<PAGE>
 

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


 
                            PARTICIPATION AGREEMENT

                          dated as of August 15, 1997

                                     among

                      VITESSE SEMICONDUCTOR CORPORATION,

                                  as Lessee,

                        LEASE PLAN NORTH AMERICA, INC.,

                                  as Lessor,

            ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH,

                               as a Participant,

                                     and 

            ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH,

                                   as Agent


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


                    Vitesse Fab 2 Equipment Lease Facility

<PAGE>
 
                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 

                                                                                        Page

SECTION 1.
<S>                                                                                     <C> 
     DEFINITIONS; INTERPRETATION ..........................................................1

SECTION 2.

     CLOSING DATE .........................................................................2

SECTION 3.

     ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES .....................................2
     SECTION 3.1.    Lessor Commitment ....................................................2
     SECTION 3.2.    Participants' Commitments ............................................2
     SECTION 3.3.    [Intentionally Omitted] ..............................................2
     SECTION 3.4.    Procedures for Advances ..............................................2
     SECTION 3.5.    Allocation of Commitments ............................................3
     SECTION 3.6.    Termination, Reduction or Extension of Participants'
                     Commitments ..........................................................3
     SECTION 3.7.    Interest Rates and Payment Dates .....................................4
     SECTION 3.8.    Computation of Interest ..............................................6
     SECTION 3.9.    Pro Rata Treatment and Payments ......................................6
     SECTION 3.10.   The Account ..........................................................7
     SECTION 3.11.   Basic Rent ...........................................................7
     SECTION 3.12.   Purchase Payments by Lessee ..........................................7
     SECTION 3.13.   Residual Value Guarantee Amount Payment or Renewal Term
                     Payments by Lessee ...................................................9
     SECTION 3.14.   Sales Proceeds of Remarketing of Property ............................9
     SECTION 3.15.   Supplemental Rent ...................................................10
     SECTION 3.16.   Excepted Payments ...................................................10
     SECTION 3.17.   Distribution of Payments After Event of Default .....................10
     SECTION 3.18.   Other Payments ......................................................11
     SECTION 3.19.   Casualty and Condemnation Amounts ...................................11
     SECTION 3.20.   Order of Application ................................................11
     
SECTION 4.

     FEES ................................................................................12
     SECTION 4.1.    Commitment Fees .....................................................12
     SECTION 4.2.    Lease Arrangement Fee ...............................................12
     SECTION 4.3.    Defeasance Fee ......................................................12
     SECTION 4.4.    Overdue Fees ........................................................12
</TABLE> 


                                      -i-
<PAGE>
 
<TABLE> 
<CAPTION> 
 
SECTION 5.
<S>                                                                                      <C> 
     CERTAIN INTENTIONS OF THE PARTIES ..................................................12
     SECTION 5.1.    Nature of Transaction ..............................................12
     SECTION 5.2.    Amounts Due Under Lease ............................................13

SECTION 6.

     CONDITIONS PRECEDENT TO
     ACQUISITION OF EQUIPMENT AND ADVANCES ..............................................14
     SECTION 6.1.    Conditions Precedent Documentation .................................14
          (a)    Funding Request ........................................................14
          (b)    Operative Documents ....................................................14
          (c)    [Intentionally Omitted] ................................................15
          (d)    Appraisal ..............................................................15
          (e)    [Intentionally Omitted] ................................................15
          (f)    Equipment Schedule and Bill of Sale ....................................15
          (g)    [Intentionally Omitted] ................................................15
          (h)    Evidence of Recording and Filing .......................................15
          (i)    Evidence of Insurance ..................................................15
          (j)    Evidence of Use of Proceeds ............................................15
          (k)    Taxes ..................................................................15
          (l)    [Intentionally Omitted] ................................................15
          (m)    Approvals ..............................................................15
          (n)    Litigation .............................................................16
          (o)    Requirements of Law ....................................................16
          (p)    Responsible Officer's Certificate of the Lessee ........................16
          (q)    The Lessee's Resolutions and Incumbency Certificate, etc. ..............16
          (r)    Responsible Officer's Certificate of the Guarantor .....................16
          (s)    The Guarantor's Resolutions and Incumbency Certificate, etc. ...........17
          (t)    Closing Date ...........................................................17
          (u)    No Material Adverse Effect .............................................17
          (v)    Responsible Officer's Certificate of the Lessor ........................17
          (w)    The Lessor's Resolutions and Incumbency Certificate, etc. ..............17
     SECTION 6.2.    Further Conditions Precedent .......................................17
          (a)    Representations and Warranties .........................................18
          (b)    Performance of Covenants ...............................................18
          (c)    Title ..................................................................18
          (d)    No Default .............................................................18

SECTION 7.

     [Intentionally Omitted] ............................................................18
</TABLE> 


                                     -ii-
    
     
<PAGE>
 
<TABLE> 
<CAPTION>
 
SECTION 8.
<S>                                                                                      <C> 
     REPRESENTATIONS ....................................................................18
     SECTION 8.1.    Representations of the Lessor ......................................18
          (a)    Due Organization, etc. .................................................19
          (b)    Authorization; No Conflict .............................................19
          (c)    Enforceability, etc. ...................................................19
          (d)    Litigation .............................................................19
          (e)    Assignment .............................................................19
          (f)    Defaults ...............................................................19
          (g)    Use of Proceeds ........................................................19
          (h)    Securities Act .........................................................20
          (i)    Chief Place of Business ................................................20
          (j)    Federal Reserve Regulations ............................................20
          (k)    Investment Company Act .................................................20
          (l)    No Plan Assets .........................................................20
     SECTION 8.2.    Representations of the Participants ................................20
          (a)    No Plan Assets .........................................................20
          (b)    Due Organization, etc. .................................................20
          (c)    Authorization; No Conflict .............................................21
          (d)    Enforceability, etc. ...................................................21
          (e)    Litigation .............................................................21
     SECTION 8.3.    Representations of the Lessee ......................................21
          (a)    Corporate Status .......................................................21
          (b)    Corporate Power and Authority ..........................................21
          (c)    No Violation ...........................................................22
          (d)    Litigation .............................................................22
          (e)    Governmental Approvals .................................................22
          (f)    Investment Company Act .................................................22
          (g)    Public Utility Holding Company Act .....................................22
          (h)    Information ............................................................22
          (i)    Taxes ..................................................................23
          (j)    Compliance with ERISA ..................................................23
          (k)    Environmental and Other Regulations ....................................23
          (l)    Offer of Securities, etc. ..............................................23
          (m)    Financial Statements ...................................................23
     SECTION 8.4.    Representations of the Lessee With Respect to the Property on
                     the Closing Date ...................................................24
          (a)    Representations ........................................................24
          (b)    Property ...............................................................24
          (c)    Title ..................................................................25
          (d)    Insurance ..............................................................25
          (e)    Lease ..................................................................25
          (f)    Protection of Interests ................................................25
          (g)    [Intentionally Omitted] ................................................25
</TABLE> 



                                     -iii-
     
<PAGE>
 
<TABLE> 

<S>                                                                         <C>
           (h)  Conditions Precedent........................................25
     SECTION 8.5.    Representations of the Lessee With Respect to 
                     Each Advance...........................................25
           (a)  Representations.............................................25
           (b)  Equipment...................................................26
           (c)  No Liens....................................................26
           (d)  Advance.....................................................26
           (e)  Lease.......................................................26
           (f)  Protection of Interests.....................................26

SECTION 9.

     PAYMENT OF CERTAIN EXPENSES............................................26
     SECTION 9.1     Transaction Expenses...................................26
     SECTION 9.2.    Brokers' Fees and Stamp Taxes..........................27
     SECTION 9.3.    Obligations............................................27

SECTION 10.
     OTHER COVENANTS AND AGREEMENTS.........................................27
     SECTION 10.1.   Covenants of the Lessee................................27
           (a)  Information.................................................27
           (b)  Compliance with Laws........................................29
           (c)  Further Assurances..........................................29
           (d)  Existence; Franchises; Businesses...........................29
           (e)  Books and Records...........................................29
           (f)  Minimum Consolidated Quick Ratio............................29
           (g)  Minimum Consolidated Tangible Net Worth.....................29
           (h)  Maximum Consolidated Total Liabilities to Consolidated 
                Tangible Net Worth..........................................30
           (i)  Minimum Consolidated Fixed Charge Ratio.....................30
           (j)  Profitability...............................................30
           (k)  Liens.......................................................30
           (l)  Fundamental Changes.........................................30
           (m)  Transactions with Affiliates................................31
           (n)  Restricted Payments.........................................31
           (o)  No Impairment of Deposits...................................31
           (p)  Investments.................................................31
     SECTION 10.2.   Cooperation with the Lessee............................32
     SECTION 10.3.   Covenants of the Lessor................................32
           (a)  Discharge of Liens..........................................32
           (b)  Change of Chief Place of Business...........................32

</TABLE> 
                                     -iv-
<PAGE>
 
<TABLE> 
<CAPTION> 
SECTION 11.
     <S>                                                                            <C>      
     PARTICIPATIONS.................................................................32
     SECTION 11.1.    Amendments; Actions on Default................................32
     SECTION 11.2.    General.......................................................34
     SECTION 11.3.    Conflicts.....................................................34
     SECTION 11.4.    Refusal to Give Consents or Fund..............................35
     SECTION 11.5.    Required Repayments...........................................35
     SECTION 11.6     Indemnification...............................................36
     SECTION 11.7.    Required Supplemental Payments................................36
     SECTION 11.8.    Application of Payments Received From Defaulting Participant  
                      As a Cure For Payment Defaults................................37
     SECTION 11.9.    Order of Application..........................................37
     SECTION 11.10.   Investments Pending Dispute Resolution; Overnight
                      Investments...................................................37
     SECTION 11.11.   Agent to Exercise Lessor's Rights.............................38
     SECTION 11.12.   Exculpatory Provisions Regarding the Lessor...................38

SECTION 12.

     TRANSFERS OF PARTICIPANTS' INTERESTS...........................................38
     SECTION 12.1.   Restrictions on and Effect of Transfer by Participants.........38
          (a)     Required Notice and Effective Date................................38
          (b)     Assumption of Obligations.........................................39
          (c)     Employee Benefit Plans............................................39
          (d)     Representations...................................................39
          (e)     Amounts; Agent's Fee..............................................40
          (f)     Applicable Law....................................................40
          (g)     Effect............................................................40
     SECTION 12.2.   Covenants and Agreements of Participants.......................40
          (a)     Participations....................................................40
          (b)     Transferee Indemnities............................................41
     SECTION 12.3.   Future Participants............................................41

SECTION 13. 

     INDEMNIFICATION................................................................41
     SECTION 13.1.   General Indemnification........................................41
     SECTION 13.2.   End of Term Indemnity..........................................43
     SECTION 13.3.   Environmental Indemnity........................................44
     SECTION 13.4.   Proceedings in Respect of Claims...............................45
     SECTION 13.5.   General Impositions Indemnity..................................46
          (a)     Indemnification...................................................46
          (b)     Payments..........................................................46
          (c)     Reports and Returns...............................................47
</TABLE> 

                                      -V-
 
<PAGE>
 
<TABLE> 

<S>                                                                                 <C>  
              (d)   Income Inclusions ..............................................47
              (e)   Witholding Taxes ...............................................48
              (f)   Contests of Impositions ........................................48
              (g)   Documentations of Withholding Status ...........................50
              (h)   Limitation of Tax Indemnification ..............................50
      SECTION 13.6.    Funding Losses ..............................................51
      SECTION 13.7.    Regulation D Compensation ...................................51
      SECTION 13.8.    Basis for Determining Interest Rate Inadequate or Unfair.....51
      SECTION 13.9.    Illegality...................................................52
      SECTION 13.10.   Increased Cost and Reduced Return............................53
      SECTION 13.11.   Substitution of Participant..................................54
      SECTION 13.12.   Indemnity Payment in Addition to Residual Value Guarantee
              Amount................................................................54

SECTION 14.

      THE AGENT ....................................................................54
      SECTION 14.1.    Appointment..................................................54
      SECTION 14.2.    Delegation of Duties.........................................55
      SECTION 14.3.    Exculpatory Provisions.......................................55
      SECTION 14.4.    Reliance by Agent............................................55
      SECTION 14.5.    Notice of Default............................................55
      SECTION 14.6.    NonReliance on Agent and Other Participants..................56
      SECTION 14.7.    Indemnification..............................................56
      SECTION 14.8.    Agent in its Individual Capacity.............................57
      SECTION 14.9.    Successor Agent..............................................57

SECTION 15.

      MISCELLANEOUS ................................................................57
      SECTION 15.1.    Survival of Agreements.......................................57
      SECTION 15.2.    No Broker, etc ..............................................58
      SECTION 15.3.    Notices......................................................58
      SECTION 15.4.    Counterparts.................................................58
      SECTION 15.5.    Amendments ..................................................58
      SECTION 15.6.    Headings, etc ...............................................59
      SECTION 15.7.    Parties in Interest..........................................59
      SECTION 15.8.    GOVERNING LAW ...............................................60
      SECTION 15.9.    Severability ................................................60
      SECTION 15.10.   Liability limited............................................60
      SECTION 15.11.   Further Assurances...........................................60
      SECTION 15.12.   Submission to Jurisdiction...................................61
      SECTION 15.13.   Confidentiality..............................................61
      SECTION 15.14.   WAIVER OF JURY TRIAL.........................................61
      SECTION 15.15.   Usury Savings Clause.........................................61
</TABLE> 



                                     -vi-


<PAGE>
 
                                   SCHEDULES

SCHEDULE I        Participants' Commitments
SCHEDULE II       Notice Information and Funding Offices
SCHEDULE III      Environmental Matters

                                  APPENDICES

APPENDIX 1        Definitions and Interpretation

                                   EXHIBITS

EXHIBIT A         Intentionally Omitted
EXHIBIT B         Form of Funding Request
EXHIBIT C         Intentionally Omitted
EXHIBIT D         Intentionally Omitted
EXHIBIT E         Intentionally Omitted
EXHIBIT F         Intentionally Omitted
EXHIBIT G         Intentionally Omitted
EXHIBIT H         Intentionally Omitted
EXHIBIT I         Form of Lessee's Completion Certificate
EXHIBIT J         Form of Assignment and Acceptance
EXHIBIT K         Form of Participant's Letter
EXHIBIT L         Assignment of Lease and Consent to Assignment
EXHIBIT M         Construction Agency Agreement
EXHIBIT N         Construction Agency Agreement Assignment
EXHIBIT O         Guarantee
EXHIBIT P         Defeasance Deposit Agreement
EXHIBIT Q         Intentionally Omitted
EXHIBIT R         Security Agreement
EXHIBIT S         Form of Financial Covenant Compliance Certificate

                                     -vii-




<PAGE>
 
                            PARTICIPATION AGREEMENT

     THIS PARTICIPATION AGREEMENT, dated as of August 15, 1997 (this 
"Participation Agreement"), is entered into by and among VITESSE SEMICONDUCTOR 
 -----------------------
CORPORATION, a Delaware corporation, as Lessee (together with its permitted 
successors and assigns, the "Lessee"); LEASE PLAN NORTH AMERICA, INC., an 
                             ------
Illinois corporation, as Lessor (together with its permitted successors and 
assigns, the "Lessor"); ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH, 
              ------
as a Participant (together with its permitted successors and assigns each a 
"Participant" and collectively the "Participants"); and ABN AMRO BANK N.V., SAN 
 -----------                        ------------ 
FRANCISCO INTERNATIONAL BRANCH, as Agent (in such capacity, together with its 
successors in such capacity, the "Agent") for the Participants.
                                  -----

                             PRELIMINARY STATEMENT
     In accordance with the terms of this Participation Agreement, the Lease and
the other Operative Documents,

           A.  the Lessor contemplates purchasing certain items of Equipment to 
     be used in connection with the Lessee's semiconductor fabrication facility
     located in Colorado Springs, Colorado and leasing, as Lessor, such
     Equipment to the Lessee under the Lease; and

           C.  the Lessor wishes to obtain, and the Participants are willing to 
     provide, financing of the funding of the costs of acquisition of such
     Equipment through the purchase of Participation Interest in the Lease and
     the Rent.

     In consideration of the mutual agreements contained in this Participation 
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

                                  SECTION 1.

                          DEFINITIONS; INTERPRETATION

     Unless the context shall otherwise require, capitalized terms used and not 
defined herein shall have the meanings assigned thereto in Appendix 1 hereto for
                                                           ----------
all purposes hereof; and the rules of interpretation set forth in Appendix 1 
                                                                 ---------- 
hereto shall apply to this Participation Agreement.
<PAGE>
 
                                  SECTION 2.

                                 CLOSING DATE

     The closing date (the "Closing Date") shall occur on the date of the 
                            ------------
initial Advance, which shall be the earliest date on which all the conditions 
precedent thereto set forth in Sections 6.1 and 6.2 hereof shall have been 
                               ------------     ---
satisfied or waived by the applicable parties as set forth therein.

                                  SECTION 3.

               ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES

     SECTION 3.1.  Lessor Commitment.  Subject to the conditions and terms 
                   -----------------
hereof, the Lessor shall take the following actions at the written request of 
the Lessee from time to time during the Commitment Period:

          (a)    make Advances (out of funds provided by the Participants) for 
the purpose of financing the acquisition of the Equipment;

          (b)    acquire the Equipment (using funds provided by the 
Participants); and

          (c)    lease the Property as lessor to the Lessee under the Lease.

     SECTION 3.2   Participants' Commitments.  Subject to the terms and 
                   -------------------------
conditions hereof, each Participant severally shall purchase a Participation 
Interest in the Advances being made by the Lessor at the request of the Lessee 
from time to time during the Commitment Period by making available to the Lessor
on each Funding Date an amount in immediately available funds equal to such 
Participants' Commitment Percentage of the amount of the Advance being funded on
such Funding Date.  Notwithstanding any other provision hereof, no Participant 
shall be obligated to purchase its Participation Interest in any Advance if (i) 
the amount of such purchase would exceed its Available Commitment, or (ii) if, 
after giving effect to the proposed Advance, the outstanding aggregate amount of
such Participant's Participation Interest in the Advances would exceed such 
Participant's Commitment.

     SECTION 3.3   [Intentionally Omitted].

     SECTION 3.4   Procedures for Advances.  (a) With respect to each funding of
                   -----------------------
an Advance, the Lessee shall give the Lessor and the Agent prior written notice 
not later than 10:00 a.m., San Francisco time, three Business Days prior to the 
proposed Funding Date, pursuant, in each case, to a Funding Request 
substantially in the for of Exhibit B (a "Funding Request"), specifying (i) the 
                            ---------     ---------------
proposed funding Date, (ii) the amount and purpose of the Advance requested, 
(iii) the initial Interest Period for such Advance, (iv) the payee of such 
Advance, and (v) the Property Costs of the applicable Property.  The Agent shall
promptly forward a copy of such Funding REquest to each Participant.  The 
Lessee shall not request more than one Funding Date during any calendar month.

                                      -2-
<PAGE>
 
Each Advance (other than an Interest Payment Advance and the initial Advance) 
shall be in a minimum amount of $1,000,000 or in amounts of $100,000 in excess 
thereof. Subject to the satisfaction or waiver of the conditions precedent to 
such Advance set forth in Section 6, each Participant shall purchase its 
                          --------- 
Participation Interest in such Advance by making available to the Lessor its 
proportionate share of such Advance in immediately available federal funds by 
wire transfer to the Agent for deposit to the Lessee's demand deposit account 
with the Agent not later than 12:00 noon, San Francisco time, on the applicable 
Funding Date. Upon (i) the Lessee's receipt of the funds provided by the 
Participants with respect to an Advance, and (ii) satisfaction or waiver of the 
conditions precedent to such Advance set forth in Section 6, the Lessee shall 
                                                  ---------
pay or retain as payment or reimbursement of, Property Costs, in each case from 
the funds provided by the Participants for such Advance.

          (b)    On each Funding Date requested pursuant to Section 3.4(a), the 
                                                            --------------
Lessee shall deposit immediately available funds with the Defeasance Deposit 
Depositary Bank in the amount of the Tranche A Participation Interest in the 
Advance so requested pursuant to the Defeasance Deposit Agreement. Each such 
deposit (collectively, the "Defeasance Deposit") shall be the property of the 
                            ------------------
Defeasance Deposit Depositary Bank and shall be held and administered in 
accordance with the Defeasance Deposit Agreement.

     SECTION 3.5.  ALLOCATION OF COMMITMENTS. Schedule I hereto contains an 
                   -------------------------  ----------
allocation for each Participant of (i) the amount of its Commitment 
representing its Tranche A Participation Interest ("Tranche A Participation 
                                                    -----------------------
Interest Commitment"), (ii) the amount of its commitment representing its 
-------------------
Tranche B Participation Interest ("Tranche B Participation Interest 
                                  ---------------------------------
Commitment"), and (iii) the percentage referred to in the definition of the term
----------
"Participation Interest". The Lessee, the Lessor and the Participants have
approved all such allocations and percentages. Schedule I shall be amended (i)
as required to reflect changes in the allocations set forth thereon due to the
addition of additional Participants pursuant to Section 12.1 and (ii) to reflect
                                                ------------
the payment of any Renewal Term Payment pursuant to Section 21.1 of the Lease
and the distribution of such payment to the Participants pursuant to Section
                                                                     -------
3.13.
----               
     SECTION  3.6  Termination, Reduction or Extension of Participants' 
                   ---------------------------------------------------
Commitments. (a) The Lessor shall have the right, upon not less than five 
-----------
Business Days' written notice to the Agent, to terminate the Participants' 
Commitments or, from time to time, to reduce the amount of the Participants'
Commitments, provided that (i) after giving effect to such reduction the 
             -------- ----
aggregate outstanding principal amount of the Tranche A Participation Interests 
shall not exceed the aggregate Tranche A Participation Interest Commitments, 
(ii) after giving effect to such reduction, the aggregate outstanding principal
amount of the Tranche B Participation Interests shall not exceed the aggregate
Tranche B Participation Interest Commitments, and (iii) any such reduction shall
be made pro rata among the Participants' Commitments within each Tranche. Prior
to the occurrence and continuance of an Event of Default the Lessor shall
exercise such right only as directed by the Lessee and after the occurrence and
during the continuance of an Event of Default the Lessor shall exercise such
right only as directed by the Required Participants. In the event that, after
the occurrence and during the continuance of any Event of Default, the Lessor
and the Participants exercise such right, the Lessee may exercise its Purchase
Option under Section 20.1 of the Lease upon not less than ten (10) days' written
notice to the Lessor.

                                      -3-
<PAGE>
 
          (b) The Lessee may, by written request to the Lessor and Agent (which
the Agent shall promptly forward to each Participant) given not later than 90
days prior to the Maturity Date then in effect, request (an "Extension Request")
                                                             -----------------
that the Maturity Date be extended for up to two one (1) - year periods
commencing on the date following the Maturity Date then in effect. The extension
of the Maturity Date contemplated by any Extension Request shall become
effective as of the date following the Maturity Date then in effect; (the
"Extension Effective Date") provided that:
 ------------------------                     

               (A) on both the date of the Extension Request and the Extension
     Effective Date, (x) each of the representations and warranties made by the
     Lessee and the Lessor in or pursuant to the Operative Documents shall be
     true and correct in all material respects as if made on and as of each such
     date, except for representations and warranties made as of a specific date,
     which shall be true and correct in all material respects as of such date,
     (y) no Event of Default shall have occurred and be continuing, and (z) on
     each of such dates the Agent shall have received a certificate of the
     Lessee and the Lessor, each as to itself, as to the matters set forth in
                                                                             
     clause (x) above and from the Lessee as to the matters set forth in clause
     -----------                                                         ------
     (y) above,
     ---
        
               (B) the Agent and the Required Participants shall have received
     satisfactory evidence that the Expiration Date shall, after giving effect
     to any extension thereof which has become effective on or prior to such
     Extension Effective Date, occur on the Maturity Date as so extended,

               (C) on or prior to November 1 of the year in which an
     Extension Request is made, the Lessor shall have received a Renewal Term
     Appraisal, and

               (D) on the Maturity Date then in effect the Lessee
     shall pay to the Lessor the Renewal Term Payment.

