<PAGE>   1
Escrow No. 513032                                           
 Recording requested by and                                  
 when recorded return to:                                    Exhibit 10.3

 Thomas Y. Coleman, Esq.                                     Doc# 13735219
 Orrick, Herrington & Sutcliffe                              6/10/1997 2:45pm
 Old Federal Reserve Bank Building
 400 Sansome Street
 San Francisco, California  94111

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                           FACILITY 1 LEASE AGREEMENT

                     DEED OF TRUST WITH ASSIGNMENT OF RENTS,

                      SECURITY AGREEMENT AND FIXTURE FILING




                                     BETWEEN


                             NOVELLUS SYSTEMS, INC.


                                       AND


                         LEASE PLAN NORTH AMERICA, INC.






                                  JUNE 9, 1997




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<PAGE>   2


                                 LEASE AGREEMENT

                                TABLE OF CONTENTS


SECTION I. INTERPRETATION

1.01. DEFINITIONS______________________________________________________2

1.02. RULES OF CONSTRUCTION____________________________________________2

SECTION II. BASIC PROVISIONS

2.01. LEASE OF THE FACILITY 1 PROPERTY_________________________________2

2.02. TERM_____________________________________________________________2

2.03. RENT_____________________________________________________________3

2.04. USE______________________________________________________________5

2.05. "AS IS" LEASE____________________________________________________5

2.06. NATURE OF TRANSACTION____________________________________________5

2.07. SECURITY, ETC____________________________________________________6

SECTION III. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS

3.01. MAINTENANCE, REPAIR, ETC_________________________________________8

3.02. RISK OF LOSS_____________________________________________________8

3.03. INSURANCE________________________________________________________8

3.04. CASUALTY AND CONDEMNATION_______________________________________11

3.05. TAXES___________________________________________________________14

3.06. ENVIRONMENTAL MATTERS___________________________________________14

3.07. LIENS, EASEMENTS, ETC___________________________________________16

3.08. SUBLETTING______________________________________________________17

3.09. UTILITY CHARGES_________________________________________________17

3.10. REMOVAL OF FACILITY 1 PROPERTY__________________________________17

3.11. COMPLIANCE WITH GOVERNMENTAL RULES AND INSURANCE REQUIREMENTS___17

3.12. PERMITTED CONTESTS______________________________________________17

3.13. LESSOR OBLIGATIONS; RIGHT TO PERFORM LESSEE OBLIGATIONS_________18

3.14. INSPECTION RIGHTS_______________________________________________18

                                       i


<PAGE>   3



SECTION IV. EXPIRATION DATE

4.01. TERMINATION BY LESSEE PRIOR TO SCHEDULED EXPIRATION DATE________19

4.02. SURRENDER OF FACILITY 1 PROPERTY________________________________19

4.03. HOLDING OVER____________________________________________________19

SECTION V. DEFAULT

5.01. EVENTS OF DEFAULT_______________________________________________19

5.02. GENERAL REMEDIES________________________________________________22

5.03. LEASE REMEDIES__________________________________________________22

5.04. LOAN REMEDIES___________________________________________________23

5.05. REMEDIES CUMULATIVE_____________________________________________26

5.06. NO CURE OR WAIVER_______________________________________________26

5.07. EXERCISE OF RIGHTS AND REMEDIES_________________________________27

SECTION VI.

MISCELLANEOUS

6.01. NOTICES_________________________________________________________28

6.02. WAIVERS; AMENDMENTS_____________________________________________28

6.03. SUCCESSORS AND ASSIGNS__________________________________________28

6.04. NO THIRD PARTY RIGHTS___________________________________________28

6.05. PARTIAL INVALIDITY______________________________________________28

6.06. GOVERNING LAW___________________________________________________28

6.07. COUNTERPARTS____________________________________________________28

6.08. NATURE OF LESSEE'S OBLIGATIONS__________________________________28

                                       ii


<PAGE>   4


EXHIBITS

         A        Facility 1 Land (2.01(a))


SCHEDULES

         1        Hazardous Materials used on the Facility 1 Land

                                      iii


<PAGE>   5




                           FACILITY 1 LEASE AGREEMENT
                     DEED OF TRUST WITH ASSIGNMENT OF RENTS,
                      SECURITY AGREEMENT AND FIXTURE FILING


         THIS FACILITY 1 LEASE AGREEMENT, CONSTRUCTION DEED OF TRUST WITH
ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Agreement"
herein), dated as of June 9, 1997 is entered into by and between:

                  (1) Novellus Systems, Inc., a California corporation
         ("Lessee"); and

                  (2) LEASE PLAN NORTH AMERICA, INC., an Illinois corporation
         ("Lessor").


                                    RECITALS

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

                  (1) Lessor would (a) purchase certain parcels of real property
         designated by Lessee, (b) lease such real property to Lessee as and
         when acquired by Lessor, (c) make advances to finance certain related
         expenses, and (d) grant to Lessee the right to purchase such parcels of
         real property; and

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

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


                                    AGREEMENT

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


                                       1
<PAGE>   6


SECTION I.        INTERPRETATION.

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

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


SECTION II.       BASIC PROVISIONS.

