,
emitted, discharged, used, or stored by Landlord or its agents, employees, or
contractors, in, on, under or from the Premises, (2) any Hazardous Materials
present on the Premises immediately prior Tenant's occupancy of the Premises,
unless caused by Tenant, its employees, invitees, agents, or contractors, and
(3) any Hazardous Materials which migrate through the air, groundwater or
otherwise to the Premises, unless caused by Tenant, its employees, invitees,
agents, or contractors. Tenant understands that groundwater in the vicinity of
the Premises is generally contaminated and the groundwater under the Premises
may be contaminated. Tenant agrees that Landlord shall incur no responsibilities
to investigate, remove, remediate, clean up or monitor any Hazardous Material
that may exist, or be suspected to exist, on the Premises unless and until an
Applicable Governmental Agency has ordered such action. Landlord shall protect,
indemnify, defend (with counsel reasonably acceptable to Tenant) and hold Tenant
harmless from and against any and all claims, judgments, damages, penalties,
fines, liabilities, suits, administrative proceedings and costs (including but
not limited to attorneys' fees and consultants' fees and court costs) arising in
connection with any Hazardous Materials released, emitted, discharged, used or
stored by Landlord or its agents, employees, or contractors, on or about the
Property. Notwithstanding the foregoing, Landlord shall be responsible to make
reasonable investigations if Tenant provides to Landlord reasonable evidence of
the probability of the existence of Hazardous Materials on the Property (except
for groundwater) for which Landlord would be responsible under this Section 6.5.

          (g)    Survival.  The obligations and liabilities of Tenant under this
                 --------
Section shall survive the expiration or earlier termination of this Lease.

     6.6  Landlord's Access to Premises.  Tenant shall permit Landlord and/or
          -----------------------------
Landlord's agents, lenders, prospective purchasers, brokers or contractors to
enter the Premises, at all reasonable times, for the purposes of (i) inspecting
the same or performing tests provided for in this Lease, (ii) posting notices of
nonresponsibility, (iii) protecting the Premises in the event of an emergency,
(iv) exhibiting the Premises to prospective purchasers

                                     - 9 -
<PAGE>

or lenders, (v) making required repairs on behalf of Tenant, that Tenant has
neglected or refused to make, (vi) making repairs or replacements Landlord is
required to make hereunder, (vii) performing any obligations of Landlord that
requires entry on the Premises, and (viii) at any time within one hundred eighty
(180) days prior to Lease Termination, to enter the Premises the purpose of
exhibiting the Premises to prospective tenants or place upon the Premises
ordinary "for lease" signs. In the event of an emergency, Landlord shall have
the right to use any and all means which Landlord may deem proper to gain access
to the Premises. Any entry to the Premises by Landlord in accordance with this
Section or any other provision of this Lease under any circumstances shall not
be construed or deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or an eviction of Tenant from the Premises or any portion
thereof nor give Tenant the right to abate the Rentals payable under this Lease.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned by Landlord's entry to the Premises
as permitted by this Section or any other provision of this Lease.

          6.7    Signs.  Tenant shall have the right to erect monument signs on
                 -----
the Premises, subject to compliance with City of Santa Clara ordinances. Except
for the monument signs, or temporary construction signs, Tenant shall not place
or permit to be placed any sign or decoration on the Land or the exterior of the
Building or that would be visible from the exterior of the Building, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. Upon request by Landlord, Tenant immediately shall remove any of
Tenant's signs or decorations that are visible from the exterior of the Building
or that Tenant has placed or permitted to be placed on the Land or the exterior
of the Building without the prior written consent of Landlord. If Tenant fails
to so remove such sign or decoration within five (5) days after Landlord's
request, Landlord may enter upon the Premises and remove such sign or decoration
and Tenant shall pay to Landlord upon demand and as Additional Rent, the cost of
such removal including, but not limited to, cost of repairing any damage to the
Building occasioned by such removal. All signs placed on the Premises by Tenant
shall comply with all recorded documents affecting the Premises (as the same may
be amended from time to time) and all Applicable Laws. At Lease Termination,
Tenant shall remove any sign which it has placed on the Premises, and shall, at
its sole cost, repair any damage caused by the installation or removal of
Tenant's sign.

     7.   Utilities.  Prior to delinquency, Tenant shall pay all charges for
          ---------
water, gas, heat, power, electricity, telephone or other communication service,
trash pickup, janitorial service, sewer, and all other services and utilities
supplied to or consumed on the Premises, and all taxes, fees, levies or
surcharges therefor. The lack or shortage of any service or utility due to any

                                    - 10 -
<PAGE>

cause (other than the intentional misconduct of Landlord) whatsoever shall not
affect any obligation of Tenant hereunder, and Tenant shall faithfully keep and
observe all the terms, conditions and covenants of this Lease and pay all
Rentals due hereunder, all without diminution, credit or deduction. In the event
any utility service to the Premises is interrupted by any act or omission of
Landlord, Landlord shall promptly and diligently proceed to restore such
service.

     8.   Taxes.
          -----

          8.1    Tenant's Obligation. Commencing on the Rent Commencement Date,
                 -------------------
Tenant shall pay (prior to delinquency) all real estate taxes, personal property
taxes, taxes based on vehicles utilizing parking areas in the Premises, taxes
computed or based on rental income, privilege taxes, excise taxes, business and
occupation taxes, gross receipts taxes, sales and/or use taxes, employee taxes,
occupational license taxes, water and sewer taxes, assessments (including, but
not limited to, assessments for public improvements or benefit), and all other
governmental impositions and charges of every kind and regardless of whether
extraordinary or ordinary, general or special, unforeseen or foreseen, or
similar or dissimilar to any of the foregoing and any increases, whether from
any increase in rate, increased valuation, change in ownership, or for any other
reason (all collectively called "Tax" or "Taxes") which shall be applicable to
the Premises, shall be assessed, levied or imposed upon or against the Premises,
or shall become due and payable and a lien or charge upon the Premises under or
by virtue of any present or future laws, statutes, ordinances, regulations, or
other requirements of any governmental authority whatsoever. Without limiting
the foregoing, Taxes also shall include taxes, charges or fees related to any
transportation management program, vehicle trips to or from the Premises,
transit fees or similar charges which are imposed with regard to air pollution
by Tenant or Tenant's employees, invitees or activities, or are related to
congestion management programs.

     The term "Tax" also shall include, without limitation, all taxes,
assessments, levies, fees, impositions or charges levied, imposed, assessed,
measured, or based in any manner whatsoever (i) in whole or in part on the
Rentals payable by Tenant under this Lease, other than federal, state or
municipal income taxes imposed upon Landlord, (ii) upon or with respect to the
use, possession, occupancy, leasing, operation or management of the Premises,
(iii) upon this transaction or any document to which Tenant is a party creating
or transferring an interest or an estate in the Premises, (iv) upon Tenant's
business operations conducted at the Premises, (v) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located on the Premises or the cost or
value of any leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements shall be in Landlord or Tenant,
or (vi) in lieu of or equivalent to any Tax set

                                    - 11 -
<PAGE>

forth in this Section. It is the intention of the parties that Landlord shall
not be required to pay any Taxes or any other governmental impositions and
charges of any kind or nature whatsoever. Nothing contained in this Section
shall require Tenant to pay any franchise, estate, inheritance, succession,
income, transfer or excess profits tax imposed upon Landlord.

          8.2    Right to Contest.  Tenant shall have the right to contest or
                 ----------------
review the amount or validity of any Tax by appropriate legal proceedings (but
which is not to be deemed or construed in any way as relieving, modifying or
extending Tenant's covenant to pay such Tax at the time and in the manner as
provided in this Section). However, as a condition of Tenant's right to contest,
if such contested Tax is not paid before such contest and if the legal
proceedings shall not operate to prevent or stay the collection of the Tax so
contested, Tenant shall, before instituting any such proceeding, protect the
Premises and the interest of Landlord and of the beneficiary of a deed of trust
or the mortgagee of a mortgage affecting the Premises against any lien upon the
Premises by a surety bond, issued by an insurance company acceptable to
Landlord, and in an amount equal to the greater of one and one-half (1-1/2)
times the amount contested or the amount of the contested Tax and the interest
and penalties in connection therewith. Any contest as to the validity or amount
of any Tax, whether before or after payment, shall be made by Tenant in Tenant's
own name, or, if required by law, in the name of Landlord or both Landlord and
Tenant. Tenant shall defend, indemnify and hold harmless Landlord from and
against any and all costs or expenses, including attorneys' fees, in connection
with any such proceedings brought by Tenant, whether in its own name or not.
Tenant shall be entitled to retain any refund of any such contested Tax and
penalties or interest thereon which have been paid by Tenant. Nothing contained
herein shall be construed as affecting or limiting Landlord's right to contest
any Tax at Landlord's expense.

          8.3    Impound Account.  If any beneficiary of any security instrument
                 ---------------
encumbering the Premises requires Landlord to impound Taxes or insurance
premiums for the Premises on a periodic basis during the Lease Term, Tenant, on
notice from Landlord indicating this requirement, shall pay to Landlord, in lieu
of direct payments to the taxing authority or insurer to the extent of the
amount required to be impounded only, the amounts required to be impounded on a
periodic basis in accordance with the beneficiary's requirements, which amounts
shall not exceed the amount of Taxes or insurance premiums due for the Premises.
Landlord shall impound such amounts received from Tenant in accordance with the
requirements of the beneficiary.

          8.4    General.  During any partial tax fiscal year(s) within the
                 -------
Lease Term, Taxes shall be prorated according to the ratio which the number of
days Tenant occupies the Premises during such year bears to three hundred sixty-
five (365); provided, for the first Lease Year any Taxes and any increase in
Taxes resulting

                                    - 12 -
<PAGE>

from Landlord's Improvements or Tenant's Improvements shall be prorated from the
Rent Commencement Date to the next June 30. Promptly following request by
Landlord, Tenant shall furnish to Landlord proof satisfactory to Landlord
evidencing payment of Taxes. If by law any Tax is payable or may, at the option
of the taxpayer, be paid in installments, Tenant may, whether or not interest
shall accrue on the unpaid balance thereof, pay the same, and any accrued
interest on any unpaid balance thereof, in installments as each installment
becomes due and payable, but in any event, before any fine, penalty, interest or
cost may be added thereto for non-payment of any installment or interest.

     9.   Insurance.
          ---------

          9.1    Tenant's Insurance Coverage. Commencing on the Lease
                 ---------------------------
Commencement Date and continuing throughout the Lease Term, Tenant shall, during
the Lease Term, at Tenant's sole cost and expense, procure and keep in force the
following insurance:

                 (a)  "All risk" property, fire, extended coverage, and special
extended insurance (including without limitation vandalism, malicious mischief,
and inflation endorsement, an endorsement providing coverage for any increased
cost by reason of any ordinance or law, sprinkler leakage endorsement, and
boiler and machinery coverage) on the Premises, including without limitations
Landlord's Improvements, Tenant's Improvements, and all equipment, trade
fixtures, inventory, fixtures and personal property located on or in the
Premises, including any alterations or fixtures hereinafter constructed or
installed by Tenant on the Premises. Such insurance shall be in the amount of
the full replacement value of the aggregate of the foregoing, as the same may
from time to time increase as a result of inflation or otherwise;

                 (b)  Full coverage plate glass insurance;

                 (c)  Comprehensive general liability insurance protecting
against any and all claims for personal injury, death, property damage, or other
liabilities related to the condition, use or occupancy of the Premises, except
to the extent such claim arises from Landlord's negligence or misconduct, or to
Tenant's operations on the Premises, with a combined single limit of not less
than Five Million Dollars ($5,000,000) , and including a standard ISO extended
liability endorsement; and

                 (d)  Such other insurance as required by law, including without
limitation, worker's compensation insurance.

          9.2    Form of Liability Insurance. Tenant's liability insurance shall
                 ---------------------------
be primary and not contributing to any insurance available to Landlord, and,
except to the extent arising from Landlord's negligence or intentional
misconduct, Landlord's insurance (if any) shall be in excess thereto. The
liability insurance policy maintained by Tenant shall specifically insure

                                    - 13 -
<PAGE>

Tenant's performance of the indemnity agreement contained below, although
Tenant's indemnity obligations shall not be limited to the amount of any
insurance required of or carried by Tenant under this Section. The preceding
notwithstanding, so long as Applied Materials, Inc. is the party in occupancy of
the Premises, Tenant shall not be required to specifically insure its
performance of Tenant's indemnity obligations, but the lack of insurance shall
in no way limit Tenant's indemnity obligations. The limits specified above are
the minimum amounts required by Landlord, and may be revised by Landlord in the
event Tenant gives notice of exercise of its option to extend the term of this
Lease; provided, however, within thirty (30) days after receiving notice of such
exercise, Landlord shall notify Tenant of the minimum amount of insurance
required of Tenant during the Extended Term, which shall not exceed, the level
of coverage commonly carried by similar businesses in similar facilities.

          9.3    Form of Policies in General. All insurance policies required
                 ---------------------------
under Section 9.1, except as provided in paragraph 9.1(c), shall include
      -----------
Landlord and the beneficiary or mortgagee of any deed of trust or mortgage
affecting the Premises as additional insureds, and shall provide that such
parties may, although additional insureds, recover for any loss suffered by
reason of Tenant's negligence. All policies provided for in Section 9.1 shall be
                                                            -----------
with companies which have not less than an A Class VII rating. Certificates of
insurance evidencing the policies provided for herein shall be delivered to
Landlord prior to the Commencement Date. Within fifteen (15) days after request
from Landlord, Tenant shall deliver to Landlord information reasonably requested
with regard to the insurance policies required hereunder. All policies provided
for in Section 9.1 shall certify that the policy may not be canceled or altered
       -----------
without thirty (30) days prior written notice to Landlord and to any beneficiary
or mortgagee of a deed of trust or mortgage affecting the Premises, and shall
contain the insurer's written obligation to notify Landlord, in writing, of any
delinquency in premium payments and at least thirty (30) days prior to any
cancellation or material modification of any policy.