          (c)    The Lessee shall notify the Lessor and the Participants whether
it wishes to extend the Construction Period to the date that is six months after
the initial Outside Completion Date at least thirty (30) days prior to the
initial Outside Completion Date. The Construction Period and the Outside
Completion Date shall not be extended unless each Participant, in its sole
discretion, consents thereto within fifteen (15) days of the initial Outside
Completion Date. Each Participant may make such decision based upon such credit
information regarding the Lessee, interest rates and market conditions and such
other factors as it may consider relevant. If the Construction Period is so
extended, the Lessee shall pay Commitment Fees to the Agent for the account of
the Tranche B Participants during such extension of the Construction Period.

          SECTION 3.7. Interest Rates and Payment Dates. (a) Each Advance
                       --------------------------------
representing Tranche A Participation Interests shall bear interest at a rate per
annum determined as follows:

               (i) during the Term of the Lease and ending on the initial
     Expiration Date, each Advance representing Tranche A Participation
     Interests shall bear interest at a rate per annum equal to [*] for the
     period commencing on the initial Funding Date and ending on the initial
     Expiration Date; and

                         [* CONFIDENTIAL INFORMATION]

                                       4
<PAGE>
 
          (ii) during any Renewal Term of the Lease, if any, each Advance
     representing Tranche A Participation Interests shall bear interest at a
     rate per annum equal to [*] for the period commencing on the first day of
     such Renewal Term and ending on the last day of such Renewal Term.
     
     Each Advance in respect of the Tranche B Participation Interests shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum for such Interest Period equal to the Three Month Eurodollar Rate
determined for such day plus the Applicable Margin.
 
     (b) If all or a portion of(i) the amount of any Advance, (ii) any interest
payable thereon or (iii) any other amount payable hereunder shall not be paid
when due (whether at the stated maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum which is equal to the
Overdue Rate.
 
     (c) Interest shall be payable in cash (except as provided in paragraphs (d)
and (e) below) in arrears on each Scheduled Payment Date, provided that (i)
interest accruing pursuant to paragraph (b) of this Section 3.7 shall be payable
from time to time on demand and (ii) each prepayment of Advances shall be
accompanied by accrued interest to the date of such prepayment on the amount of
Advances so prepaid.
 
     (d) On each date which is three Business Days prior to any Scheduled
Payment Date during the Interest Capitalization Period, the Lessee shall be
deemed to have requested an Advance comprised of an Interest Payment Advance
pursuant to Section 3.4 and the Lessor shall be deemed to have requested a
purchase pursuant to Section 3.2 of Participation Interests in such Advance in
an amount equal to the aggregate amount of the Basic Rent due and payable on
such date with respect to accrued interest on outstanding Advances. The Funding
Date with respect to any such Interest Payment Advance and purchase of
Participation Interests therein shall be the relevant Scheduled Payment Date
(provided that such Advance and the purchase of such Participation Interests
shall be subject to satisfaction of the applicable conditions precedent set
forth in Section 6) and the proceeds of such payment shall be applied to pay
such accrued interest. On each such Funding Date, the Property Cost shall be
increased by an amount equal to the Basic Rent paid on such date with respect to
such Property with the proceeds of such payment, and the Property Cost of each
item of Equipment shall be increased by its pro rata portion of such Advance.
 
     (e) After the Interest Capitalization Period, interest accruing on the
Tranche A Participation Interests shall be payable by offsetting interest
accruing on the Defeasance Deposit pursuant to the Defeasance Deposit Agreement
as of the applicable Payment Date.
 
     SECTION 3.8. Computation of Interest. (a) Whenever it is calculated on the
basis of the Alternate Base Rate, interest shall be calculated on the basis of a
365- (or 366-, as the case may be) day year for the actual days elapsed; and,
other, vise, interest shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Agent shall as soon as practicable after the
commencement of each Interest Period notify the Lessor, the Lessee and the
Participants of each determination of a Three Month Eurodollar Rate. Any change
in the interest rate on an Advance

                         [* CONFIDENTIAL INFORMATION]

                                       5
<PAGE>
 
resulting from a change in the Alternate Base Rate or the Eurocurrency Reserve 
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Agent shall as soon as practicable
notify the Lessor, the Lessee and the Participants of the effective date and the
amount of each such change in interest rate.
 
     (b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Lessor, the
Lessee and the Participants in the absence of manifest error. The Agent shall,
at the request of such parties, deliver to such parties a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
Section 3.8(a).
 
     SECTION 3.9. Pro Rata Treatment and Payments. (a) Each participation in the
Advances by the Participants hereunder and each reduction of the Commitments of
the Participants shall be made pro rata among the Tranche A Participants and
Tranche B Participants according to the respective Commitment Percentages of
each such Participant. Except as otherwise provided in Sections 3.10 - 3.20,
 .each payment (including each prepayment) by the Lessor on account of
Participation Interests representing the amount of and interest on the Advances
shall be made pro rata among the Tranche A Participants and Tranche B
Participants according to the respective Participation Interests of each such
Participant. All payments (including prepayments) to be made by the Lessor
'hereunder to the Participants with respect to their Participation Interests,
whether on account of principal, interest or otherwise, shall be payable to the
extent received by the Lessor from or on behalf of the Lessee and shall be made
without setoff or counterclaim and shall be made prior to 12:00 noon, San
Francisco time, on the due date thereof to the Agent, for the account of the
Participants, at the Agent's office referred to in Section 15.3 of this
Agreement, in Dollars and in immediately available funds. The Agent shall
distribute such payments to the Participants promptly upon receipt in like funds
as received. If any payment hereunder (other than payments of Participation
Interests in the Advances) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day. If any payment of Participation Interests in an Advance becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension or shortening of the due date of any payment pursuant to the
preceding two sentences, interest thereon shall be payable at the then
applicable rate during Such extension or until such shortened due date, as the
case may be.
 
     (b) Unless the Agent shall have been notified in writing by any Participant
prior to funding its Participation Interest in an Advance that such Participant
will not make its share of such Advance available to the Agent, the Agent may
assume that such Participant is making such amount available to the Agent, and
the Agent may, in reliance upon such assumption, make available to the Lessor a
corresponding amount. If such amount is not made available to the Agent by the
required time on the Funding Date therefor, such Participant shall pay to the
Agent, on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Participant makes
such amount immediately available to the Agent. A certificate of the Agent
submitted to any Participant with respect to any amounts owing under this
Section 3.9(b) shall

                                       6
<PAGE>
 
be conclusive in the absence of manifest error. If such Participant's share of
such Advance is not made available to the Agent by such Participant within three
Business Days of such Funding Date, the Agent shall also be entitled to recover
such amount with interest thereon at the rate borne by such Advance, on demand,
from the Lessee, to the extent the Agent has made a corresponding amount of the
Advance to the Lessee.
 
SECTION 3.10. The Account. The Agent may if it so desires establish an account
              -----------
(the "Account") into which the Agent shall deposit all payments, receipts and
      -------
other consideration of any kind whatsoever paid under the Lease and received by
the Agent pursuant to this Agreement, the Lease and any other Operative
Document. The Agent shall make distributions of such payments, receipts and
other consideration (and, if an Account is used, from the Account) pursuant to
the requirements of Sections 3.11 -3.20 hereof. Notwithstanding anything
                    -------------------
contained in this Section 3 or the other Operative Documents to the contrary, to
the extent Tranche A Basic Rent, the Residual Value Guarantee Amount or any
portion of Asset Termination Value payable to the Lessor on account of the
Tranche A Participation Interests in the Advances is to be paid from the
interest accruing on, or the principal amount of, the Defeasance Deposit
pursuant to any provision of the Lease or the Defeasance Deposit Agreement, (i)
such payments shall not require a cash transfer from the Lessee but shall be
payable by means of an offset against interest accruing on, or the applicable
amount of principal of, the Defeasance Deposit and (ii) the Lessee shall not be
required to make any such transfer of such amounts to the Tranche A
Participants.

SECTION 3.11. Basic Rent. Each payment (or portion thereof) of Basic Rent
              ----------  
comprising interest on the Advances (and any payment of interest on overdue
installments of such component of Basic Rent) received by the Agent shall be
distributed by the Agent as promptly as possible (it being understood that any
                                                  -------------------
payments of such component of Basic Rent received by the Agent on a timely basis
and in accordance with the provisions of the Lease shall be distributed on the
date received in the funds so received) to the Participants pro rata in
                                                            --------
accordance with, and for application to, the portion of their Participation
Interests in such portion of Basic Rent, as well as in any overdue interest due
to such Participant (to the extent permitted by applicable law); provided, that
(i) interest accruing on the Defeasance Deposit shall only be applied to pay
Basic Rent owing to the Tranche A Participants; and (ii) Basic Rent paid in cash
by the Lessee in respect of interest accruing on the Tranche B Participation
Interests shall only be applied to pay Basic Rent owing to the Tranche B
Participant.s.

SECTION 3.12. Purchase Payments by Lessee. Any payment received by the Agent as
              ---------------------------
a result of:

(a) the purchase of the Lessor's interest in the Property in connection with the
Lessee's exercise of its Purchase Option or Partial Purchase Option under
Section 20.1 of the Lease, or

(b) the Lessee's compliance with its obligation to purchase the Lessor's
interest in the Property in accordance with Section 20.2 of the Lease, or

                                       7
<PAGE>
 
(c) the payment of the Asset Termination Value in accordance with Sections
16.2(b), I6.3 or 16.4 of the Lease, or
 
(d) the Lessee falling to fulfill one or more of the conditions to exercise of
the Remarketing Option pursuant to Section 22.1 of the Lease and the Agent's
receipt pursuant to the next-to-last paragraph of Section 22.1 of the Lease of
the Asset Termination Value in accordance with Section 20.2 of the Lease,

shall be distributed by the Agent as promptly as possible (it being understood
that any such payment received by the Agent on a timely basis and in accordance
with the provisions of the Lease shall be distributed on the date on which such
funds are so received) to pay in full the Participant Balance of each
Participant and in the case that the amount so distributed shall be insufficient
to pay in full as aforesaid, then pro rata among the Participants without
priority of one over the other, in the proportion that the Participant Balance
of each bears to the aggregate of all of the Participant Balances; provided,
that any payment received by means of offset against the Defeasance Deposit
shall be applied in the following order of priority:

first, to the Tranche A Participants for application to pay in full the Tranche
-----
A Participation Interest Balance of each Tranche A Participant; and
 
second, to the Tranche B Participants for application to pay in full the Tranche
------
B Participation Interest Balance of each Tranche B Participant, and in the case
where the amounts so distributed shall be insufficient to pay in full as
aforesaid, then pro rata among the Tranche B Participants without priority of
                --------
one Tranche B Participant over the other in the proportion that each such
Tranche B Participant's Tranche B Participation Interest Balance bears to the
aggregate Tranche B Participation Interest Balances of all Tranche B
Participants. To the extent that any amount of the Defeasance Deposit Collateral
remains in any Account (as defined in the Defeasance Deposit Agreement) after
all payments required to be made by this Section 3.12 and Section 3.13 have been
made and the Participation Interests have been paid in full, the Agent shall
cause such remaining amount to be refunded promptly to the Lessee.
 
(e) Notwithstanding any other provision in this Agreement, the Lease or any
other Operative Document to the contrary, the Lessee, the Agent, the
Participants and the Lessor agree that upon the maturity or acceleration of the
Lessee's obligation to pay the Asset Termination Value, Residual Value Guarantee
Amount or Purchase Option Price, any and all amounts of Defeasance Deposit
Collateral that have been deposited by the Lessee pursuant to the Defeasance
Deposit Agreement and that have not been withdrawn by the Lessee or offset or
applied by the Lessor, the Agent or any Participant (in accordance with the
terms of the Defeasance Deposit Agreement) as of such maturity or acceleration
date, shall be required to be applied by the Agent and the Lessor to satisfy the
Lessee's obligation to pay such portion of the Asset Termination Value, Purchase
Option Price or Residual Value Guarantee represented by the Defeasance Deposit
Collateral notwithstanding the fact that such amounts may not then be actually
available, for any reason attributable to the Lessor, the Agent or any
Participant (including, without limitation any fraud or misapplication of funds
by the Lessor, the Agent or any Participant, decline in value of the
 

                                       8
<PAGE>
 
Collateral or the filing by or against the Lessor, the Agent or any Participant
of any insolvency, bankruptcy, dissolution, liquidation, reorganization or
similar proceeding, but except to the extent resulting from a proceeding
involving the insolvency of the Lessee), at Defeasance Deposit Depositary Bank
to pay such obligation.
 
     SECTION 3.13. Residual Value Guarantee Amount Payment or Renewal Term
                   -------------------------------------------------------
Payments by Lessee. The payment by the Lessee to the Agent of (i) the Residual
------------------
Value Guarantee Amount in accordance with Article XXII of the Lease (including
payment by means of offset against the Defeasance Deposit) upon the Lessee's
exercise of the Remarketing Option or (ii) a Renewal Term Payment in accordance
with Section 21.1 of the Lease (including payment by means of offset against the
Defeasance Deposit) in connection with the Lessee's exercise of a Renewal Option
shall be distributed by the Agent as promptly as possible (it being understood
that any such payment received by the Agent on a timely basis in accordance with
the provisions of the Lease shall be distributed on the date on which such funds
are so received) in the following order of priority:

         first, to the Tranche A Participants for application to pay in full
         -----
     the Tranche A Participation Interest Balance of each Tranche A Participant;
     and
 
          second, to the Tranche B Participants for application to pay in full
          ------
     the Tranche B Participation Interest Balance of each Tranche B Participant,
     and in the case where the amounts so distributed shall be insufficient to
     pay in full as aforesaid, then pro rata among the Tranche B Participants
     without priority of one Tranche B Participant over the other in the
     proportion that each such Tranche B Participant's Tranche B Participation
     Interest Balance bears to the aggregate Tranche B Participation Interest
     Balances of all Tranche B Participants.
 
     SECTION 3.14. Sales Proceeds of Remarketing of Property. Any payments
                   -----------------------------------------
received by the Agent as proceeds from the sale of the Property sold pursuant to
the Lessee's exercise of the Remarketing Option pursuant to Article XXII of the
Lease, together with any payment made by the Lessee as a result of an appraisal
pursuant to Section 13.2 of this Agreement, shall be distributed by the Agent as
            ------------
promptly as possible (it being understood that any such payment received by the
                      -------------------
Agent on a timely basis and in accordance with the provisions of the Lease shall
be distributed on the date received) in the funds so received in the following
order of priority:

         first, to the Tranche B Participants for application to pay in full the
         -----
     Tranche B Participation Interest Balance of each Tranche B Participant, and
     in the case where the amount so distributed shall be insufficient to pay in
     full as aforesaid, then pro rata among the Tranche B Participants without
     priority of one Tranche B Participant over the other in the proportion that
     each Tranche B Participant's Tranche B Participation Interest Balance bears
     to the aggregate Tranche B Participation Interest Balances of all Tranche B
     Participants;
 
          second, to the Tranche A Participants for application to pay in full
          ------
     the Tranche A Participation Interest Balance of each Tranche A Participant,
     and in the case where the amount so distributed shall be insufficient to
     pay in full as aforesaid, then pro rata among
                                    --------

                                       9
<PAGE>
 
     the Tranche A Participants without priority of one Tranche A Participant 
     over the other in the proportion that each Tranche A Participant's Tranche
     A Participation Interest Balance bears to the aggregate Tranche A 
     Participation Interest Balances of all Tranche A Participants; and
     
          third, the balance, if any, shall be promptly distributed to, or as
     directed by, the Lessee.
 
     SECTION 3.15. Supplemental Rent. All payments of Supplemental Rent received
by the Agent (excluding any amounts payable pursuant to the preceding provisions
of this Section 3) shall be distributed promptly by Agent upon receipt thereof
to the Persons entitled thereto pursuant to the Operative Documents.
 
     SECTION 3.16. Excepted Payments. Notwithstanding any other provision of
this Agreement or the Operative Documents, any Excepted Payment received at any
time by the Agent shall be distributed promptly to the Person entitled to
receive such Excepted Payment pursuant to the Operative Documents.
 
     SECTION 3.17. Distribution of Payments After Event of Default. (a) All
payments received and amounts realized by the Lessor or the Agent after an Event
of Default exists, including under the Guarantee or the Defeasance Deposit
Agreement and proceeds from the sale of any of the Property, proceeds of any
amounts from any insurer or any Governmental Authority in connection with any
Casualty or Condemnation, or from Lessee as payment in accordance with the
Lease, including any payment received from Lessee pursuant to Section 17 of the
Lease, shall, if received by Lessor, be paid to the Agent as promptly as
possible and shall be distributed by the Agent as promptly as possible (it being
understood that any such payment received by the Agent on a timely basis and in
accordance with the provisions of the Operative Documents shall be distributed
on the date received in the funds so received) in the following order of
priority:
 
          first, so much of such payment or amount as shall be required to
     reimburse the Lessor or the Agent for any tax, expense or other loss
     incurred by the Lessor or the Agent (including, to the extent not
     previously reimbursed, those incurred in connection with any duties of the
     Agent as the Agent) and any unpaid ongoing fees of the Lessor and the Agent
     shall be distributed to each of them for its own account;
 
          second, so much of such payments or amounts as shall be required to
     reimburse the then existing or prior Participants for payments made by them
     to the Lessor pursuant to Section 18.1 of the Lease (to the extent not
     previously reimbursed) and to pay such then existing or prior Participants
     the amounts payable to them pursuant to any expense reimbursement or
     indemnification provisions of the Operative Documents shall be distributed
     to each such Participant without priority of one over the other in
     accordance with the amount of such payment or payments payable to each such
     Person;
 
          third, (i) in the case of a sale of the Property, in the order of
     priority set forth in Section 3.14, (ii) in the case of the application of
     the Defeasance Deposit, in the order of

                                      10
<PAGE>
 
     priority set forth in Section 3.13 and (iii) in all other cases, so much 
     of such amount as shall be required to pay in full the Participant 
     Balance of each Participant, and in the case that the amounts so
     distributed shall be insufficient to pay in full as aforesaid, then pro
     rata among the Participants without priority of one over the other, in the
     proportion that the Participant Balance of each bears to the aggregate
     Participant Balances of all the Participants; and
 
          fourth, the balance, if any, of such payment or amounts remaining
     thereafter shall be promptly distributed to, or as directed by, the Lessee.
 
     SECTION 3.18. Other Payments. (a) Except as otherwise provided in Sections
3.11, 3.12, 3.17 and paragraph (b) below,
 
          (i) any payment received by the Agent for which no provision as to the
     application thereof is made in the Operative Documents or elsewhere in this
     Section 3, and
 
          (ii) all payments received and amounts realized by the Agent under the
     Lease or otherwise with respect to the Property or the Defeasance Deposit
     to the extent received or realized at any time after indefeasible payment
     in full of the Participant Balances of all of the Participants and any
     other amounts due and owing to the Lessor, the Participants or the Agent,
 
shall be distributed forthwith by the Agent in the order of priority set forth
in Section 3.12 (in the case of any payment described in clause (i) above) or
in Section 3.17 hereof (in the case of any payment described in clause (ii)
above), except, that (i) in the case of any payment described in clause (ii)
above, such payment shall be distributed omitting clause third of such Section
3.17; and the balance, if any (in the case of any payment described in clause
(i) or (ii) above), shall be distributed to, or as directed by, the Lessee, and
(ii) any payments received under the Guaranty shall be distributed solely to
the Participants in accordance with the priorities set forth in Section 3.17.
 
     (b) Except as otherwise provided in Sections 3.11 and 3.12 hereof, any
payment received by the Agent for which provision as to the application thereof
is made in an Operative Document but not elsewhere in this Section 3 shall be
distributed forthwith by the Agent to the Person and for the purpose for which
such payment was made in accordance with the terms of such Operative Document.
 
     SECTION 3.19. Casualty and Condemnation Amounts. Any amounts payable to the
Lessor as a result of a Casualty or Condemnation pursuant to Section 15.1 of the
Lease (but excluding any amounts payable pursuant to Section 16.2 of the Lease)
shall, if no Lease Event of Default exists, be paid over to Lessee for the
rebuilding, replacement or restoration of that portion of the Property to which
such Casualty or Condemnation applied, and any excess proceeds shall be paid to
the Lessee.
 
     SECTION 3.20. Order of Application. To the extent any payment made to any
Participant pursuant to Sections 3.1-2, 3.13, 3.14 or 3.15 is insufficient to
pay in full the Participant Balance of

                                      11
<PAGE>
 
such Participant, then each such payment shall first be applied to its
Participation Interest in accrued interest and then to its Participation
Interest in principal of the Advances.
 
                                  SECTION 4. 

                                     FEES

     SECTION 4.1. Commitment Fees. The Lessee shall pay to the Agent for the
account of each Tranche B Participant a commitment fee (the "Commitment Fees")
for the period from and including the Closing Date to the earlier of (i) the
Completion Date or (ii) the Outside Completion Date, computed in the case of
each Tranche B Participant at a rate per annum equal to the Commitment Fee Rate
on the amount of the Available Tranche B Commitment of such Participant, in each
case during the period for which payment is made, payable on each Commitment Fee
Payment Date. Commitment Fees shall be calculated on the basis of a 365- (or 
366-, as the case may be) day year for the actual days elapsed.
 
     SECTION 4.2. Lease Arrangement Fee. The Lessee shall pay to the Arranger
the lease arrangement fee (the "Lease Arrangement Fee") referred to in that
certain commitment letter from the Arranger to the Lessee dated as of June 26,
1997, at such times as are specified in such letter.
 
     SECTION 4.3. Defeasance Fee. The Lessee shall pay to the Agent for the
account of each Tranche A Participant a defeasance fee (the "Defeasance Fee") in
the amount of [*] of the aggregate Tranche A Participation Interest Commitment
on the Closing Date.
 
     SECTION 4.4. Overdue Fees. If all or a portion of any fee due hereunder
shall not be paid when due, such overdue amount shall bear interest, payable by
the Lessee on demand, at a rate per annum equal to the Overdue Rate from the
date of such nonpayment until such amount is paid in full (as well after as
before judgment).
 
                                  SECTION 5.
 
                       CERTAIN INTENTIONS OF THE PARTIES
 
     SECTION 5.1. Nature of Transaction. (a) It is the intent of the parties
hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
the Lessee's financial reporting, and (ii) for purposes of federal, state and
local income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee. Nevertheless, the Lessee
acknowledges and agrees that neither the Agent, the Lessor nor any Participant
has made any representations or warranties to the Lessee concerning the tax,
accounting or legal characteristics of the Operative Documents and that the
Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents as it deems appropriate.

                         [* CONFIDENTIAL INFORMATION]

                                      12
<PAGE>
 
     Notwithstanding any provision of this Participation Agreement to the
contrary, the parties hereto agree and declare that: (i) the transactions
contemplated by the Lease are intended to have a dual, rather than single, form;
and (ii) all references in this Participation Agreement to the "lease" of the
Property which fail to reference such dual form do so as a matter of convenience
only and do not reflect the intent of the parties hereto as to the true form of
such arrangements. The parties hereto agree that, in accordance with their
intentions expressed herein and the substance of the transactions contemplated
hereby, the Lessee (and not the Lessor) shall be treated as the owner of the
Property for federal, state, and local income and property tax purposes and the
Lease shall be treated as a financing arrangement. The Lessee shall be entitled
to take any deduction, credit, allowance or other reporting, filing or other tax
position consistent with such characterizations. The Lessor and the Participants
shall file any federal, state or local income tax returns, reports or other
statements in a manner which is consistent with the foregoing provisions of this
Section 5.1, provided that the Lessor and any Participant may take a position
that is inconsistent with the Lessee's status as owner of the Property if: (x)
there has been a change in law or regulation so requiring as supported by an
opinion of counsel reasonably acceptable to the Lessee that there is not
substantial authority for such a consistent reporting position; or (y) (A) there
has been an administrative or judicial holding that the Lessee is not the owner
of the Property for such tax purposes, (B) the Lessee has no fight to contest
such holding pursuant to Section 13.5 of the Participation Agreement, and (C)
the Lessee's lack of right to contest is not the result of an Indemnitee's
waiver of its fight to indemnification pursuant to Section 13.5(f)(iii) of the
Participation Agreement or failure of the amount at issue to exceed the minimum
amount set forth in Section 13.5(f)(iv)(B) of the Participation Agreement.
 