         2.01. Lease of the Facility 1 Property. Subject to the acquisition
thereof by Lessor pursuant to the Participation Agreement and applicable
Acquisition Agreements either as of the date hereof or during the term hereof,
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor the
following property (the "Facility 1 Property") to the extent of Lessor's estate,
right, title and interest therein, thereto or thereunder:

                  (a)      All lots, pieces, tracts and parcels of land
         described in Exhibit A together with such additional parcels of real
         property as may be added to Exhibit A from time to time during the term
         hereof (the "Facility 1 Land");

                  (b)      All Appurtenant Rights;

                  (c)      All Related Permits and Related Agreements; and

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

         2.02.    Term.

                  (a)      Original Term. The original term of this Agreement 
         shall commence on the Closing Date (the "Commencement Date")
         and shall end on the first Business Day of June, 2002 (such date as it
         may be extended pursuant to Subparagraph 2.02(b) to be referred to as
         the "Scheduled Expiration Date").

                  (b)      Extensions. Lessee may request Lessor to extend the
         Scheduled Expiration Date in effect at any time for an additional
         period of three (3) years, as provided in Subparagraph 2.09(b) of the
         Participation Agreement. If Lessor and each Participant consents to
         such a request in accordance with such provision, the definition of
         "Scheduled Expiration Date" set forth in Subparagraph 2.02(a) shall be
         deemed extended to the date


                                       2
<PAGE>   7


         which is the first business day of June, 2005. Lessee acknowledges
         that neither Lessor nor any Participant has any obligation or
         commitment (either express or implied) to extend, or consent to the
         extension of, the Scheduled Expiration Date at any time.

         2.03.    Rent.

                  (a)      Base Rent.

                       (i) Lessee shall pay as base rent hereunder ("Base Rent")
                  for each Rental Period (or portion thereof) an amount equal to
                  the sum of the following:

                                    (A) The product of (1) the Rental Rate for
                           such Rental Period, times (2) the Outstanding Lease
                           Amount under Facility 1 on the first day of such
                           Rental Period (which shall include any Advance under
                           Facility 1 made on the first day of such Rental
                           Period), times (3) a fraction, the numerator of which
                           is the number of days in such Rental Period and the
                           denominator of which is 360; and

                                    (B) If Lessor makes an Advance under
                           Facility 1 (other than any Advance on the Closing
                           Date) during such Rental Period on any day other than
                           the first day of such Rental Period, the product of
                           (1) the LIBOR Rental Rate for the Stub Period if the
                           Stub Period is greater than seven (7) days or the
                           Alternate Rental Period for the Stub Period if the
                           Stub Period is Seven (7) days or less, times (2) the
                           amount of such Advance, times (3) a fraction, the
                           numerator of which is the number of days in such Stub
                           Period and the denominator of which is 360.

                  If the Rental Rate shall change during any Rental Period, the
                  Rental Rate for such Rental Period shall be the weighted
                  average of the Rental Rates in effect from time to time during
                  such Rental Period.

                       (ii) The Term shall consist of the following rental
                  periods (individually, a "Rental Period"):

                                            (A) The period which begins on the
                           Commencement Date and ends on the first Business Day
                           in the first calendar month immediately following the
                           month in which the Commencement Date occurs;

                                            (B) Each successive period
                           thereafter which begins on the last day of the
                           immediately preceding Rental Period and ends one (1)
                           month thereafter on the first Business Day of a
                           calendar month through and including the Commitment
                           Termination Date; and

                                            (C) Each successive period
                           thereafter which begins on the last day of the
                           immediately preceding Rental Period and ends one (1),

                                       3

<PAGE>   8


                           two (2), three (3) or six (6) months thereafter, as
                           determined in accordance with this clause (ii), on
                           the first Business Day of a calendar month through
                           and including the Scheduled Expiration Date.

                  Lessee may select a Rental Period of one (1), two (2), three
                  (3) or six (6) months for the Rental Period which begins on
                  the Commitment Termination Date or for any Rental Period
                  thereafter by delivering to Lessor, at least three (3)
                  Business Days prior to the first day of such Rental Period, a
                  written notice of such selection (a "Notice of Rental Period
                  Selection"); provided, however, that (1) each Rental Period
                  shall begin and end on the first Business Day of a calendar
                  month, (2) no Rental Period shall end after the Scheduled
                  Expiration Date, (3) no Rental Period shall be longer than one
                  (1) month if a Default has occurred and is continuing on the
                  date three (3) Business Days prior to the first day of such
                  Rental Period and (4) each Rental Period for which Lessee
                  fails to make a selection in accordance with this clause (ii)
                  shall be one (1) month. Each Notice of Rental Period Selection
                  shall be delivered by first-class mail or facsimile as
                  required by Subparagraph 2.02(a) and Paragraph 7.01 of the
                  Participation Agreement; provided, however, that Lessee shall
                  promptly deliver the original of any Notice of Rental Period
                  Selection initially delivered by facsimile.