          9.4    Landlord's Liability Insurance Coverage. Landlord may, during
                 ---------------------------------------
the Lease Term, procure and keep in force a policy of comprehensive general
liability insurance protecting against any and all claims for personal injury,
death, property damage, or other liabilities related to the condition of the
Premises or Landlord's activities on the Premises to the extent such claim
arises from Landlord's negligence or intentional misconduct. The policy shall
have a combined single limit of Five Million Dollars ($5,000,000) and include a
standard ISO extended liability endorsement. The liability insurance policy may
specifically insure Landlord's performance or the indemnity agreement contained
below, although Landlord's indemnity obligations shall not be limited to the
amount of any insurance required of or carried by Landlord under this section.
The limits specified above shall be revised to the extent that the amount
required of Tenant under

                                    - 14 -
<PAGE>

Section 9.1(c) should be increased by Landlord. The premium for such insurance
--------------
shall be a property expense which Landlord may bill to Tenant annually and shall
be due within fifteen (15) days after invoice therefor. The premium -for such
liability insurance shall be subject to the provisions of Section 8.3 and shall
                                                          -----------
be prorated for partial years in the same
manner as Taxes under Section 8.4.
                      -----------

          9.5    Right of Landlord to Obtain Insurance. In the ever Tenant fails
                 -------------------------------------
to obtain, pay for and maintain any insurance required herein, Landlord may, but
shall not be obligated to, obtain an maintain such insurance coverage. All
premiums paid by Landlord shall be deemed Additional Rent hereunder, and shall
be paid by Tenant to Landlord upon demand. In addition, Landlord may recover
from Tenant, and Tenant agrees to pay as Additional Rent to Landlord, any and
all reasonable expenses (including attorneys' fees) and damages which Landlord
may have sustained by reason of the failure of Tenant to obtain and maintain
such insurance, it being expressly declared that the expenses and damages of
Landlord shall not be limited to the amount of premiums thereon; or

          9.6    Waiver of Subrogation Rights. Landlord and Tenant each, on
                 ----------------------------
behalf of itself and all persons and parties claiming under or through it,
including without limitation its insurance carrier (s) , waive any right of
recovery or claim against the other for any damage to or destruction of any
property located in or about the Premises which results from or arises out of
any casualty or event insured by any insurance policy carried by such waiving
party, regardless of the cause or origin of such casualty or event, including
without limitation, the negligence of Tenant or Landlord. Both parties shall
obtain a waiver of subrogation rights from their insurers providing insurance
whereby such insurers waive their entire right of recovery against the other
party or its insurers for loss or damage arising out of or incident to any
insured perils, whether due to the negligence of the Landlord, Tenant or their
agents and regardless of cause or origin.

     10.  Indemnity and Exculpation.
          -------------------------

          10.1   Indemnification of Landlord. Tenant shall defend, indemnify,
                 ---------------------------
and hold Landlord harmless (except for Landlord's negligence or misconduct and
then only to the extent that insurance actually carried or required to be
carried pursuant to this Lease does not cover any loss) from and against any and
all obligations, losses, costs, expenses, claims, demands, attorneys' fees,
investigation costs or liabilities on account of, or arising out of the use,
condition or occupancy of the Premises or any act or omission to act of Tenant
or Tenant's agents. It is understood that Tenant is and shall be in control and
possession of the Premises and that Landlord shall in no event be responsible or
liable for any injury or damage to any property of Tenant or any other person or
for damage or injury to any person whatsoever, happening on, in, about, or in
connection with the Premises, or for any injury or damage to the Premises or any
part thereof unless caused by

                                    - 15 -
<PAGE>

Landlord's negligence or misconduct. The provisions of this Lease permitting
Landlord to enter and inspect the Premises are for the purpose of enabling
Landlord to become informed as to whether Tenant is complying with the terms of
this Lease, and Landlord shall be under no duty to enter, inspect or to perform
any of Tenant's covenants set forth in this Lease. Tenant shall further
indemnify, defend and hold harmless Landlord from and against any and all claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease. The provisions of
this Section shall survive Lease Termination with respect to any damage injury
or death occurring prior to such termination.

          10.2   Landlord as Party Defendant. If, by reason of Tenant's or
                 ---------------------------
Tenant's agent's act or omission or alleged act ox omission, Landlord is made a
party defendant concerning this Lease or the Premises, Tenant shall hold
harmless and indemnify Landlord for all liability or claims of liability
including all damages, costs and attorneys, fees.

          10.3   Waiver of Claims. Landlord shall not be liable to Tenant, and
                 ----------------
Tenant waives all claims against Landlord, for injury or death to any person
(including without limitation Tenant and Tenant's agents) or for damage or loss
of use of any property (including without limitation Tenant's fixtures,
equipment, leasehold improvements, inventory and personal property) by and from
all causes, including without limitation, any defect in the

                                    - 15A -
<PAGE>

Premises and/or any damage or injury resulting from fire, steam, electricity,
gas, water or rain which may leak or flow from or into any part of the Premises,
or from breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing air conditioning or lighting fixtures, whether the
damage or injury results from conditions arising in, upon, or about the Premise
or from other sources. Tenant shall immediately notify Landlord writing of any
known defect in the Premises. The provision of this Section shall not apply to
any injury or death to any person caused by Landlord's misconduct or negligence.

          10.4   Landlord Indemnity. Landlord shall defend indemnify, and hold
                 ------------------
Tenant harmless (except for Tenant's negligence or misconduct and then only to
the extent that insurance actually carried or required to be carried pursuant to
this Lease does not cover any loss) from and against any and all obligations,
losses, costs, expenses, claims, demands, attorneys' fees, investigation costs
or liabilities on account of any bodily injury or damage to property of third
parties, to the extent such bodily injury results from Landlord's negligence or
willful misconduct with regard to the Premises.

     11.  Damage or Destruction.
          ---------------------

          11.1   Landlord's Election. Subject to the provisions of Section 11.4,
                 -------------------
if the Premises are damaged or destroyed in whole or in part from any cause
(except condemnation), Landlord shall cause the Premises to be rebuilt or
restored (to their condition prior to such damage or destruction). If Landlord
elects to rebuild or restore the Premises, the proceeds of the insurance
policies, maintained pursuant to Sections 9.1(a) and 9.1(c) received by Landlord
                                 --------------------------
and/or Tenant shall be paid to Landlord to be applied against the cost of
rebuilding or restoring. Such insurance proceeds payable to Landlord above shall
not include insurance proceeds from policies maintained on Tenant's Personal
Property, as defined in Section 14.3, located in the Premises.
                        ------------

          11.2   Insufficient Proceeds. In the event the insurance proceeds
                 ---------------------
payable to Landlord are insufficient to rebuild or restore the Premises, and
Landlord elects not to pay the difference between the insurance proceeds payable
to Landlord and the estimated cost of rebuilding or restoring the Premises (the
"Insurance Deficit Amount"), then Landlord shall notify Tenant of the Insurance
Deficit Amount and of Landlord's election not to pay the same. Within ten (10)
days after Tenant receives from Landlord notice of the Insurance Deficit Amount
and of Landlord's election not to pay the same, Tenant shall notify Landlord in
writing of Tenant's election either (i) to terminate this Lease, in which case
this Lease shall terminate as of the date of the event of damage or destruction,
or (ii) to agree to pay such Insurance Deficit Amount, in which case Tenant
shall pay to Landlord such Insurance Deficit Amount in cash, no later than
thirty (30) days following receipt of Landlord's written billing statement,
which shall be accompanied by

                                    - 16 -
<PAGE>

copies of invoices, vouchers, statements, affidavits and/or other documents
received by Landlord from the party requesting the payments covered by such
statement. If Tenant does not deliver such notice within such ten (10) day
period, this Lease shall terminate as of the date of the event of damage or
destruction. As used in this Section, the cost of rebuilding or restoring shall
include, without limitation: all architectural and engineering expenses;
concrete, welding and other testing expenses; costs of demolition; costs of all
building and other permits, inspection fees, filing and recording costs;
Landlord's contractor's price for such demolition, construction and
reconstruction.

          11.3   Adjustment of Insurance Deficit Amount. If the estimated cost
                 --------------------------------------
to rebuild or restore the Premises exceeds the insurance proceeds and Tenant
elects to pay the Insurance Deficit Amount, and if the actual cost of rebuilding
or restoring exceeds the estimated cost of such work, Tenant shall pay the
difference to Landlord in cash upon notification by Landlord of the final cost.
If the cost of rebuilding or restoring is less than the estimated cost of such
work, Tenant shall be entitled to a refund of the difference upon completion of
the rebuilding or restoring and determination of final cost, provided, in no
event shall the amount exceed any Insurance Deficit Amount paid by Tenant to
Landlord. Tenant shall have the right to verify the actual cost of rebuilding or
restoring and inspect Landlord's books and records relating to such cost at all
reasonable times after written request to Landlord.

          11.4   Termination of Lease. In the event the Lease terminates
                 --------------------
pursuant to any provisions of this Section 11, then all insurance proceeds
payable pursuant to the policies maintained under Sections 9.1(a) and 9.1(c)
(other than any portion applicable to Tenant Improvements paid by Tenant and
required to be removed) shall be paid to any beneficiary or mortgagee under a
deed of trust or mortgage affecting the Premises, Landlord and Tenant, as their
interests appear. Such insurance proceeds payable to Landlord above shall not
include proceeds from policies maintained or Tenant's Personal Property located
in the Premises. Landlord and Tenant, each, shall have the right to terminate
this Lease following a damage or destruction as follows:

     (a)  Landlord shall have the right to terminate this Lease if: (i) during
the last twelve (12) months of the Lease Term the Building is damaged as a
result of fire or any other insured casualty so that the cost to repair exceeds
five percent (5%) of the then replacement cost of the Building; provided,
Landlord may not terminate this Lease pursuant to this clause if Tenant, within
thirty (30) days following the damage, exercises any option it then has under
this Lease to extend the Lease Term; or (ii) the Building is damaged at any time
by a casualty not insured against; or (iii) seventy-five percent (75%) or more
of the total floor area of the Building is damaged or destroyed by any casualty;
or (iv) the

                                    - 17 -
<PAGE>

insurance proceeds available for rebuilding are not sufficient to pay for the
repair and reconstruction.

     (b)  Tenant shall have the right to terminate this Lease if, in the
reasonable opinion of Landlord's contractor, the damage or destruction cannot be
repaired within one hundred fifty (150) following the date of damage or
destruction.

          11.5   Exercise of Election to Terminate Lease. If an event described
                 ---------------------------------------
in Section 11 occurs and results in a right in either party to terminate this
   ----------
Lease, the party who has the right to terminate this Lease may exercise its
right only by delivering to the other party written notice of termination within
sixty (60) days following the damage or destruction. The failure of a party to
deliver a notice of termination within the sixty (60) day period shall be deemed
a waiver of the right of termination. The foregoing notwithstanding, any
termination of the Lease as a result of insufficient insurance proceeds shall be
governed by Section 11.2.
            ------------

          11.6   Waiver of Civil Code Remedies. Tenant hereby expressly waives
                 -----------------------------
any rights to terminate this Lease upon damage or destruction to the Premises
except as provided in Section 11.2 above, including without limitation any
                      ------------
rights pursuant to the provisions of Section 1932, Subsection 2 and Section
1933, Subsection 4, of the California Civil Code, as amended from time to time,
and the provisions of any similar law hereinafter enacted.

          11.7   No Abatement of Rentals. The Rentals and other charges due
                 -----------------------
under this Lease shall not be reduced or abated by reason of any damage or
destruction to the Premises, and Landlord shall be entitled to all proceeds of
the insurance maintained pursuant to Section 9.1(b). Tenant shall have no claim
                                     --------------
against Landlord for compensation for inconvenience or loss of business during
any period of repair or reconstruction.

          11.8   Liability for Personal Property. In no event shall Landlord
                 -------------------------------
have any liability for, nor shall it be required to repair or restore, any
injury or damage to Tenant's Personal Property, or any other property installed
or constructed in or upon the Premises by Tenant or at the expense of Tenant
including alterations to the Premises made by Tenant.

     12.  Mechanic's Liens.
          ----------------

          12.1   Payment by Tenant for Services. Except for Landlord's
                 ------------------------------
obligation to pay for Landlord's Improvements and the Tenant Improvement
Allowance, Tenant shall pay for all labor and services performed for, and all
materials used by or furnished to, Tenant, Tenant's agents, or any contractor
employed by Tenant with respect to the Premises at any time during the Lease
Term. Tenant shall give notice to Landlord in writing ten (10) days prior to
employing any laborer or contractor to perform services related to

                                    - 18 -
<PAGE>

(or receiving materials for use upon) the Premises, and prior to the
commencement of any work of improvement on the Premises. Landlord shall have the
right, at all times, to post and keep posted on the Premises, any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord and the Premises, and any other party having an interest
therein from mechanics' and materialmen's liens, including without limitation a
notice of nonresponsibility.

          12.2   Premises Free From Liens. Tenant shall keep Premises free from
                 ------------------------
any liens arising out of work performed, materials furnished, or obligations
incurred by Tenant or Tenant's agents. Tenant shall indemnify, hold harmless and
defend Landlord from any liens or encumbrances (including all costs,
liabilities, and attorneys' fees with respect thereto) arising out of any work
performed or materials furnished by or at the direction of Tenant or Tenant's
agents. Should any claims of lien be filed against, or any action be commenced
affecting the Premises and/or Tenant's interest in the Premises, Tenant shall
give Landlord written notice of such lien or action within three (3) days after
Tenant receives notice of the filing of the lien or the commencement of the
action. In the event that Tenant shall not, within twenty (20) days following
the imposition of any such lien, cause such lien to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation, to
cause the same to be released by posting a proper bond. All such sums paid by
Landlord and all expenses incurred by Landlord in connection therewith,
including attorneys' fees and costs, shall be payable to Landlord by Tenant as
Additional Rent on demand.

     13.  Repairs and Maintenance.
          -----------------------

          13.1   Landlord's Maintenance Obligations. Subject to the provisions
                 ----------------------------------
of Section 11, Landlord at its expense, shall keep and maintain in good order,
   ----------
conditions and repair the Building's load bearing walls, roof structure (but not
roof covering), the foundation and underground utility lines from the property
line to the point of entry to the Building. If at any time during the Lease Term
it is determined that the Building shell or other Landlord's Improvements were
not constructed in compliance with all applicable laws in effect as of the
Commencement Date, Landlord shall promptly correct any such noncompliance, as
required by governmental authorities having jurisdiction over the Premises, at
Landlord's sole cost without reimbursement by Tenant. In addition, Landlord
shall correct at Landlord's sole expense (i) any latent defects in the non-
structural portions of the Building installed by Landlord or in the parking
areas, landscaped areas, or other facilities provided by Landlord outside the
Building, which are discovered within twelve (12) months after delivery of
possession of the Premises to Tenant and (ii) any latent defects in any
structural elements contained in Landlord's Improvements. Landlord shall have no
obligation to make repairs until a reasonable time

                                    - 19 -
<PAGE>

after receipt of written notice from Tenant of the need for such repairs.
Landlord shall have no maintenance, repair or replacement obligations whatsoever
with respect to the Premises except as set forth in this Section.