     (b) Specifically, without limiting the generality of subsection (a) of this
Section 5.1, the parties hereto intend and agree that with respect to the nature
of the transactions evidenced by the Lease in the context of the exercise of
remedies under the Operative Documents, including, without limitation, in the
case of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or statute
of the United States of America or any State or Commonwealth thereof affecting
the Lessee, the Lessor or any Participant or any enforcement or collection
actions, (i) the transactions evidenced by the Operative Documents are loans
made by the Lessor and the Participants as unrelated third party lenders to the
Lessee secured by the Property, (ii) the obligations of the Lessee under the
Lease to pay Basic Rent and Supplemental Rent or Asset Termination Value in
connection with any purchase of the Property pursuant to the Lease shall be
treated as payments of interest on and principal of, respectively, loans from
the Lessor and the Participants to the Lessee, (iii) the Lease grants a security
interest and lien on the Property and the collateral described in the Security
Agreement to the Lessor, the Agent and the Participants to secure the Lessee's
performance and payment of all amounts under the Lease and the other Operative
Documents.
 
     SECTION 5.2. Amounts Due Under Lease. Anything else herein or elsewhere to
the contrary notwithstanding, it is the intention of the Lessee, the Lessor, the
Participants and the Agent that: (i) the amount and timing of installments of
Basic Rent due and payable from time to time from the Lessee under the Lease
shall be equal to the aggregate payments due to the Participants in respect of
their Participation Interests on each Payment Date; (ii) if the Lessee elects
the Purchase Option or becomes obligated to purchase the Property under the
Lease, the Participation Interests,

                                      13
<PAGE>
 
all fees and all of the interest on overdue amounts thereon and all other
obligations of the Lessee owing to the Lessor, the Participants and the Agent
shall be paid in full by the Lessee; (iii) if the Lessee properly elects the
Remarketing Option, the Lessee shall only be required to pay to the Lessor the
proceeds of the sale of the Property, the Residual Value Guarantee Amount and
any amounts due pursuant to Section 13 of this Participation Agreement and
Section 22.2 of the Lease (which aggregate amounts may be less than the Asset
Termination Value); and (iv) upon an Event of Default resulting in an
acceleration of the Lessee's obligation to purchase the Property under the
Lease, the amounts then due and payable by the Lessee under the Lease shall
include all amounts necessary to pay in full the Asset Termination Value, plus
all other amounts then due from the Lessee to the Participants, the Agent and
the Lessor under the Operative Documents.
 
                                  SECTION 6.
 
                            CONDITIONS PRECEDENT TO
                     ACQUISITION OF EQUIPMENT AND ADVANCES
 
     SECTION 6.1. Conditions Precedent-- Documentation. The obligation of the
Lessor to acquire Equipment on any Funding Date and to make an Advance to
finance the acquisition of Equipment or the funding of any Interest Payment
Advance on any Funding Date, and the obligation of each Participant to purchase
its Participation Interest in, and to make available to the Lessor its related
portion of, each such Advance on such Funding Date are subject to satisfaction
or waiver of the following conditions precedent and the conditions precedent set
forth in Section 6.2 (it being understood that the Lessor's obligation to
acquire such Equipment, shall not be subject to the conditions precedent set
forth in this Section 6.1 or Section 6.2 to the extent such conditions are
actions required of the Lessor) on or prior to the Closing Date or such Funding
Date, as the case may be:
 
     (a) Funding Request. Prior to each Funding Date the Agent and the Lessor
shall have received a fully executed counterpart of the related Funding Request,
appropriately completed by the Lessee, in accordance with Section 3.4; provided,
that this condition shall be deemed to have been satisfied in connection with an
Interest Payment Advance pursuant to Section 3.7(d) hereof.
 
     (b) Operative Documents. On or prior to the Closing Date, each of the
Operative Documents to be entered into on the Closing Date shall have been duly
authorized, executed and delivered by the parties thereto, and shall be in full
force and effect, including, without limitation, (i) this Participation
Agreement, (ii) the Lease, (iii) the Guarantee, (iv) the Defeasance Deposit
Agreement, (v) the Construction Agency Agreement, (vi) the Construction Agency
Agreement Assignment, (vii) the Security Agreement, (viii) the Assignment of
Lease and Supplement to Assignment of Lease and (ix) the Consent to Assignment.
No Default or Event of Default shall exist thereunder and be continuing (both
before and after giving effect to the transactions contemplated by the Operative
Documents), and the Lessor, the Agent and each Participant shall each have
received a fully executed copy of each of such Operative Documents (other than
the Lease, of which the Agent shall receive the original and the Lessor and the
Participants shall receive specimens). On or prior to the Closing Date, any
financing statements in connection therewith required under

                                      14
<PAGE>
 
the Uniform Commercial Code shall have been recorded, registered and filed, if
necessary, in such manner as to enable the Lessee's counsel to render its
opinion referred to in clauses l(i)(A) and (B) below.
                       ------------------------      

          (c) [Intentionally Omitted].

          (d) Appraisal. On or prior to the Closing Date, the Agent, the Lessor
              -----------                                                      
and the Participants shall have received an Appraisal of the Property, which
Appraisal shall meet the requirements set forth in the definition of the term
"Appraisal" contained in Appendix 1.
                         -----------

          (e) [Intentionally Omitted].

          (f)    Equipment Schedule and Bill of Sale. The Lessee, the Lessor
                 -------------------------------------                      
and/or the vendor of the Equipment, as the case may be, shall have delivered, on
or prior to the applicable Funding Date, a duly executed Equipment Schedule and
Bill of Sale covering the Equipment being acquired with the proceeds of such
Advance by the Lessor, together with invoices in form and substance satisfactory
to the Agent, the Lessor and the Participants.

          (g) [Intentionally Omitted].

          (h) Evidence of Recording, and Filing. On the Closing Date, the Agent
              -----------------------------------                              
shall have received evidence reasonably satisfactory to it that each of the UCC
Financing Statements with respect to the Property to be acquired pursuant to the
Operative Documents shall have been or are being filed with the appropriate
Governmental Authorities.

          (i)    Evidence of Insurance. On or prior to the Closing Date, the
                 -----------------------                                    
Agent, the Lessor and each Participant shall have received evidence of insurance
with respect to the Property required to be maintained pursuant to the Lease,
setting forth the respective coverages, limits of liability, carrier, policy
number and period of coverage.

          (j)    Evidence of Use of Proceeds. On or prior to each Advance, the
                 -----------------------------                                
Agent and each Participant shall have received evidence reasonably satisfactory
to the Agent and each Participant as to the use of the proceeds of the Advance
in accordance with the provisions of Section 8.1(g).
                                             -------

          (k) Taxes. On the Closing Date, all taxes, fees and other charges in
              -------                                                         
connection with the execution, delivery, filing and registration of the
Operative Documents shall have been paid or provisions for such payment shall
have been made to the satisfaction of the Agent, each Participant and the
Lessor.

          (1)    [Intentionally Omitted].

          (m) Approvals. On or prior to the Closing Date or each Funding Date,
              -----------                                                     
as applicable, all necessary (or, in the reasonable opinion of the Lessor, the
Participants or the Agent or any of their respective counsel, advisable)
Governmental Actions and covenants and approvals

                                       15
<PAGE>
 
of or by any Governmental Authority or other Person, in each case required by
any Requirement of Law, covenant or restriction affecting the Property or the
transactions contemplated thereby to have been obtained by such date shall have
been obtained or made and be in full force and effect.
 
     (n) Litigation. As of each Funding Date, no action or proceeding shall have
been instituted, nor shall any action or proceeding be threatened, before any
Governmental Authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any Governmental Authority (i) to set aside,
restrain, enjoin or prevent the full performance of this Participation
Agreement, the Lease or any other Operative Document or any transaction
contemplated hereby or thereby or (ii) which is reasonably likely to have a
Material Adverse Effect.
 
     (o) Requirements of Law. As of the Closing Date and each Funding Date, in
the reasonable opinion of the Lessor, the Participants, the Agent and their
respective counsel, the transactions contemplated by the Operative Documents do
not and will not violate any Requirement of Law and do not and will not subject
the Lessor, the Agent or any Participant to any adverse regulatory or tax
prohibitions or constraints.
 
     (p) Responsible Officer's Certificate of the Lessee. On the Closing Date,
the Lessor, each Participant and the Agent shall each have received a
Responsible Officer's Certificate, dated as of the Closing Date, of the Lessee
stating that (i) each and every representation and warranty of the Lessee
contained in the Operative Documents to which it is a party is true and correct
on and as of the Closing Date; (ii) no Default or Event of Default under the
Lease or the Construction Agency Agreement has occurred and is continuing; (iii)
each Operative Document to which the Lessee is a party is in full force and
effect with respect to it; and (iv) the Lessee has duly performed and complied
with all covenants, agreements and conditions contained herein or in any
Operative Document required to be performed or complied with by it on or prior
to the Closing Date.
 
     (q) The Lessee's Resolutions and Incumbency Certificate, etc. On the
Closing Date, the Lessor, each Participant and the Agent shall each have
received (i) a certificate of the Secretary or an Assistant Secretary of the
Lessee attaching and certifying as to (A) the resolutions of the Board of
Directors of the Lessee, duly authorizing the execution, delivery and
performance by the Lessee of documents and agreements of the type represented by
each Operative Document to which it is or will be a party, (B) its articles of
incorporation and bylaws, and (C) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party, and (ii) a good standing certificate from the appropriate officer
of the state in which the Property is located.
 
     (r) Responsible Officer's Certificate of the Guarantor. On the Closing
Date, the Lessor, each Participant and the Agent shall each have received a
Responsible Officer's Certificate, dated as of the Closing Date, of the
Guarantor stating that (i) each and every representation and warranty of the
Guarantor contained in the Operative Documents to which it is a party is true
and correct on and as of the Closing Date; (ii) no Default or Event of Default
under the Guarantee has occurred and is continuing; (iii) each Operative
Document to which the Guarantor is a party is in full force and effect with
respect to it; and (iv) the Guarantor has duly performed and complied with

                                      16
<PAGE>
 
all covenants, agreements and conditions contained heroin or in any Operative
Document required to be performed or complied with by it on or prior to the
Closing Date.
 
     (s) The Guarantor's Resolutions and Incumbency Certificate, etc. On the
Closing Date, the Lessor, each Participant and the Agent shall each have
received a certificate of the Secretary or an Assistant Secretary of the
Guarantor attaching and certifying as to (i) the resolutions of its Board of
Directors duly authorizing the execution, delivery and performance by the
Guarantor of documents and agreements of the type represented by each Operative
Document to which it is or will be a party (ii) its articles of incorporation
and by-laws, and (iii) the incumbency and signature of persons authorized to
execute and deliver on its behalf the Operative Documents to which it is a
party.
 
     (t) Closing Date. The Closing Date shall occur on or prior to August 31,
1997.
 
     (u) No Material Adverse Effect. As of the Closing Date, there shall not
have occurred any Material adverse change in the Lessee% or the Guarantor%
capital structure, ownership or consolidated assets, liabilities, results of
operations, or financial condition from that set forth or contemplated in the
most recent financial statements referred to in Section 8.3(m), and no event or
condition shall have occurred that would result in a Material Adverse Effect.
 
     (v) Responsible Officer's Certificate of the Lessor. On the Closing Date,
the Lessee, the Agent and each Participant shall have received a certificate of
an authorized officer of the Lessor, dated as of the Closing Date, stating that
(i) each and every representation and warranty of the Lessor contained in the
Operative Documents to which it is a party is true and correct on and as of the
Closing Date, (ii) each Operative Document to which the Lessor is a party is in
full force and effect with respect to it, and (iii) the Lessor has duly
performed and complied with all covenants, agreements and conditions contained
herein or in any Operative Document required to be performed or complied with by
it on or prior to the Closing Date.
 
     (w) The Lessor's Resolutions and Incumbency Certificate, etc. On the
Closing Date, the Lessee, the Agent and each Participant shall have received a
certificate of the Secretary or an Assistant Secretary of the Lessor attaching
and certifying as to (i) the resolutions of the Board of Directors duly
authorizing the execution, delivery and performance by the Lessor of documents
and agreements of the type represented by each Operative Document to which it is
or will be a party, (ii) the pertinent provisions of its by-laws and (iii) the
incumbency and signature of persons authorized to execute and deliver on its
behalf the Operative Documents to which it is a party.
 
     SECTION 6.2. Further Conditions Precedent. The obligation of the Lessor to
make an Advance on any Funding Date and the obligation of each Participant to
purchase its Participation Interest in, and to make available its related
portion of, such Advance on such Funding Date are subject to satisfaction or
waiver of the following conditions precedent and to satisfaction on or before
the Closing Date or such Funding Date of the conditions precedent set forth in
Section 6.1 (it being understood that the Lessor's obligations to make Advances
to the Lessee and each Participant's obligation to fund the purchase of its
Participation Interest in an Advance shall not be

                                      17
<PAGE>
 
subject to the conditions precedent set forth in Section 6.1 and this Section
6.2 to the extent such conditions are actions required of the Lessor or such
Participant):
 
     (a) Representations and Warranties. (i) On the Closing Date, the
representations and warranties of the Lessee, the Guarantor, the Lessor and each
Participant contained herein and in each of the other Operative Documents shall
be true and correct as though made on and as of such date, except to the extent
such representations or warranties relate solely to an earlier date, in which
case such representations and warranties shall have been true and correct on and
as of such earlier date; and (ii) on each Funding Date, the representations and
warranties of the Lessee Contained herein and in each of the Operative Documents
shall be true and correct as though made on and as of such date; in each case
except to the extent such representations or warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true an correct on and as of such earlier date.
 
     (b) Performance of Covenants. (i) On the Closing Date the parties hereto
shall have performed their respective agreements contained herein and in the
other Operative Documents to be performed by them on or prior to such date, and
(ii) on each other Funding Date the Lessee shall have performed its respective
agreements contained herein and in the other Operative Documents to be performed
by it on or prior to such date.
 
     (c) Tide. Tide to the Property shall conform to the representations and
warranties set forth in Section 8.4(c).
 
     (d) No Default. There shall not have occurred and .be continuing any
Default or Event of Default under any of the Operative Documents, and no Default
or Event of Default under any of the Operative Documents will have occurred
after giving effect to the acquisition of the Property and/or the making of the
Advance requested by such Funding Request, as the case may be.
 
     If any of the conditions precedent set forth in this Section 6.2 or in
Section 6.1 (if such conditions apply to subsequent Funding Dates) shall not
have been satisfied on any Funding Date subsequent to the initial Funding Date
and the Lessor and the Participants refuse to fund the requested Advance, the
Lessee may exercise its Purchase Option under Section 20.1 of the Lease upon not
less than ten (10) days' written notice to the Lessor, the Agent and the
Participants.
 
                                  SECTION 7. 

                            [Intentionally Omitted]
 
                                  SECTION 8.
 
                                REPRESENTATIONS

                                      18
<PAGE>
 
     SECTION 8.1. Representations of the Lessor. The Lessor represents and
warrants to each of the other parties hereto as follows:
 
     (a) Due Organization, etc. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois and has
the corporate power and authority to enter into and perform its obligations
under each of the Operative Documents to which it is or will be a party and each
other agreement, instrument and document to be executed and delivered by it in
connection with or as contemplated by each such Operative Document to which it
is or will be a party.
 
     (b) Authorization; No Conflict. The execution, delivery and performance of
each Operative Document to which it is or will be a party has been duly
authorized by all necessary action on its part and neither the execution and
delivery thereof, nor the consummation of the transactions contemplated thereby,
nor compliance by it with any of the terms and provisions thereof (i) does or
will require any approval or consent of any trustee or holders of any of its
indebtedness or obligations, (ii) does or will contravene any current United
States or Illinois law, governmental rule or regulation, (iii) does or will
contravene or result in any breach of or constitute any default under, or result
in the creation of any Lien upon any of its property under, its articles of
incorporation or by-laws, or any indenture, mortgage, deed of trust, conditional
sales contract, credit agreement or other agreement or instrument to which it is
a party or by which it or its properties may be bound or affected or (iv) does
or will require any Governmental Action by any Governmental Authority, except
such as have been obtained on the Lessee's or the Lessor's behalf.
 
     (c) Enforceability, etc. Each Operative Document to which the Lessor is or
will be a party has been, or on or before the Closing Date will be, duly
executed and delivered by the Lessor and each such Operative Document to which
the Lessor is a party constitutes, or upon execution and delivery will
constitute, a legal, valid and binding obligation enforceable against the Lessor
in accordance with the terms thereof, except as the same may be limited by
insolvency, bankruptcy, reorganization or other laws relating to or affecting
creditors' rights or by general equitable principles.
 
     (d) Litigation. There is no action or proceeding pending or, to its
knowledge, threatened to which it is a party, before any Governmental Authority
that, if adversely determined, would materially and adversely affect its ability
to perform its-obligations under the Operative Documents to which it is a party,
would have a material adverse effect on the financial condition of the Lessor or
would question the validity or enforceability of any of the Operative Documents
to which it is or will become a party.
 
     (e) Assignment. It has not assigned or transferred any of its right, title
or interest in or under the Lease except to the Agent, for the benefit of the
Participants, in accordance with this Agreement and the other Operative
Documents.
 
     (f) Defaults. No Default or Event of Default under the Operative Documents
attributable to it has occurred and is continuing.

                                      19
<PAGE>
 
(g) Use of Proceeds. The proceeds of the purchase of the Participation Interests
shall be applied by the Lessor solely in accordance with the provisions of the
Operative Documents.
 
(h) Securities Act. Neither the Lessor nor any Person authorized by the Lessor
to act on its behalf has offered or sold any interest in the Lease, or in any
similar security relating to the Property, or in any security the offering of
which for the purposes of the Securities Act would be deemed to be part of the
same offering as the offering of the aforementioned securities to, or solicited
any offer to acquire any of the same from, any Person other than the Agent and
the Participants, and neither the Lessor nor any Person authorized by the Lessor
to act on its behalf will take any action which would subject the issuance or
sale of any interest in the Lease or the Property to the provisions of Section 5
of the Securities Act or require the qualification of any Operative Document
under the Trust Indenture Act of 1939, as amended.

(i) Chief Place of Business. The Lessor's chief place of business, chief
executive office and office where the documents, accounts and records relating
to the transactions contemplated by this Participation Agreement and each other
Operative Document are kept are located at 135 South LaSalle Street, Chicago,
Illinois 60603.

(j) Federal Reserve Regulations. The Lessor is not engaged principally in, and
does not have as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board), and no part of the proceeds of the
purchase of the Participation Interests will be used by it to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock or for any purpose that violates, or is
inconsistent with, the provisions of Regulation G, T, U, or X of the Board.

(k) Investment Company Act. The Lessor is not an "investment company" or a
company controlled by an "investment company" within the meaning of the
Investment Company Act.

(1) No Plan Assets. The Lessor is not acquiring its interests in the Property
with the assets of any "employee benefit plan" (as defined in Section 3(3) of
ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section
4975(e)(1 ) of the Code).

SECTION 8.2. Representations of the Participants. Each Participant represents
and warrants to the Lessor, each of the other Participants and the Lessee as
follows:
 
(a) No Plan Assets. Such Participant is not and will not be funding its
Participation Interest hereunder, and is not performing its obligations under
the Operative Documents, with the assets of an "employee benefit plan" (as
defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or
"plan" (as defined in Section 4975(e)(1 ) of the Code). The advancing of any
amount with respect to its Participation Interest on any Funding Date shall
constitute an affirmation by the subject Participant of the preceding
representation and warranty.

                                       20
<PAGE>
 
     (b) Due Organization, etc. It is either (i) a duly organized and validly
existing corporation in good standing under the laws of the state of its
incorporation, or (ii) a national banking association duly organized and validly
existing under the laws of the United States or (iii) a banking corporation duly
organized and validly existing under the laws of the jurisdiction of its
organization, and, in each case, has the corporate power and authority to
execute, deliver and carry out the terms and provisions of the Operative
Documents to which it is a party.
 
     (c) Authorization; No Conflict. The execution, delivery and performance of
each Operative Document to which it is or will be a party has been duly
authorized by all necessary action on its part and neither the execution and
delivery thereof, nor the consummation of the transactions contemplated thereby,
nor compliance by it with any of the terms and provisions thereof (i) does or
will require any approval or consent of any trustee or holders of any of its
indebtedness or obligations, (ii) does or will contravene any current law,
governmental role or regulation of the United States or the state or country of
its organization, (iii) does or will contravene or result in any breach of or
constitute any default under, or result in the creation of any Lien upon any of
its property under, its certificate of incorporation or bylaws, articles of
association or other organizational documents or any indenture, mortgage, deed
of trust, conditional sales contract, credit agreement or other agreement or
instrument to which it is a party or by which it or its properties may be bound
or affected or (iv) does or will require any Governmental Action by any
Governmental Authority.
 
     (d) Enforceability, etc. Each Operative Document to which it is a party has
been, or on or before the Closing Date will be, duly executed and delivered by
it and each such Operative Document to which it is a party constitutes, or upon
execution and delivery will constitute, a legal, valid and binding obligation
enforceable against it in accordance with the terms thereof, except as the same
may be limited by insolvency, bankruptcy, reorganization or other laws relating
to or affecting creditors' rights or by general equitable principles.
 
     (e) Litigation. There is no action or proceeding pending or, to its
knowledge, threatened to which it is or will be a party before any Governmental
Authority that is reasonably likely to be adversely determined and. if adversely
determined, would materially and adversely affect its ability to perform its
obligations under the Operative Documents to which it is a party.
 
     SECTION 8.3. Representations of the Lessee. The Lessee represents and
warrants to each of the other parties hereto that:
 
     (a) Corporate Status. The Lessee (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and (ii) has duly qualified and is authorized to do business and has obtained a
certificate of authority to transact business as a foreign corporation in the
States of California and Colorado and in each other jurisdiction where the
failure to so qualify is reasonably likely to be Material.
 
     (b) Corporate Power and Authority. The Lessee has corporate .power and
authority to execute, deliver and carry out the terms and provisions of the
Operative Documents to which it is or will be a party and has taken all
necessary corporate action to authorize the execution,

                                      21
<PAGE>
 
delivery and performance of the Operative Documents to which it is or will be a
party and has or will have duly executed and delivered each Operative Document
required to be executed and delivered by it and, assuming the due authorization,
execution and delivery thereof on the part of each other party thereto, each
such Operative Document constitutes or will constitute a legal, valid and
binding obligation enforceable against it in accordance with its terms, except
as the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights or by general
equitable principles.
 
(c) No Violation. Neither the execution, delivery and performance by the Lessee
of the Operative Documents to which it is or will be a party nor compliance with
the terms and provisions thereof; nor the consummation by the Lessee of the
transactions contemplated therein (i) will result in a violation by the Lessee
of any applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality having
jurisdiction over the Lessee or the Property that would (x) adversely affect the
validity or enforceability of the Operative Documents to which the Lessee is a
party, or the title to, or value or condition of, the Property, or (y) have a
Material Adverse Effect on the consolidated financial position, business or
consolidated results of operations of the Lessee, or (z) have an adverse effect
on the ability of the Lessee to perform its obligations under the Operative
Documents, (ii) will conflict with or result in any breach under, or (other than
pursuant to the Operative Documents) result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets
of Lessee pursuant to the terms of, any indenture, loan agreement or other
agreement for borrowed money to which the Lessee is a party or by which it or
any of its property or assets is bound or to which it may be subject (other than
Permitted Liens), or (iii) will violate any provision of the certificate or
articles of incorporation or bylaws of the Lessee.
 
(d) Litigation. There are no actions, suits or proceedings pending or, to the
knowledge of the Lessee, threatened (i) that are reasonably likely to have a
Material Adverse Effect or (ii) that question the validity of the Operative
Documents or the rights or remedies of the Lessor, the Agent or the Participants
with respect to the Lessee or the Property under the Operative Documents.

(e) Governmental Approvals. No Governmental Action by any Governmental Authority
having jurisdiction over the Lessee or the Property is required to authorize or
is required in connection with (i) the execution, delivery and performance by
the Lessee of any Operative Document or (ii) the legality, validity, binding
effect or enforceability against the Lessee of any Operative Document, except
for the filing or recording of the Operative Documents listed in Section 8.4(f)
hereof with the appropriate Governmental Authorities, all of which will have
been completed on or prior to the Closing Date.