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

                                    (A) If the Commencement Date is not the
                           first Business Day of a month, the Rental Rate for
                           the first Rental Period (which begins on the
                           Commencement Date) shall be the LIBOR Rental Rate for
                           the Stub Period for the Acquisition Advance made on
                           the Commencement Date if such Stub Period is greater
                           than seven (7) days or the Alternate Rental Rate for
                           such Stub Period if such Stub Period is seven (7)
                           days or less;

                                    (B) The Rental Rate applicable during any
                           Stub Period to that portion of the Outstanding Lease
                           Amount under Facility 1 equal to the Acquisition
                           Advance made on the first day of such Stub Period
                           shall be the LIBOR Rental Rate for such Stub Period
                           if such Stub Period is greater than seven (7) days or
                           the Alternate Rental Rate for such Stub Period if
                           such Stub Period is seven (7) days or less: and

                                    (C) The Rental Rate for any Rental Period
                           (or portion thereof) during which the LIBOR Rental
                           Rate is unavailable pursuant to Subparagraph 2.12(a)
                           or Subparagraph 2.12(b) of the Participation
                           Agreement shall be the Alternate Rental Rate.

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

                                       4


<PAGE>   9


                  (b) Supplemental Rent. Lessee shall pay as supplemental rent
         hereunder ("Supplemental Rent") all amounts (other than Base Rent, the
         purchase price payable by Lessee for any purchase of the Facility 1
         Property by Lessee pursuant to the Facility 1 Purchase Agreement and
         the Residual Value Guaranty Amount payable under the Facility 1
         Purchase Agreement) payable by Lessee under this Agreement and the
         other Operative Documents. Lessee shall pay all Supplemental Rent
         amounts on the dates specified in this Agreement and the other
         Operative Documents for the payment of such amounts or, if no date is
         specified for the payment of any such amount, upon the demand of Lessor
         or any other Person to whom such amount is payable.

         2.04. Use. Lessee may use the Facility 1 Property for office,
research and development, warehouse and manufacturing purposes, and for any
other purpose which is in compliance with applicable zoning laws and ordinances
for the Facility 1 Property.

         2.05. "As Is" Lease. Lessee has conducted, or will conduct from time to
time with regard to property that may be added hereto after the date hereof, all
due diligence which it deems appropriate regarding the Facility 1 Property and
agrees that no Lessor Party has any obligation to conduct any such due
diligence. Lessee is leasing the Facility 1 Property "as is, with all faults"
without any representation, warranty, indemnity or undertaking by any Lessor
Party regarding any aspect of the Facility 1 Property, including (a) the
condition of the Facility 1 Property; (b) title to the Facility 1 Property
(including possession of the Facility 1 Property by any Person or the existence
of any Lien or any other right, title or interest in or to any of the Facility 1
Property in favor of any Person); (c) the value, habitability, usability,
design, operation or fitness for use of the Facility 1 Property; (d) the
availability or adequacy of utilities and other services to the Facility 1
Property; (e) any latent, hidden or patent defect in the Facility 1 Property;
(f) the zoning or status of the Facility 1 Property or any other restrictions on
the use of the Facility 1 Property; (g) the economics of the Facility 1
Property; (h) any Casualty or Condemnation; or (i) the compliance of the
Facility 1 Property with any applicable Governmental Rule or Insurance
Requirement; provided, however, that Lessor shall be obligated to remove Lessor
Liens to the extent required in Subparagraph 5.04(b) of the Participation
Agreement. Without limiting the generality of the foregoing, Lessee specifically
waives any covenant of quiet enjoyment except as otherwise provided in
Subparagraph 5.04(b) of the Participation Agreement.

         2.06. Nature of Transaction. As more fully provided in Paragraph 2.10
of the Participation Agreement, Lessee and the Lessor Parties intend that the
transaction evidenced by this Agreement and the other Operative Documents
constitute an operating lease for accounting purposes and a loan secured by the
Facility 1 Property for all other purposes, including federal, state and local
income tax purposes and commercial, real estate and bankruptcy law purposes.

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

                                       5


<PAGE>   10


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

                       (i) The Facility 1 Land and all Appurtenant Rights;

                       (ii) All Subleases and Issues and Profits to the extent
                  such property constitutes real property;

                       (iii) All Related Agreements and Related Permits to the
                  extent such property constitutes real property;

                       (iv) All other Facility 1 Property to the extent such
                  property constitutes real property; and

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

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

                       (i) All Subleases and Issues and Profits to the extent
                  such property constitutes personal property;

                       (ii) All Related Agreements and Related Permits to the
                  extent such property constitutes personal property;

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

                       (iv) All other Facility 1 Property to the extent such
                  property constitutes personal property;

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

         (Cash Collateral held by Lessor Parties pursuant to the Cash Collateral
         Agreement secures only the Lessee Obligations under the Purchase
         Agreement.)

                                       6


<PAGE>   11


                  (c) Absolute Assignment of Subleases, Issues and Profits.
         Lessee hereby irrevocably assigns to Lessor, for the benefit of the
         Lessor Parties, all of Lessee's estate, right, title and interest in,
         to and under the Subleases and the Issues and Profits, whether now
         owned or hereafter acquired. This is a present and absolute assignment,
         not an assignment for security purposes only, and Lessor's right to the
         Subleases and Issues and Profits is not contingent upon, and may be
         exercised without possession of, the Facility 1 Property.