          13.2   Tenant's Maintenance Obligations. Subject to the provisions of
                 --------------------------------
Section 10 and Section 13.1, Tenant, at its expense shall keep and maintain in
----------     ------------
good and sanitary order, condition, and repair the entire Premises, including,
without limitation , roofing, interior and exterior walls, floors, ceilings,
doors, windows, (excluding only load bearing walls, foundation, roof structure
and underground utility lines from the property line the point of entry to the
Building, unless damage thereto is caused by Tenant or Tenant's agent, in which
event Tenant shall pay to Landlord, as Additional Rent, Landlord's cost and
expense to repair said damage, which obligation of Tenant hereunder shall
survive Lease Termination) gas, steam and electrical fittings, water, sewer and
gas connections, plumbing, glass, electrical wiring, switches fixtures, signs,
heating, ventilating and air conditioning equipment, skylights, sidewalks,
landscaping and paving. Tenant shall repair any damage to the glass "curtain
wall", except for repair required as a result of defective construction or
materials. Tenant agrees to hire and enter into a written contract with a
licensed contractor engaged in the business of maintaining air conditioning,
ventilating and heating equipment to perform regular (not less than quarterly)
and customary maintenance service and, if necessary, to repair or replace such
equipment. Tenant shall deliver a copy of such contract to Landlord no later
than the Commencement Date. Upon request from Landlord, Tenant shall deliver to
Landlord copies of all HVAC service and repair records. If Tenant fails to
provide adequate maintenance to the heating, ventilating and air conditioning
equipment and systems, Landlord may employ an air conditioning, ventilating and
heating maintenance firm to maintain the same and Tenant shall reimburse
Landlord, as Additional Rent, for any and all costs thereof. Tenant shall, at
its sole cost and expense, keep and maintain the landscaping of the grounds of
the Premises in an attractive, slightly and well-kept condition. A copy of
Tenant's written contract for landscape maintenance services shall be delivered
to Landlord within five (5) days after Landlord's request. In the event Tenant
fails to make any repairs or maintenance required of Tenant pursuant to this
Section within five (5) days of written notice by Landlord, Landlord, in
addition to all other remedies available hereunder or by law, and without
waiving any alternative remedies, may enter into the Premises and perform such
repairs or maintenance, in which event Tenant shall reimburse Landlord as
Additional Rent for the cost of such maintenance or repairs on the next date
upon which Base Rent becomes due; Landlord shall have no liability to Tenant for
any damage, inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such repairs or maintenance. The term
"repair" as used herein shall include and mean painting, replacements,
restorations, and/or renewals.

                                    - 20 -
<PAGE>

          (a)  If Tenant reasonably determines that the roof covering of the
Premises cannot be adequately repaired (and the damage has not been caused by
Tenant) and requires total replacement, Tenant shall notify Landlord and the
parties shall consult to determine the most appropriate manner to replace the
roof. The roof replacement shall be treated as a capital improvement, the cost
of which shall be paid initially by Landlord. The cost of the roof replacement
shall be amortized over the useful life of the roof, according to generally
accepted accounting principles using straight line amortization and an interest
ratio equal to ten percent (10%), and Tenant shall reimburse Landlord monthly as
additional rent for the monthly amortized cost of the roof.

          13.3   Waiver of Civil Code Remedies. Tenant waives the benefits of
                 -----------------------------
any statute now or hereafter in effect (including without limitation the
provisions of subsection 1 of Section 1932 and Sections 1941 and 1942 of the
Civil Code of California) which would otherwise afford Tenant the right to make
repairs at Landlord's expense (or to deduct the cost of such repairs from
Rentals due hereunder) or to terminate this Lease because of Landlord's failure
to keep the Premises in good order, condition and repair. Tenant acknowledges
and agrees that Tenant's obligation to repair and maintain the Premises is part
of the consideration for Landlord's renting the Premises to Tenant.

          13.4   Surrender of Premises. Upon Lease Termination, Tenant shall
                 ---------------------
surrender the Premises to Landlord in good condition, normal wear and tear
excepted, and with (i) interior walls cleaned and repaired, (ii) all carpets
cleaned and in good condition, (iii) all air conditioning, ventilating and
heating equipment inspected and in good repair, (iv) all exterior walls, drop
ceilings, paving, concrete, landscaping, lighting, and roofing in good condition
normal wear and tear excepted, and all floors cleaned and waxed all to the
reasonable satisfaction of Landlord. Upon demand Tenant shall reimburse Landlord
for the cost of any and all damage other than normal wear and tear to the
Premises. If the Premises are not surrendered at the Lease Termination as
required by this Section, Tenant shall indemnify Landlord against loss or
liability resulting from Tenant's failure to comply with the provisions of this
Section, including, without limitation, any losses suffered by Landlord due to
lost opportunities to lease the Premises to succeeding tenants. Landlord may,
without abatement of Rentals, enter the Premises for alteration, renovation, or
decoration during the last thirty (30) days of the Lease Term if Tenant has
removed substantially all of Tenant's, property. Not later than ninety (90) days
prior to Lease Termination, Tenant shall arrange with Landlord a mutually
convenient date and time for a "pre-termination" inspection and Tenant and
Landlord, together, shall inspect the Premises and Landlord shall indicate, at
that time, all alterations, improvements or additions made by Tenant that are to
be removed by Tenant prior to Lease Termination. Further, Landlord shall
indicate any other items that Landlord believes must be

                                    - 21 -
<PAGE>

repaired, replaced or restored, pursuant to the provisions of this Lease, by
Tenant prior to Lease Termination. Landlord's failure to include any item on any
list provided to Tenant at or following the pre-termination inspection shall not
be deemed a waiver of Landlord's right to require full compliance with all Lease
provisions regarding Lease Termination and surrender of Premises.

     14.  Alterations and Additions.
          -------------------------

          14.1   Prohibitions in General. Without first obtaining the prior
                 -----------------------
written consent of Landlord, which consent shall not unreasonably withheld,
Tenant shall not demolish any portion of the Premises, or (i) make non-
structural alterations, additions changes, repairs, enlargements or improvements
to the Premises or any part thereof costing more than Fifty Thousand Dollars
($50,000) or (ii) make any structural alterations to the Premises regardless of
cost or (iii) make any additions or alterations to the heating, ventilating and
air conditioning (HVAC) , plumbing or electrical systems, regardless of the
cost. Landlord may impose, as a condition to Landlord's consent, such
requirements as Landlord may reasonably deem necessary, including without
limitation: approval of plans for the work; the requirement that Tenant post a
completion bond in an amount and form satisfactory to Landlord; that the
contractor be licensed; and the requirement that Tenant reimburse Landlord for
Landlord's actual costs incurred in reviewing any proposed alteration, addition,
change, enlargement or improvement, whether or not Landlord's consent is
granted, and a requirement that Tenant remove the alteration on or prior to
Lease Termination. Tenant shall not make or permit to be made any alterations,
additions, changes, enlargements or improvements to the Premises without
acquiring and complying with the conditions of all permits required for such
work by any governmental authority having jurisdiction thereof, at Tenant's sole
cost and expense.

          14.2   Surrender of Alterations and Additions. All alterations,
                 --------------------------------------
improvements or additions made to the Premises by Tenant shall at Lease
Termination become the property of Landlord and remain upon and be surrendered
with the Premises; provided, at Landlord's option, Landlord may require Tenant
to remove prior to the Lease Termination, some or all, alterations, improvements
or additions made to the Premises by Tenant, whether or not consent was
required, or given, to such alterations, improvements or additions. Landlord
shall inform Tenant whether Landlord will require removal of any requested
alterations when Tenant requests consent to such alterations. Tenant shall not
be required to remove any Tenant Improvements described in Tenant's Approved
Plans (as defined in Exhibit B, Section 3(a)(iv)), except for any portions that
                     ---------------------------
contain Hazardous Materials.

          14.3   Personal Property. The term "Personal Property" shall mean all
                 -----------------
personal property, trade fixtures, machinery, equipment, cabinetwork, furniture
and movable partitions. All

                                    - 22 -
<PAGE>

Personal Property owned by Tenant or installed by Tenant, at its expense, in the
Premises shall be and remain the property of Tenant and may be removed by Tenant
at any time during the Lease Term when Tenant is not in default hereunder. If
after Lease Termination Tenant fails to remove any of Tenant's Personal
Property, Landlord may deem the Personal Property abandoned and may dispose of
it as Landlord deems appropriate. If Landlord elects to remove from the Premises
such Personal Property, Tenant shall reimburse Landlord on demand for the cost
of removing and storing any of Tenant's Personal Property.

          14.4   Repair of Premises. Tenant shall, at its sole cost and expense,
                 ------------------
repair all damage to the Premises caused by Tenant's removal of any alterations,
improvements, additions or fixtures any Personal Property.

     15.  Fixtures. At Landlord's option, all fixtures, other than trade
          --------
fixtures, attached to the Premises shall be deemed to be a part of the realty
and the Premises. However, if Landlord elects not to consider such fixtures as a
part of the realty, Tenant shall remove any and all such fixtures prior to Lease
Termination. Tenant at its sole cost shall repair all damage to the Premises
caused by removal Tenant's fixtures, including without limitation repairing
floors and painting walls.

     16.  Subsurface. Landlord expressly reserves the right to use subsurface
          ----------
areas of the Land, including without limitation the right to enter the Premises
at all reasonable times with reasonable notice to perform such work in regard
thereto as Landlord in its sole discretion shall determine including, without
limitation installing and maintaining footings, supports and utilities and
conducting tests.

     17.  Assignment and Subletting.
          -------------------------

          17.1   Prohibitions in General. The term "Transfer" shall mean any
                 -----------------------
event pursuant to which Tenant (whether voluntarily, involuntarily, or by
operation of law) shall (i) assign, transfer, hypothecate, or encumber Tenant's
interest in this Lease or in the Premises, (ii) allow all or any part of the
Premises to be sublet, occupied, or used by any person or entity other than
Tenant, (iii) transfer any right appurtenant to this Lease or the Premises, (iv)
mortgage or encumber the Lease (or otherwise use the Lease as a security device)
in any manner, or (v) permit any person or entity to assume or succeed to any
interest of Tenant whatsoever in this Lease. Tenant shall not make, or permit,
any Transfer, without Landlord's prior written consent in each instance, which
consent may not be unreasonably withheld. Any Transfer without Landlord's
consent shall constitute a Default by Tenant and shall be voidable at Landlord's
option. Landlord's consent to any Transfer shall not constitute a waiver of the
provisions of this Section as to any subsequent Transfer nor a consent to any
subsequent Transfer. Landlord's -consent to any Transfer shall not release
Tenant from

                                    - 23 -
<PAGE>

Tenant's obligations under this Lease. The provisions of this
Section expressly apply to all successors, sublessees, assignees and transferees
of Tenant. In the event Landlord consents to a proposed Transfer, such Transfer
shall be valid and the Transferee shall have the right to take possession of the
Premises only if an executed counterpart of the assignment, sublease or other
document evidencing the Transfer is delivered to Landlord, and such transfer
document contains the same terms and conditions as stated in Tenant's notice
given to Landlord pursuant to Section 17.4.  No Transfer shall relieve Tenant
                              ------------
from any of Tenant's obligations under this Lease (to the extent such
obligations existed prior to any such amendment, modification, extension or
renewal) and Tenant shall remain obligated under this Lease notwithstanding any
amendments, modifications, extensions or renewals of this Lease or any sublease
made or entered into by such Transferee.

          17.2  Collection of Rent. Tenant irrevocably assigns to Landlord, as
                ------------------
security for Tenant's obligations under this Lease, all rent not otherwise
payable to Landlord by reason of any Transfer of all or any part of the Premises
as permitted by this Section. Landlord, as assignee of Tenant, or a receiver for
Tenant appointed on Landlord's application, may collect such rent and apply it
toward Tenant's obligations under this Lease, provided, however, that until the
occurrence of any Default by Tenant or except as provided by the provisions of
Section 19.1, Tenant shall have the right to collect such rent.
------------

          17.3  Assumption Agreement. As a condition to Landlord's consent to
                --------------------
any Transfer, Tenant and Tenant's assignee, sublessee of all the Premises,
encumbrancer, hypothecatee, or transferee (collectively "Transferee"), shall
execute a written assumption agreement, in a form approved by Landlord, which
Agreement shall include a provision that Tenant's Transferee shall expressly
assume all obligations of Tenant under this Lease, and be and remain jointly and
severally liable with Tenant for the performance of all conditions, covenants,
and obligations under this Lease from the effective date of the Transfer of
Tenant's interest in this Lease.

          17.4  Request for Transfer. Tenant shall give Landlord at least thirty
                --------------------
(30) days prior written notice of any desired Transfer and of the proposed terms
of such Transfer, including but no limited to: the name and legal composition of
the proposed Transferee; audited financial statements of the proposed Transferee
prepared in accordance with generally accepted accounting principles for the
three (3) years preceding the proposed effective date of the Transfer; the
nature of the proposed Transferee's, business to be carried on in the Premises;
the payment to be made or other consideration to be given on account of the
Transfer; a current financial statement of Tenant; a detailed description of any
Hazardous Materials to be used on the Premises by the Proposed Transferee, and
other information requested by Landlord, all in sufficient detail to enable
Landlord to evaluate the proposed Transfer and the prospective Transferee.
Tenant's notice shall not

                                    - 24 -
<PAGE>

be deemed to have been served or given until such time as Tenant has provided
Landlord with all information reasonably requested Landlord pursuant to this
Section. Tenant shall immediately notify Landlord of any modification to the
proposed terms of Transfer.

          17.5  Bonus Value. In the event of any Transfer, Tenant shall be
                -----------
entitled to twenty-five percent (25%) of the increased rent or other
consideration in excess of the Sublease Rent Add-on (defined below) and the
Landlord shall be entitled to Sublease Rent Add-on and seventy-five percent
(75%) of all consideration in excess of that amount. The Sublease Rent Add-on
shall be equal to Ten Cents ($0.10) per square foot per month, increased during
the Term in the same percentage as Base Rent is increased pursuant to Section
                                                                      -------
5.2.
---

          17.6  Landlord's Rights. In the event that Tenant seeks to make any
                -----------------
Transfer of its interest in this Lease or the Premises, Landlord shall have the
right to withhold its consent to such Transfer, as permitted pursuant to Section
                                                                         -------
17.1, or to exercise of the rights set forth in Sections (a) and (b) below. The
----
following rights are in addition to Landlord's right to withhold its consent to
any Transfer, and may be exercised by Landlord in its sole discretion without
limiting Landlord in the exercise of any other right or remedy at law or in
equity which Landlord may have by reason of such Transfer:

               (a)  Terminate Lease. Landlord may terminate this Lease and
                    ---------------
release Tenant from any further liability hereunder by sending Tenant written
notice of such termination within forty-five (45) days after receipt of Tenant's
request for consent; provided, however, that Tenant may withdraw its notice of
intent by written notice to Landlord at any time within ten (10) days after
receipt by Tenant of Landlord's notice of termination, in which event this Lease
shall continue in full force and effect. If Landlord elects to terminate this
Lease and if Tenant does not withdraw its notice of intent, Tenant shall-
surrender the Premises, pursuant to the terms of this Lease, on the date of the
intended Transfer, which date shall have been set forth in Tenant's notice to
Landlord.