(f)  Investment Company Act. The Lessee is not an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act.
 
(g) Public Utility Holding Company Act. The Lessee is not a "holding company, or
a "subsidiary company," or an "affiliate" of a "holding company, or of a
"subsidiary company"

                                       22
<PAGE>
 
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
 
(h) Information. All regular or periodic reports filed by the Lessee with the
Securities and Exchange Commission prior to the Closing Date and all other
written information and material regarding the Lessee and the Property which
were provided by the Lessee to one or more of the Participants prior to the
Closing Date are true and accurate in all material respects on the date as of
which such information and materials are dated or certified and not incomplete
by omitting to state any material fact necessary to make such information not
misleading at such time in light of the circumstances under which such
information was provided.
 
(i) Taxes. All United States federal income tax returns and all other Material
tax returns which are required to have been filed have been or will be prepared
in accordance with applicable law and filed by or on behalf of the Lessee by the
respective due dates, including extensions, and all taxes due with respect to
the Lessee pursuant to such returns or pursuant to any assessment received by
the Lessee have been or will be paid. The charges, accruals and reserves on the
books of the Lessee in respect of taxes or other governmental charges are, in
the opinion of the Lessee, adequate.
 
(j) Compliance with ERISA. Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all Material respects with the
presently applicable provisions of ERISA and the Code with respect to each Plan.
No member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.

(k) Environmental and Other Regulations. Except as set forth in Schedule III
attached hereto, the Lessee and the Property are in compliance with all
Environmental Laws relating to pollution and environmental control or employee
safety in the jurisdiction in which the Property is located and in all other
domestic jurisdictions, other than, with respect to such other jurisdictions,
those Environmental Laws the non-compliance with which would not have a Material
Adverse Effect.

(1) Offer of Securities, etc. Neither the Lessee nor the Guarantor nor any
Person authorized to act on their behalf has, directly or indirectly, offered
any interest in the Property or the Lease or any other interest similar thereto
(the sale or offer of which would be integrated with the sale or offer of such
interest in the Property or the Lease), for sale to, or solicited any offer to
acquire any of the same from, any Person other than the Participants, the Lessor
and other "accredited investors" (as defined in Regulation D of the Securities
and Exchange Commission).
 

                                       23
<PAGE>
 
     (m) Financial Statements. The audited consolidated statement of financial
position of the Lessee and its consolidated Subsidiaries as of September 30,
1996 and the related consolidated statements of income, shareholder's equity and
cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick, a
copy of which has been delivered to each of the Lessor, the Participants and the
Agent, present fairly in all material respects, in conformity with generally
accepted accounting principles, the financial position of the Lessee as of such
date and its results of operations and cash flows for such fiscal year.
 
     SECTION 8.4. Representations of the lessee With Respect to the Property on
the closing Date. The Lessee hereby represents and warrants as of the Closing
Date as follows:
 
     (a) Representations. The representations and warranties of the Construction
Agent and the Lessee set forth in the Operative Documents are true and correct.
The Construction Agent and the Lessee are in compliance in with their respective
obligations under the Operative Documents and there exists no Default or Event
of Default.
 
     (b) Property. Such Property consists of the Equipment to be contacted and
installed at the Lessee's semiconductor fabrication facility pursuant to the
Construction Agency Agreement. Such Facility is, and the Property will be,
located in the State of Colorado. Such Property as constructed and installed in
accordance with the related Plans and Specifications and the use thereof by the
Lessee and its agents, assignees, employees, invitees, lessees, licensees,
contractors and tenants will comply in all material respects with all
Requirements of Law (including, without limitation, Title III of the Americans
with Disabilities Act, all zoning and land use laws and Environmental Laws) and
Insurance Requirements, except for such Requirements of Law as the Lessee shall
be contesting in good faith by appropriate proceedings. The related Plans 'and
Specifications have been or will be prepared in all material respects in
accordance with applicable Requirements of Law (including, without limitation,
Title III of the Americans with Disabilities Act, applicable Environmental Laws
and building, planning, zoning and fire codes) and upon completion of the
construction and installation of the Equipment in accordance with the Plans and
Specifications, such Equipment will comply in all Material respects with all
applicable Requirements of Law (including, without limitation, Title Ill of the
Americans with Disabilities Act, all applicable Environmental Laws and building,
planning, zoning and fire codes). Upon completion of the construction and
installation of the Equipment in accordance with the related Plans and
Specifications, installation of the Equipment will be completed in a workmanlike
manner and in accordance with the Plans and Specifications and the Equipment
will be in first class working condition and fit for its intended use. There is
no action, suit or proceeding (including any proceeding in condemnation or
eminent domain or under any Environmental Law) pending or, to the best of the
Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or
such Property which adversely affects the title to, or the use, operation or
value of, the Property. As of the Closing Date, no fire or other casualty with
respect to the Property shall have occurred, and as of each other Funding Date,
no fire or other casualty with respect to the Property shall have occurred that
constitutes a Significant Casualty with respect to which the Lessee shall have
delivered a Termination Notice under Section 16.1 of the Lease. All material
licenses, approvals, authorizations, consents, permits (including, without
limitation, building, demolition and environmental permits, licenses, approvals,
authorizations and consents), easements and

                                       24
<PAGE>
 
rights-of-way, including proof and dedication, required for construction and
installation of such Equipment in accordance with the related Plans and
Specifications and the Construction Agency Agreement have either been obtained
from the appropriate Governmental Authorities having jurisdiction or from
private parties, as the case may be, or will be obtained from the appropriate
Governmental Authorities having jurisdiction or from private parties, as the
case may be, prior to commencing any such construction or use and operation, as
applicable and will in each case be maintained by the Lessee during the periods
for which they are required by Applicable Law or such Governmental Authorities.
 
     (c) Title. The Bills of Sale providing for the acquisition of the Property
are sufficient to convey good and marketable title to the Property subject only
to Permitted Liens. The Lessor will at all times during the Term have good title
to all Equipment wherever located.
 
     (d) Insurance. The Lessee has obtained insurance coverage covering the
Property acquired and leased to the Lessee on the Closing Date which meets the
requirements of Article XIV of the Lease, and such coverage is in full force and
effect.
 
     (e) Lease. Upon the execution and delivery of each Equipment Schedule, (i)
the Lessee will have unconditionally accepted the Property subject thereto and
will be bound by the terms of the Lease with respect to such Properly and will
have a valid leasehold interest in the Property, subject only to the Permitted
Liens; (ii) the Lessee's obligation to pay Rent will be an independent covenant
and no right of deduction or offset will exist with respect to any Rent or other
sums payable under the Lease; and (iii) no Rent under the Lease will have been
prepaid and the Lessee will have no right to prepay the Rent, except as
specifically set forth therein.
 
     (f) Protection of Interests. (i) On the Closing Date, the Lease, the
Assignment of Lease, the Supplement to Assignment of Lease, the Consent to
Assignment and the Security Agreement are each in a form sufficient, to grant
liens on the Property to the Agent or the Lessor, as the case may be, (ii) the
Agent Financing Statements are each in a form sufficient, and have been filed in
all filing offices necessary, to perfect a first priority security interest in
the Lessor's interest in all Equipment to be located on the Facility subject to
Permitted Liens; and (iii) the Lessor Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to perfect the
Lessor's interest under the Lease to the extent the Lease is a security
agreement.
 
     (g) [Intentionally Omitted].
 
     (h) Conditions Precedent. All conditions precedent contained in this
Agreement and in the other Operative Documents relating to the acquisition and
leasing of the Property by the Lessor have been satisfied in full or waived.
 
     SECTION 8.5. Representations of the Lessee With Respect to Each Advance.
The Lessee hereby represents and warrants as of each Funding Date on which an
Advance is made as follows:

                                       25
<PAGE>
 
     (a) Representations. The representations and warranties of the Construction
Agent arid the Lessee set forth in the Operative Documents (including the
representations and warranties set forth in Sections 8.3 and 8.4) are true and
correct in all Material respects on and as of such Funding Date, except to the
extent such representations or warranties relate solely to an earlier date, in
which case such representations and warranties shall have been true and correct
in all Material respects on and as of such earlier date. The Construction Agent
and the Lessee are in compliance in all Material respects with their respective
obligations under the Operative Documents and there exists no Default or Event
of Default which is continuing. No Default or Event of Default will occur as a
result of, or after giving effect to, the Advance requested by the Funding
Request on such date.
 
     (b) Equipment. Construction and installation of the Equipment to date has
been performed in a good and workmanlike manner, substantially in accordance
with the Plans and Specifications and in compliance with all Insurance
Requirements and Requirements of Law.
 
     (c) No Liens. There have been no Liens against the Property other than
Permitted Liens and Liens that have been removed or bonded by or on behalf of
the Lessee to the satisfaction of the Lessor and the Agent. The Participation
Interests funding such Advance are secured by the Lien of the Security Agreement
and the Tranche A Participation Interests funding such Advance are secured by
the Defeasance Deposit and the other Collateral.
 
     (d) Advance. The amount of the Advance requested represents amounts that
the Lessee reasonably believes will be due in the sixty (60) days following such
Advance from the Lessee to third parties in respect of Property Costs, or
amounts paid by the Lessee to third parties in respect of Property Costs for
which the Lessee has not previously been reimbursed by an Advance. The
conditions precedent to such Advance and the related remittances by the
Participants with respect thereto set forth in Section 6 have been satisfied.
 
     (e) Lease. Upon the execution and delivery of each Equipment Schedule to
the Lease and a Bill of Sale with respect thereto, the Lessee will have
unconditionally accepted the Equipment subject thereto and will have good and
marketable title to such Equipment, subject only to Permitted Liens.
 
     (f) Protection of Interests. On each Funding Date for the acquisition of
Equipment, (i) the applicable Equipment Schedule and the Security Agreement are
each a form sufficient to grant perfected Liens on the Lessee's and the Lessor's
interests, respectively, in the Equipment to the Lessor and Agent, respectively,
(ii) the Agent Financing Statements are each in a form sufficient, and have been
filed in all filing offices necessary, to create a valid and perfected first
priority security interest in such interest in such Equipment, and (iii) the
Lessor Financing Statements are each in a form sufficient, and have been filed
in all filing offices necessary, to perfect the Lessor's interest in such
Equipment under the Lease to the extent the Lease is a security agreement.

                                       26
<PAGE>
 
                                  SECTION 9.
 
                          PAYMENT OF CERTAIN EXPENSES
 
     The Lessee agrees, for the benefit of the Lessor, the Agent and the
Participants, that:
 
     SECTION 9.1. Transaction Expenses. (a) The Lessee shall pay, or cause to be
paid, from time to time all Transaction Expenses in respect of the transactions
consummated on the Closing Date or any Funding Date, it being understood and
agreed that neither the Agent, the Lessor nor any Participant shall be required
to advance any Transaction Expenses in connection with the closing. Such
Transaction Expenses, the Defeasance Fee and the Lease Arrangement Fee may be
added to the Property Cost to the extent supported by the Appraisal and agreed
by the Agent and the Participants.
 
     (b) The Lessee shall pay or cause to be paid (i) all Transaction Expenses
of the Lessor, (ii) the Commitment Fees, (iii) the Defeasance Fee, (iv) the
Lease Arrangement Fee, (v) all Transaction Expenses incurred by the Lessee, the
Agent, ABN AMRO or the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Documents, whether or not such
amendments or supplements are ultimately entered into, or giving or withholding
of waivers or consents hereto or thereto, in each case (except after the
occurrence of an Event of Default) which have been requested by or approved by
the Lessee, (vi) all Transaction Expenses incurred by the Lessor, the Lessee,
ABN AMRO or the Agent in connection with any purchase of the Property by the
Lessee or other Person pursuant to Articles XVI, XVII, XX or XXII of the Lease,
and (vii) all Transaction Expenses incurred by any of the other parties hereto
in respect of enforcement of any of their rights or remedies against the Lessee
in respect of the Operative Documents.
 
     SECTION 9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause
to be paid any brokers' fees arising from the Lessee's relationship with any
Person and any and all stamp, transfer and other similar taxes, fees and
excises, if any, including any interest and penalties, which are payable in
connection with the transactions contemplated by this Participation Agreement
and the other Operative Documents.
 
     SECTION 9.3. Obligations. The Lessee shall pay, on or before the due date
thereof, all costs, expenses and other amounts required to be paid by the
Security Agreement and the Assignment of Lease.

                                       27
<PAGE>
 
                                  SECTION 10.
 
                        OTHER COVENANTS AND AGREEMENTS
 
     SECTION 10.1. Covenants of the Lessee. The Lessee hereby agrees that so
long as this Participation Agreement is in effect:
 
     (a) Information. The Lessee will deliver to the Lessor, the Participants
and the AGENT:
 
          (i) as soon as available and in any event within ninety (90) days
     after the end of each fiscal year of the Lessee, a statement of financial
     position of the Lessee and its consolidated subsidiaries as of the end of
     such fiscal year and the related consolidated statements of income,
     shareholder's equity and cash flows for such fiscal year, setting forth in
     each case in comparative form the figures for the previous fiscal year, all
     reported on by independent public accountants of nationally recognized
     standing, together with (i) a Responsible Officer's Certificate from the
     chief financial officer of the Lessee substantially in the form of Exhibit
     S hereto containing a computation of, and showing compliance with, each of
     the financial ratios and restrictions contained in this Section 10.1 and
     (ii) a certificate from such accountants to the effect that, in making the
     examination necessary for the signing of such annual audit report by such
     accountants, they have not become aware of any Event of Default or Default
     that has occurred and is continuing, or if they have become aware of any
     such Event of Default or Default, describing it and the steps, if any,
     being taken to cure it;
 
          (ii) as soon as available and in any event within forty-five (45) days
     after the end of each of the first three quarters of each fiscal year of
     the Lessee, an unaudited consolidated statement of financial position of
     the Lessee as of the end of such period and the related consolidated
     statements of income, shareholders' equity and cash flows for such period
     and for the portion of the Lessee's fiscal year ended at the end of such
     period, together with a Responsible Officer's Certificate of the chief
     financial officer of the Lessee or other officer responsible for the
     financial affairs of the Lessee containing a computation of, and showing
     compliance with, each of the financial ratios and restrictions contained in
     this Section 10.1 and stating that no Default or Event of Default has
     occurred or is continuing or, if any Default or Event of Default has
     occurred and is continuing, describing it and the steps, if any, being
     taken to cure it;
 
          (iii) promptly after the filing thereof, if applicable, copies
     (without exhibits thereto other than, in the case of reports on Form 10-K,
     the portions of the annual report incorporated therein by reference) of all
     reports on Forms 10oK, 10-Q and 8-K (or their equivalents), which the
     Lessee shall have filed with the Securities and Exchange Commission under
     the Securities Exchange Act of 1934, as amended;
 
          (iv) if and when any member of the ERISA Group (1) gives or is
     required to give notice to the PBGC of any "reportable event" (as defined
     in Section 4043 of ERISA)

                                       28
<PAGE>
 
with respect to any Plan which might constitute grounds for a termination of
such Plan under Title IV or ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (2) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (3) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (4) applies
for a waiver of the minimum funding standard under Section 412 of the Code, a
copy of such application; (5) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (6) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (7) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Lessee setting forth details as to such occurrence and
action, if any, which the Lessee or applicable member of the ERISA Group is
required or proposes to take;
 
(v) promptly after the occurrence of any Default or Event of Default, notice
thereof in writing, together with information regarding the steps, if any, being
taken to cure it; and
 
(vi) from time to time such additional information regarding the Lessee, the
Lessee or the Property as the Lessor or the Agent, at the request of any
Participant, may reasonably request.
 
(b) Compliance with Laws. The Lessee will, and will cause its Subsidiaries to,
comply in all material respects with all applicable laws, ordinances, rules,
regulations, orders and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except where the necessity of compliance therewith is contested in
good faith by appropriate proceedings and such contest is not reasonably likely
to result in a Material Adverse Effect.
 
(c)    Further Assurances. The Lessee shall take or cause to be taken from time
to time all action necessary to assure during the Term that title to the
Property remains in the Lessor as contemplated by Section 12.1 of the Lease,
that the Lessor holds a perfected Lien on the Property securing the Lease
Balance as contemplated by Section 7.1 of the Lease, and that the Agent holds a
perfected Lien on the Property and the Lease securing the repayment of the
Participation Interests.

(d) Existence; Franchises; Businesses. Except as otherwise expressly permitted
in this Agreement, the Lessee shall, and shall cause each Subsidiary to (i)
maintain in full force and effect its separate existence and all rights,
licenses, leases and franchises reasonably necessary to

                                       29
<PAGE>
 
     the conduct of its business, and (ii) continue doing business as a whole 
     in the lines of business in which they were engaged on the Closing Date.
 
     (e) Books and Records. The Lessee shall, and shall cause each Subsidiary
to, maintain its books and records in accordance with GAAP, and permit the
Lessor and each Participant to make or cause to be made inspections and audits
of any books, records and papers of the Lessee and its Subsidiaries and to make
extracts therefrom at all such reasonable times and as often as any such Person
may reasonably require.
 
     (f) Minimum Consolidated Quick Ratio. The Lessee shall maintain at all
times a minimum Consolidated Quick Ratio of [*].
 
     (g) Minimum Consolidated Tangible Net Worth. At no time will the Lessee's
Consolidated Tangible Net Worth be less than an amount equal to the sum of (i)
[*] of the Lessee's Consolidated Tangible Net Worth at
September 30, 1996 plus (ii) an amount equal to [*] of the Lessee's Consolidated
Net Income for each fiscal quarter of the Lessee beginning with the quarter
ending on December 31, 1996 (but with no deduction on account of negative
Consolidated Net Income for any fiscal quarter) plus (iii) one hundred percent
(100%) of the aggregate net proceeds, including the fair market value of
property other than cash (as determined in good faith by the Board of Directors
of the Lessee), received by the Lessee from the issuance and sale after
September 30, 1996 of any capital stock of the Lessee (including the issuance
and sale of any capital stock (x) to a Subsidiary of the Lessee or (y) which is
required to be redeemed, or is redeemable at the option of the holder, if
certain events or conditions occur or exist or otherwise) or in connection with
the conversion or exchange of any Indebtedness of the Lessee into capital stock
of the Lessee after September 30, 1996.
 
     (h) Maximum Consolidated Total Liabilities to Consolidated Tangible Net
Worth. At no time shall the ratio of the Lessee's Consolidated Total Liabilities
to Consolidated Tangible Net Worth be greater than [*].
 
     (i) Minimum Consolidated Fixed Charge Ratio. The Lessee shall maintain at
all times a minimum Consolidated Fixed Charge Ratio of [*], commencing
with the four quarter period ending on December 31, 1996.
 
     (j) Profitability. The Lessee (i) shall not incur net losses (but excluding
any non-recurring non-cash charges) in any two consecutive fiscal quarters as
measured at the end of any fiscal quarter commencing with the fiscal quarter
ending on December 31, 1996 and (ii) shall not permit Consolidated Net Income
(but excluding any non-recurring non-cash charges) to be less than $0, as
measured at the end of any fiscal quarter for the previous four quarters on a
rolling four-quarter basis commencing with the four quarter period ending on
December 31, 1996. In the event the Lessee incurs a net loss in any fiscal
quarter, no such net loss shall exceed [*].
 
     (k) Liens. The Lessee shall not, and shall not permit any Subsidiary to,
create, assume, or permit to exist, any Lien on any of its property or assets
now owned or hereafter acquired except (i) Liens in favor of the Lessor or the
Agent under the Operative Documents, (ii) statutory

                         [* CONFIDENTIAL INFORMATION]

                                       30
<PAGE>
 
Liens of landlords, (iii) easements, rights-of-way, zoning and similar
restrictions and other similar charges of encumbrances not interfering with the
ordinary conduct of business on assets other than the Property and which do not
detract materially from the value of the property to which they attached or
impair materially the use thereof, (iv) Liens created to secure purchase money
Indebtedness, Capitalized Lease Obligations or Off-Balance Sheet Debt, provided
that such Liens are only in respect of the property or assets subject to, and
secure only, such Indebtedness, (v) Permitted Liens and (vi) Liens permitted
under the Fab 2 Real Property Participation Agreement and related Operative
Documents. Notwithstanding the foregoing there shall be no Liens on (A) any of
the Defeasance Deposit or the Collateral other than Liens in favor of the Lessor
and the Agent, for the benefit of the Participants or on (B) the Fab 2 Real
Property Cash Collateral, the Fab 2 Defeasance Deposit or the Collateral (as
defined in the Fab 2 Real Property Participation Agreement), except as permitted
in such Participation Agreement.
 
     (1) Fundamental Changes. The Lessee shall not, nor shall it permit any
Subsidiary to, enter into any merger, consolidation or amalgamation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); convey, sell, assign, transfer or otherwise dispose of all or
substantially all of the property, business or assets of the Lessee and its
Subsidiaries; provided, however, that if(i) at least thirty (30) days prior to
the consummation of such transaction the Lessee shall have furnished to the
Lessor, the Participants and the Agent a Responsible Officer's Certificate of
the chief financial officer of the Lessee that no Default or Event of Default
shall occur after giving effect thereto, and (ii) no Default or Event of Default
shall have occurred before or after giving effect thereto:
 
     (A) any Subsidiary of the Lessee may be merged or consolidated with or into
the Lessee (provided, however, that the Lessee shall be the continuing or
surviving corporation) or with or into any one or more wholly-owned Subsidiaries
of the Lessee (provided, however, that the wholly-owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation);
 
     (B) any wholly-owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Lessee or any other wholly-owned Subsidiary of the Lessee; and
 
     (C) the Lessee may merge or consolidate with any other Person so long as
the Lessee is the surviving corporation.
 
     (m) Transactions with Affiliates. The Lessee shall not, nor shall it permit
any Subsidiary to, conduct any business or enter into any transaction or series
of similar transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Lessee or
any legal or beneficial owner of 5% or more of any class of capital stock of the
Lessee or with any Affiliate of such owner unless the terms of such business,
transaction or series of transactions are (i) as favorable to the LeSsee or such
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of similar transactions in arm's-length dealings with an
unrelated third Person or, if such transaction is not one which by its nature
could be obtained from such Person, is on fair and reasonable terms and (ii) are
in the ordinary course of business or, if not in the ordinary course of
business, are set forth in writing and the board of

                                       31
<PAGE>
 
directors of the Lessee or such Subsidiary, as the case may be, has determined
in good faith that such business or transaction or series of transactions meet
the applicable criteria set forth in clause (i) above.
 
(n) Restricted Payments. The Lessee shall not, nor shall it cause or permit any
of its Subsidiaries to, make any Restricted Payment; provided, that (i) Lessee's
Subsidiaries may make dividends, distributions and payments to the Lessee, and
(ii) the Lessee may (A) make loans to its employees and purchase the Lessee's
stock from its employees in the ordinary course of business, (B) make other
Restricted Payments in the ordinary course of business and (C) make other
Restricted Payments, provided that the aggregate of which Restricted Payments
made under clauses (ii)(A), (B) and (C) shall not exceed $5,000,000 during the
Term.
 
(o) No Impairment of Deposits. The Lessee shall not, nor shall it permit any of
its Subsidiaries to, directly or indirectly, enter into or become bound by any
agreement, instrument, indenture or other obligation which could directly or
indirectly restrict, prohibit or require the consent of any Person to the making
by the Lessee of any deposit constituting part of the Defeasance Deposit or the
realization thereon or utilization thereof (or of any earnings thereon or of any
other Collateral) by the Lessor, the Agent or any of the Participants.

(p) Investments. The Lessee shall not, nor shall it permit any of its
Subsidiaries to, make any investment in, or make or accrue loans or advances of
money to any Person, through the direct or indirect lending of money, holding of
securities or otherwise, other than Permitted Investments, and except as
permitted or required in Sections 10.1 (1) and (n).

SECTION 10.2. Cooperation with the Lessee. The Lessor, the Participants and the
Agent shall, to the extent reasonably requested by the Lessee (but without
assuming additional liabilities, duties or other obligations on account
thereof), at the Lessee's expense, cooperate with the Lessee in connection with
its covenants contained herein including, without limitation, at any time and
from time to time, upon the request of the Lessee, to promptly and duly execute
and deliver any and all such further instruments, documents and financing
statements (and continuation statements related thereto) as the Lessee may
reasonably request in order to perform such covenants.