                       (i) Until the occurrence of an Event of Default, Lessee
                  shall have a revocable license to collect and retain the
                  Issues and Profits as they become due. Upon the occurrence of
                  an Event of Default, such license shall automatically
                  terminate, and Lessor may collect and apply the Issues and
                  Profits pursuant to Subparagraph 5.02(d) without further
                  notice to Lessee or any other party and without taking
                  possession of the Facility 1 Property. All Issues and Profits
                  thereafter collected by Lessee shall be held by Lessee as
                  trustee in a constructive trust for the benefit of Lessor.
                  Lessee hereby irrevocably authorizes and directs the
                  sublessees under the Subleases, without any need on their part
                  to inquire as to whether an Event of Default has actually
                  occurred or is then existing, to rely upon and comply with any
                  notice or demand by Lessor for the payment to Lessor of any
                  rental or other sums which may become due under the Subleases
                  or for the performance of any of the sublessees' undertakings
                  under the Subleases. Collection of any Issues and Profits by
                  Lessor shall not cure or waive any default or notice of
                  default hereunder or invalidate any acts done pursuant to such
                  notice.

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


                                       7

<PAGE>   12

SECTION III.      OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.

         3.01.    Maintenance, Repair, Etc.

                  (a) General. Lessee shall not permit any waste of the Facility
         1 Property, except for ordinary wear and tear, and shall, at its sole
         cost and expense, maintain the Facility 1 Property in accordance with
         all applicable Governmental Rules and Insurance Requirements and on a
         basis consistent with the operation and maintenance of commercial
         properties comparable in type and location to the Facility 1 Property
         and in compliance with prudent industry practice.

                  (b) Abandonment. Lessee shall not abandon the Facility 1
         Property or any material portion thereof for any period in excess of
         thirty (30) consecutive days during the term hereof, except as a part
         of any New Improvements or Modifications as permitted herein.

                  (c) Maintenance. Lessee shall maintain the Facility 1 Property
         and each material portion thereof in a manner consistent with other
         similar properties in the San Jose area, except as a part of any New
         Improvements undertaken pursuant to the Facility 2 Lease.

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

         3.03.    Insurance.

                  (a)      Coverage. Lessee, at its sole cost and expense, shall
         carry and maintain the following insurance coverage:

                       (i) At all times during the Term, commercial liability
                  insurance covering claims for injuries or death sustained by
                  persons or damage to property while on the Facility 1
                  Property, and workers' compensation insurance; and

                      (ii) At all times during the Term as appropriate, such
                  other insurance of the types customarily carried by a
                  reasonably prudent Person owning or operating 

                                       8


                                                                    
<PAGE>   13


                  properties similar to the Facility 1 Property in the same
                  geographic area as the Facility 1 Property.


         Except as otherwise specifically required above, such insurance shall
         be in amounts, in a form and with deductibles approved by Lessor, which
         approval shall not be unreasonably withheld.

                  (b) Carriers. Any insurance carried and maintained by Lessee
         pursuant to this Paragraph 3.03 shall be underwritten by an insurance
         company which (i) has, at the time such insurance is placed and at the
         time of each renewal thereof, a general policyholder rating of "A" and
         a financial rating of at least 8 from A.M. Best and Company or any
         successor thereto (or if there is none, an organization having a
         similar national reputation) or (ii) is otherwise approved by Lessor
         and Required Participants.

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

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

                      (ii) In respect of the interests of Lessor in the policy,
                  the insurance shall not be invalidated by any action or by
                  inaction of Lessee or by any Person having temporary
                  possession of the Facility 1 Property while under contract
                  with Lessee to perform maintenance, repair, alteration or
                  similar work on the Facility 1 Property, and shall insure the
                  interests of Lessor regardless of any breach or violation of
                  any warranty, declaration or condition contained in the
                  insurance policy by Lessee, Lessor or any other additional
                  insured (other than by such additional insured, as to such
                  additional insured); provided, however, that the foregoing
                  shall not be deemed to (A) cause such insurance policies to
                  cover matters otherwise excluded from coverage by the terms of
                  such policies or (B) require any insurance to remain in force
                  notwithstanding non-payment of premiums except as provided in
                  clause (iii) below.

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

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

                                       9


<PAGE>   14


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

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

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

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

                       (ix) The insurance shall not be invalidated should Lessee
                  or any Lessor Party waive, in writing, prior to a loss, any or
                  all rights of recovery against any Person for losses covered
                  by such policy, nor shall the insurance in favor of any Lessor
                  Party or Lessee, as the case may be, or their respective
                  rights under and interests in said policies be invalidated or
                  reduced by any act or omission or negligence of any Lessee
                  Party or Lessor, as the case may be, or any other Person
                  having any interest in the Facility 1 Property.

                       (x) All insurance proceeds in respect of any loss or
                  occurrence with a value of less than two million five hundred
                  thousand dollars ($2,500,000) shall be paid to and adjusted
                  solely by Lessee. All other losses shall be adjusted jointly
                  by Lessor and Lessee with all proceeds for losses in excess of
                  two million five hundred thousand dollars ($2,500,000) paid to
                  Lessor, subject to the applicable provisions of the Operative
                  Documents, except from and after the date on which the insurer
                  receives written notice from Lessor that an Event of Default
                  exists (and unless and until such insurer receives written
                  notice from Lessor that all Events of Default have been
                  cured), all losses shall be adjusted solely by, and all
                  insurance proceeds shall be paid solely to, Lessor.