               (b)  Acquisition of Tenant's Interest. Landlord may within forty-
                    --------------------------------
five (45) days after notice of intent to Transfer is deemed given by Tenant
pursuant to Section 17.4 above, acquire the interest in this Lease and the
Premises that Tenant proposes to Transfer, on the same terns and conditions as
the proposed Transfer.

          17.7  Tenant's Rights. The provisions of Section 17.2 notwithstanding,
                ---------------                    ------------
in the event of Landlord's termination of this Lease pursuant to Section
                                                                 -------
17.6(a), Tenant shall be entitled to recover from Landlord any leasing
-------
commission paid or other reasonable costs incurred by Tenant in connection with
the

                                    - 25 -
<PAGE>

preparation by Tenant of the Premises for occupancy by a Transferee.

          17.8  Reasonable Provisions. Tenant expressly agrees that the
                ---------------------
provisions of this Section are not unreasonable standards or conditions for
purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from
time to time.

          17.9  Exceptions. Notwithstanding anything contained the contrary in
                ----------
the foregoing:

               (a)  Assignment. Notwithstanding anything in Section 17 to the
                    ----------                              ----------
contrary, Tenant may transfer this Lease to any affiliate of Tenant. The
provisions of Sections 17.2 through 17.4, inclusive shall be applicable to any
              -------------         ----
such proposed assignment to a subsidiary but the provisions of Section 17.5 and
                                                               ------------
Sections 17.6(a) or 17.7(b), shall not be applicable thereto. No such assignment
----------------    -------
shall relieve Tenant from any of Tenant's obligation under this Lease and Tenant
shall remain obligated under this Lease notwithstanding any amendments,
modifications, extensions, or renewals of this Lease or any subleases made or
entered into by such assignee whether or not consented to by Tenant. If this
Lease is assigned to a subsidiary of Tenant, any transfer of the capital stock
of such subsidiary effectuating a change in control of such subsidiary shall be
deemed a Transfer and all of the provisions of this Section 17 shall be
                                                    ----------
applicable thereto unless such stock is publicly traded.

     18.  Subordination; Lender Approval; Attornment; Estoppel Certificates;
          ------------------------------------------------------------------
Financial Statements.
--------------------

          18.1  Subordination. This Lease, at Landlord's option, shall be
                -------------
subject and subordinate the lien of any mortgages or deeds of trust (including
all advances thereunder, renewals, replacements, modifications, supplements,
consolidations, and extensions thereof) in any amount(s) whatsoever now or
hereafter placed on or against (i) the Premises, or (ii) Landlord's interest or
estate therein, without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination;
provided if Landlord elects to cause this Lease to be subordinate to the lien of
any mortgages or deed of trust, nevertheless Tenant's rights under the Lease
shall be recognized. If any mortgagee, beneficiary or lessor shall elect to have
this Lease prior to the lien of its mortgage, or deed of trust, and shall give
written notice thereof to Tenant, this lease, shall be deemed prior to such
mortgage, deed of trust or lease, whether this Lease is dated prior or
subsequent to the date of such mortgage, deed of trust, or lease or the date of
the recording thereof.

          18.2  Subordination Agreements. Tenant shall execute and deliver upon
                ------------------------
demand, without charge, such further instruments evidencing subordination of
this Lease to the lien of any mortgages

                                    - 26 -
<PAGE>

or deeds of trust affecting the Premises as may be required by Landlord provided
that such mortgagee or beneficiary under such mortgage or deed of trust agrees
in writing that this Lease shall not be terminated and that Tenant's rights
under the Lease shall be recognized in the event of any foreclosure or lease
termination if Tenant is not in default under this Lease at the time of such
foreclosure or termination. Failure of Tenant to execute instruments evidencing
subordination of this Lease shall constitute a Default by Tenant hereunder.

          18.3 Attornment. In the event of foreclosure or the exercise of the
               ----------
power of sale under any mortgage or deed of trust made by Landlord and covering
the Premises, Tenant shall attorn to the lessor or purchaser upon any such
foreclosure or sale recognize such lessor or purchaser as the Landlord under
Lease.

          18.4 Estoppel Certificates and Financial Statements.
               ----------------------------------------------

               (a) Delivery by Tenant. Tenant, within fifteen (15) days
                   ------------------
following request by Landlord and without charge, shall execute and deliver to
Landlord any and all documents requested by Landlord in connection with the sale
or financing of the Premises or any lender making a loan affecting the Premises,
including without limitation a certificate in substantially the form attached
hereto as Exhibit E, estoppel certificates, and current published financial
          ---------
statements. Landlord may require that any estoppel certificates shall (i)
certify that this Lease is unmodified and in full force and effect (or, if
modified, state the nature of such modification and certify that this Lease, as
so modified, is in full force and effect) and has not been assigned, (ii)
certify the date to which Rentals are paid in advance, if any, (iii) acknowledge
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specify such defaults if claimed, (iv) evidence the
status of this Lease as may be required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage covering the Premises or a
purchaser of the Premises from Landlord, (v) warrant that in the event any
beneficiary of any security instrument encumbering the Premises forecloses on
the security instrument or sells the Premises pursuant to any power of sale
contained in such security instrument, such beneficiary shall not be liable for
the Security Deposit unless delivered to such Beneficiary, (vi) certify the date
Tenant entered into occupancy of the Premises and the Termination Date, (vii)
certify that to Tenant's knowledge, all Landlord's Improvements have been
satisfactorily completed, or if not, specify any deficiencies known to Tenant
with Landlord's Improvements. Any such estoppel certificate may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.

          (b) Failure to Deliver. Tenant's failure to deliver an estoppel
              ------------------
certificate as required pursuant to Section 18.4(a) shall be conclusive upon
                                    ---------------
Tenant that (i) this Lease

                                    - 27 -
<PAGE>

is in full force and effect, without modification except as may be represented
by Landlord, (ii) there are then no uncured defaults in Landlord's performance,
(iii) no Rentals have been paid in advance except those that are set forth in
this Lease, (iv) no beneficiary of any security instrument encumbering the
Premises shall be liable for the Security Deposit in the event of a foreclosure
or sale under such security instrument, and (v) Tenant has entered occupancy of
the Premises on such date as may be represented by Landlord and is open and
conducting business at the Premises.

     19.  Remedies Upon Default by Tenant.
          -------------------------------

          19.1 Events of Default. The term "Default by Tenant" shall mean the
               -----------------
occurrence of any of the following events:

               (a)    Failure by Tenant to pay within five (5) days after notice
from Landlord of nonpayment any Rentals due hereunder or any other payment due
hereunder;

               (b)    Commencement, and continuation for at least sixty (60)
days, of any case, action, or proceeding by, against, or concerning Tenant under
any federal or state bankruptcy, insolvency, or other debtor's relief law,
including without limitation, (i) a case under Title 11 of the United States
Code concerning Tenant, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action, or proceeding seeking Tenant's
financial reorganization or an arrangement with any of Tenant's creditors;

               (c)    Voluntary or involuntary appointment of a receiver,
trustee, keeper, or other person who takes possession for more than thirty days
of substantially all of Tenant's assets or of any asset used in Tenant's
business on the Premises, regardless of whether such appointment is as a result
of insolvency or any other cause;

               (d)    Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant available by law for the satisfaction of
judgment creditors;

               (e)    Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) the entity of Tenant, if Tenant is a
corporation or a partnership;

               (f)    Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ continues for a period of ten (10) days;

               (g)    Transfer or attempted Transfer of this Lease by Tenant
contrary to the provisions of Section 17;
                              ----------

               (h)    Failure by Tenant, after ten (10) days notice, to maintain
insurance in accordance with Section 9; or
                             ---------

                                    - 28 -
<PAGE>

                 (i)  Failure of Tenant, after ten (10) days notice, to deliver
a subordination agreement in accordance with the terms of Section 18.2 or to
                                                          ------------
deliver an estoppel certificate in accordance with the terms of Section 18.4; or
                                                                ------------
                 (j)  Failure by Tenant to perform any other term, covenant,
condition, warranty, or provision contained in this Lease other than those
Defaults set forth in Sections 18.1(a) through (j), inclusive, where such
failure continues for the period set forth in this Lease within which Tenant is
required to perform or refrain from acting, or if no such period is stated for a
period of thirty (30) days after notice from Landlord; except, however, if such
default is of such nature that Tenant cannot reasonably cure within said thirty
(30) day period, Tenant shall not be in Default if Tenant commences cure within
said thirty (30) day period and diligently and in good faith continues to
prosecute such cure to completion.

          19.2   Rights of Landlord Upon Tenant's Default. Upon any Default by
                 ----------------------------------------
Tenant, Landlord shall have the right to terminate this Lease and Tenant's right
to possession of the Premises by giving written notice of termination to Tenant,
and to recover from Tenant:

                 (a)  The worth at the time of award of the unpaid Rentals which
had been earned at the time of termination;

                 (b)  The worth at the time of award of the amount by which the
unpaid Rentals which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;

                 (c)  The worth at the time of award (computed by discounting at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent) of the amount by which the unpaid Rentals for the
balance of the Lease Term after the time of award exceeds the amount of such
rental loss that, Tenant proves could be reasonably avoided; and

                 (d)  Any other amounts necessary to compensate Landlord for
detriment proximately caused by the Default by Tenant or which in the ordinary
course of events would likely result.

                 (e)  The "worth at the time of award" of the amounts referred
to in subparagraphs (a) and (b) of this Section 19.2 is computed by allowing
                                        ------------
interest at an annual rate equal to the greater of: ten percent (10%) ; or five
percent (5%) plus the Federal Discount Rate of the Federal Reserve Bank of San
Francisco in effect as of the twenty-fifth (25th) day of the month immediately
preceding the Default by Tenant.

          19.3   Continuance of Lease. Upon Default by Tenant and unless and
                 --------------------
until Landlord elects to terminate this Lease pursuant

                                    - 29 -
<PAGE>

to Section 19.2, this Lease shall continue in effect after the Default by Tenant
   ------------
and Landlord may enforce all rights and remedies under this Lease, including
without limitation, the right to recover payment of Rentals as they become due.
Neither efforts by Landlord to mitigate damages caused by a Default by Tenant
nor the acceptance of any Rentals shall constitute a waiver by Landlord of any
of Landlord's rights or remedies, including the rights and remedies specified in
Section 19.2. The rights of Landlord under this Section shall in addition to all
other rights to which Landlord is entitled in accordance with Applicable Law.

     20.  Condemnation.
          ------------

          20.1   Definition of Terms.  For the purpose of this Lease the term:
                 -------------------

                 (a)  "Taking" means a taking of the Premises or damage related
to the exercise of the power of eminent domain includes a voluntary conveyance,
in lieu of court proceedings, to any agency, authority, public utility, persons
or corporate entity empowered to condemn property.

                 (b)  "Total Taking" means the Taking of the entire Premises or
so much of the Premises as to prevent or substantially impair the use thereof by
Tenant as reasonably determined by Tenant for the uses herein specified.

                 (c)  "Partial Taking" means the Taking of only a portion of the
Premises which does not constitute a Total Taking.

                 (d)  "Date of Taking" means the dare upon which title to the
Premises, or a portion thereof, passes to and vests the condemnor or the
effective date of any order for possession issued prior to the date title vests
in the condemnor.

                 (e)  "Award" means the amount of any award made, consideration
paid, or damages ordered as a result of a Taking.

                 (f)  "Temporary Taking" means the Taking of all or part of the
Premises for a temporary period ending prior to the expiration of the Lease
Term.

          20.2   Rights. The parties agree that in the event of a Taking all
                 ------
rights between them or in and to an Award shall be as set forth herein and
Tenant shall have no right to any Award except as set forth herein.

          20.3   Total Taking. In the event of a Total Taking during the Lease
                 ------------
Term;

                 (a)  The rights of Tenant under the Lease and the leasehold
estate of Tenant in and to the Premises shall cease and terminate as of the Date
of Taking;

                                    - 30 -
<PAGE>

                 (b)  Landlord shall refund to Tenant any prepaid but unearned
Rentals and the unused balance of the Security Deposit;

                 (c)  Tenant shall pay to Landlord any Rentals due Landlord
under the Lease, prorated as of the Date of Taking;

                 (d)  Tenant shall receive from the Award those portions of the
Award attributable to Tenant's trade fixtures and moving expenses of Tenant and
unamortized value of Tenant Improvements paid for by Tenant; and

                 (e)  The remainder of the Award shall be paid to and be the
property of Landlord.

          20.4   Partial Taking. In the event of a Partial Taking during the
                 --------------
term hereof:

                 (a)  The rights of Tenant under the Lease and leasehold estate
of Tenant in and to the portion of the Premises taken shall cease and terminate
as of the Date of Taking;

                 (b)  From and after the Date of Taking, the current Base Rent
shall be reduced in the proportion that the value of the portion of the Premises
taken bears to the total value of the Premises prior to the Taking. The value of
the portion of the Premises taken shall be the total amount of the Award, minus
any portion of the Award for consequential damages and minus any portion of the
Award attributable to the trade fixtures of Tenant;

                 (c)  Tenant shall receive from the Award those portions of the
Award attributable to Tenant's trade fixtures and the unamortized value of
Tenant Improvements paid for by Tenant; and

                 (d)  The remainder of the Award shall be paid to and be the
property of Landlord.

     Each party waives the provisions of California Code of Civil Procedure
Section 1265.130 allowing either party to Petition the Superior Court to
terminate this Lease in the event of a Partial Taking.

          20.5   Restoration Obligation. In the event of a Partial Taking,
                 ----------------------
Landlord shall promptly proceed to rebuild, repair and restore the remainder of
the Building and/or Improvements to a complete, independent and self-contained
architectural unit. However, Landlord shall contribute to the cost of
restoration an amount which shall not exceed the amount of any separate Award
made for consequential damage to the Building and/or Improvements and received
by Landlord. In the event there is no separate Award for consequential damage,
the same shall be fixed and settled by the agreement of the parties, and if
there is no such agreement, then by arbitration administered by and pursuant to
the then existing

                                    - 31 -
<PAGE>

rules of the American Arbitration Association.  The balance of such separate
Award or allocated amount not so used shall belong to and be the property of
Landlord.  In the event the Award received and paid to Landlord is insufficient
to rebuild or restore the Premises, either party may, upon notice to the other,
terminate this Lease.

          20.6   Temporary Taking.  In the event of a Temporary Taking:
                 ----------------

                 (a)  This Lease shall continue in full force and effect;

                 (b)  The Award shall be paid to Landlord;

                 (c)  Any Rentals which become due during the period of the
Temporary Taking shall be reduced by the amount of the Award received by
Landlord;

                 (d)  Any excess of the Award over the amount of Rentals which
become due during the period of the Temporary Taking shall be the property of
Landlord; and

                 (e)  If the Award is not sufficient to pay the Rentals as they
become due during the period of the Temporary Taking, any deficiency shall be
paid by Tenant to Landlord as Rentals become due.