SECTION 10.3. Covenants of the Lessor. The Lessor hereby agrees that so long as
this Participation Agreement is in effect:
 
(a) Discharge of Liens. The Lessor will not create or permit to exist at any
time, and will, at its own cost and expense, promptly take such action as may be
necessary duly to discharge, or to cause to be discharged, all Lessor Liens on
the Property attributable to it; provided, however, that the Lessor shall not be
required to so discharge any such Lessor Lien while the same is being contested
in good faith by appropriate proceedings diligently prosecuted so long as such
proceedings shall not involve any material danger of impairment of the Liens of
the Lease or the Security Documents or of the sale, forfeiture or loss of, and
shall not interfere with the use or disposition of, the Property or title
thereto or any interest therein or the payment of Rent.

                                       32
<PAGE>
 
(b) Change of Chief Place of Business. The Lessor shall give prompt notice to
the Lessee and the Agent if the Lessor's chief place of business or chief
executive office, or the office where the records concerning the accounts or
contract rights relating to the Property are kept, shall cease to be located at
135 South LaSalle Street, Chicago, Illinois 60603, or if it shall change its
name, identity or corporate structure.
 
                        SECTION 11. PARTICIPATIONS
SECTION 11.1. Amendments; Actions on Default. (a) The Lessor shall have the
right to forebear from exercising rights against the Lessee to the extent the
Lessor shall determine in good faith that such forbearance is appropriate and is
permitted by Section 15.5 and Sections 11.1, 11.2 and 11.3. Upon the direction
of the Required Participants, the Lessor shall execute any waiver, modification
or amendment of the Lease or the Construction Agency Agreement requested by the
Lessee; provided, that: (i) the waiver, modification or amendment is not
prohibited by the forgoing provisions of this Agreement, (ii) the waiver,
modification or amendment does not (A) increase the amount the Lessor may be
required to pay to the Lessee or anyone else, or (B) reduce or postpone (and
cannot reasonably be expected to reduce or postpone) any payments that the
Lessor would, but for such modification or amendment, be expected to receive, or
(C) release the Lessor's interest in all or a substantial part of the Property;
and (iii) the Lessor is not excused from executing the waiver, modification or
amendment by Section 11-3.
 
(b) The Lessor will, with reasonable promptness, provide each Participant with
copies of all default notices it sends or receives under the Lease or
Construction Agency Agreement and notify each Participant of any Event of
Default under the Lease of which it is aware and of any other matters which, in
the Lessor's reasonable judgment, are likely to materially affect the payments
each Participant will be required to make or be entitled to receive under this
Agreement, but the Lessor will not in any event be liable to any Participant for
the Lessor's failure to do so unless such failure constitutes gross negligence
or willful misconduct on the part of the Lessor.
 
(c)  Before taking possession of the Property or exercising foreclosure or
offset rights against the Property or filing any lawsuit against the Lessee
because of any breach by the Lessee of the Operative Documents or if requested
in writing by any Participant at any time when an Event of Default has occurred
and is continuing, the Lessor shall promptly call a meeting with each
Participant and the Agent to discuss what, if anything, the Lessor should do.
Such meeting shall be scheduled during regular business hours in the offices of
the Agent, or another appropriate location in San Francisco, California, not
earlier than five (5) and not later than twenty (20) Business Days after the
Lessor's receipt of the written request from a Participant. If the Required
Participants shall direct the Lessor in writing to (a) send any default notices
required before a Default can become an Event of Default, or (b) bring a lawsuit
against the Lessee to enforce the Operative Documents when an Event of Default
has occurred and is continuing, then the Lessor shall send the notice or bring
the suit, and the Lessor shall prosecute any such suit with reasonable diligence
using reputable counsel. However, if the Agent is not a member of the Required
Participants voting
 

                                       33
<PAGE>
 
pursuant to this subsection 11.1 (d) in favor of the giving of any such notice
or the bringing of any such suit, then the Lessor may require that it first
receive the written agreement (in form reasonably acceptable to the Lessor) of
the members of the Required Participants so voting to indemnify the Agent and
the Lessor from and against all costs, liabilities and claims that may be
incurred by or asserted against the Lessor because of the action the Required
Participants direct the Agent or the Lessor to take. In no event shall any
Participant instigate any suit or other action directly against the Lessee with
respect to the Operative Documents or the Property, even if such Participant
would, but for this agreement, be entitled to do so as a third party beneficiary
or otherwise under the Operative Documents.
 
(d) In the event the Lessee or its designee fails to purchase the Property after
any exercise of its Purchase Option or Expiration Date Purchase Obligation or
following the occurrence and continuance of an Event of Default, the Lessor
shall, if the Required Participants shall agree in writing, bring suit against
the Lessee to enforce the Operative Documents in such form as shall be
recommended by reputable counsel, and thereafter the Lessor shall prosecute the
suit with reasonable diligence in accordance with the advice of reputable
counsel. If the Lessor acquires the interests of the Lessee in any of the
Property as a result of such suit or otherwise, the Lessor shall thereafter
proceed with reasonable diligence to sell the Property in a commercially
reasonable manner to one or more bona fide third party purchasers and shall in
any event endeavor to consummate the sale of the entire Property (through a
single sale of the entire Property or a series of sales of parts) within five
(5) years following the date the Lessor recovers possession of the Property at
the best price or prices the Lessor believes are reasonably attainable within
such time. Further, after the Designated Payment Date and until the Lessor sells
the Property, the Lessor shall (i) endeavor in good faith to maintain, or shall
obtain the agreement of one or more of such tenants to maintain, the Property in
good order and repair, (ii) procure and maintain casualty insurance against
risks customarily insured against by owners of comparable properties, in amounts
sufficient to eliminate the effects of coinsurance, (iii) keep and allow each
Participant to review accurate books and records covering the operation of the
Property, and (iv) pay prior to delinquency all taxes and assessments lawfully
levied against the Property.
 
(e) Notwithstanding the foregoing, Defaulting Participants shall have no voting
or consent rights under this Section 11.1 and no rights to require the Lessor to
call a meeting pursuant to Section 11.1 (d) until they cease to be Defaulting
Participants. During any period that any Defaulting Participants have no voting
rights under this Section 11.1. only the Commitment Percentages of the other
Participants that still have voting rights will be considered for purposes of
determining the Required Participants.
 
                  SECTION 11.2. General. Subject to the limitations set forth in
 Section 11.1 and Section 14:
 
(a) The Lessor shall have the exclusive right to take any action and to exercise
any available powers, rights and remedies to enforce the obligations of the
Lessee under the Operative Documents, or to refrain from taking any such action
or exercising any such power, right or remedy.

                                       34
<PAGE>
 
(b) The Lessor shall be entitled to (i) give any consent, waiver or approval
requested by the Lessee with respect to any construction or other approval
contemplated in the Lease or (ii) waive or consent to any adverse title claims
affecting the Property, provided that, in either case, such action will not have
a material adverse effect on the Lessee's obligations or ability to make the
payments required under the Operative Documents, the Lessor's rights and
remedies under the Operative Documents or any Participant's rights hereunder.
 
SECTION 11.3 Conflicts. Notwithstanding anything to the contrary herein
contained, the Lessor shall be entitled, even over the objection of each
Participant or the Required Participants, (i) to take any action required of the
Lessor by, or to refrain from taking any action prohibited by, the Operative
Documents or any law, rule or regulation to which the Lessor is subject
(provided, that this Section shall not be construed to authorize the Lessor to
take any action required by a modification of the Operative Documents prohibited
by Section 11.1), and (ii) after notice to the Participants, to bring and
prosecute a suit against the Lessee in the form recommended by and in accordance
with advice of reputable counsel at any time when a breach of the Operative
Documents by the Lessee shall have put the Lessor (or any of its officers or
employees) at risk of criminal prosecution or significant liability to third
parties or at any time after the Lessee or its designee fails to purchase the
Property on the Designated Payment Date. Nothing herein contained shall be
construed to require the Lessor to agree to modify the Operative Documents or to
take any action or refrain from taking any action in any manner that could
increase the Lessor's liability to the Lessee or others, that could reduce or
postpone payments to which the Lessor is entitled thereunder, or that could
reduce the scope and coverage of the indemnities provided for the Lessor's
benefit therein.
 
SECTION 11.4. Refusal to Give Consents or Fund. If any Participant declines to
consent to any amendment, modification, waiver, release or consent for which
such Participant's consent is requested or required by reason of this Agreement,
or if any Participant fails to pay any amount owed by it hereunder, the Lessor
shall have the right, but not the obligation and without limiting any other
remedy of the Lessor, to terminate such Participant's rights to receive any
further payments under Section 3 of this Agreement (other than payments required
because of the Lessor's collection of any Rent applied by the Lessor as
reimbursement for a Defaulted Amount or interest on a Defaulted Amount) by
paying such Participant a termination fee equal to the total of:

(i)  all amounts actually advanced by such Participant to the Lessor under
Section 3.4 hereof before the termination; excluding, however, any such amounts
that were repaid to such Participant before the termination by actual payments
made to such Participant by the Lessor of, or the Lessor's offset against, sums
representing:
 
(A) Such Participant's Commitment Percentage times any payments of Rent received
 by the Lessor under the Lease; plus
 
(B) Such Participant's Commitment Percentage times any sales proceeds received
 by the Lessor under the Lease; and

(ii) Such Participant's Commitment Percentage, times:
 

                                       35
<PAGE>
 
          (A) the then accrued but unpaid Basic Rent and Commitment Fees due
     under the Lease and hereunder; plus
 
          (B) interest on past due amounts described in the preceding clause (A)
     computed at the Federal Funds Effective Rate; plus
 
          (C) interest on any amounts (other than interest itself) past due from
     the Lessee or its designees under the Operative Documents, computed at the
     Federal Funds Effective Rate.
 
Such Participant's rights to receive payments equal to such Participant's
Commitment Percentage of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount shall not be impaired or
affected by any termination contemplated in this Section 11.4; accordingly, the
Lessor shall not, as a condition to such a termination, be required to reimburse
such Participant for any payments such Participant has made in connection with
Defaulted Amounts pursuant to Section 3.3.
 
     SECTION 11.5. Required Repayments. Each Participant shall repay to the
Lessor, upon written request or demand by the Lessor (i) any sums paid by the
Lessor to such Participant under this Agreement from, or that were computed by
reference to, any Rent or other amounts which the Lessor shall be required to
return or pay over to another party, whether pursuant to any bankruptcy or
insolvency law or proceeding or otherwise and (ii) any interest or other amount
that the Lessor is also required to pay to another party with respect to such
sums. Such repayment by any Participant shall not constitute a release of such
Participant's right to receive such Participant's Commitment Percentage times
the amount of any such Rent or any such other amount (or any interest thereon)
that the Lessor may later recover.
 
     SECTION 11.6. Indemnification. Each Participant agrees to indemnify and
defend the Lessor (to the extent not reimbursed by the Lessee within ten (10)
days after demand) from and against such Participant's Commitment Percentage of
any and all liabilities, obligations, claims, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this Section 11.6 collectively called "Covered
Liabilities") which to any extent (in whole or in part) may be imposed on,
incurred by or asserted against the Lessor growing out of, resulting from or in
any other way associated with the Property or the Operative Documents (including
the enforcement thereof, whether exercised upon the Lessor's own initiative or
upon the direction of the Required Participants) and the transactions and events
at any time associated therewith or contemplated therein. The foregoing
indemnification shall apply whether or not such Covered Liabilities are in any
way or to any extent caused, in whole or in part, by any negligent act or
omission of any kind by the Lessor; provided, only that no Participant shall be
obligated under this Section 11.6 to indemnify the Lessor (i) for Covered
Liabilities incurred in connection with any transfer or assignment by the Lessor
of its right to receive Rent or its rights and interests in and to the Property,
the Operative Documents or this Agreement to its Affiliates or (ii) for that
portion or percentage, if any, of any of the Covered Liabilities which is
proximately caused by: (A) the Lessor's own gross negligence or willful
misconduct; (B) any representation made by the Lessor in the Operative Documents
that is false in any material respect and that the Lessor knew

                                       36
<PAGE>
 
was false at the time of the Lessor's execution of the Operative Documents; or
(C) Lessor Liens not claimed by, through or under any of the Participants. After
each Participant has paid its Percentage of any Covered Liabilities, each
Participant shall be entitled to payment from the Lessor of an amount equal to
the Adjusted Percentage (as defined below) of any payments subsequently received
by the Lessor as Excess Reimbursement (as defined below) for such Covered
Liabilities. As used in this Section "Adjusted Percentage" shall equal (i) such
Participant's Commitment Percentage, divided by (ii) the sum of the Commitment
Percentages of all Participants who have paid the Lessor their respective shares
of the Covered Liabilities at issue. As used in this Section, the term "Excess
Reimbursement" shall mean, for the Covered Liabilities at issue, amounts
reimbursed or paid by the Lessee to or on behalf of the Lessor on account of
such Covered Liabilities in excess of (i) such Covered Liabilities, times (ii)
the Commitment Percentages of any Participants that have not paid the Lessor
their respective Percentages of such Covered Liabilities.
 
SECTION 11.7. Required Supplemental Payments. In the event that the Lessee fails
to pay any Required Supplemental Payment when due (a "Defaulted Amount"), the
Lessor shall notify each Participant of such Defaulted Amount, whereupon each
Participant shall pay to the Lessor an amount equal to such Participant's
Commitment Percentage times the Defaulted Amount; such payment from Participant
to the Lessor shall be due prior to 2:00 p.m., San Francisco time, on the date
of such notice if such notice is given by 12:00 noon, San Francisco time,
otherwise prior to 12:00 noon, San Francisco time, on the next Business Day
following such notice. After payment of a Participant's Commitment Percentage
times the Defaulted Amount, any payments subsequently received by the Lessor
from the Lessee as reimbursement for such Defaulted Amount, and any interest
received by the Lessor from the Lessee that accrued on the Defaulted Amount
after the date of such Participant's payment of its Commitment Percentage times
the Defaulted Amount, will constitute Supplemental Rent for purposes of
computing payments due such Participant under this Agreement.
 
SECTION 11.8. Application of Payments Received From Defaulting Participant As a
Cure For Payment Defaults. If after a failure to make a payment required by
Section 3.4, any Defaulting Participant cures such failure, in whole or in part,
by paying to the Lessor all or pan of such payment and interest thereon at the
Late Payment Rate, then the Lessor shall apply the payments so made to the
Lessor, net of the costs of collecting such payments (the "Net Cure Proceeds"),
or other funds available to the Lessor equal to the Net Cure Proceeds, in the
following order before applying the same to any other purpose:

(i) first, to make payments to the Lessor itself equal to its Excess Investment
(if any) until the Lessor shall no longer have any Excess Investment; and

(ii) second, to make further Advances to the Lessee under this Agreement to the
extent the Lessor is required or deems it appropriate to do so; provided, that
such further Advances do not cause the total Property Cost to exceed the sum of
the Commitments.
 
SECTION 11.9. Order of Application. For purposes of this Agreement, the Lessor
shall be entitled, but not required, to apply any payments received from the
Lessee under the Operative Documents to satisfy (1) unpaid Required Supplemental
Payments (and interest thereon) not
 

                                       37
<PAGE>
 
included in Rent, if any, and (2) costs incurred by the Lessor because of any
sale under the Lease before applying such payments to satisfy the Lessee's other
obligations, regardless of how the Lessee may have designated such payments.
 
     SECTION 11.10. Investments Pending Dispute Resolution; Overnight
Investments. Whenever the Lessor in good faith determines that it does not have
all information needed to determine how payments to Participants must be made on
account of any then existing Participation Interests which the Lessor has
received, or whenever the Lessor in good faith determines that there is any
dispute among the Participants about payments which must be made on account of
Participation Interests actually received by the Lessor, the Lessor may choose
to defer the payments which are the subject of such missing information or
dispute. However, to minimize any such deferral, the Lessor shall attempt
diligently to obtain any missing information needed to determine how payments to
the Participants must be made. Also, pending any such deferral, or if the Lessor
is otherwise required to invest funds pending distribution to the Participants,
the Lessor shall invest funds equal to (i) the total of the Commitment
Percentages of all Participants to whom payments have not been made with respect
to the Participation Interests at issue, times (ii) the total percentages at
issue. In addition, the Lessor shall endeavor to invest payments of
Participation Interests it receives after 12:00 noon, San Francisco time, on the
day in question that are to be paid to a Participant on the next Business Day
pursuant to Section 3; provided that the Lessor shall have no liability to any
Participant if the Lessor is unable to make such investments. Investments by the
Lessor shall be in the overnight federal funds market pending distribution, and
the interest earned on each dollar of principal so invested shall be paid to the
Person entitled to receive such dollar of principal when the principal is paid
to such Person.
 
     SECTION 11.11. Agent to Exercise Lessor's Rights. The Lessor has assigned
its interest in the Lease to the Agent, for the benefit of the Participants,
pursuant to the Assignment of Lease. To the extent provided therein, the rights,
remedies, duties and responsibilities of the Lessor contained in this Section 11
and in the other Operative Documents with respect thereto shall be exercisable
by, binding upon and inure to the benefit of the Agent, for the benefit of the
Participants.
 
     SECTION 11.12. Exculpatory Provisions Regarding the Lessor. Subject to the
provisions of Section 11.11, each Participant hereby irrevocably authorizes the
Lessor to take such actions on its behalf as are expressly vested in or
delegated to the Lessor by the terms of this Agreement and the other Operative
Documents, together with such powers as are reasonably incidental thereto. The
provisions of the following Sections of this Agreement are hereby incorporated
by reference into this Section 11.12, substituting the word "Lessor" for "Agent"
therein:
 
          (i) Section 14.1 - second sentence.
 
          (ii) Section 14.2 - all.
 
          (iii) Section 14.3 - all.
 
          (iv) Section 14.4 - all.

                                      38
<PAGE>
 
(V)  SECTION 14.5 - first sentence.
 
(IV)  SECTION 14.6 - last sentence.
 
SECTION 12.
 
TRANSFERS OF PARTICIPANTS' INTERESTS
 
SECTION 12.1. Restrictions on and Effect of Transfer by Participants. No
Participant may (without the prior written consent of the Agent and Lessee (not
to be unreasonably withheld)) assign, convey or otherwise transfer (including
pursuant to a participation) all or any portion of its right, title or interest
in, to or under its Participation Interest or any of the Operative Documents or
the Property, provided that (x) any Participant may pledge its interest without
the consent of the Agent or the Lessee to any Federal Reserve Bank, and (y)
without the prior written consent of the Agent, any Participant may transfer all
or any portion of its interest to any Affiliate of such Participant or to any
other existing Participant; provided that in the case of any transfer (other
than to such Affiliate) each of the following conditions and any other
applicable conditions of the other Operative Documents are satisfied:
 
(a) Required Notice and Effective Date. Any Participant desiring to effect a
transfer of its interest shall give written notice of each such proposed
transfer to the Lessee, the Agent and each other Participant at least five (5)
Business Days prior to such proposed transfer, setting forth the name of such
proposed transferee, the percentage or interest to be retained by such
Participant, if any, and the date on which such transfer is proposed to become
effective. All reasonable out-of-pocket costs (including, without limitation,
legal expenses) incurred by the Lessor, the Agent or any Participant in
connection with any such disposition by a Participant under this Section 12.1
shall be borne by such transferring Participant. In the event of a transfer
under this Section 12.1, any expenses incurred by the transferee in connection
with its review of the Operative Documents and its investigation of the
transactions contemplated thereby shall be borne by such transferee or the
relevant Participant, as they may determine, but shall not be considered costs
and expenses which the Lessee is obligated to pay or reimburse under Section 9.
Any such proposed transfer shall become effective upon the later of(i) the date
proposed in the transfer notice referred to above and (ii) the date on which all
conditions to such transfer set forth in this Section 12.1 shall have been
satisfied.
 
(b) Assumption of Obligations. Any transferee pursuant to this Section 12.1
shall execute and deliver to the Agent and the Lessee an Assignment and
Acceptance in substantially the form attached as Exhibit J ("Assignment and
Acceptance"), duly executed by such transferee and the transferring Participant,
and a letter in substantially the form of the Participant's Letter attached
hereto as Exhibit K ("Participant's Letter"), and thereupon the obligations of
the transferring Participant under the Operative Documents shall be
proportionately released and reduced to the extent of such transfer. Upon any
such transfer as above provided, the transferee shall be deemed to be bound by
all obligations (whether or not yet accrued) under, and to have become a party
to, all Operative Documents to which its transferor was a party, shall be deemed
the pertinent

                                       39
<PAGE>
 
"Participant" for all purposes of the Operative Documents and shall be deemed to
have made that portion of the payments pursuant to this Participation Agreement
previously made or deemed to have been made by the transferor represented by the
interest being conveyed; and each reference herein and in the other Operative
Documents to the pertinent "Participant" shall thereafter be deemed a reference
to the transferee, to the extent of such transfer, for all purposes. Upon any
such transfer, the Agent shall deliver to each Participant, the Lessor and the
Lessee a new Schedule I and Schedule II to this Agreement, revised to reflect
the relevant information for such new Participant and the Commitment of such new
Participant (and the revised Commitment of the transferor Participant if it
shall not have transferred its entire interest).
 
     (c) Employee Benefit Plans. No Participant may make any such assignment,
conveyance or transfer to or in connection with any arrangement or understanding
in any way involving any employee benefit plan (or its related trust), as
defined in Section 3(3) of ERISA, or with the assets of any such plan (or its
related trust), as defined in Section 4975(e)(1 ) of the Code.
 
     (d) Representations. Notwithstanding anything to the contrary set forth
above, no Participant may assign, convey or transfer its interest to any Person,
unless such Person shall have delivered to the Agent and the Lessee a
certificate confirming the accuracy of the representations and warranties set
forth in Section 8 with respect to such Person (other than as such
representation or warranty relates to the execution and delivery of Operative
Documents) and representing that such Person has, independently and without
reliance upon the Agent, any other Participant or, except to the extent of the
Lessee's representations made under the Operative Documents when made, the
Lessee, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into this transaction,
the Property and the Lessee and made its own decision to enter into this
transaction.
 
     (e) Amounts; Agent's Fee. Any transfer of a Participation Interest shall be
in a principal amount which is equal to or greater than $2,000,000. Each
transferring Participant shall pay to the Agent a transfer fee of $2,500.
 
     (f) Applicable Law. Such transfer shall comply with Applicable Law and
shall not require registration under any securities law applicable thereto.
 
     (g) Effect. From and after any transfer of its Participation Interest the
transferring Participant shall be released, to the extent assumed by the
transferee, from its liability and obligations hereunder and under the other
Operative Documents to which such transferor is a party in respect of
obligations to be performed on or after the date of such transfer. Upon any
transfer by a Participant as above provided, any such transferee shall be deemed
a "Participant" for all purposes of such documents and each reference herein to
a Participant shall thereafter be deemed a reference to such transferee for all
purposes to the extent of such transfer, except as the context may otherwise
require. Notwithstanding any transfer as provided in this Section 12.1, the
transferor shall be entitled to all benefits accrued and all fights vested prior
to such transfer, including, without limitation, fights to indemnification under
this Participation Agreement or any other Operative Document.

                                       40
<PAGE>
 
     SECTION 12.2. Covenants and
      Agreements of Participants.
 
          (a) Participations. Each
           Participant covenants and
           agrees that it will not
           grant Participations in its
           Participation Interest to
           any Person (a
           "Sub-Participant") unless
           such participation complies
           with Applicable Law and does
           not require registration
           under any securities law
           applicable thereto and such
           Sub-Participant (i) is a
           bank or other financial
           institution and (ii)
           represents and warrants, in
           writing, to such Participant
           for the benefit of the
           Participants, the Lessor and
           the Lessee that (A) no part
           of the funds used by it to
           acquire an interest in any
           Participation Interest
           constitutes assets of any
           "employee benefit plan" (as
           defined in Section 3(3) of
           ERISA) which is subject to
           Title I of ERISA, or "plan"
           (as defined in Section
           4975(e)(1) of the Code) and
           (B) such Sub-Participant is
           acquiring its interest for
           investment purposes without
           a view to the distribution
           thereof. Any such Person
           shall require any transferee
           of its interest in its
           Participation Interest to
           make the representations and
           warranties set forth in the
           preceding sentence, in
           writing, to such Person for
           its benefit and the benefit
           of the Participants, the
           Lessor and Lessee. In the
           event of any such sale by a
           Participant of a
           participating interest in
           its Participation Interest
           to a Sub-Participant, such
           participant's obligations
           under this Participation
           Agreement and under the
           other Operative Documents
           shall remain unchanged, such
           Participant shall remain
           solely responsible for the
           performance thereof, such
           Participant shall remain the
           holder of its Participation
           Interest, for all purposes
           under this Participation
           Agreement and under the
           other Operative Documents,
           and the Lessor, the Agent
           and, except as set forth in
           Section 12.2(b), the Lessee
           shall continue to deal
           solely and directly with
           such Participant in
           connection with such
           Participant's rights and
           obligations under this
           Participation Agreement and
           under the other Operative
           Documents.
 