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

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

                  (e) Release of Lessor Parties. Lessee hereby waives, releases
         and discharges each Lessor Party and its directors, officers,
         employees, agents and advisors from all claims whatsoever arising out
         of any loss, claim, expense or damage to or destruction covered or
         coverable by insurance required under this Paragraph 3.03
         notwithstanding that such loss, claim, expense or damage may have been
         caused by any such Person, and, 

                                       10


<PAGE>   15


         as among Lessee and such Persons, Lessee agrees to look to the
         insurance coverage only in the event of such loss.

         3.04.    Casualty and Condemnation.

                  (a) Notice. Lessee shall give Lessor prompt written notice of
         the occurrence of any Casualty affecting, or the institution of any
         proceedings for the Condemnation of, the Facility 1 Property or any
         portion thereof.

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

                  (c) Repair and Restoration. If Lessee elects to repair and
         restore the Facility 1 Property following any Casualty or Condemnation,
         Lessee shall diligently proceed to repair and restore the Facility 1
         Property to the condition in which it existed immediately prior to such
         Casualty or Condemnation and shall complete all such repairs and
         restoration not later than the earlier of (y) one (1) year after the
         occurrence of the Casualty or Condemnation, and (z) six (6) months
         prior to the Scheduled Expiration Date. Lessee shall use its own funds
         to make such repairs and restoration, except to the extent any Casualty
         and Condemnation Proceeds are available and are released to Lessee for
         such purpose pursuant to Subparagraph 3.04(f). Lessee's exercise of the
         repair and restoration option shall, if Lessor or Required Participants
         direct, be subject to the following conditions:

                       (i) Deposit in a deposit account acceptable to and
                  controlled by Lessor (a "Repair and Restoration Account") of
                  funds (including any Casualty and Condemnation Proceeds which
                  are available and are released to Lessee pursuant to
                  Subparagraph 3.04(f)) in the amount which Lessor determines is
                  needed to complete and fully pay all costs of the repair or
                  restoration (including taxes, financing charges, insurance and
                  rent during the repair period);

                      (ii) The establishment of an arrangement for lien releases
                  and disbursement of funds acceptable to Lessor and in a manner
                  and upon such terms and conditions as would be required by a
                  prudent interim construction lender; and

                     (iii) The delivery to Lessor of the following, each in form
                  and substance acceptable to Lessor within ninety (90) days of
                  the occurrence of such Casualty of Condemnation;:

                                       11


<PAGE>   16


                                    (A) Evidence that the Facility 1 Property
                           can, in Lessor's reasonable judgment, with diligent
                           restoration or repair, be returned to a condition at
                           least equal to the condition thereof that existed
                           prior to the Casualty or partial Condemnation causing
                           the loss or damage within the earlier to occur of (A)
                           one (1) year after the Casualty and Condemnation, and
                           (B) six (6) months prior to the Scheduled Expiration
                           Date;

                                    (B) Evidence that all necessary governmental
                           approvals can be timely obtained to allow the
                           rebuilding and reoccupancy of the Facility 1
                           Property;

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

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

                                    (E) A cost breakdown for the work;

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

                                    (G) Evidence that, upon completion of the
                           work, the size, capacity and total value of the
                           Facility 1 Property will be at least as great as it
                           was before the Casualty or Condemnation occurred; and

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

                  All plans and specifications for the work must be reasonably
                  acceptable to Lessor, except that Lessor's approval shall not
                  be required if the restoration work is based on the same plans
                  and specifications as were originally used to construct the
                  Facility 1 Property. To the extent that the funds in a Repair
                  and Restoration Account include both Casualty and Condemnation
                  Proceeds and other funds deposited by Lessee, the other funds
                  deposited by Lessee shall be used first. Lessee acknowledges
                  that the specific conditions described above are reasonable.

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

                                       12


<PAGE>   17


         claim or cause of action, and to settle or compromise any claim or
         cause of action in connection therewith, and Lessee shall from time to
         time deliver to Lessor any and all further assignments and other
         instruments required to permit such participation.

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

                  (f)      Use of Casualty and Condemnation Proceeds.

                       (i) If (A) no Event of Default has occurred and is
                  continuing, (B) Lessee exercises the repair and restoration
                  option pursuant to Subparagraphs 3.04(b) and 3.04(c) and (C)
                  Lessee complies with any conditions imposed pursuant to
                  Subparagraph 3.04(c); then Lessor shall release any Casualty
                  and Condemnation Proceeds to Lessee for repair or restoration
                  of the Facility 1 Property, but may condition such release and
                  use of the Casualty and Condemnation Proceeds upon deposit of
                  the Casualty and Condemnation Proceeds in a Repair and
                  Restoration Account. Lessor shall have the option, upon the
                  completion of such restoration of the Facility 1 Property, to
                  apply any surplus Casualty and Condemnation Proceeds remaining
                  after the completion of such restoration to the payment of
                  Rent and/or the reduction of the Outstanding Lease Amount,
                  notwithstanding that such amounts are not then due and payable
                  or that such amounts are otherwise adequately secured.