     21.  Holding Over. This Lease shall terminate without further notice at the
          ------------
expiration of the Lease Term. Any holding over Tenant after Lease Termination
shall not constitute a renewal extension of the Lease Term or give Tenant any
rights in or to the Premises except as expressly provided in this Lease. Any
holding over after Lease Termination, with or without the express or implied
consent of Landlord, shall be construed to be a tenancy from month to month, at
one hundred fifty percent (150%) of the Base Rent for the month preceding Lease
Termination in addition to all Additional Rent payable hereunder, and shall
otherwise be on the terms and conditions herein specified insofar as applicable.
If Tenant remains in possession of the Premises after Lease Termination without
Landlord's consent, Tenant shall indemnify Landlord against any loss or
liability resulting from Tenant's failure to surrender the Premises, including
without limitation, any claims made by any succeeding tenant based on delay in
the availability of the Premises.

     22.  Flood Notification; National Flood Insurance Program. The Premises may
          ----------------------------------------------------
be located in a "flood zone" as set forth on United States Department of Housing
and Urban Development ("H.U.D.") "Special Flood Zone Area Maps." The applicable
law requires that as a condition of obtaining financing on most properties
located in "flood zones," banks, savings and loan associations, and some
insurance lenders will require that H.U.D.

                                    - 32 -
<PAGE>

flood insurance be carried. where the property or its attachments are security
for the loan. This requirement is mandated by the H.U.D. National Flood
Insurance Program, which requirement became effective March 1, 1976. No
representations on this matter been made to Tenant by brokers, Landlord, or its
agent or employees and Tenant, by its execution of this Lease, agrees to make
its own inquiry or investigation.

     23.  Alquist-Priolo Notification; Alquist-Priolo Special Earthquake Studies
          ----------------------------------------------------------------------
Zone Act. The Premises may be situated "Special Study Zone" as designated under
--------
the Alquist-Priolo Special Studies Zone Act (the "Act"), Sections 2621-2630,
inclusive, of the California Public Resources Code; and, as such, any
construction development of any structure for human occupancy on the Land on
which the Building is situated may be subject to the findings of geologic report
prepared by a geologist registered in the State California, unless such report
is waived by the City of San Jose County of Santa Clara under the terms of the
Act. No representations on this matter have been made to Tenant by broke
Landlord, or its agents or employees, and Tenant, by its execution of this
Lease, agrees to make its own inquiry or investigation.

     24.  Notices. Any notice required or desired to be given under this Lease
          -------
shall be in writing with copies directed as indicated and shall be personally
served or given by mail. Any notice given by mail shall be deemed to have been
given when served or, if mailed, as of seventy-two (72) hours from the time when
such notice was deposited in the United States mails (certified or registered,
return receipt requested, postage prepaid), addressed to the party to be served
with a copy as indicated herein. Either party may change its address for
purposes of notice by giving notice of such change of address to the other party
in accordance with the provisions of this Section 24. At the date of execution
of this Lease, the addresses of the parties are:

     Landlord:   Melchor Investment Company
                 635 Emerson Street
                 Palo Alto, CA 94301
                 Attn: Gregory L.  Melchor

     Tenant:     Applied Materials
                 Global Real Estate and Facilities
                 3050 Bowers Avenue, M/S 8003
                 Santa Clara, CA 95054
                 Attn:  Corporate Real Estate Manager

     25.  Attorneys' Fees. In the event either party shall bring any action or
          ---------------
legal proceeding for damages for an alleged breach of any provision of this
Lease, to recover Rentals, to terminate the tenancy of the Premises, or to
enforce, protect or interpret any term or covenant of this Lease or right or
remedy of either party, the prevailing party shall be entitled to recover as a
part of such

                                    - 33 -
<PAGE>

action or proceeding, reasonable attorneys' fees and court costs as may be fixed
by the court or jury. Any award of attorneys' fees may, at the option of
Landlord, be made a part of the judgment and considered as an item of costs. .

     26.  Successors. Subject to the provisions of Section 17, the covenants and
          ----------                                ----------
agreements contained in this Lease shall be binding on the parties hereto and on
their respective successors and assigns.

     27.  Landlord Default. Landlord shall not be in default under this Lease
          ----------------
unless Tenant shall have given Landlord written notice of the breach and, within
thirty (30) days after notice, Landlord has not cured the breach or, if the
breach is such that it cannot reasonably be cured under the circumstances within
thirty (30) days, has not commenced diligently to prosecute the cure to
completion. Any money judgment attained by Tenant based upon Landlord's breach
of this Lease shall be satisfied only out of proceeds of the sale or disposition
of Landlord's interest in the Premises (whether by Landlord or by execution of
judgment). In the event of any default on the part of Landlord under this Lease,
Tenant shall give notice by registered mail to any beneficiary of a deed of
trust or mortgagee of a mortgage, affecting the Premises whose address shall
have been furnished to it, and shall offer such beneficiary or mortgagee a
reasonable opportunity to cure the default, including time to obtain possession
of the Premises by receiver, if such should prove necessary to effect a cure;
provided such beneficiary or mortgagee cures after beneficiary or mortgagee
takes possession but in no event more than thirty (30) days after Landlord's
cure period has expired. If beneficiary or mortgagee has not used due diligence
and the default is not cured within thirty (30) days from beneficiary or
mortgagee taking possession and title, then Tenant may terminate this Lease.

     28.  Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
          ---------------
Tenant paying Rentals and performing its covenants and conditions under the
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises for the Lease Term subject, however, to the terms of this Lease and of
any mortgages or deeds of trust affecting the Premises, and the rights reserved
by Landlord hereunder.

     29.  Merger. The voluntary or other surrender of this Lease by Tenant, or a
          ------
mutual cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenants, or may, at the
option of Landlord, operate as an assignment to Landlord of any or all such
subleases of subtenants.

     30.  Waiver. The waiver by either party of any breach of any term, covenant
          ------
or condition herein contained (or the acceptance by either party of any
performance by the other party after the time the same shall become due) shall
not be deemed to be a waiver of

                                    - 34 -
<PAGE>

such term, covenant or condition or any subsequent breach thereof or of any
other term, covenant or condition herein contained, unless otherwise expressly
agreed to in writing by the waiving party. The acceptance by Landlord of any sum
less than that which is required to be paid by Tenant shall be deemed to have
been received only on account of the obligation for which it is paid (or for
which it is allocated by Landlord, in Landlord's absolute discretion, if Tenant
does not designate the obligation as to which the payment should be credited),
and shall not be deemed an accord and satisfaction notwithstanding any
provisions to the contrary written on any check or contained in any letter of
transmittal. No custom or practice which may arise between the parties hereto in
the administration of the terms of this Lease shall be construed as a waiver or
diminution of Landlord's right to demand performance by Tenant in strict
accordance with the terms of this Lease.

     31.  Entire Agreement. Any agreements, warranties, or representations not
          ----------------
expressly contained herein shall in no way bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease. This Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, whether
written or oral, between Landlord and its agents and Tenant and its agents with
respect to the Premises or this Lease. This Lease constitutes the entire
agreement between the parties hereto and no addition to, or modification of, any
term or provision of this Lease shall be effective until and unless set forth in
a written instrument signed by both Landlord and Tenant.

     32.  Landlord's Right to Perform Tenant's Covenants. Except as otherwise
          ----------------------------------------------
expressly provided herein, if Tenant shall at any time fail to make any payment
or perform any other act on its part to be made or performed under this Lease,
including without limitation the payments and obligations described in Section
                                                                       -------
8, Section 9, and Section 14.2, Landlord upon ten (10) days written notice to
-  ---------      ------------
Tenant may, but shall not be obligated to, without waiving or releasing Tenant
from any obligation under this Lease, make such payment or perform such other
act to the extent that Landlord may deem desirable, and in connection therewith,
pay expenses and employ counsel.  All sums so paid by Landlord and all
penalties, interest and costs in connections therewith shall be due and payable
by Tenant as Additional Rent upon demand.

     33.  Authority. If Tenant is a corporation, each individual executing this
          ---------
Lease on behalf of said corporation represents and warrants, but without
personal liability therefor, that the party is duly authorized to execute and
deliver this Lease on behalf of Tenant in accordance with the by-laws of Tenant,
and that this Lease is binding upon Tenant in accordance with its terms. Tenant
hereby represents, warrants and covenants:

          (a)  Tenant is a valid and existing corporation;

                                    - 35 -
<PAGE>

          (b)  Tenant is qualified to do business in California;

          (c)  All material fees and all franchise and corporate taxes are paid
to date;

          (d)  The signers of this Lease are properly authorize to execute this
Lease.

     34.  Landlord Not a Trustee. Landlord shall not be deemed to be a trustee
          ----------------------
of any funds paid to Landlord by Tenant (or held by Landlord for Tenant)
pursuant to this Lease, including without limitation the Security Deposit.
Landlord shall not be required to keep any such funds separate from Landlord's
general funds, Landlord may use such funds in its ordinary business and transfer
or assign such funds. Any such funds held by Landlord pursuant this Lease shall
not bear interest.

     35.  Withholding of Landlord's Consent. Notwithstanding any other provision
          ---------------------------------
of this Lease, where Tenant is required to obtain the consent (whether written
or oral) of Landlord to do any act, or refrain from the performance of any act,
Tenant agrees that if Tenant is in default with respect to any term, condition,
covenant or provision of this Lease (after notice and opportunity to cure), then
Landlord shall be deemed to have acted reasonably withholding its consent if
said consent is, in fact, withheld.

     36.  Exhibits. All exhibits attached to this Lease shall be deemed to be
          --------
incorporated herein by the individual reference to each such exhibit, and all
such exhibits shall be deemed to be a part of this Lease as though set forth in
full in the body of the Lease.

     37.  Broker's Fee. Landlord has entered into an agreement with Wayne Mascia
          ------------
Associates with regard to brokerage services and Landlord will pay any fees due
Wayne Mascia Associates in accordance with a separate agreement between Landlord
and Wayne Mascia. Tenant represents and warrants that it has had no dealing with
any other real estate broker, agent, or finder in connection with the Premises
or this Lease and that it knows of no other such broker, agent, or finder who is
entitled to or can assert a claim for a commission or other fee in connection
with this Lease. Each party shall indemnify and hold the other party harmless
from and against any and all claims, demands, losses, liabilities and costs with
respect to any alleged leasing commission or fee owing, as a result of the act
of the indemnifying party, or alleged to be owing to any such other broker,
agent- or finder.

     38.  General.
          -------

          38.1   Headings. The section and subsection headings used in this
                 --------
Lease are for convenience of reference only. They shall not be construed to
limit or extend the meaning of any part of this

                                    - 36 -
<PAGE>

Lease, and shall not be deemed relevant in resolving any question of
interpretation or construction of any section of this Lease.

          38.2   Definition of Landlord. The term Landlord as used in this
                 ----------------------
Lease, so far as the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the time in
question of the fee title of the Premises. In the event of any transfer of such
interest, the Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall from and after the date of such transfer or
conveyance be freed and relieved of all liability with respect to performance to
any covenants or obligations on the part of Landlord contained in this Lease
upon execution by the grantee of a written assumption of Landlord's obligations
under this Lease; provided, any funds in the hands of Landlord or the then
grantor at the time of such transfer and in which Tenant has an interest, less
any deductions permitted by law or this Lease, shall be turned over to the
grantee. The covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the provisions of this Section, be binding upon each
Landlord and its heirs, personal representatives, successors and assigns only
during its respective period of ownership. Except as provided in this Section,
this Lease shall not be affected by any transfer of Landlord's interest in the
Premises, and Tenant shall attorn to any transferee of Landlord provided that
all of Landlord's obligations hereunder are assumed in writing by such
transferee.

          38.3   Definition of Agents. For purposes of this Lease and without
                 --------------------
otherwise affecting the definition of the word "agent" or the meaning of
"agency," the term "agents" shall be deemed to include the agents, employees,
servants, invitees, contractors, successors, guests, customers, subcontractors,
representatives, partners, affiliated companies, and any other person or entity
related in any way to the respective party, Landlord or Tenant.

          38.4   Interpretation of Terms. The words "Landlord" and "Tenant" as
                 -----------------------
used herein shall include the plural as well as the singular. Words used in
neuter gender include the masculine and feminine and words in the masculine or
feminine gender include the neuter.

          38.5   Executed Copies. Any executed copy of this Lease shall be
                 ---------------
deemed an original for all purposes.

          38.6   Time of Essence. Time is of the essence as to each and every
                 ---------------
provision in this Agreement requiring performance within a specified time,
except as to the conditions relating to the delivery of possession of the
Premises to Tenant.

          38.7   Severability. In case any one or more of the provisions
                 ------------
contained herein, shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision

                                    - 37 -
<PAGE>

of this Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had not been contained herein. However, if Tenant's
obligation to pay the Rentals determined to be invalid or unenforceable, this
Lease at the option of Landlord shall terminate.

          38.8   Governing Law. This Lease shall be construed enforced in
                 -------------
accordance with the laws of the State of California.

          38.9   Joint and Several Liability. If Tenant is more than one person
                 ---------------------------
or entity, each such person or entity shall be jointly and severally liable for
the obligations of Tenant hereunder.

          38.10  Short Form of Lease. Landlord and Tenant shall execute and
                 -------------------
acknowledge a short form of this Lease in the form attached hereto as Exhibit F
and shall record the short form of Lease in the Recorder's office of Santa Clara
County at any time thereafter.

     39.  Extension.
          ---------

          39.1   Extended Term. Provided Tenant is not in default under this
                 -------------
Lease at the time of the exercise of the option to extend the Lease Term, Tenant
shall have the right to extend the Lease Term for one five (5) year period
("Extended Term"). Tenant may exercise its option to extend the Lease Term only
by delivering written notice of exercise to Landlord at least one hundred eight
(180) days prior to the expiration of the Lease Term. Time is of the essence.
If, for any reason whatsoever, Landlord does not receive Tenant's written
exercise of its option on or before the one hundred eightieth (180) day prior to
the expiration of the Lease Term, this option shall automatically terminate,
without further notice. The Extended Term shall be on all the same terms
covenants and conditions set forth in this Lease, except for the adjustment to
Base Rent set forth below.

          39.2   Effect of Renewal. Once Tenant delivers a notice of exercise,
                 -----------------
Tenant may not withdraw such exercise, and such notice shall operate to extend
the Lease Term (unless Tenant is in default under his Lease at the time of the
exercise of the option). Upon any extension of the Term pursuant to this
Section, the term "Lease Term" as used in this Lease shall thereafter include
the Extended Term as set forth in this Section and the Lease Termination shall
be the date of the expiration of the Extended Term. Except for the monthly Base
Rent which shall be adjusted as set forth below, all other Rentals provided for
in this Lease shall be applicable and payable by Tenant during the Extended
Term.