          (b) Transferee Indemnities.
           Each Sub-Participant shall
           be entitled to the benefits
           of Sections 13.5, 13.6, and
           13.7 and 13.10 with respect
           to its participation in the
           Participation Interests
           outstanding from time to
           time; provided that no
           Sub-Participant shall be
           entitled to receive any
           greater amount pursuant to
           such Sections than the
           transferor Participant would
           have been entitled to
           receive in respect of the
           amount of the participation
           transferred by such
           transferor Participant to
           such Sub-Participant had no
           such transfer or
           participation occurred.
 
     SECTION 12.3. Future Participants.
      Each Participant shall be deemed
      to be bound by and, upon
      compliance with the requirements
      of this Section 12, will be
      entitled to all of the benefits
      of the provisions of, this
      Participation Agreement.
 
SECTION 13.
 
INDEMNIFICATION
 
     SECTION 13.1. General
      Indemnification. The Lessee
      agrees, whether or not any of the
      transactions contemplated hereby
      shall be consummated, to assume
      liability for, and to indemnify,
      protect, defend, save and keep
      harmless each Indemnitee, on an
      After Tax Basis, from and
      against, any and all Claims that
      may be imposed on, incurred by or
      asserted against such Indemnitee
      (whether because of action or
      omission by such Indemnitee or
      otherwise), whether or not such
      Indemnitee shall also be
      indemnified as to any such Claim
      by any other Person and whether
      or not

                                       41
<PAGE>
 
such Claim arises or accrues prior to
 the Closing Date or after the
 Expiration Date, in any way relating
 to or arising out of:
 
          (a)    any of the Operative
           Documents or any of the
           transactions contemplated
           thereby or any violation
           thereof, and any amendment,
           modification or waiver in
           respect thereof;
 
(b) the Property, the Lease or any part
 thereof or interest therein;
 
          (c) the purchase, design,
           construction, preparation,
           installation, inspection,
           delivery, non-delivery,
           acceptance, rejection,
           ownership, management,
           possession, operation,
           rental, lease, sublease,
           repossession, maintenance,
           repair, alteration,
           modification, addition or
           substitution, storage,
           transfer of title,
           redelivery, use, financing,
           refinancing, disposition,
           operation, condition, sale
           (including, without
           limitation, any sale
           pursuant to Sections 16.2,
           16.3, 16.4, 17.2(c), 17.2(e)
           or 17.4 of the Lease or any
           sale pursuant to Articles XX
           or XXII of the Lease, return
           or other disposition of all
           or any part or any interest
           in the Property or the
           imposition of any Lien (or
           incurring of any liability
           to refund or pay over any
           amount as a result of any
           Lien) thereon, including,
           without limitation: (1)
           Claims or penalties arising
           from any violation of
           federal, state or local law,
           nile, regulation or order or
           in tort (strict liability or
           otherwise), (2) latent or
           other defects, whether or
           not discoverable, (3) any
           Claim based upon a violation
           or alleged violation of the
           terms of any restriction,
           easement, condition or
           covenant or other matter
           affecting title to the
           Property, (4) the making of
           any Modifications in
           violation of any standards
           imposed by any insurance
           policies required to be
           maintained by Lessee
           pursuant to the Lease which
           are in effect at any time
           with respect to the Property
           or any part thereof, (5) any
           Claim for patent, trademark
           or copyright infringement,
           and (6) Claims arising from
           any public improvements with
           respect to the Property
           resulting in any charge or
           special assessments being
           levied against the Property
           or any plans to widen,
           modify or realign any street
           or highway adjacent to the
           Property;
 
          (d) [reserved];
 
          (e)    the breach by the
           Lessee of any covenant,
           representation or warranty
           made by it or deemed made by
           it in any Operative Document
           or any certificate required
           to be delivered by any
           Operative Document;
 
          (f)    the retaining or
           employment of any broker,
           finder or financial advisor
           by the Lessee to act on its
           behalf in connection with
           this Participation
           Agreement, or the incurring
           of any fees or commissions
           to which the Lessor might be
           subjected by virtue of
           entering into the
           transactions contemplated by
           this Participation Agreement;
 
          (g) the existence of any Lien
           on or with respect to the
           Property, any Basic Rent or
           Supplemental Rent, title
           thereto, or any interest
           therein including any Liens
           which arise out of the
           possession, use, occupancy,
           construction, repair or
           rebuilding of the Property
           or by reason of labor or
           materials furnished or
           claimed to have been
           furnished to the Lessee, the
           Lessor or any of their
           contractors or agents or by
           reason of the financing of
           the Property or
           Modifications constructed by
           the Lessee, except Lessor
           Liens and Liens in favor of
           the Agent or the Lessor; or

                                       42
<PAGE>
 
          (h) the transactions
           contemplated by the Lessee
           hereby or by any other
           Operative Document, in
           respect of the application
           of Parts 4 and 5 of Subtitle
           B of Title I of ERISA and
           any prohibited transaction
           described in Section 4975(c)
           of the Code (other than any
           Claim resulting from a
           breach of representation or
           warranty of the Lessor or
           any Participant);
 
provided, however, the Lessee shall not
 be required to indemnify (x) the
 Lessor for any Claim to the extent
 arising from any misrepresentation by
 the Lessor under Section 8.1 (e) or
 (l) or from the failure by the Lessor
 to comply with SectiOn 10.3 (a), or
 (y) any Indemnitee under this Section
 13.1 for any of the following: (1) any
 Claim to the extent resulting from the
 willful misconduct or gross negligence
 of such Indemnitee (it being
 understood that the Lessee shall be
 required to indemnify an Indemnitee
 even if the ordinary (but not gross)
 negligence of such Indemnitee caused
 or contributed to such Claim), (2) any
 Claim resulting from Lessor Liens
 which the Lessor is responsible for
 discharging under the Operative
 Documents, (3) any Claim to the extent
 attributable to acts or events
 occurring after the expiration of the
 Term or the termination of the
 Lessee's right to possess and control
 the Property (but not any claim to the
 extent attributable to acts or events
 occurring prior to or during the Term
 or occurring at any time that the
 Lessee is in actual possession or
 control of the Property), (4) any
 Imposition or other claims for Taxes,
 and (5) any Claims of the type(s)
 described in Sections 13.2 (only with
 respect to claims in respect of a
 decline in the Fair Market Sales Value
 of the Property as a result of an
 event described in Section 13.2(b) and
 the Lessee's exercise of the
 Remarketing Option), 13.6, 13.7, 13.8
 and 13.10. It is expressly understood
 and agreed that the indemnity provided
 for herein shall survive the
 expiration or termination of and shall
 be separate and independent from any
 remedy under the Lease or any other
 Operative Document. Without limiting
 the express rights of any Indemnitee
 under this Section 13.1, this Section
 13.1 shall be construed as an
 indemnity only and not a guaranty of
 residual value of the Property or as a
 guaranty of the Participation
 Interests.
 
     SECTION 13.2. End of Term
      Indemnity.
 
          (a)    If the Lessee elects
           the Remarketing Option and
           there would, after giving
           effect to the proposed
           remarketing transactions, be
           a Shortfall Amount, then
           prior to the Maturity Date
           and as a condition to the
           Lessee's fight to complete
           the remarketing of the
           Property pursuant to Section
           22.1 of the Lease, the
           Lessee shall cause to be
           delivered to the Lessor at
           least 30 days prior to the
           Expiration Date, at the
           Lessee's sole cost and
           expense, a report from an
           appraiser selected by the
           Lessor and reasonably
           satisfactory to the Agent
           and the Required
           Participants in form and
           substance satisfactory to
           the Lessor, the Agent-and
           the Required Participants
           (the "End of the Term
           Report") which shall state
           the appraiser's conclusions
           as to the reason for any
           decline in the Fair Market
           Sales Value of the Property
           from that anticipated for
           such date in the Appraisal
           delivered on the Closing
           Date.
 
          (b) Prior to the Expiration
           Date, the Lessee shall pay
           to the Lessor an amount (not
           to exceed the Shortfall
           Amount) equal to the portion
           of the Shortfall Amount that
           the End of the Term Report
           demonstrates was the result
           of a decline in the Fair
           Market Sales Value of the
           Property due to:

                                       43
<PAGE>
 
               (i) extraordinary wear and tear, excessive usage, failure to
     maintain, to repair, to restore, to rebuild or to replace, failure to
     comply with the Lease and all applicable laws, failure to use, workmanship,
     method of installation or removal or maintenance, repair, rebuilding or
     replacement (excepting in each case ordinary wear and tear);

               (ii) any Modification made to, or any rebuilding of, the Property
     or any part thereof by the Lessee; or

               (iii) the existence of any Hazardous ActiVity, Hazardous
     Substance or Environmental Violations; or

               (iv) any restoration or rebuilding carried out by the Lessee; or

               (v) any condemnation of any portion of the Property pursuant to
     Article XV of the Lease; or

               (vi) any use of the Property or any part thereof by the Lessee
     other than as permitted by the Operative Documents; or

               (vii) any grant, release, dedication, transfer, annexation or
     amendment made pursuant to Section 12.2 of the Lease; or

               (viii) the failure of the Lessor to have good and marketable fee
     title to the Property free and clear of all Liens (including Permitted
     Liens) and exceptions to title, except Lessor Liens.

     SECTION 13.3. Environmental Indemnity. Without limitation of the other
                   -------------------------                               
provisions of this Section 13, the Lessee hereby agrees to indemnify, hold
                   ------------                                           
harmless and defend each Indemnitee from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses (including but not limited to any loss of
value of the Property), damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action, requirements, enforcement actions of any
kind, and all reasonable and documented costs and expenses incurred in
connection therewith (including but not limited to reasonable and documented
attorneys' and/or paralegals' fees and expenses), including, but not limited to,
all costs incurred in connection with any investigation or monitoring of site
conditions or any clean-up, remedial, removal or restoration work by any
federal, state or local government agency, which such Indemnitee becomes subject
to because of its involvement with the Property, the transactions contemplated
by the Operative Documents or any other matter referred to in paragraphs (a)
through (i) of Section 13.1 arising in whole or in part, out of:
                       -----                                    

          (a) the presence on or under the Property or the Facility of any
Hazardous Substances, or any Releases or discharges of any Hazardous Substances
on, under, from or onto the Property or the Facility;

                                       44
<PAGE>
 
          (b) any activity, including,
           without limitation,
           construction, carried on or
           undertaken on or off the
           Facility, and whether by the
           Lessee, the Lessor or any
           predecessor in title or any
           employees, agents,
           contractors or
           subcontractors of the
           Lessee, the Lessor (if such
           activity was undertaken with
           the consent or at the
           direction of the Lessee) or
           any predecessor in title, or
           any other Persons (including
           such Indemnitee), in
           connection with the
           handling, treatment,
           removal, storage,
           decontamination, cleanup,
           transport or disposal of any
           Hazardous Substances that at
           any time are located or
           present on or under or that
           at any time migrate, flow,
           percolate, diffuse or in any
           way move onto or under the
           Property or the Facility;
 
          (c)    loss of or damage to
           any property or the
           environment (including,
           without limitation, cleanup
           costs, response costs,
           remediation and removal
           costs, cost of corrective
           action, costs of financial
           assurance, fines and
           penalties and natural
           resource damages), or death
           or injury to any Person, and
           all expenses associated with
           the protection of wildlife,
           aquatic species, vegetation,
           flora and fauna, and any
           mitigative action required
           by or under Environmental
           Laws;
 
          (d) any claim concerning lack
           of compliance with
           Environmental Laws, or any
           act or omission causing an
           environmental condition that
           requires remediation or
           would allow any Governmental
           Authority to record a Lien
           on the land records;
 
          (e)    any residual
           contamination on or under
           the Facility, or affecting
           any natural resources, or
           any contamination of any
           property or natural
           resources arising in
           connection with the
           generation, use, handling,
           storage, transport or
           disposal of any such
           Hazardous Substances, and
           irrespective of whether any
           of such activities were or
           will be undertaken in
           accordance with applicable
           Environmental Laws; or
 
          (f)    any material
           inaccuracies,
           misrepresentations,
           misstatements, and omissions
           and any conflicting
           information contained in or
           omitted from any
           environmental audit
           previously delivered to the
           Lessor or the Agent in
           connection with the Fab 2
           Real Property Participation
           Agreement;
 
provided, however, the Lessee shall not
 be required to indemnify any
 Indemnitee under this Section 13.3 for
 (1) any Claim to the extent resulting
 from the willful misconduct or gross
 negligence of such Indemnitee (it
 being understood that the Lessee shall
 be required to indemnify an Indemnitee
 even if the ordinary (but not gross)
 negligence of such Indemnitee caused
 or contributed to such Claim), (2)
 subject to the provisions Section 15.2
 of the Lease, any Claim to the extent
 attributable to acts or events
 occurring after the expiration of the
 Term or the termination of the
 Lessee's right to possess and control
 the Property (but not any claim to the
 extent attributable to acts or events
 occurring prior to or during the Term
 or occurring at any time that the
 Lessee is in actual possession or
 control of the Property), (3) any
 Imposition or other claims for Taxes
 of the type(s) described in Section
 13.5 or (4) any Claims of the type(s)
 described in Sections 13.2 (only with
 respect to claims in respect of a
 decline in the Fair Market Sales Value
 of the Property and the Lessee's
 exercise of the Remarketing Option),
 13.6, 13.7, 13.8 and 13.10. It is
 expressly understood and agreed that
 the indemnity provided for herein
 shall survive the expiration or
 termination of and shall be separate
 and independent from any remedy under
 the Lease or any other Operative
 Document.

                                       45
<PAGE>
 
     SECTION 13.4. Proceedings in
      Respect of Claims. With respect
      to any amount that the Lessee is
      requested by an Indemnitee to pay
      by reason of Section 13.1 or
      13.3, such Indemnitee shall, if
      so requested by the Lessee and
      prior to any payment, submit such
      additional information to the
      Lessee as the Lessee may
      reasonably request and which is
      in the possession of such
      Indemnitee to substantiate
      properly the requested payment.
 
     In case any action, suit or
      proceeding shall be brought
      against any Indemnitee, such
      Indemnitee shall notify the
      Lessee of the commencement
      thereof, and the Lessee shall be
      entitled, at its expense, to
      participate in, and, to the
      extent that the Lessee desires
      to, assume and control the
      defense thereof; provided,
      however, that the Lessee shall
      have acknowledged in writing its
      obligation to fully indemnify
      such Indemnitee in respect of
      such action, suit or proceeding,
      and the Lessee shall keep such
      Indemnitee fully apprised of the
      status of such action, suit or
      proceeding and shall provide such
      Indemnitee with all information
      with respect to such action, suit
      or proceeding as such Indemnitee
      shall reasonably request, and
      provided further, that the Lessee
      shall not be entitled to assume
      and control the defense of any
      such action, suit or proceeding
      if and to the extent that, (A) in
      the reasonable opinion of such
      Indemnitee, (x) such action, suit
      or proceeding involves any
      possibility of imposition of
      criminal liability or any risk of
      material civil liability on such
      Indemnitee or will involve a
      material risk of the sale,
      forfeiture or loss of, or the
      creation of any Lien (other than
      a Permitted Lien) on the Property
      or any part thereof unless, in
      the case of civil liability or
      Lien, the Lessee shall have
      posted a bond or other security
      satisfactory to the relevant
      Indemnitee in respect to such
      risk or (y) the control of such
      action, suit or proceeding would
      involve an actual or potential
      conflict of interest, (B) such
      proceeding involves Claims not
      fully indemnified by the Lessee
      which the Lessee and the
      Indemnitee have been unable to
      sever from the indemnified
      claim(s), or (C) an Event of
      Default under the Lease has
      occurred and is continuing. The
      Indemnitee may participate in a
      reasonable manner at its own
      expense and with its own counsel
      in any proceeding conducted by
      the Lessee in accordance with the
      foregoing. The Lessee shall not
      enter into any settlement or
      other compromise with respect to
      any Claim which is entitled to be
      indemnified under Section 13.1 or
      13.3 without the prior written
      consent of the Indemnitee which
      consent shall not be unreasonably
      withheld in the case of a money
      settlement not involving an
      admission of liability of such
      Indemnitee.
 
     Each Indemnitee shall at the
      expense of the Lessee cooperate
      with and supply the Lessee with
      such information and documents
      reasonably requested by the
      Lessee as are necessary or
      advisable for the Lessee to
      participate in any action, suit
      or proceeding to the extent
      permitted by Section 13.1 or
      13.3. Unless an Event of Default
      under the Lease shall have
      occurred and be continuing, no
      Indemnitee shall enter into any
      settlement or other compromise
      with respect to any Claim which
      is entitled to be indemnified
      under Section 13.1 or 13.3
      without the prior written consent
      of the Lessee, which consent
      shall not be unreasonably
      withheld, unless such Indemnitee
      waives its right to be
      indemnified under Section 13.1 or
      13.3 with respect to such Claim.
 
     Upon payment in full of any Claim
      by the Lessee pursuant to Section
      13.1 or 13.3 to or on behalf of
      an Indemnitee, the Lessee,
      without any further action, shall
      be subrogated to any and all
      claims that such Indemnitee may
      have relating thereto (other than
      claims in respect of insurance
      policies maintained by such
      Indemnitee at its own expense),
      and such Indemnitee shall execute
      such instruments of assignment
      and conveyance, evidence of
      claims and payment and such other

                                       46
<PAGE>
 
documents, instruments and agreements
 as may be necessary to preserve any
 such claims and otherwise cooperate
 with the Lessee and give such further
 assurances as are necessary or
 advisable to enable the Lessee
 vigorously to pursue such claims.
 
     Any amount payable to an
      Indemnitee pursuant to Section
      13.1 or 13.3 shall be paid to
      such Indemnitee promptly upon
      receipt of a written demand
      therefor from such Indemnitee,
      accompanied by a written
      statement describing in
      reasonable detail the basis for
      such indemnity and the
      computation of the amount so
      payable and, if requested by the
      Lessee, such determination shall
      be verified by a nationally
      recognized independent accounting
      firm mutually acceptable to the
      Lessee and the Indemnitee at the
      expense of the Lessee.
 
     SECTION 13.5. General Impositions
      Indemnity.
 
          (a)    Indemnification. The
           Lessee shall pay and assume
           liability for, and does
           hereby agree to indemnify,
           protect and defend the
           Property and all
           Indemnitees, and hold them
           harmless against, all
           Impositions on an After Tax
           Basis.
 
          (b) Payments. (i) Subject to
           the terms of Section
           13.5(f), the Lessee shall
           pay or cause to be paid all
           Impositions directly to the
           taxing authorities where
           feasible and otherwise to
           the Indemnitee, as
           appropriate, and the Lessee
           shall at its own expense,
           upon such Indemnitee's
           reasonable request, furnish
           to such Indemnitee copies of
           official receipts or other
           satisfactory proof
           evidencing such payment.
 
               (ii) In the case of
                Impositions for which
                no contest is conducted
                pursuant to Section
                13.5(f) and which the
                Lessee pays directly to
                the taxing authorities,
                the Lessee shall pay
                such Impositions prior
                to the latest time
                permitted by the
                relevant taxing
                authority for timely
                payment. In the case of
                Impositions for which
                the Lessee reimburses
                an Indemnitee, the
                Lessee shall do so
                within twenty (20) days
                after receipt by the
                Lessee of demand by
                such Indemnitee
                describing in
                reasonable detail the
                nature of the
                Imposition and the
                basis for the demand
                (including the
                computation of the
                amount payable), but in
                no event shall the
                Lessee be required to
                pay such reimbursement
                prior to ten (10) days
                before the latest time
                permitted by the
                relevant taxing
                authority for timely
                payment. In the case of
                Impositions for which a
                contest is conducted
                pursuant to Section
                13.5(f), the Lessee
                shall pay such
                Impositions or
                reimburse such
                Indemnitee for such
                Impositions, to the
                extent not previously
                paid or reimbursed
                pursuant to subsection
                (a), prior to the
                latest time permitted
                by the relevant taxing
                authority for timely
                payment after
                conclusion of all
                contests under Section
                13.5(f).
 
               (iii) At the Lessee's
                request, the amount of
                any indemnification
                payment by the Lessee
                pursuant to subsection
                (a) shall be verified
                and certified by an
                independent public
                accounting firm
                mutually acceptable to
                the Lessee and the
                Indemnitee. The fees
                and expenses of such
                independent public
                accounting firm shall
                be paid by the Lessee
                unless such
                verification shall
                result in an adjustment
                in the Lessee's favor
                of 5% or more of the
                payment as computed by
                the Indemnitee, in
                which case such fee
                shall be paid by the
                Indemnitee.

                                       47
<PAGE>
 
                    (c)    Reports and
                     Returns. (i) The
                     Lessee shall be
                     responsible for
                     preparing and
                     filing any real
                     and personal
                     property or ad
                     valorem tax
                     returns in respect
                     of the Property.
                     In case any other
                     report or tax
                     return shall be
                     required to be
                     made with respect
                     to any obligations
                     of the Lessee
                     under or arising
                     out of subsection
                     (a) and of which
                     the Lessee has
                     knowledge or
                     should have
                     knowledge, the
                     Lessee, at its
                     sole cost and
                     expense, shall
                     notify the
                     relevant
                     Indemnitee of such
                     requirement and
                     (except if such
                     Indemnitee
                     notifies the
                     Lessee that such
                     Indemnitee intends
                     to file such
                     report or return)
                     (A) to the extent
                     required or
                     permitted by and
                     consistent with
                     Applicable Law,
                     make and file in
                     its own name such
                     return, statement
                     or report; and (B)
                     in the case of any
                     other such return,
                     statement or
                     report required to
                     be made in the
                     name of such
                     Indemnitee, advise
                     such Indemnitee of
                     such fact and
                     prepare such
                     return, statement
                     or report for
                     filing by such
                     Indemnitee or,
                     where such return,
                     statement or
                     report shall be
                     required to
                     reflect items in
                     addition to any
                     obligations of the
                     Lessee under or
                     arising out of
                     subsection (a),
                     provide such
                     Indemnitee at the
                     Lessee's expense
                     with information
                     sufficient to
                     permit such
                     return, statement
                     or report to be
                     properly made with
                     respect to any
                     obligations of the
                     Lessee under or
                     arising out of
                     subsection (a).
                     Such Indemnitee
                     shall, upon the
                     Lessee's request
                     and at the
                     Lessee's expense,
                     provide any data
                     maintained by such
                     Indemnitee (and
                     not otherwise
                     available to or
                     within the control
                     of the Lessee)
                     with respect to
                     the Property which
                     the Lessee may
                     reasonably require
                     to prepare any
                     required tax
                     returns or
                     reports. Each
                     Indemnitee agrees
                     to use its best
                     efforts to send to
                     the Lessee a copy
                     of any written
                     request or other
                     notice that the
                     Indemnitee
                     receives with
                     respect to any
                     reports or returns
                     required to be
                     filed with respect
                     to the Property or
                     the transactions
                     contemplated by
                     the Operative
                     Documents, it
                     being understood
                     that no Indemnitee
                     shall have any
                     liability for
                     failure to provide
                     such copies.
 