                      (ii) If (A) an Event of Default has occurred and is
                  continuing, (B) Lessee fails to or is unable to comply with
                  any conditions imposed pursuant to Subparagraph 3.04(c) or (C)
                  Lessee elects to exercise the Term Purchase Option and
                  purchase the Facility 1 Property pursuant to the Purchase
                  Agreement; then, at the absolute discretion of Lessor and the
                  Required Participants, regardless of any impairment of
                  security or lack of impairment of security, but subject to
                  applicable Governmental Rules governing use of Casualty and
                  Condemnation Proceeds, if any, Lessor may (1) apply all or any
                  of the Casualty and Condemnation Proceeds it receives to the

                                       13


<PAGE>   18


                  expenses of Lessor Parties in obtaining such proceeds; (2)
                  apply the balance to the payment of Rent and/or the reduction
                  of the Outstanding Lease Amount, notwithstanding that such
                  amounts are not then due and payable or that such amounts are
                  otherwise adequately secured and/or (3) release all or any
                  part of such proceeds to Lessee upon any conditions Lessor and
                  the Required Participants may elect.

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

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

         3.05. Taxes. Subject to Paragraph 3.12 relating to permitted contests,
Lessee shall promptly pay when due all Indemnified Taxes imposed on or payable
by Lessee or any Lessor Party in connection with the Facility 1 Property, this
Agreement or any of the other Operative Documents, or any of the transactions
contemplated hereby or thereby. Whenever any such taxes or other Governmental
Charges are payable by Lessee pursuant to the immediately preceding sentence, as
promptly as possible thereafter, Lessee shall send to Lessor for the account of
the applicable Lessor Party a certified copy of an original official receipt
received by Lessee showing payment thereof. If Lessee fails to pay any such
Indemnified Taxes when due to the appropriate taxing authority or fails to remit
to Lessor the required receipts or other required documentary evidence, Lessee
shall indemnify the Lessor Parties for any incremental taxes, interest or
penalties that may become payable by the Lessor Parties as a result of any such
failure. The obligations of Lessee under this Paragraph 3.05 shall survive the
payment and performance of the Lessee Obligations and the termination of this
Agreement.

         3.06.    Environmental Matters.

                  (a) Lessee's Covenants. Lessee shall not cause or permit the
         Facility 1 Property to be used as a site for the use, generation,
         manufacture, storage, treatment, release, discharge, disposal,
         transportation or presence of any Hazardous Materials; provided that
         Lessee has disclosed to Lessor that Lessee shall use on the Facility 1
         Property from time to time the Hazardous Materials described in
         Schedule 1 attached hereto. Notwithstanding the disclosure provided in
         Schedule 1, Lessee shall comply and cause the Facility 1 Property to
         comply with all Environmental Laws. Lessee shall immediately notify
         Lessor in writing of (i) the discovery of any Hazardous Materials on,
         under or about the Facility 1 Property (except for those described in
         Schedule 1, which are used, stored, maintained and disposed of in
         accordance with all Environmental Laws); (ii) any knowledge by Lessee
         that the Facility 1 Property does not comply with any Environmental
         Laws; (iii) any claims against Lessee or the Facility 1 Property
         relating to Hazardous Materials or pursuant to Environmental Laws; and
         (iv) the discovery of any occurrence or condition on any real property
         adjoining or in the vicinity of the Facility 1 Property that could
         cause the Facility 1 Property or any part thereof to be designated as

                                       14


<PAGE>   19


         "border zone property" under the provisions of California Health and
         Safety Code Sections 25220 et seq. or any regulation adopted in
         accordance therewith. In response to the presence of any Hazardous
         Materials on, under or about the Facility 1 Property, Lessee shall
         immediately take, at Lessee's sole expense, all remedial action
         required by any Environmental Laws or any judgment, consent decree,
         settlement or compromise in respect to any claim based thereon.

                  (b) Inspection By Lessor. Upon reasonable prior notice to
         Lessee, Lessor, its employees and agents, may from time to time
         (whether before or after the commencement of a nonjudicial or judicial
         foreclosure proceeding), enter and inspect the Facility 1 Property for
         the purpose of determining the existence, location, nature and
         magnitude of any past or present release or threatened release of any
         Hazardous Materials into, onto, beneath or from the Facility 1
         Property.

                  (c) Indemnity. Without in any way limiting any other indemnity
         contained in this Agreement or any other Operative Document, Lessee
         agrees to defend, indemnify and hold harmless the Lessor Parties and
         the other Indemnitees from and against any claim, loss, damage, cost,
         expense or liability directly or indirectly arising out of (i) the use,
         generation, manufacture, storage, treatment, release, threatened
         release, discharge, disposal, transportation or presence of any
         Hazardous Materials which are found in, on, under or about the Facility
         1 Property or (ii) the breach of any covenant, representation or
         warranty of Lessee relating to Hazardous Materials or Environmental
         Laws contained in this Agreement or any Operative Document. This
         indemnity shall include (A) the costs, whether foreseeable or
         unforeseeable, of any investigation, repair, cleanup or detoxification
         of the Facility 1 Property which is required by any Governmental
         Authority or is otherwise necessary to render the Facility 1 Property
         in compliance with all Environmental Laws; (B) all other direct or
         indirect consequential damages (including any third party claims,
         claims by any Governmental Authority, or any fines or penalties against
         the Indemnitees; and (C) all court costs and attorneys' fees (including
         expert witness fees and the cost of any consultants) paid or incurred
         by the Indemnitees. Lessee shall pay immediately upon Lessor's demand
         any amounts owing under this indemnity. Lessee shall use legal counsel
         reasonably acceptable to Lessor in any action or proceeding arising
         under this indemnity. The obligations of Lessee under this Subparagraph
         3.06(c) shall survive the payment and performance of the Lessee
         Obligations and the termination of this Agreement.