          39.3   Base Rent Adjustment. The monthly Base Rent for the extended
                 --------------------
Term shall be determined by increasing the initial Base Rent of Sixty Nine
Thousand Nine Hundred Dollars ($69,900) Rent by the same percentage that the CPI
has increased since the date of publication of the Beginning Index (as defined
in Section 5. 2 (a).
   ----------------

                                    - 38 -
<PAGE>

The calculation of the increase shall be made in the manner described in Section
                                                                         -------
5.2, provided that the Adjustment Index shall be the CPI published immediately
---
prior to two months before the first day of the Extended Term.

By way of continuing with the example in Section 5.2(a), if the first day of the
                                         --------------
Extended Term is March 1, 2001, the CPI published immediately prior to January
1, 2001 would be the Adjustment Index.  Assume the Adjustment Index is 390.

     (1)       Adjustment Index               390
               Beginning Index                300
                                              ---
                      Index Change             90

     (2)       Index change                    90 = 90 divided by 300 = 30%
                                              ---
               Beginning Index                300

     (3)       Base at
               Commencement Date             $1,000
               Percentage Change             x  .30
                                             ------
                      Increase               $  300

     (4)       Initial Base Rent             $1,000
               Increase rent                +   300
                                             ------
               New Base Rent                 $1,300

     40.  Notice Of Offers.
          ----------------

          40.1   Offering Notice. If at any time during the Lease Term Landlord
                 ---------------
decides to sell the Premises, Landlord shall make a written offer ("Offering
Notice") to Tenant which shall contain the purchase price for the Premises and
the material terms and conditions of the proposed sale. Tenant and Landlord will
have thirty (30) days ("Offering Period") to negotiate terms and conditions of a
possible purchase by Tenant. During the Offering Period, Landlord may market the
Premises and may enter into nonexclusive negotiations with other parties for the
sale of the Premises. If Landlord and Tenant have not executed a letter of
interest (which shall supersede the provisions of this Section 40.1) within the
                                                       ------------
Offering Period, Landlord shall have no further obligations under this Section.

          40.2   Unsolicited Offer. If at any time during the Lease Term
                 -----------------
Landlord receives an unsolicited offer to purchase the Premises which Landlord
would consider accepting either as is or following certain modifications
("Unsolicited Offer"), Landlord shall notify Tenant in writing of the business
terms and conditions of the Unsolicited Offer and such modifications
("Unsolicited Offer Notice"). Tenant agrees to notify Landlord within ten (10)
business days from Tenant's receipt of the Unsolicited Offer Notice but in no
event later than two (2) business days prior to the expiration of the
Unsolicited Offer ("Unsolicited Offer Period") whether, Tenant is interested in
acquiring the Premises and the

                                    - 39 -
<PAGE>

terms and conditions of its offer to acquire the Premises. Landlord agrees not
to accept such Unsolicited Offer or to enter into exclusive negotiations with
respect to such Unsolicited Offer during the Unsolicited Offer Period. If
Tenant's offer is equal to or better than the terms set forth in the Unsolicited
Offer Notice (in Landlord's reasonable judgment), then Landlord agrees to enter
into negotiations with Tenant for the sale of the Premises. If Tenant fails to
respond within the Unsolicited Offer Period or if Tenant's proposed terms and
conditions are not equal to or better than the terms set forth in the
Unsolicited Offer Notice (in Landlord's reasonable judgment), then Tenant shall
be deemed to have rejected the offer and Landlord shall have no further
obligation under this Section with respect to such Unsolicited Offer. Nothing in
this Lease shall be deemed to give Tenant a right of first refusal to purchase
the Premises.

          40.3   Multiple Properties. Tenant understands that landlord owns
                 -------------------
other properties that are located in the general vicinity of the premises. If
any unsolicited offer includes one, or more, of landlord's other properties, or
is conditioned upon the simultaneous sale of other of landlord's properties,
tenant may exercise its rights hereunder following receipt of an unsolicited
offer only by purchase of all the properties described in unsolicited offer.

     41.  Grant of Option to Lease. Landlord hereby grants to Tenant an option
          ------------------------
to lease all (but not less than all) that certain real property owned by
Landlord and commonly known as 4900 Old Ironsides Drive, 4850 Old Ironsides
Drive and 2950 Democracy Way, Santa Clara, California (collectively the "Option
Parcels") on the terms and conditions set forth below.

          (a)  The Option Parcels currently are subject to option granted by
Landlord to IBM pursuant to existing leases (the "Existing Leases") to extend
the term of the Existing Leases on the Option Parcels. Tenant's rights under
this section are condition upon IBM not exercising its rights to extend the
Existing Leases pursuant to IBM's option rights in the Existing Leases. If IBM
properly exercises its rights to extend the term of the Existing Leases, this
grant of option to lease the Option Parcels shall automatically terminate and be
of no further force and effect.

          (b)  If IBM fails to exercise its option to extend the term of the
Existing Leases, Tenant's option rights shall commence on March 1, 1996 and
shall terminate on May 15, 1996 at 5 o'clock p.m. (the "Option Term"). If Tenant
fails to exercise its option during the Option Term, Tenant's option rights with
regard to the Option Parcels shall automatically terminate and be of no further
force and effect.

          (c)  If the condition to Tenant's option rights hereunder is met,
Tenant may exercise its option to lease the Option Parcels by, and only by,
delivering to Landlord during the Option Term

                                    - 40 -
<PAGE>

written notice of exercise of Tenant's option. Tenant shall bear the risk of
delivery and the Tenant's option rights hereunder shall automatically terminate
if Landlord does not receive Tenant's notice of exercise during the Option Term,
notwithstanding that Tenant may have mailed, or otherwise attempted, to deliver
a notice of exercise within the Option Term.

          (d)  If Tenant properly exercises its option to lease Option Parcels,
Tenant's occupancy of the option Parcels shall on substantially all the terms
and conditions of the L Agreement (Single Tenant Industrial) for 4600 Old
Ironsides Dr Santa Clara, California (the "4600 Lease") , except as changed
reflect the three building campus and other differences in properties and except
for the following:

               (i)    The term for each parcel shall commence on following (with
the occupancy date for each occurring sequentially):

                      For the first parcel, on the first to occur (a) the
     fifteenth (15th) day following vacation of such par by the current occupant
     or (b) the date Tenant takes possession of the parcel (the "First Parcel
     Commencement Date").

                      For the second parcel, on the first to occur (a) ninety
     (90) days following the First Parcel Commencement Date or (b) the date
     Tenant takes possession of the second parcel.

                      For the third parcel, on the first to occur of (a) one
     hundred eighty (180) days following the First Parcel Commencement Date or
     (b) the date Tenant takes possession of the third parcel.

               (ii)   All Option Parcels shall be subject to one lease document.

               (iii)  Landlord will deliver to Tenant the Option Parcels in "as
is" condition except that the buildings will be good condition and repair for
buildings of their age and construction and all "usual" building systems will be
in good operating order (the Tenant recognizes that the building on the Option
Parcels are approximately nineteen (19) years old). Except for any work that is
required to place "usual" building systems in good operating order and to place
the option Parcels and building in good condition and repair for buildings of
their age an construction, Landlord shall have no obligation to make an
improvements to, or repairs of, the Option Parcels.

          (e)  Base Rent for the option Parcels will be between $.85 per square
foot and $1.00 per square foot, in an amount agreed by and between Landlord and
Tenant within thirty (30) days

                                    - 41 -
<PAGE>

following Tenant's exercise of its option. If Landlord and Tenant are unable to
agree on the Base Rent, Tenant Is option rights expire and be of no further
force and effect as of the thirtieth (30th) day following Tenant's exercise of
its option. Base will be subject to increase as agreed between the parties.

          (f)    Tenant's option to lease the Option Parcels terminate upon any
material Default by Tenant under the 4600 Lease unless such Default is cured
during any applicable cure period.

          41.1   Notice of Intention to Lease. If IBM fails exercise its option
                 ----------------------------
to extend the term of the Existing Leases if Landlord does not elect to sell the
Existing Premises to Siemens, and at such time as Landlord determines the terms
which it intends to market the option Parcels, either together or singly, to the
general public, Landlord shall to Tenant send courtesy notice which shall
contain general leasing information that will be disseminated to the public
regarding lease terms. courtesy notice will not be an offer to lease nor will it
binding upon Landlord nor will it confer any rights on Tenant. Rather, the
courtesy notice merely is intended to inform Tenant the status of Landlord's
efforts. Except for a courtesy notice the commencement of Landlord's formal
marketing program for Option Parcels, Landlord shall have no obligation to
Tenant regard to the option Parcels and Tenant shall have no rights first
refusal, right of first offer or option right under this Section.

                              LANDLORD:

                              MELCHOR INVESTMENT COMPANY, a California general
                              partnership

                              By:  /s/ Gregory L. Melchor
                                   ---------------------------------------------
                                   Gregory L.  Melchor
                                   Managing General Partner

                              Date:                  1/27/96
                                     -------------------------------------------

                              TENANT:

                              APPLIED MATERIALS, INC., a Delaware corporation

                              By:  /s/ Howard L. Neff
                                   ---------------------------------------------

                              Its:     Group Vice President
                                    --------------------------------------------

                              Date:      Feb. 15, 1996
                                     -------------------------------------------

                                    - 42 -
<PAGE>

                               EXHIBIT A TO LEASE

                               LEGAL DESCRIPTION

All that certain property situate in the City Of Santa Clara, State of
California, described as follows:

     Parcel 32, as shown on that Parcel Map filed for record in the office of
the Recorder of the County of Santa Clara, State California on January 25, 1977,
in Book 387 of Maps, page 44.
<PAGE>

                               EXHIBIT B TO LEASE
                               ------------------

                           (SINGLE TENANT INDUSTRIAL)
                           --------------------------

                             CONSTRUCTION ADDENDUM
                             ---------------------

     This exhibit, entitled "Construction Addendum", is and she constitute
Exhibit B to that certain Lease Agreement (Single Tenant Industrial) dated
---------
January 27, 1996 (the "Lease") by and between Melchor Investment Company, a
California general partnership ("Landlord") and Applied Materials, Inc., a
Delaware corporation ("Tenant").  The terms, conditions and provisions of this
Exhibit B are hereby incorporated into and are made a part of the Lease.  Any
---------
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.

     1.   Landlord's Improvements.  Subject to the conditions set forth below,
          -----------------------
Landlord agrees to construct and install the Landlord's Improvements pursuant to
the terms of this section.

          a.   Definition. Landlord's Improvements shall mean those improvements
               ----------
that are described in (i) those certain plans and specifications prepared by TSH
Architects, described in Schedule A hereto(the "TSH Plans") (ii) those certain
plans and specifications prepared by Kier & Wright, described in Schedule hereto
and (iii) those certain plans and specifications prepared by Dasse Design, Inc.,
described in Schedule A hereto (collectively the "Landlord's Plans"). Except for
the work described in Landlord's Plans and Landlord's payment of the Tenant
Improvement Allowance (described in section 2 below) Landlord shall have no
obligation to make any improvements to the Building, the Land or the Premises.

          b.   Schedule. As soon as practicable after the execution of the
               --------
Lease, Landlord shall submit the plans to the City of Santa Clara for approval
and issuance of necessary building permits. As soon as practicable after the
issuance of the necessary building permits, Landlord shall commence work on
Landlord's Improvements and shall diligently pursue the work to completion. The
target date for substantial completion of the Landlord's Improvements (except
for the landscaping and parking lot work) is March 20, 1996. The target date for
substantial completion of the landscaping and parking lot work is the Rent
Commencement Date.

          c.   Delay in Substantial Completion. If the two portions of
               -------------------------------
Landlord's Improvements ((i) the landscaping and parking lot work, and (ii) the
balance of the Landlord's Work) are not substantially completed on or before the
target dates for substantial completion, (i) Landlord agrees to use commercially
reasonable efforts to substantially complete Landlord's
<PAGE>

Improvements as soon as practicable thereafter, (ii) the Lease shall remain in
full force and effect, (iii) Landlord shall not be deemed to be in breach or
default of the Lease or this Exhibit B as a result thereof and Landlord shall
                             ---------
have no liability to Tenant as a result thereof and Landlord shall have no
liability as a result of any delay in occupancy (whether for damages, abatement
of all or any portion of the Rent, or otherwise) , and (iv) except in the event
of any Tenant Delays, and notwithstanding anything to the contrary contained in
the Lease the Commencement Date and the Termination Date of the Lease Term shall
be extended commensurately by the amount of time attributable to such delays.
Notwithstanding the foregoing, so long as Tenant has not commenced construction
of Tenant's Improvements, Tenant shall have the right to terminate this Lease if
Landlord's Improvements are not substantially completed on or before September
20, 1996.

          d.   Commencement Date Memorandum. Within thirty (30) days following
               ----------------------------
the Commencement Date, Landlord and Tenant shall execute a written memorandum of
Commencement Date substantially in the form attached to the Lease as Exhibit C
                                                                     ---------
evidencing the Commencement Date, the Rent Commencement Date, the Adjustment
Date and the Termination Date.

          e.   Ownership.  The Landlord's Improvements shall belong to Landlord.
               ---------

          f.   Tenant Delays. Landlord has agreed that Tenant may enter the
               -------------
Premises prior to completion of Landlord's Work, and that the Lease Term shall
commence prior to completion of Landlord's Work. There shall be no extension of
the scheduled Commencement Date, the Rent Commencement Date, the Adjustment Date
or the Lease Termination if, or to the extent that, Landlord's Work has not been
substantially completed by the target completion dates due to any delay
attributable to Tenant and/or Tenant's Agents ("Tenant's Delay"), including but
not limited to, any of the following described events or occurrences: (a) delays
with Landlord's Improvement work caused by interference from Tenant or (b) the
performance by Landlord of any additional work pursuant to a change requested by
Tenant.

     2.   Tenant's Possession and Term Commencement - Landlord intends to
          -----------------------------------------
deliver possession of the Premises to Tenant upon substantial completion (as
certified by Landlord's architect) of the shell work portion of Landlord's
Improvements ("Landlord's Shell Work"). As soon as practicable following
commencement of Landlord's Work, Landlord shall notify Tenant in writing of the
date that Landlord will have substantially completed Landlord's Shell Work and
intends to deliver to Tenant possession of the Premises for the purposes of
commencing the Lease Term. The date for delivery of possession of the Premises
to Tenant will be prior to the completion of Landlord's Improvements and
Landlord will continue work on Landlord's Improvements following delivery of the
Premises to Tenant. If Tenant desires to take possession

                                     - 2 -
<PAGE>

of the Premises prior to the date that Landlord completes Landlord's Shell Work,
Landlord shall attempt to accommodate Tenant's request and deliver to Tenant
possession of the Premise prior to completion of Landlord's Shell Work. The
Lease Commencement Date shall be the date that Landlord delivers to Tenant
possession of the Premises. Landlord will not have substantially completed
Landlord's landscaping and parking lot work until the latter part of the ninety
(90) day period between the Commencement Date and the Rent Commencement Date.
During the period between the Commencement Date and the date Landlord completes
Landlord's Improvements, Landlord and Tenant shall cooperate to minimize
conflicts between their contractors.