                    (d) Income
                     Inclusions. If as
                     a result of the
                     payment or
                     reimbursement by
                     the Lessee of any
                     expenses of the
                     Lessor or the
                     payment of any
                     Transaction
                     Expenses incurred
                     in connection with
                     the transactions
                     contemplated by
                     the Operative
                     Documents, the
                     Lessor or any
                     Participant shall
                     suffer a net
                     increase in any
                     federal, state or
                     local income tax
                     liability, the
                     Lessee shall
                     indemnify such
                     Persons (without
                     duplication of any
                     indemnification
                     required by
                     subsection (a)) on
                     an After Tax Basis
                     for the amount of
                     such increase. The
                     calculation of any
                     such net increase
                     shall take into
                     account any
                     current or future
                     tax savings
                     realized or
                     reasonably
                     expected to be
                     realized by such
                     person in respect
                     thereof, as well
                     as any interest,
                     penalties and
                     additions to tax
                     payable by the
                     Lessor, or any
                     Participant or
                     such Affiliate, in
                     respect thereof.
 
                    (e)    Withholding
                     Taxes. As between
                     the Lessee on one
                     hand, and the
                     Lessor or the
                     Agent and any
                     Participant on the
                     other hand, the
                     Lessee shall be
                     responsible for,
                     and, subject to
                     the provisions of
                     Sections 13.5(g)
                     and (h), the
                     Lessee shall
                     indemnify and hold
                     harmless the
                     Lessor, the Agent
                     and the
                     Participants
                     (without
                     duplication of any
                     indemnification
                     required by
                     subsection (a)) on
                     an After Tax Basis
                     against, any
                     obligation for
                     United States or
                     foreign
                     withholding taxes
                     imposed in respect
                     of payments with
                     respect to the
                     Participation
                     Interests or with
                     respect to Rent
                     payments under the
                     Lease or payments
                     of the Asset
                     Termination Value
                     or Purchase Option
                     Price (and, if the
                     Lessor, the Agent
                     or any Participant
                     receives a demand
                     for such payment
                     from any taxing
                     authority, the
                     Lessee shall
                     discharge such
                     demand on behalf
                     of the Lessor, the
                     Agent or such
                     Participant).
                     Notwithstanding
                     the foregoing
                     provisions of this
                     Section 13.5(e) or
                     any other
                     provision of any
                     Operative Document
                     to the contrary,
                     the Lessee shall
                     not be responsible
                     for and shall not
                     be required to
                     indemnify or
                     otherwise hold
                     harmless any
                     Person from or
                     against any
                     withholding tax
 

                                       48
<PAGE>
 
imposed as a collection device for, or in substitution or lieu of, an income,
franchise or similar tax to the extent such income, franchise or similar tax
would not otherwise be subject to indemnification pursuant to this Section 13.5
(a "Qualified Withholding Tax"). As used herein, Qualified Withholding Taxes
include, without limitation, any withholding taxes arising under Section 871,
881, 1441 or 1442 of the Code and any similar taxes arising under state, local
or foreign law as well as any withholding tax imposed as a collection device
for, or in substitution or lieu of the Imposition that qualifies as an "income
tax" within the meaning of United States Treasury Regulation Section 1.901 -2.
 
(f) Contests of Impositions. (i) If a written claim is made against any
Indemnitee or if any proceeding shall be commenced against such Indemnitee
(including a written notice of such proceeding), for any Impositions, such
Indemnitee shall promptly notify the Lessee in writing and shall not take action
with respect to such claim or proceeding without the consent of the Lessee for
thirty (30) days after the receipt of such notice by the Lessee; provided,
however, that, in the case of any such claim or proceeding, if action shall be
required by law or regulation to be taken prior to the end of such 30-day
period, such Indemnitee shall, in such notice to the Lessee, inform the Lessee
of such shorter period, and no action shall be taken with respect to such claim
or proceeding without the consent of the Lessee before 2 days before the end of
such shorter period; provided, further, that the failure of such Indemnitee to
give the notices referred to this sentence shall not diminish the Lessee's
obligation hereunder except to the extent such failure precludes the Lessee from
contesting all or part of such claim.
 
(ii) If, within thirty (30) days of receipt of such notice from the Indemnitee
(or such shorter period as the Indemnitee has notified the Lessee is required by
law or regulation for the Indemnitee to commence such contest), the Lessee shall
request in writing that such Indemnitee contest such Imposition, the Indemnitee
shall, at the expense of the Lessee, in good faith conduct and control such
contest (including, without limitation, by pursuit of appeals) relating to the
validity, applicability or amount of such Impositions (provided, however, that
(A) if such contest involves a tax other than a tax on net income and can be
pursued independently from any other proceeding involving a tax liability of
such Indemnitee, the Indemnitee, at the Lessee's request, shall allow the Lessee
to conduct and control such contest and (B) in the case of any contest, the
Indemnitee may request the Lessee to conduct and control such contest) by, in
the sole discretion of the Person conducting and controlling such contest, (1)
resisting payment thereof, (2) not paying the same except under protest, if
protest is necessary and proper, (3) if the payment be made, using reasonable
efforts to obtain a refund thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably requested by the
Lessee from time to time.

(iii) The party controlling any contest shall consult in good faith with the 
non-controlling party and shall keep the non-controlling party reasonably
informed as to the conduct of such contest; provided, that all decisions
ultimately shall be made in the sole discretion of the controlling party except
that no decision shall be made to concede an indemnified issue without the prior
consent of Lessee (which consent shall not be unreasonably withheld). The
parties agree that an Indemnitee may at any time decline to take further action
with respect to the contest of any Imposition and may settle such contest if
such Indemnitee shall waive its fights to any indemnity from the Lessee that
otherwise would be payable in respect of such claim (and any future claim by

                                       49
<PAGE>
 
any taxing authority, the contest of
 which is precluded by reason of such
 resolution of such claim) and shall
 pay to the Lessee any amount
 previously paid or advanced by the
 Lessee pursuant to this Section 13.5
 by way of indemnification or advance
 for the payment of an Imposition other
 than expenses of such contest.
 
               (iv) Notwithstanding the
                foregoing provisions of
                this Section 13.5, an
                Indemnitee shall not be
                required to take any
                action and the Lessee
                shall not be permitted
                to contest any
                Impositions in its own
                name or that of the
                Indemnitee unless (A)
                the Lessee shall have
                agreed such Imposition
                is subject to indemnity
                hereunder and shall pay
                to such Indemnitee on
                demand and on an After
                Tax Basis all
                reasonable costs,
                losses and expenses
                that such Indemnitee
                actually incurs in
                connection with
                contesting such
                Impositions, including,
                without limitation, all
                reasonable legal,
                accounting and
                investigatory fees and
                disbursements, (B) in
                the case of a claim
                that must be pursued in
                the name of an
                Indemnitee (or an
                Affiliate thereof), the
                amount of the potential
                indemnity (taking into
                account all similar or
                logically related
                claims that have been
                or could be raised in
                any audit involving
                such Indemnitee for
                which the Lessee may be
                liable to pay an
                indemnity under this
                Section 13.5) exceeds
                $10,000, (C) the
                Indemnitee shall have
                reasonably determined
                that the action to be
                taken will not result
                in any material danger
                of sale, forfeiture or
                loss of the Property,
                or any part thereof or
                interest therein, will
                not interfere with the
                payment of Rent, and
                will not result in risk
                of criminal liability,
                (D) if such contest
                shall involve the
                payment of the
                Imposition prior to the
                contest, the Lessee
                shall provide to the
                Indemnitee an
                interest-free advance
                in an amount equal to
                the Imposition that the
                Indemnitee is required
                to pay (with no
                additional net
                after-tax cost to such
                Indemnitee), (E) in the
                case of a claim that
                must be pursued in the
                name of an Indemnitee
                (or an Affiliate
                thereof), the Lessee
                shall have provided to
                such Indemnitee an
                opinion of independent
                tax counsel selected by
                the Indemnitee and
                reasonably satisfactory
                to the Lessee stating
                that a reasonable basis
                exists to contest such
                claim (or, in the case
                of an appeal of an
                adverse judicial
                determination, an
                opinion of such counsel
                to the effect that
                there is substantial
                authority for the
                position asserted in
                such appeal) and (F) no
                Event of Default
                hereunder shall have
                occurred and be
                continuing. In no event
                shall an Indemnitee be
                required to appeal an
                adverse judicial
                determination to the
                United States Supreme
                Court. In addition, an
                Indemnitee shall not be
                required to contest any
                claim in its name (or
                that of an Affiliate)
                if the subject matter
                thereof shall be of a
                continuing nature and
                shall have previously
                been decided adversely
                by a court of competent
                jurisdiction pursuant
                to a contest completed
                in accordance with the
                provisions of this
                Section 13.5, unless
                there shall have been a
                change in law (or
                interpretation thereof)
                and the Indemnitee
                shall have received, at
                the Lessee's expense,
                an opinion of
                independent tax counsel
                selected by the
                Indemnitee and
                reasonably acceptable
                to the Lessee stating
                that as a result of
                such change in law (or
                interpretation
                thereof), it is more
                likely than not that
                the Indemnitee will
                prevail in such contest.
 
          (g) Documentation of
           Withholding Status. Each
           Participant (or any
           successor thereto or
           transferee thereof) that is
           organized under the laws of
           a jurisdiction outside of
           the United States of America
           and each Lessor that is
           organized under the laws of
           a jurisdiction outside of
           the United States of America
           shall:
 
               (i) on or before the
                date it becomes a party
                to any Operative
                Document, deliver to
                the Lessee any
                certificates,
                documents, or other
                evidence that shall be
                required by the Code or
                Treasury Regulations
                issued pursuant thereto
                to establish its

                                       50
<PAGE>
 
exemption from United States Federal withholding requirements, including (A) two
valid, duly completed, original copies of Internal Revenue Service Form 1001 or
Form 4224 or successor applicable form, properly and duly executed, certifying
in each case that such party is entitled to receive payments pursuant to the
Operative Documents without deduction or withholding of United States Federal
income taxes, or (B) a valid, duly completed, original copy of Internal Revenue
Service Form W-8 or Form W-9 or applicable successor form, properly and duly
executed, certifying that such party is entitled to an exemption from United
States of America backup withholding tax; and
 
(ii) so long as it shall be legally entitled to do so, on or before the date
that any such form described above expires or becomes obsolete, or after the
occurrence of any event requiring a change in the most recent such form
previously delivered to the Lessee, deliver to the Lessee two further valid,
duly completed, original copies of any such form or certification, properly and
duly executed.

(h) Limitation on Tax Indemnification. The Lessee shall not be required to
indemnify any Indemnitee, or to pay any increased amounts to any Indemnitee or
tax authority with respect to any Impositions pursuant to this Section 13.5 to
the extent that (i) such Imposition is attributable to such Indemnitee's failure
to comply with the provisions of Section 13.5(g); or (ii) to the extent such
Imposition constitutes or is collected by means of a Qualified Withholding Tax.
 
(i)  Tax Savings. In the event an Indemnitee receives a retired (or similar tax
savings) in respect of any Imposition paid or reimbursed by the Lessee which was
not considered in calculating the After Tax Basis with respect to such payment
or reimbursement by Lessee, such Indemnitee shall within thirty (30) days
thereafter remit the amount of such refund (or tax savings) to the Lessee,
provided that the amount so remitted shall not exceed the lesser of: (i) the
amount received by such Indemnitee as a refund (or tax savings) net of all
reasonable costs and expenses incurred by such Indemnitee in connection with
obtaining and paying such amount; and (ii) (a) the amount of all prior payments
by the Lessee to such Indemnitee with respect to Impositions, plus any refunded
interest, less (b) the amount of all prior payments by the Indemnitee to the
Lessee under this Section 13.5(i).
 
SECTION 13.6. Funding Losses. If any payment of any Advance representing Tranche
B Participation Interests or any portion of any Tranche B Participation Interest
is made on any day other than the last day of an Interest Period applicable
thereto, or if the Lessee fails to utilize the proceeds of any purchase of
Participation Interests after notice has been given to any Participant in
accordance with Section 3 or 4, the Lessee shall reimburse each Participant
within fifteen (15) days after demand for any resulting loss or expense incurred
by it, including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, provided that such
Participant shall have delivered to the Lessee a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the absence of
manifest error, and provided further that such loss shall in no event exceed the
interest on the Advances which would have been payable for the balance of such
Interest Period or other period, less the amount actually earned by such
Participant
 

                                       51
<PAGE>
 
on such Advances. Such Participant will, at the request of the Lessee, furnish
such additional information concerning the determination of such loss as the
Lessee may reasonably request.
 
SECTION 13.7. Regulation D Compensation. For so long as any Participant is
required to increase its existing reserve percentage against "Eurocurrency
Liabilities" (or any other category of liabilities which include deposits by
reference to which the interest rate on its Participation Interest in any
Advance is determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of such Participant to United
States residents), and, as a result, the cost to such Participant (or its
Funding Office) of purchasing or maintaining its Participation Interest in any
Advance is increased, then such Participant may require the Lessee to pay,
contemporaneously with each payment of interest on the Advances an additional
amount on the Participation Interest of such Participant in the Advances at a
rate per annum up to but not exceeding the excess of (i) (A) the applicable
Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements
and (ii) the applicable Eurodollar Rate. Any Participant wishing to require
payment of such additional amount (x) shall so notify the Lessee and the Agent,
in which case such additional interest on its Participation Interest in any
Advance shall be payable to such Participant at the place indicated in such
notice with respect to each Interest Period commencing at least three (3)
Business Days after the giving of such notice and (y) shall furnish to the
Lessee at least five (5) Business Days prior to each date on which interest is
payable on the Advance an officer's certificate setting forth the amount to
which such Participant is then entitled under this Section (which shall be
consistent with such Participant's good faith estimate of the level at which the
related reserves are maintained by it). Each such certificate shall be
accompanied by such information as the Lessee may reasonably request as to the
computation set forth therein.

SECTION 13.8. Basis for Determining Interest Rate Inadequate or Unfair. If on or
prior to the first day of any Interest Period:

(a) deposits in dollars (in the applicable amounts) are not being offered to the
Agent in the relevant market for such Interest Period or any Participants shall
advise the Agent that the Eurodollar Rate as determined by the Agent will not
adequately and fairy reflect the cost to such Participant of funding its Tranche
B Participation Interest in any Advance for such Interest Period; or
 
(b) any Participant determines that, by reason of the adoption, on or after the
date of this Participation Agreement, of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any
Participant (or its Funding Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or governmental
agency, it is restricted, directly or indirectly, in the amount it may hold of
(i) a category of liabilities that includes deposits by reference to which, or
on the basis of which, the interest rates applicable to Advances to fund its
Tranche B Participation Interest Commitment based on the Eurodollar Rate are
directly or indirectly determined, or (ii) the category of assets which includes
Advances to fund its Tranche B Participation Interest Commitment based on the
Eurodollar Rate;
 

                                       52
<PAGE>
 
the Agent shall forthwith give notice thereof to the Lessee and the
Participants, whereupon until the Agent notifies the Lessee that the
circumstances giving rise to such suspension no longer exist, each outstanding
Advance shall begin to bear interest on the last day of the then current
Interest Period applicable thereto at a rate per annum equal to the sum of(i)
the Participants' average cost of funds employed to fund their Tranche B
Participation Interests, as notified to the Agent and the Lessee, plus (ii) the
Applicable Margin for Eurodollar Rate-based Advances at such time.
 
SECTION 13.9. Illegality. If, on or after the date of this Participation
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the 'interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Participant (or
its Funding Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency, shall
make it unlawful or impossible for any Participant (or its Funding Office) to
purchase, maintain or fund its Participation Interest in any Advance and such
Participant shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Participants and the Lessee, whereupon until such
Participant notifies the Lessee and the Agent that the circumstances giving rise
to such suspension no longer exist, the obligation of such Participant to
purchase its Participation Interest in any Advance shall be suspended. Before
giving any notice to the Agent pursuant to this Section, such Participant shall,
if practicable, with the consent of the Lessee (which consent shall not
unreasonably be withheld), designate a different Funding Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Participant, be otherwise disadvantageous to such Participant.
If such notice is given (i) the Lessee shall be entitled upon its request to a
reasonable explanation of the factors underlying such notice and (ii) each
outstanding Participation Interest in any Advance of such Participant then
outstanding shall begin to bear interest at the Alternate Base Rate plus the
Applicable Margin for Eurodollar Rate-based Advances either (a) on the last day
of the then current Interest Period applicable to such Advance if such
Participant may lawfully continue to maintain and fund such Participation
Interest to such day or (b) immediately if such Participant shall determine that
it may not lawfully continue to maintain and fund such Participation Interest to
such day. If such notice is given the Lessee may exercise its Purchase Option
under Section 20.1 of the Lease upon not less than ten (10) days' written notice
to the Lessor, the Agent and the Participants.

SECTION 13.10. Increased Cost and Reduced Return. (a) In the event that the
adoption of any applicable law, rule or regulation, or any change therein or in
the interpretation or application thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof or compliance by any Participant with any request or directive after the
date hereof (whether or not having the force of law) of any such authority,
central bank or comparable agency:
 
(i) does or shall subject such Participant to any additional tax of any kind
whatsoever with respect to the Operative Documents or any purchase of a
Participation Interest in any Advance, or change the basis or the applicable
rate of taxation of payments to such Participant of its Participation Interest
or any other amount payable hereunder (except for the imposition of or change in
any tax on or measured by the overall net income of such Participant including,
without limitation, any tax that qualifies as an "income tax"
 

                                       53
<PAGE>
 
within the meaning of United States Treasury Regulation Section 1.901-2 and
 which is not an Imposition);
 
(ii) does or shall impose, modify or hold applicable any reserve, special
deposit, insurance assessment, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition of
funds by, any office of such Participant which are not otherwise included in
determination of the rate of interest on Advances hereunder; or

(iii) does or shall impose on such Participant any other condition;
 
and the result of any of the foregoing is to increase the cost to such
Participant of purchasing or maintaining its Participation Interest in any
Advance or to reduce any amount receivable hereunder with respect thereto, then
in any such case, the Lessee shall promptly pay such Participant, upon its
demand, any additional amounts necessary to compensate such Participant for such
increased cost or reduced amount receivable which such Participant deems to be
material as determined by such Participant.

(b) If any Participant shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on capital of such Participant (or any entity
directly or indirectly controlling such Participant) as a consequence of such
Participant's obligations under the Operative Documents to a level below that
which such Participant (or any entity directly or indirectly controlling such
Participant) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Participant to be material, then from time
to time, within 15 days after demand by such Participant (with a copy to the
Agent), the Lessee shall pay to such Participant' such additional amount or
amounts as will compensate such Participant (or its parent) for such reduction.

(c) Each Participant will promptly notify the Lessee and the Agent of any event
of which it has knowledge, occurring after the date hereof, which will entitle
such Participant to compensation pursuant to this Section and will, if
practicable, with the consent of the Lessee (which consent shall not
unreasonably be withheld), designate a different Funding Office or take any
other reasonable action if such designation or action will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Participant, be otherwise disadvantageous to such Participant. A certificate of
any Participant claiming compensation under this Section and setting forth in
reasonable detail its computation of the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Participant may use any reasonable averaging and
attribution methods. This Section shall survive 

                                       54
<PAGE>
 
the termination of this Participation Agreement and payment of the outstanding
Advances and Participation Interests.

 SECTION 13.11. Substitution of Participant. If (i) the obligation of any
Participant to purchase or maintain its Participation Interest has been
suspended pursuant to this Section 13, or (ii) any Participant has demanded
compensation or given notice of its intention to demand compensation under
Section 13.10, the Lessee shall have the right, with the assistance of the
Agent, to seek one or more mutually satisfactory substitute banks or financial
institutions (which may be one or more of the Participants) to replace such
Participant under the Operative Documents.

SECTION 13.12. Indemnity Payments in Addition to Residual Value Guarantee
Amount. The Lessee acknowledges and agrees that its obligations to make
indemnity payments under this Section 13 are separate from, in addition to, and
do not reduce, its obligation to pay the Residual Value Guarantee Amount under
the Lease; provided, that except as otherwise set forth in Section 13.2 hereof,
the Shortfall Amount payable by the Lessee in connection with the Remarketing
Option under the Lease shall not be increased under this Section 13.

                                  SECTION 14.

                                   THE AGENT

SECTION 14.1. Appointment. Each Participant hereby irrevocably designates and
appoints the Agent as the agent of such Lender under this Agreement and the
other Operative Documents, and each Participant irrevocably authorizes the
Agent, in such capacity, to take such action on its behalf under the provisions
of this Agreement and the other Operative Documents and to exercise such powers
and perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Operative Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Participant or any other party to the Operative Documents,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Operative Document or
otherwise exist against the Agent.

SECTION 14.2. Delegation of Duties. The Agent may execute any of its duties
under this Agreement and the other Operative Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
 
SECTION 14.3. Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (a)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Operative Document
(except for its or such Person's own gross negligence or willful

                                       55
<PAGE>
 
          misconduct) or (b)
           responsible in any manner to
           any of the Participants or
           any other party to the
           Operative Documents for any
           recitals, statements,
           representations or
           warranties made by the
           Lessor or the Lessee or any
           officer thereof contained in
           this Agreement or any other
           Operative Document or in any
           certificate, report,
           statement or other document
           referred to or provided for
           in, or received by the Agent
           under or in connection with,
           this Agreement or any other
           Operative Document or for
           the value, validity,
           effectiveness, genuineness,
           enforceability or
           sufficiency of this
           Agreement or any other
           Operative Document or for
           any failure of the Lessor or
           the Lessee to perform its
           obligations hereunder or
           thereunder. The Agent shall
           not be under any obligation
           to any Participant or any
           other party to the Operative
           Documents to ascertain or to
           inquire as to the observance
           or performance of any of the
           agreements contained in, or
           conditions of, this
           Agreement or any other
           Operative Document, or to
           inspect the properties,
           books or records of the
           Lessor or the Lessee.
 
               SECTION 14.4. Reliance
                by Agent. The Agent
                shall be entitled to
                rely, and shall be
                fully protected in
                relying, upon any
                writing, resolution,
                notice, consent,
                certificate, affidavit,
                letter, telecopy, telex
                or teletype message,
                statement, order or
                other document or
                conversation believed
                by it to be genuine and
                correct and to have
                been signed, sent or
                made by the proper
                Person or Persons and
                upon advice and
                statements of legal
                counsel (including,
                without limitation,
                counsel to the Lessor
                or the Lessee),
                independent accountants
                and other experts
                selected by the Agent.
                The Agent shall be
                fully justified in
                failing or refusing to
                take any action under
                this Agreement or any
                other Operative
                Document unless it
                shall first receive
                such advice or
                concurrence of the
                Required Participants
                as it deems appropriate
                or it shall first be
                indemnified to its
                satisfaction by the
                Participants against
                any and all liability
                and expense which may
                be incurred by it by
                reason of taking or
                continuing to take any
                such action. The Agent
                shall in all cases be
                fully protected in
                acting, or in
                refraining from acting,
                under this Agreement
                and the other Operative
                Documents in accordance
                with a request of the
                Required Participants,
                and such request and
                any action taken or
                failure to act pursuant
                thereto shall be
                binding upon all the
                Participants.
 
               SECTION 14.5. Notice of
                Default. The Agent
                shall not be deemed to
                have knowledge or
                notice of the
                occurrence of any
                Default or Event of
                Default unless the
                Agent has received
                notice from a
                Participant, the Lessor
                or the Lessee
                describing such Default
                or Event of Default and
                stating that such
                notice is a "notice of
                default". In the event
                that the Agent receives
                such a notice, the
                Agent shall give notice
                thereof to the other
                parties hereto. Subject
                to the provisions of
                Section 11 and Section
                15.5 hereof, the Agent
                shall take such action
                with respect to such
                Default or Event of
                Default as shall be
                reasonably directed by
                the Required
                Participants; provided
                that unless and until
                the Agent shall have
                received such
                directions, the Agent
                may (but shall not be
                obligated to) take such
                action, or refrain from
                taking such action,
                with respect to such
                Default or Event of
                Default as it shall
                deem advisable in the
                best interests of the
                Participants.
 