                  (d) Legal Effect of Section. Lessee and Lessor agree that (i)
         this Paragraph 3.06 and clause (i) of Subparagraph 4.01(t) of the
         Participation Agreement is intended as Lessor's written request for
         information (and Lessee's response) concerning the environmental
         condition of the real property security as required by California Code
         of Civil Procedure Section 726.5 and (ii) each representation and
         warranty and covenant herein and therein (together with any indemnity
         applicable to a breach of any such representation and warranty) with
         respect to the environmental condition of the Facility 1 Property is
         intended by Lessor and Lessee to be an "environmental provision" for
         purposes of California Code of Civil Procedure Section 736.

                                       15


<PAGE>   20


         3.07.    Liens, Easements, Etc.

                  (a) Lessee's Covenants. Subject to Paragraph 3.12 relating to
         permitted contests, Lessee shall not create, incur, assume or permit to
         exist any Lien or easement on or with respect to any of the Facility 1
         Property of any character, whether now owned or hereafter acquired,
         except for the following ("Permitted Property Liens"):

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

                      (ii)  Liens and easements in existence on the Commencement
                  Date to the extent reflected in the title insurance policy
                  delivered to Agent pursuant to Paragraph 3.02 of and Schedule
                  3.02 to the Participation Agreement and approved by Lessor;

                      (iii) Liens and easements approved by Lessor and reflected
                  in the title insurance policy or policies or binders to be
                  delivered in connection with any Facility 1 Land added hereto
                  after the date hereof;

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

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

                      (vi)  Lessor Liens or any other Liens approved by Lessor.

         Subject to Paragraph 3.12 relating to permitted contests, Lessee shall
         promptly (A) pay all Indebtedness and other obligations prior to the
         time the non-payment thereof would give rise to a Lien on the Facility
         1 Property and (B) discharge, at its sole cost and expense, any Lien on
         the Facility 1 Property which is not a Permitted Facility 1 Property
         Lien.

                  (b) No Consents. Nothing contained in this Agreement shall be
         construed as constituting the consent or request of any Lessor Party,
         express or implied, to or for the performance by any contractor,
         mechanic, laborer, materialman, supplier or vendor of any labor or
         services or for the furnishing of any materials for any construction,
         alteration, addition, repair or demolition of or to the Facility 1
         Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO LESSOR
         PARTY IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
         FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE
         PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO
         MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS
         SHALL ATTACH TO OR AFFECT THE INTEREST OF ANY LESSOR PARTY IN AND TO
         THE PROPERTY.

         3.08. Subletting. Lessee may, in the ordinary course of business,
sublease the Facility 1 Property or any portion thereof to any Person, provided,
that (a) Lessee remains directly and 

                                       16


<PAGE>   21


primarily liable for performing its obligations under this Agreement and all
other Lessee Obligations; (b) each sublease is subject to and subordinated to
this Agreement; (c) each sublease expressly provides for the surrender of the
Facility 1 Property (or portion thereof) by the sublessee on the Expiration
Date; (d) each sublease has a term which expires on or prior to the Scheduled
Expiration Date (or, if longer, includes a provision that the sublease
terminates on the Expiration Date if such Expiration Date occurs prior to the
Scheduled Expiration Date unless Lessee purchases the Facility 1 Property on the
Expiration Date pursuant to the Purchase Agreement); (e) each sublease prohibits
the sublessee from engaging in any activities on the Facility 1 Property other
than those permitted by Paragraph 2.04; and (f) no sublease has a Material
Adverse Effect. Any sublease which does not satisfy each of the requirements of
the immediately preceding sentence shall be null and void as to the Lessor
Parties and their successor and assigns. Except for such permitted subleases,
Lessee shall not assign any of its rights or interests under this Agreement to
any other Person.

         3.09. Utility Charges. Lessee shall pay all charges for electricity,
power, gas, oil, water, telephone, sanitary sewer service and all other
utilities and services to, on or in connection with the Facility 1 Property
during the Term.

         3.10. Removal of Facility 1 Property. Lessee shall not remove any
Improvements from the Facility 1 Land or any other Facility 1 Property from the
Facility 1 Land or Improvements, except that, during the Term, Lessee may remove
any Modification or any trade fixture, machinery, equipment, inventory or other
personal property if such Modification or property (a) was not financed by an
Advance, (b) is not required by any applicable Governmental Rule or Insurance
Requirement and (c) is readily removable without impairing the value, utility or
remaining useful life of the Facility 1 Property.