     3.   Construction of Tenant's Improvements.  Subject to all the terms and
          -------------------------------------
conditions contained in this Agreement, Tenant may construct certain interior
improvements ("Tenant's Improvements") on the Premises in conformance with the
Approved Plans described below.  Landlord shall provide an allowance for
building costs incurred by Tenant in completing Tenant's Improvements ("Tenant
Improvement Allowance") in an amount not to exceed One Million Six Hundred
Forty-Four Thousand Eight Hundred Dollars ($1,644,800).  To the extent that the
building costs for Tenant's Improvements exceed the Tenant improvement
Allowance, Tenant shall pay such excess.

          a.   Preparation of Preliminary and Final Plans.
               ------------------------------------------

               (i)   Preparation of Preliminary Plans.  Tenant shall prepare and
                     --------------------------------
deliver to Landlord preliminary plans and specifications for the Tenant
improvements ("Preliminary Plans") which Preliminary Plans may include (subject
to compliance with recorded documents and Applicable Laws) an exterior equipment
pad.


               (ii)  Revision of Preliminary Plans. Within five (5) business
                     -----------------------------
days after the delivery of the Preliminary Plans to Landlord's agent (South Day
Development Company), Landlord shall approve the Preliminary Plans or inform
Tenant of Landlord's specific objections to such Plans, which objections must be
reasonable. If Landlord disapproves the Preliminary Plans, then Tenant shall
revise the Preliminary Plans and deliver the revised Preliminary Plans to
Landlord. Landlord shall approve or disapprove revised Preliminary Plans within
two (2) business days after the delivery of the revised Preliminary Plans to
Landlord. This process shall continue until Landlord has approved the
Preliminary Plans.

               (iii) Final Plans. Once an agreement has been reached regarding
                     -----------
revisions to the Preliminary Plans, Tenant shall prepare final plans and
specifications and working drawings ("Final Plans") for the Tenant Improvements.
Within five (5) business days after the delivery of the Final Plans to Landlord,
Landlord shall approve the Final Plans or inform Tenant of Landlord's specific
objections to such Plans, which objections

                                     - 3 -
<PAGE>

must be reasonable. Provided that such Final Plans are logical evolutions of the
Preliminary Plans and incorporate the parties' agreement regarding revisions
thereto, Landlord shall not withhold its approval of the Final Plans. If
Landlord disapproves the Final Plans, then Tenant shall revise the Final Plans
and deliver the revised Final Plans to Landlord. Landlord shall approve or
disapprove the revised Final Plans within two (2) business days after the
delivery of the revised Final Plans to Landlord. This process shall continue
until Landlord has approved the Final Plans.

               (iv)  Cost Statement. Once the parties have approved the Final
                     --------------
Plans, Tenant shall select a licensed general contractor or the required
subcontractors and shall obtain a written commitment for a guaranteed maximum
cost for materials and labor for construction of Tenant's Improvements in
accordance with the Plans. Tenant's general contractor shall be subject to
Landlord's approval, which shall not be unreasonably withheld. Tenant shall
deliver to Landlord said written commitment together with Tenant's estimate of
all other Tenant's Improvement Costs (the "Cost Statement").

               (v)   Governmental Approvals. Once the parties have agreed on any
                     ----------------------
revisions to the Final Plans as described above, Tenant or its contractor shall
submit them to the appropriate governmental authorities for approval. If any
changes are required by the governmental authorities, Landlord and Tenant shall
cooperate to incorporate such changes. Immediately after all such governmental
approvals have been obtained, Landlord and Tenant shall initial and date four
(4) copies of such approved Final Plans ("Approved Plans") , which shall then
become a part of this Agreement as though fully set forth herein.

          b.   Definition of Building Costs. As used in this Agreement, the term
               ----------------------------
"building costs" shall mean and include all hard and soft costs related to the
design and construction of Tenant's Improvements in accordance with the Approved
Plans and all approved Change Orders, including without limitation (i)
engineering and architectural fees; (ii) the costs of all required governmental
approvals and permits, and all supervision costs; (iv) the cost of acquiring
materials, supplies and equipment rental; (v) the contract price for all
construction work undertaken by general contractors and subcontractors,
including fees, general conditions and overhead of the contractors, as
applicable; (vi) the cost of all equipment and fixtures provided for the in
Approved Plans, including the cost of installation; (vii) the cost of all
testing expenses; (viii) the cost of premiums for surety bonds, if any,
including, but not limited to payment and performance bonds and mechanics' lien
bonds; (ix) the cost of utility connections, installation of utility facilities
and meters, and course of construction utility usage fees; (x) the cost of
removing rubbish and waste materials from the work site; and (xi) the cost of
premiums for insurance,

                                     - 4 -
<PAGE>

if any, including contractor's liability, course of construction and workers,
compensation.

     "Building costs" shall not include any costs incurred by Tenant in
completing any work or installations, which may be needed for the operation of
Tenant's business , in the Premises, including without limitation (i) the cost
of procuring and installing Tenant's trade fixtures, racking, equipment, signs,
furniture, and other personal property necessary or incidental I the operation
of Tenant's business; (ii) the cost of engineers c consultants hired to submit
engineering calculations and/or supporting information to obtain approvals of
storage plans, hazardous materials management plans and other specific plans
related to the Premises; and (iii) taxes, fees, charges and levies by
governmental authorities for the foregoing installations and for the operation
of Tenant's business.

          c.   Change Orders. No material changes, modification or alterations
               -------------
in the Approved Plans or in Tenant's Improvements shall be made by Tenant
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. All requests for extra work or change orders
shall be made in writing, and shall specify the added or reduced costs and time
resulting therefrom. Once approved in writing by both parties, such change
orders shall become a part of the Approved Plans, and any additional or reduced
costs relating thereto shall be added to or subtracted from Improvement Costs,
as the case may be.

          d.   Completion of Tenant's Obligations. Upon obtaining all necessary
               ----------------------------------
governmental approvals, Tenant shall commence construction of and diligently
pursue the completion of Tenant's Improvements substantially in compliance with
the Approved Plans and this Agreement, and in conformance with all conditions
applicable to Tenant's Improvement which are necessary for lawful occupancy of
the Premises. Prior to commencing work on Tenant's Improvements, Tenant shall
designate an individual as its representative to work with Landlord throughout
the design and construction of the Tenant's Improvements.

          e.   As-Built Drawings. Within thirty (30) days after completion of
               -----------------
Tenant's Improvements, Tenant shall deliver to Landlord a full set of "as-built"
drawings for Tenant's Improvements.

          f.   Payment of Tenant Improvement Allowance. Not more often than once
               ---------------------------------------
each month during Tenant's construction process, Tenant shall submit to Landlord
a invoice for work done to the date described in the invoice, together with
copies of billings from Tenant's general contractor, invoices and other back-up
documentation reasonably requested by Landlord. Tenant shall indicate in a cover
sheet (i) that Tenant's architect has certified that all work for which payment
is requested has been completed (or identifying that work that the architect
believes

                                     - 5 -
<PAGE>

has not been completed), (ii) the amount for which Tenant is requesting
reimbursement and (iii) certifying that there are then no liens on the Premises
as a result of Tenant' s Improvement work and that, to Tenant's knowledge, all
bills that are then due and owing to laborers, materialmen and contractors have
been paid -accordance with contract terms (the "Payment Request"). Within
fifteen (15) days after receipt of a complete Payment Request, Melchor shall pay
to Tenant's contractor a sum equal to ninety percent (90%) of the amounts
certified by Tenant, and by Tenant architect, for payment under the Payment
Request. If the Cost Estimate exceed the Tenant Improvement Allowance, at the
time each payment is due pursuant to a Payment Request, Landlord shall pay a
fraction of the total amount described in the Payment Request, the numerator of
the fraction to be the amount of the Tenant Improvement Allowance and the
denominator of the fraction to be the amount of the Cost Estimate. If any lien
is placed on the Premises, Landlord shall have no obligation to disburse any
further portion of the Tenant Improvement Allowance until such time as the lien
has been removed and a bond posted for its payment. The ten percent (10%) that
Landlord has withheld from each monthly disbursement shall be-paid to Tenant's
contractor thirty (30) days after recordation of a proper Notice of Completion
with regard to Tenant's improvement work, but in no event until any and all
liens placed on the Premises as a result of Tenant's Improvement work have been
removed. Within the (10) days following the recordation of the Notice of
Completion, Tenant shall deliver to Landlord Conditional Lien Releases (in the
form specified in the California Civil Code) from the genera contractor and all
parties having lien rights.

                                     - 6 -
<PAGE>

                                 Schedule A to
                                  EXHIBIT "B"

                                    MELCHOR
                                   JOB #4376

<TABLE>
<CAPTION>
Plan                                ARCHITECT            Sheet         Date         Rev. #      Rev. Date    Rev. Date
----                                ---------            -----         ----         ------      ---------    ---------
                                                        Number
                                                        ------
<S>                           <C>                    <C>            <C>          <C>           <C>          <C>
Architectural                    TSH Architects                      11/10/95      11/20/95      12/06/95       01/96
-------------
Title Sheet                             *                 AD                          *
-----------
Site Plan                               *                 A1                          *
---------
Demolition Plan Exterior                *                 D1                          *
------------------------
Floor Plan                              *                 A2             *
----------
Roof Plan                               *                 A3                          *
---------
Exterior Elevations                     *                 A4                          *
-------------------
Building Sections                       *                 A5                          *
-----------------
Wall Sections/Details                   *                 A6                          *
---------------------
Details                                 *                 A7                          *
-------
Details                                 *                 A8                          *
-------
Civil                             Kier & Wright
-----
Grading & Drainage                      *                 C-1                                                    *
------------------
Grading & Drainage                      *                 C-2                                                    *
------------------
Structural                     Dasse Design, Inc.
----------
Foundation Plan                         *                 S-1            *
---------------
Roof Framing Plan                       *                 S-2         No Date
-----------------
Brace Elevation & Details               *                 S-3            *
-------------------------
General Notes & Typical                 *                 S-4            *
-----------------------
Details
---------
Foundation & Roof Detail                *                 S-5            *
------------------------

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Plan                                ARCHITECT            Sheet         Date         Rev. #      Rev. Date    Rev. Date
----                                ---------            -----         ----         ------      ---------    ---------
                                                        Number
                                                        ------
<S>                           <C>                    <C>            <C>          <C>           <C>          <C>
Landscape                           Callander                        11/10/95      11/20/95     12/08/95        01/96
---------                           Associates
Site Construction Plan                  *                 L-1                                       *
----------------------
Irrigation Plan                         *                 L-2                                       *
---------------
Planting Plan                           *                 L-3                                       *
-------------
Landscape Details                       *                 L-4                                       *
-----------------
Landscape Details                       *                 L-5                                       *
-----------------
Landscape                               *                 L-6                                       *
---------
Specifications
--------------
Landscape Disposition                   *                 L-7                                       *
---------------------
Plan
----

</TABLE>
<PAGE>

                                   EXHIBIT C
                                   ---------

                MEMORANDUM OF COMMENCEMENT DATE AND OTHER DATES
                -----------------------------------------------

Pursuant to that certain Lease Agreement (Single Tenant Industrial) dated
January __, 1996 by and between Melchor Investment Company, as Landlord, and
Applied Materials, Inc., as Tenant, concerning 4600 Old Ironsides Drive, Santa
Clara, California (the "Lease") Landlord and Tenant agree that the following
terms used in the Lease shall have the following meanings:

     1.   Commencement Date: The term Commencement Date shall mean
____________________, 1996.

     2.   Rent Commencement Date: The term Rent Commencement Date shall mean
____________________, 1996.

     3.   Adjustment Date: The term Adjustment Date shall mean
_____________________, 1998.

     4.   Termination Date: If Tenant fails to exercise its option to extend the
Lease Term, the Lease shall terminate on _______________, 2001 (unless the Lease
is sooner terminated in accordance with its terms).

     5.   Extended Term: If Tenant properly exercises its option to extend the
Lease Term, the Extended Term shall commence on ______________, 2001 and shall
terminate on _________________, 2006.

     6.   Conflict: If any of the terms of this Memorandum conflict with the
Lease, this Memorandum shall control.

                                       TENANT:

                                       Applied Materials, Inc., a
                                       California corporation

Dated:                                 By:
      --------------------                 -----------------------------------
                                       NAME:
                                             ---------------------------------
                                       Title:
                                              --------------------------------

                                       LANDLORD:

                                       Melchor Investment Company, a
                                       California general
                                       partnership

Dated:                                 By:
      --------------------                 -----------------------------------
                                           Gregory L. Melchor
                                           Managing General Partner
<PAGE>

            EXHIBIT D - HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
            ------------------------------------------------------

                                      TO
            LEASE AGREEMENT DATED SEPTEMBER ___, 1994 (THE "LEASE")
                                BY AND BETWEEN
         MELCHOR INVESTMENT COMPANY, A CALIFORNIA GENERAL PARTNERSHIP
                                 ("LANDLORD")
                                      AND
                      APPLIED MATERIALS, INC. ("TENANT")

HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE DATED ___________, 19__.

The information contained in the Hazardous Materials Disclosure Certificate
provided by you will be maintained in confidential by Landlord subject to
release and disclosure as required (i) any lenders and owners and their
respective environment consultants, (ii) any prospective purchaser(s) of all or
portion of the property on which the Premises are located (iii) Landlord to
defend itself or its lenders, partners representatives against any claim or
demand, and (iv) any laws, rules, regulations, orders or subpoenas.  Any and all
capitalized terms used herein, which are not otherwise defined herein, shall
have the same meaning ascribed to such term in the signed Lease.  Any questions
regarding this certificate should be directed to, a when completed, the
certificate should be delivered to:

For purposes of this Hazardous Material Disclosures Certificate the term
"Hazardous Materials" as used herein shall not include a materials or substances
customarily used in the conduct of general office activities, so long as the
quantity of such materials is n prohibited by Environmental Laws.

Contact Person for Hazardous Waste Materials Management a: Manifests and
Telephone Number (s):
                     _________________________________________________________

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

Address of
Premises:      4600 Old Ironsides Drive
               Santa Clara, California

1.   GENERAL INFORMATION:

     Describe the initial proposed operations to take place in, on or about the
     Premises, including, without limitation principal products processed,
     manufactured or assemble services and activities to be provided or
     otherwise conducted Existing tenants should describe any proposed changes
     to on going operations.

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

                                                                          Page 1
<PAGE>

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

2.   USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS

     2.1  Will any Hazardous Materials be used, stored or disposed of in, on or
          about the Premises?  Existing tenants should describe any Hazardous
          Materials which continue to used, generated, stored or disposed of in,
          on or at the Premises.