               SECTION 14.6.
                Non-Reliance on Agent
                and Other Participants.
                Each Participant
                expressly acknowledges
                that neither the Agent
                nor any of its
                officers, directors,
                employees, agents,
                attorneys-in-fact or
                Affiliates has made any
                representations or
                warranties to it and
                that no act by the
                Agent hereinafter
                taken, including any
                review of the affairs
                of the Lessor or the
                Lessee, shall be deemed
                to constitute any
                representation or
                warranty by the Agent
                to any Participant.
                Each Participant
                represents to the Agent
                that it has,
                independently and
                without reliance upon
                the Agent or any other
                Participant, and based
                on such documents and
                information as it has
                deemed appropriate,

                                       56
<PAGE>
 
made its own appraisal of and
 investigation into the business,
 operations, property, financial and
 other condition and creditworthiness
 of the Lessor, the Lessee and the
 Property and made its own decision to
 purchase its Participation Interest
 hereunder and enter into this
 Agreement. Each Participant also
 represents that it will, independently
 and without reliance upon the Agent,
 the Lessor or any other Participant,
 and based on such documents and
 information as it shall deem
 appropriate at the time, continue to
 make its own credit analysis,
 appraisals and decisions in taking or
 not taking action under this Agreement
 and the other Operative Documents, and
 to make such investigation as it deems
 necessary to inform itself as to the
 business, operations, property,
 financial and other condition and
 creditworthiness of the Lessor and the
 Lessee. Except for notices, reports
 and other documents expressly required
 to be furnished to the Participants by
 the Agent hereunder, the Agent shall
 not have any duty or responsibility to
 provide any Participant with any
 credit or other information concerning
 the business, operations, property,
 condition (financial or otherwise),
 prospects or creditworthiness of the
 Lessor or the Lessee which may come
 into the possession of the Agent or
 any of its officers, directors,
 employees, agents, attorneys4n-fact or
 Affiliates.
 
     SECTION 14.7. Indemnification. The
      Participants agree to indemnify
      the Agent in its capacity as such
      (to the extent not reimbursed by
      the Lessee and without limiting
      the obligation of the Lessee to
      do so), ratably according to
      their respective Commitment
      Percentages in effect on the date
      on which indemnification is
      sought under this Section 14.7
      (or, if indemnification is sought
      after the date upon which the
      Commitments shall have terminated
      and the Participation Interests
      shall have been paid in full,
      ratably in accordance with their
      Commitment Percentages
      immediately prior to such date),
      from and against any and all
      liabilities, obligations, losses,
      damages, penalties, actions,
      judgments, suits, costs, expenses
      or disbursements of any kind
      whatsoever which may at any time
      (including, without limitation,
      at any time following the payment
      of the Participation Interests)
      be imposed on, incurred by or
      asserted against the Agent in any
      way relating to or arising out
      of, the Commitments, this
      Agreement, the Property, any of
      the other Operative Documents or
      any documents contemplated by or
      referred to herein or therein or
      the transactions contemplated
      hereby or thereby or any action
      taken or omitted by any of them
      under or in connection with any
      of the foregoing; provided that
      no Participant shall be liable
      for the payment of any portion of
      such liabilities, obligations,
      losses, damages, penalties,
      actions, judgments, suits, costs,
      expenses or disbursements
      resulting solely from the gross
      negligence or willful misconduct
      of the Agent. The agreements in
      this Section 14.7 shall survive
      the payment of the Participation
      Interests and all other amounts
      payable hereunder.
 
     SECTION 14.8. Agent in its
      Individual Capacity. The Agent
      and its Affiliates may make loans
      to, accept deposits from and
      generally engage in any kind of
      business with the Lessor or the
      Lessee as though the Agent were
      not the Agent hereunder and under
      the other Operative Documents.
      With respect to its Participation
      Interest purchased by it, the
      Agent shall have the same fights
      and powers under this Agreement
      and the other Operative Documents
      as any Participant and may
      exercise the same as though it
      were not the Agent, and the terms
      "Participant" and "Participants"
      shall include the Agent in its
      individual capacity.
 
     SECTION 14.9. Successor Agent. The
      Agent may resign as Agent upon 20
      days' notice to the Participants,
      the Lessor or the Lessee. If the
      Agent shall resign as Agent under
      this Agreement and the other
      Operative Documents, then the
      Required Participants shall
      appoint a

                                       57
<PAGE>
 
successor agent for the Participants,
 which successor agent shall be a
 commercial bank organized under the
 laws of the United States of America
 or any State thereof or under the laws
 of another country which is doing
 business in the United States of
 America and having a combined capital,
 surplus and undivided profits of at
 least $100,000,000 (and if no Default
 or Event of Default exists, shall be
 approved by the Lessee (which consent
 shall not be unreasonably withheld)),
 whereupon such successor agent shall
 succeed to the rights, powers and
 duties of the Agent, and the term
 "Agent" shall mean such successor
 agent effective upon such appointment
 and approval, and the former Agent's
 rights, powers and duties as Agent
 shall be terminated, without any other
 or further act or deed on the pan of
 such former Agent or any of the
 parties to this Agreement. If no
 successor Agent has accepted
 appointment as Agent by the date which
 is 20 days following a resigning
 Agent's notice of resignation, the
 resigning Agent's resignation shall
 nevertheless thereupon become
 effective and the Participants shall
 perform all of the duties of the Agent
 hereunder until such time, if any, as
 the Required Participants appoint a
 successor Agent as provided above.
 After any retiring Agent's resignation
 as Agent, all of the provisions of
 this Section 14 shall inure to its
 benefit as to any actions taken or
 omitted to be taken by it while it was
 Agent under this Agreement and the
 other Operative Documents.
 
SECTION 15. MISCELLANEOUS
     SECTION 15.1. Survival of
      Agreements. The representations,
      warranties, covenants,
      indemnifies and agreements of the
      parties provided for in the
      Operative Documents, and the
      parties' obligations under any
      and all thereof, shall survive
      the execution and delivery of
      this Participation Agreement, the
      transfer of the Property to the
      Lessor, the construction and
      installation of any Equipment,
      any disposition of any interest
      of the Lessor in the Property,
      payment of the Advances and the
      Participation Interests and any
      disposition thereof and shall be
      and continue in effect
      notwithstanding any investigation
      made by any party and the fact
      that any party may waive
      compliance with any of the other
      terms, provisions or conditions
      of any of the Operative
      Documents. Except as otherwise
      expressly set forth herein or in
      other Operative Documents, the
      indemnities of the parties
      provided for in the Operative
      Documents shall survive the
      expiration or termination of any
      thereof.
 
     SECTION 15.2. No Broker, etc. Each
      of the parties hereto represents
      to the others that it has not
      retained or employed any broker,
      finder or financial adviser to
      act on its behalf in connection
      with this Participation Agreement
      or the transactions contemplated
      herein, nor has it authorized any
      broker, finder or financial
      adviser retained or employed by
      any other Person so to act. Any
      party who is in breach of this
      representation shall indemnify
      and hold the other parties
      harmless from and against any
      liability arising out of such
      breach of this representation.
 
     SECTION 15.3. Notices. Unless
      otherwise specifically provided
      herein, all notices, consents,
      directions, approvals,
      instructions, requests and other
      communications required or
      permitted by the terms hereof to
      be given to any Person shall be
      given in writing and delivered
      (i) personally, (ii) by a
      nationally recognized overnight
      courier service, (iii) by mail
      (by registered or

                                       58
<PAGE>
 
certified mail, return receipt
 requested, postage prepaid) or (iv) by
 facsimile, in each case directed to
 the address of such Person as
 indicated on Schedule II. Any such
 notice shall be effective upon receipt
 or refusal.
 
     From time to time any party may
      designate a new address for
      purposes of notice hereunder by
      written notice to each of the
      other parties hereto in
      accordance with this Section.
 
     SECTION 15.4. Counterparts. This
      Participation Agreement may be
      executed by the parties hereto in
      separate counterparts, each of
      which when so executed and
      delivered shall be an original,
      but all such counterparts shall
      together constitute but one and
      the same instrument.
 
     SECTION 15.5. Amendments. Subject
      to the provisions of Section 11
      hereof, no Operative Document nor
      any of the terms thereof may be
      terminated, amended,
      supplemented, waived or modified
      with respect to the Lessee, the
      Lessor, the Agent or any
      Participant, except (a) in the
      case of a termination, amendment,
      supplement, waiver or
      modification to be binding on the
      Lessee, the Lessor or the Agent,
      with the written agreement or
      consent of such party, and (b) in
      the case of a termination,
      amendment, supplement, waiver or
      modification to be binding on the
      Participants, with the written
      agreement or consent of the
      Required Participants; provided,
      however, that
 
          (x)    no such termination,
           amendment, supplement,
           waiver or modification shall
           without written agreement or
           consent of each Participant:
 
               (i) modify any of the
                provisions of Section
                11 of this Agreement or
                this Section 15.5,
                change the definition
                of "Required
                Participants" or modify
                or waive any provision
                of an Operative
                Agreement requiring
                action by the foregoing;
 
               (ii) amend, modify,
                waive or supplement any
                of the provisions of
                Sections 3.6, 3.7 or
                3.10 - 3.20 of this
                Agreement or the
                representations of such
                Participant in Section
                8-8- or the covenants
                in Sections 7 and 10 of
                this Participation
                Agreement;
 
               (iii) reduce, modify,
                amend or waive any fees
                or indemnities in favor
                of any Participant,
                including without
                limitation amounts
                payable pursuant to
                Section 13 (except that
                any Person may consent
                to any reduction,
                modification, amendment
                or waiver of any
                indemnity payable to
                it);
 
               (iv) modify, postpone,
                reduce or forgive, in
                whole or in part, any
                payment of Rent (other
                than pursuant to the
                terms of any Operative
                Agreement), any payment
                in respect of its
                Participation Interest,
                or any payment of the
                Asset Termination
                Value, Commitment Fee,
                Residual Value
                Guarantee Amount,
                amounts due pursuant to
                Section 22.2 of the
                Lease, or interest or,
                subject to clause (iii)
                above, any other amount
                payable under the Lease
                or this Participation
                Agreement, or modify
                the definition or
                method of calculation
                of Rent (other than
                pursuant to the terms
                of any Operative
                Agreement),
                Participation Interest,
                Asset Termination
                Value, Commitment Fee,
                Shortfall Amount,
                Residual Value
                Guarantee Amount,
                Required Supplemental
                Payments, Property
                Cost, Participant
                Balance, Tranche A

                                       59
<PAGE>
 
               Participation Interest
                Balance, Tranche B
                Participation Interest
                Balance, or any other
                definition which would
                affect the amounts to
                be advanced or which
                are payable under the
                Operative Documents; or
 
                        (v) consent to
                        any assignment
                        of the Lease,
                        releasing the
                        Lessee from its
                        obligations in
                        respect of the
                        payments of
                        Rent and the
                        Asset
                        Termination
                        Value or
                        changing the
                        absolute and
                        unconditional
                        character of
                        such
                        obligation; and
 
                    (y) no other
                     termination,
                     amendment,
                     supplement, waiver
                     or modification
                     shall, without the
                     written agreement
                     or consent of the
                     Lessor and the
                     Required
                     Participants, be
                     made to the Lease
                     or Section 6 of
                     this Participation
                     Agreement or the
                     definition of
                     "Event of Default".
 
               SECTION 15.6. Headings,
                etc. The Table of
                Contents and headings
                of the various Sections
                of this Agreement are
                for convenience of
                reference only and
                shall not modify,
                define, expand or limit
                any of the terms or
                provisions hereof.
 
               SECTION 15.7. Parties in
                Interest. Except as
                expressly provided
                herein, none of the
                provisions of this
                Participation Agreement
                are intended for the
                benefit of any Person
                except the parties
                hereto. Subject to the
                provisions of Section
                25.1 of the Lease, the
                Lessee shall not assign
                or transfer any of its
                rights or obligations
                under the Operative
                Documents without the
                prior written consent
                of the Lessor, the
                Agent and the
                Participants, except
                that the Lessee may
                without such consent
                assign rights or
                obligations of the
                Lessee under the
                Operative Documents to
                an Affiliate of the
                Lessee, provided that
                the Lessee remains
                primarily liable with
                respect to such
                obligations and
                provides its full
                unconditional and
                irrevocable guaranty of
                such Affiliate's
                obligations under the
                Operative Documents,
                such guaranty to be in
                form and substance
                reasonably satisfactory
                to the Required
                Participants. If the
                Lessor, the Agent and
                the Participants
                consent to any such
                assignment or transfer
                to a Person not an
                Affiliate of the
                Lessee, the Lessee
                shall remain primarily
                liable with respect to
                such obligations and
                provide its full and
                unconditional guaranty
                of such Person's
                obligations under the
                Operative Documents,
                such guaranty to be in
                form and substance
                reasonably satisfactory
                to the Required
                Participants.
 
               SECTION 15.8. GOVERNING
                LAW. THIS PARTICIPATION
                AGREEMENT SHALL IN ALL
                RESPECTS BE GOVERNED BY
                THE LAW OF THE STATE OF
                ILLINOIS (EXCLUDING ANY
                CONFLICT-OF-LAW OR
                CHOICE-OF-LAW RULES
                WHICH MIGHT LEAD TO THE
                APPLICATION OF THE
                INTERNAL LAWS OF ANY
                OTHER JURISDICTION) AS
                TO ALL MATTERS OF
                CONSTRUCTION, VALIDITY
                AND PERFORMANCE.
 
               SECTION 15.9.
                Severability. Any
                provision of this
                Participation Agreement
                that is prohibited or
                unenforceable in any
                jurisdiction shall, as
                to such jurisdiction,
                be ineffective to the
                extent of such
                prohibition or
                unenforceability
                without invalidating
                the remaining
                provisions hereof, and
                any such prohibition or
                unenforceability in any
                jurisdiction shall not
                invalidate or render
                unenforceable such
                provision in any other
                jurisdiction.
 

                                       60
<PAGE>
 
     SECTION 15.10. Liability Limited.
      (a) The parties hereto agree that
      the Lessor shall have no personal
      liability whatsoever to the
      Lessee, the Agent or any
      Participant or their respective
      successors and assigns for any
      claim based on or in respect of
      the Lease or any of the other
      Operative Documents or arising in
      any way from the transactions
      contemplated hereby or thereby;
      provided, however, that the
      Lessor shall be liable in its
      individual capacity (a) for its
      own willful misconduct or gross
      negligence (or negligence in the
      handling of funds), (b) for
      liabilities that may result from
      its breach of the covenant to
      remove Lessor Liens set forth in
      Section 10.3, or (c) for any Tax
      based on or measured by any fees,
      commission or compensation
      received by it for acting as the
      Lessor as contemplated by the
      Operative Documents. It is
      understood and agreed that,
      except as provided in the
      preceding proviso: (i) the Lessor
      shall have no personal liability
      under any of the Operative
      Documents; (ii) all obligations
      of the Lessor to the Lessee, the
      Agent and the Participants are
      solely nonrecourse obligations
      and shall be enforceable solely
      against the interest of the
      Lessor in the Property; and (iii)
      all such personal liability of
      the Lessor is expressly waived
      and released as a condition of,
      and as consideration for, the
      execution and delivery of the
      Operative Documents by the
      Lessor. Notwithstanding anything
      contained herein, the
      restrictions stated in the
      preceding provisions of this
      Section 15.10(a) shall not apply
      to liability of the Lessor
      arising because of a breach of
      the Lessor's obligation to remove
      Lessor Liens or because of its
      receiving Advances and failing to
      disburse Advances to the Lessee
      in accordance with the Operative
      Documents, or failure to disburse
      proceeds from the sale of the
      Property in accordance with this
      Lease.
 
          (b) No Participant shall have
           any obligation to any other
           Participant or to the
           Lessee, the Lessor or the
           Agent with respect to
           transactions contemplated by
           the Operative Documents,
           except those obligations of
           such Participant expressly
           set forth in the Operative
           Documents or except as set
           forth in the instruments
           delivered in connection
           therewith, and no
           Participant shall be liable
           for performance by any other
           party hereto of such other
           party's obligations under
           the Operative Documents
           except as otherwise so set
           forth.
 
     SECTION 15.11. Further Assurances.
      The parties hereto shall promptly
      cause to be taken, executed,
      acknowledged or delivered, at the
      sole expense of the Lessee, all
      such further acts, conveyances,
      documents and assurances as the
      other parties may from time to
      time reasonably request in order
      to carry out and effectuate the
      intent and purposes of this
      Participation Agreement, the
      other Operative Documents, and
      the transactions contemplated
      hereby and thereby (including,
      without limitation, the
      preparation, execution and filing
      of any and all Uniform Commercial
      Code financing statements and
      other filings or registrations
      which the parties hereto may from
      time to time request to be filed
      or effected). The Lessee, at its
      own expense and without need of
      any prior request from any other
      party, shall take such action as
      may be necessary (including any
      action specified in the preceding
      sentence), or (if the Lessor
      shall so request) as so
      requested, in order to maintain
      and protect all security
      interests provided for hereunder
      or under any other Operative
      Document.
 
     SECTION 15.12. Submission to
      Jurisdiction. The Lessee hereby
      submits to the nonexclusive
      jurisdiction of the United States
      District Court for the Northern
      District of Illinois and of any
      Illinois state court sitting in
      Cook County for purposes of all
      legal proceedings arising out of
      or relating to the Operative
      Documents or the transactions
      contemplated hereby. The Lessee
      irrevocably waives, to the
      fullest extent permitted by law,
      any objection which it may now or

                                       61
<PAGE>
 
hereafter have to the laying of the
 venue of any such proceeding brought
 in such a court and any claim that any
 such proceeding brought in such a
 court has been brought in an
 inconvenient forum.
 
     SECTION 15.13. Confidentiality.
      The Lessor, the Agent and each
      Participant represent that they
      will maintain the confidentiality
      of the transactions contemplated
      by, and of any written or oral
      information provided under, the
      Operative Documents by or on
      behalf of the Lessee (hereinafter
      collectively called "Confidential
      Information"), subject to the
      Lessor's, the Agent's and each
      Participant's (a) obligation to
      disclose any such Confidential
      Information pursuant to a request
      or order under applicable laws
      and regulations or pursuant to a
      subpoena or other legal process,
      (b) right to disclose any such
      Confidential Information to its
      bank examiners, Affiliates,
      auditors, counsel and other
      professional advisors and to
      other Participants, (c) right to
      disclose any such Confidential
      Information in connection with
      any litigation or dispute
      involving the Participants and
      the Lessee or any of its
      Subsidiaries and Affiliates and
      (d) right to provide such
      information to Sub-Participants,
      prospective Sub-Participants to
      which sales of participating
      interests are permitted pursuant
      to this Participation Agreement
      and prospective assignees to
      which assignments of interests
      are permitted pursuant to this
      Participation Agreement, but only
      if (i) such Sub-Participant,
      prospective Sub-Participant or
      prospective assignee agrees in
      writing to maintain the
      confidentiality of such
      information on terms
      substantially similar to those of
      this Section as if it were a
      "Participant" party hereto and
      (ii) the Lessee receives copies
      of such written agreement prior
      to the release of such
      information. Notwithstanding the
      foregoing, any such information
      supplied to a Participant,
      Sub-Participant, prospective
      Sub-Participant or prospective
      assignee under this Participation
      Agreement shall cease to be
      Confidential Information if it is
      or becomes known to such Person
      by other than unauthorized
      disclosure, or if it becomes a
      matter of public knowledge.
 
     SECTION 15.14. WAIVER OF JURY
      TRIAL. EACH OF THE LESSEE, THE
      AGENT, THE LESSOR, AND EACH
      PARTICIPANT HEREBY IRREVOCABLY
      WAIVES ANY AND ALL RIGHT TO TRIAL
      BY JURY IN ANY LEGAL PROCEEDING
      ARISING OUT OF OR RELATING TO THE
      OPERATIVE DOCUMENTS OR THE
      TRANSACTIONS CONTEMPLATED HEREBY.
 
     SECTION 15.15. Usury Savings
      Clause. Nothing contained in this
      Participation Agreement or the
      other Operative Documents shall
      be deemed to require the payment
      of interest or other charges by
      the Lessee or any other Person in
      excess of the amount which may be
      may lawfully be charged under any
      applicable usury laws. In the
      event that the Lessor or any
      other Person shall collect moneys
      under the Participation Agreement
      or any other Operative Document
      which are deemed to constitute
      interest (including, without
      limitation, the Basic Rent or
      Supplemental Rent) which would
      increase the effect interest rate
      to a rate in excess of that
      permitted to be charged by
      applicable law, all such sums
      deemed to constitute interest in
      excess of the legal rate shall,
      upon such determination, at the
      option of the Person to whom such
      payment was made, be returned to
      the Person making such payment or
      credited against other amounts
      owed by the person making such
      payment.
 
[SIGNATURE PAGES FOLLOW]

                                       62
<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.

                              VITESSE SEMICONDUCTOR CORPORATION, as Lessee

                              By: 
                                  -------------------------------------------
                                  Eugene F. Hovanec, 
                                  Vice President, Finance
                                  & Chief Financial Officer

                              By: 
                                  -------------------------------------------
                                  David M. Shipley, Vice President

                              ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL
                              BRANCH, as Agent

                              By: /s/ ??
                                  -------------------------------------------

                              Title: V.P & Director
                                     ----------------------------------------

                              By: /s/ ??
                                  -------------------------------------------

                              Title: ?
                                     ----------------------------------------
                       

                              ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL
                              BRANCH, as Participant


                              By: /s/ ??
                                  -------------------------------------------

                              Title: V.P. & Director
                                     ----------------------------------------


                              By: /s/ ?
                                  -------------------------------------------

                              Title:  ? 
                                     ----------------------------------------

<PAGE>
 
<TABLE>
<CAPTION>
               SCHEDULE I
 
                                                       Commitment
Participant                Commitments                 Percentage
---------------------------------------------------------------------------
<S>                        <C>                         <C>  
ABN AMRO BANK N.V.,        Tranche A
SAN FRANCISCO              Participation
INTERNATIONAL BRANCH       Interest:       $36,000,000  80.00000000%
 
                           Tranche B
                           Participation
                           Interest:       $ 9,000,000  20.00000000%
                                           -----------  -----------

      TOTAL COMMITMENT:                    $45,000,000 $100.00000000%
                                           =========== =============
</TABLE>

<PAGE>
 
                                  SCHEDULE II

                     Notice Information and Funding Offices

   Lessee:  VITESSE SEMICONDUCTOR CORPORATION
          741 Calle PIano
          Camarillo, California 93012

          Attention:  Eugene F. Hovanec
             Vice President, Finance and Chief
             Financial Officer
 
             Telephone: (805) 389-7136
             Facsimile: (805) 388-7565
 
   Lessor:   LEASE PLAN NORTH AMERICA, INC.
             135 S. LaSalle Street, Suite 711
             Chicago, Illinois 60603
 
             Attention:    David M. Shipley, Vice President
 
             Telephone:    (312) 904-2183
             Facsimile:    (312) 904-6217
 
   Agent:    ABN AMRO BANK N.V., SAN FRANCISCO
             INTERNATIONAL BRANCH
             101 California Street, Suite 4550
             San Francisco, CA 94111
 
          Attention:  Bruce W. Swords
                      Vice President, Director
 
             Telephone: (415) 984-3721
             Facsimile: (415) 362-3524
 
          Operations Contact:
 
          ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH
          101 California Street, Suite 4550
          San Francisco, CA 94111
 
          Attention:    Ms. Gloria Chang Lee
 
             Telephone: (415) 984-3720
             Facsimile: (415) 362-3524

<PAGE>
 
Participant:    ABN AMRO BANK N.V., SAN FRANCISCO
                INTERNATIONAL BRANCH
                101 Califomia Street, Suite 4550
                San Francisco, CA 94111
 
Attention:  Brace W. Swords
Vice President, Director
 
Telephone:  (415) 984-3721
Facsimile:  (415) 362-3524
 
Payment
Instructions:  Bank: Federal Reserve Bank of New York
               Acct: ABN AMRO New York
               ABA#: 026009580
 
Further
Credit to:  ABN AMRO San Francisco
            Acct#: 6510010545-41
            Re: Vitesse Semiconductor
 

<PAGE>
 
                                 SCHEDULE III

                             Environmental Matters

Four metal drums were observed on the Property of CTL/Thompson, Inc. Consulting 
Engineers("CTL") as disclosed in the Phase I Environmental Site Assessment 
prepared by ETL dated June 17, 1996 and delivered to the Lessor and the Agent. 
The Lessee has been told that such drums were removed and believees that they 
were so removed by the seller of the Property. The Lessee does not know, and can
give no assurances as to, whether such drums were removed and disposed of in 
compliance with Environmental Laws.