          Wastes                                         Yes ____        No ____
          Chemical Products                              Yes ____        No ____
          Other                                          Yes ____        No ____

     2.2  If Yes is marked in Section 2.1, attach a list of Hazardous Materials
          to be used, generated, stored disposed of in, on or about the
          Premises, including applicable hazard class and an estimate of the
          quantity of such Hazardous Materials at any given time; estimated
          annual throughput; the proposed location(s) and method storage
          (excluding nominal amounts of ordinary household cleaners and
          janitorial supplies and office supplies which are not regulated by any
          Environmental Laws); a the proposed location(s) and method of disposal
          for each Hazardous Material, including, the estimated frequency and
          the proposed contractors or subcontractors.  Existing tenants should
          attach a list setting forth the information requested above and such
          list should include actual data from on going operations and t
          identification of any variations in such information from the prior
          year's certificate.

3.   STORAGE TANKS AND SUMPS

     3.1  Is any above or-below ground storage of gasoline, diese.7 petroleum,
          or other Hazardous Materials in tanks or sumps proposed in, on or
          about the Premises? Existing tenant should describe any such actual or
          proposed activities

          Yes ____         No ____

          If Yes, please explain:

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

4.   WASTE MANAGEMENT

     4.1  Has your company been issued an EPA Hazardous Waste Generator I.D.
          Number?  Existing tenants should describe

                                                                          Page 2
<PAGE>

          any additional identification numbers issued since previous
          certificate.

          Yes ____      No ____

     4.2  Has your company filed a biennial or quarterly report! a hazardous
          waste generator?  Existing tenants should describe any new reports
          filed.

          Yes ____      No ____

          If Yes, attach a copy of the most recent report filed any portion of
          the report relates to the Premises.

5.   WASTEWATER TREATMENT AND DISCHARGE

     5.1  Will your company discharge from the Premises wastewater or other
          waste to:

          __________Storm drain?              __________Sewer?
          __________Surface water?            __________No wastewater or other
                                                        wastes discharged
          Existing tenants should indicate any actual discharge. If so, describe
          the nature of any proposed or actual discharge(s).

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

     5.2  Will any such wastewater or waste be treated before discharge?

          Yes ____      No ____

          If Yes, describe the type of treatment proposed to be conducted.
          Existing tenants should describe the actual treatment conducted.

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

6.   AIR DISCHARGES

     6.1  Do you plan for any air filtration systems or stacks to be used in
          your company's operations in, an or about the Premises that will
          discharge into the air; and will such air emissions be monitored?
          Existing tenants should indicate whether or not there are any such air
          filtration

                                                                          Page 3
<PAGE>

          systems or stacks in use in, on or about the Premises which discharge
          into the air and whether such emissions are being monitored.

          Yes ____      No ____

          If Yes, describe:

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

     6.2  Do you propose to operate in, on or about the Premises any of the
          following types of equipment, or any other equipment requiring an air
          emissions permit?  Exist tenants should specify any such equipment
          being opera in, on or about the Premises.

          __________Spray booth(s)           __________Incinerator(s)
          __________Dip tank(s)              __________Other (please describe)
          __________Drying oven(s)           __________No Equipment Requiring
                                                       Air Permits

          If Yes, describe:

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7.   HAZARDOUS MATERIALS DISCLOSURES

     7.1  Has your company prepared or will it be required prepare a Hazardous
          Materials management plan ("Management Plan") pursuant to Fire
          Department or other governmental or regulatory agencies' requirements?
          Existing tenants should indicate whether or not Management Plan is
          required and has been prepared.

          Yes ____      No ____

          If Yes, attach a copy of the Management Plan if any portion of the
          Management Plan relates to the Premises Existing tenants should attach
          a copy of any required updates to the Management Plan.

     7.2  Are any of the Hazardous Materials, and in particular chemicals,
          proposed to be used in your operations in, on or about the Premises
          regulated under Proposition 65 Existing tenants should indicate
          whether or not there are any new Hazardous Materials being so used
          which are regulated under Proposition 65.
                                                                          Page 4
<PAGE>

          Yes ____      No ____

          If Yes, describe:

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

8.   ENFORCEMENT ACTIONS AND COMPLAINTS

     8.1  With respect to Hazardous Materials or Environmental Laws related to
          the Premises, has your company ever b subject to any agency
          enforcement actions, administrative orders, or consent decrees or has
          your company received requests for information, notice or demand
          letters, any other inquiries regarding its operations?  Existing
          tenants should indicate whether or not any such action orders or
          decrees have been, or are in the process being, undertaken or if any
          such requests have been received.

          Yes ____      No ____

          If Yes, describe the actions, orders or decrees and any continuing
          compliance obligations imposed as a result of these actions, orders,
          or decrees and also describe any requests, notices or demands, and
          attach a copy of all such documents. Existing tenants should describe
          and attach a copy of any new actions, orders, decrees, requests,
          notices or demands not already delivered to Landlord pursuant to the
          provisions of Section 8.4 of the signed Lease.

     8.2  Have there ever been, or are there now pending, an lawsuits against
          your company related to the Premise regarding any environmental or
          health and safety concerns?

          Yes ____      No ____

          If Yes, describe any such lawsuits and attach copies of the complaint
          (s) , cross-complaint (s) , pleadings and al' other public documents
          related thereto as requested by Landlord. Existing tenants should
          describe and attach z copy of any new complaint(s) , cross -complaint
          (s) , pleadings and other related public documents not already
          delivered to Landlord.

                                                                          Page 5
<PAGE>

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

     8.3  Have there been any problems or complaints from adjacent tenants,
          owners or other neighbors of the Premises regard to environmental or
          health and safety concerns?  Existing tenants should indicate whether
          or not there have been any such problems or complaints from adjacent
          tenants, owners or other neighbors at, about or near Premises.

          Yes ____      No ____

          If yes, please describe.  Existing tenants should describe any such
          problems or complaints not already disclosed to Landlord under the
          provisions of the signed Lease Agreement.

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

9.   PERMITS AND LICENSES

     9.1  Attach copies of all Hazardous Materials permits and licenses issued
          to your company with respect to. proposed operations in, on or about
          the Premises including, without limitation, any wastewater discharge
          permits, air emissions permits, and use permits approvals. Existing
          tenants should attach copies of a new permits and licenses as well as
          any renewals permits or licenses previously issued.

The undersigned acknowledges that this Hazardous Material Disclosure Certificate
is being delivered in accordance with, a as required by, the provisions of
Section _____ of the Lease.  I (print name) _________________________________,
acting with full authority to bind the Tenant and on behalf of the Tenant,
certify, represent and warrant that the information contained in this
certificate true and correct.

Applied Materials, Inc., a Delaware corporation

by:
   ------------------------------

                                                                          Page 6
<PAGE>

                                   EXHIBIT E
                                   ---------

                          TENANT ESTOPPEL CERTIFICATE
                          ---------------------------


     The undersigned has been advised that its lease (the "Lease") with MELCHOR
INVESTMENT COMPANY, a California general partner ("Landlord") , will be assigned
to ____________________________________ under Agreement dated , or its assignee
("Assignee") in connection with (i) the purchase of that certain real property
improvements thereon (the "Property") , or (ii) the making of a loan to Landlord
to be secured by a deed of trust or mortgage covering the Property, as the case
may be. Recognizing that the statements contained below will be relied on by
Purchaser/Lender to purchase the Property or to make a loan secured by the
Property, as the case may be, the undersigned represents to Purchaser/Lender, as
of the date hereof, the following:

     1.   The undersigned ("Tenant") is the lessee under the Lease dated
_____________, 19__, for the Property located in the City of   Santa Clara,
County of Santa Clara, State of California, commonly known as 4600 Old Ironsides
Drive, as more particularly described in the Lease (the "Premises").

     2.  There have been no oral amendments to the Lease nor any written
amendments other than by written agreement(s) dated
____________________________, copies of which are attached hereto as Exhibit A.
The Lease and the foregoing amendment(s) to the Lease are in full force and
effect and represent the entire agreement between the parties with respect to
the Premises.

     3.   The Lease Term (as defined in the Lease) is ___ months commencing on
_______________, 1996, and terminating on ________________, 2001.

     4.   The Lease provides an option to extend or renew the Lease Term for
five (5) years.

     5.   Tenant currently pays to Landlord as monthly rent ("Base Rent" as
defined in Section 4.1 of the Lease) the sum of __________________, and
commencing as of the _______ month of the Lease Term, shall pay Base Rent in the
amount of _________________.

     6.   Tenant has paid all Rentals (as defined in Section 4.5 of the Lease)
current to date, and is currently paying the Rentals specified in the Lease. No
Rentals under the Lease have been paid more than one (1) month in advance.

     7.   Tenant has no notice of a prior assignment outstanding as of the date
of this certificate by Landlord of the Lease or of the Rentals due thereunder.

                                     - 1 -
<PAGE>

     8.   There are no offsets or credits against Rentals, nor are there any
existing defenses which Tenant has against the enforcement of the Lease by
Landlord, nor are there any uncured defaults of either Landlord or Tenant under
the Lease (If there is any claim, offset or default, please explain).

     9.   The sum of ____________ Dollars ($__________) was paid to the Landlord
as a security deposit and the sum of $________ was paid for the last month's
Base Rent (If no sum was paid, insert "None").

     10.  The Landlord's Improvements (as defined in Section 2(c) of the Lease),
to the best of Tenant's knowledge, have been satisfactorily completed in all
respects or [list defects].
            -----------------

     11.  Tenant has not assigned or entered into any subleases of the Lease or
Tenant's rights and interests therein, except as follows:_____________________.

     12.  Pursuant to the terms of the Lease, any notices to be delivered or
sent to Tenant are to be delivered to the following person(s) at the following
address(es):

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

     13.  Tenant obtained and currently carries such insurance as required
pursuant to Section 9.1 of the Lease. Prior to the close of escrow, Tenant will
provide Assignee with Certificates of such insurance naming Assignee as an
additional insured in Assignee's capacity as Landlord.

     14.  Tenant agrees that it will notify the addressee prior to the close of
escrow of any changes in the matters set out in this certificate.

     15.  Terms in this Tenant Estoppel Certificate are defined terms, and have
the same meaning and definitions specified for such, terms in the Lease.

                                     - 2 -
<PAGE>

     16.  The person executing this Tenant Estoppel Certificate represents that
the execution of this Tenant Estoppel Certificate has been duly authorized by
Applied Materials, Inc., a Delaware corporation, and that such person is duly
authorized to execute this Tenant Estoppel Certificate on behalf of Applied
Materials Inc., a Delaware corporation.

Dated:                                          TENANT:
      --------------------
                                        APPLIED MATERIALS, INC.,
                                        a Delaware corporation


                                        By:
                                           -----------------------------------
                                        Its:
                                            ----------------------------------

                                     - 3 -
<PAGE>

                                   EXHIBIT C





IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB

DATE:

BENEFICIARY:


ATTN:

AS "LANDLORD"

APPLICANT:



AS "TENANT"

LETTER OF CREDIT AMOUNT:  US$
00/100 U.S. DOLLARS:

EXPIRY DATE:  SEPTEMBER 30, 2001

LOCATION:  AT OUR COUNTER IN SANTA CLARA

DEAR SIR/MAM:

WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB____ .  IN
YOUR FAVOR AVAILABLE WITH SILICON VALLEY BANK, 3003 TASMAN DRIVE,
SANTA CLARA, CA 95054, ATTN:  INTERNATIONAL DEPARTMENT BY BENEFICIARY'S DRAFT
DRAWN AT SIGHT ON US, AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:

     1.   THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.
     2.   A SIGNED AND DATED CERTIFICATE FROM THE BENEFICIARY STATING THE
          FOLLOWING:

          (A).  "AN EVENT OF DEFAULT HAS OCCURRED BY
                AS "TENANT" UNDER THAT CERTAIN LEASE AGREEMENT BETWEEN TENANT,
                AND                         INC. AS "LANDLORD". FURTHERMORE
                THIS IS TO CERTIFY THAT LANDLORD HAS GIVEN WRITTEN NOTICE TO
                TENANT TO CURE THE DEFAULT. AND SUCH DEFAULT HAS NOT BEEN
                CURED UP TO THIS DATE OF DRAWING UNDER THIS LETTER OF CREDIT".


PARTIAL DRAWINGS ARE ALLOWED


                                - PAGE 1 OF 2 -
<PAGE>

IRREVOCABLE STANDBY LETTER OF CREDIT NO.
DATED



THE AMOUNT OF THIS LETTER OF CREDIT US$                     IS AVAILABLE UNTIL
         ON               THE AMOUNT OF THIS LETTER OF CREDIT SHALL BE
AUTOMATICALLY REDUCED TO US$         WITHOUT AMENDMENT, PROVIDED THE UNUTILIZED
BALANCE IS NOT LESS THAN US$

ALL DOCUMENTS INCLUDING DRAFT(S) MUST INDICATE THE NUMBER AND DATE OF THIS
CREDIT.

EACH DRAFT PRESENTED HEREUNDER MUST BE ACCOMPANIED BY THIS ORIGINAL LETTER OF
CREDIT FOR OUR ENDORSEMENT THEREOF OF THE AMOUNT OF SUCH DRAFT(S) AND WILL BE
RETURNED TO THE BENEFICIARY UNLESS IT IS FULLY UTILIZED.

DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT COURIER TO: SILICON VALLEY BANK, 3003
TASMAN DRIVE, SANTA CLARA, CA 95054, ATTN: INTERNATIONAL DIVISION

WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER
AND NEGOTIATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF
CREDIT WILL BE DULY HONORED ON PRESENTATION.

THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION 500.




------------------------------                ------------------------------
    AUTHORIZED SIGNATURE                          AUTHORIZED SIGNATURE


                                - PAGE 2 OF 2 -
<PAGE>

                                  SAMPLE ONLY
                                  -----------
                                NON-NEGOTIABLE
                                --------------

IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXX
DATED MMDD, 1998

ALL DOCUMENTS INCLUDING DRAFT(S) MUST INDICATE THE NUMBER AND DATE OF THIS
CREDIT.

EACH DRAFT PRESENTED HEREUNDER MUST BE ACCOMPANIED BY THIS ORIGINAL LETTER OF
CREDIT FOR OUR ENDORSEMENT THEREON OF THE AMOUNT OF SUCH DRAFT(S).

DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT CARRIER (I.E. FEDERAL EXPRESS, UPS,
DHL OR ANY OTHER EXPRESS COURIER) AT OUR ADDRESS:
                         BANK,                           , SANTA CLARA, CA 95054
ATTN:  INTERNATIONAL DIVISION.

WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER
AND NEGOTIATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THE SUBJECT
CREDIT WILL BE DULY HONORED ON PRESENTATION.

THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION 500.




------------------------------                 ------------------------------
     AUTHORIZED SIGNATURE                           AUTHORIZED SIGNATURE

                                - PAGE 2 OF 2 -