         3.11. Compliance with Governmental Rules and Insurance Requirements.
Lessee, at its sole cost and expense, shall, unless its failure is not
reasonably likely to have a Material Adverse Effect, (a) comply, and cause its
agents, sublessees, assignees, employees, invitees, licensees, contractors and
tenants, and the Facility 1 Property to comply, with all Governmental Rules and
Insurance Requirements relating to the Facility 1 Property (including the
construction, use, operation, maintenance, repair and restoration thereof,
whether or not compliance therewith shall require structural or extraordinary
changes in the Improvements or interfere with the use and enjoyment of the
Facility 1 Property), and (b) procure, maintain and comply with all licenses,
permits, orders, approvals, consents and other authorizations required for the
construction, use, maintenance and operation of the Facility 1 Property and for
the use, operation, maintenance, repair and restoration of the Improvements.

         3.12. Permitted Contests. Lessee, at its sole cost and expense, may
contest any alleged Lien or easement on any of the Facility 1 Property or any
alleged Governmental Charge, Indebtedness or other obligation which is payable
by Lessee hereunder to Persons other than the Lessor Parties or which, if
unpaid, would give rise to a Lien on any of the Facility 1 Property, provided
that (a) each such contest is diligently pursued in good faith by appropriate
proceedings; (b) the commencement and continuation of such proceedings suspends
the enforcement of such Lien or easement or the collection of such Governmental
Charge, Indebtedness or obligation; (c) Lessee has established adequate reserves
for the discharge of such Lien or easement or the 

                                       17


<PAGE>   22


payment of such Governmental Charge, Indebtedness or obligation in accordance
with GAAP and, if the failure to discharge such Lien or easement or the failure
to pay such Governmental Charge, Indebtedness or obligation might result in any
civil liability for any Lessor Party, Lessee has provided to such Lessor Party a
bond or other security satisfactory to such Lessor Party; (d) the failure to
discharge such Lien or easement or the failure to pay such Governmental Charge,
Indebtedness or obligation could not result in any criminal liability for any
Lessor Party; (e) the failure to discharge such Lien or easement or the failure
to pay such Governmental Charge, Indebtedness or obligation is not otherwise
reasonably likely to have a Material Adverse Effect; and (f) any such contest is
completed and such Lien or easement is discharged (either pursuant to such
proceedings or otherwise) or such Governmental Charge, Indebtedness or
obligation is declared invalid, paid or otherwise satisfied not later than six
(6) months prior to the Scheduled Expiration Date; provided, however, in the
event that Lessee shall have exercised either the Term Purchase Option or the
Expiration Purchase Option the foregoing six (6) month limitation shall not be
applicable.

         3.13. Lessor Obligations; Right to Perform Lessee Obligations. No
Lessor Party shall have any obligation to (a) maintain, repair or make any
improvements to the Facility 1 Property, (b) maintain any insurance on the
Facility 1 Property, (c) perform any other obligation of Lessee under this
Agreement or any other Lessee Obligation, (d) make any expenditure on account of
the Facility 1 Property (except to make Advances as required by the
Participation Agreement) or (e) take any other action in connection with the
Facility 1 Property, this Agreement or any other Operative Document, except as
expressly provided herein or in another Operative Document; provided however,
that Lessor may, in its sole discretion and without any obligation to do so,
after written notice to Lessee, perform any Lessee Obligation not performed by
Lessee when required. Lessor may enter the Facility 1 Property or exercise any
other right of Lessee under this Agreement or any other Operative Document to
the extent Lessor determines in good faith that such entry or exercise is
reasonably necessary for Lessor to perform any such Lessee Obligation not
performed by Lessee when required. Lessee shall reimburse Lessor and the other
Lessor Parties, within five (5) business days after demand, for all fees, costs
and expenses incurred by them in performing any such obligation or curing any
Default.

         3.14. Inspection Rights. During the Term, Lessee shall permit any
Person designated by Lessor, upon reasonable notice and during normal business
hours, to visit and inspect any of the Facility 1 Property.


SECTION IV.       EXPIRATION DATE.

         4.01. Termination by Lessee Prior to Scheduled Expiration Date. Subject
to the terms and conditions of the Purchase Agreement, Lessee may, at any time
prior to the Scheduled Expiration Date, terminate this Agreement and purchase
the Facility 1 Property pursuant to Section II of the Purchase Agreement. Lessee
shall notify Lessor of Lessee's election so to terminate this Agreement and
purchase the Facility 1 Property by delivering to Agent a Notice of Term
Purchase Option Exercise pursuant to and in accordance with the provisions of
Paragraph 2.02 of the Purchase Agreement.

                                       18


<PAGE>   23


         4.02. Surrender of Facility 1 Property. Unless Lessee purchases the
Facility 1 Property on the Expiration Date pursuant to the Purchase Agreement,
Lessee shall vacate and surrender the Facility 1 Property to Lessor on the
Expiration Date in its then-current condition, subject to compliance by Lessee
on or prior to such date of its obligations under this Agreement and the other
Operative Documents (including, without limitation, the completion of all
permitted contests and the removal of all Liens which are not Permitted Property
Liens).

         4.03. Holding Over. If Lessee does not purchase the Facility 1 Property
on the Expiration Date pursuant to the Purchase Agreement but continues in
possession of any portion of the Facility 1 Property after the Expiration Date,
Lessee shall pay rent for each day it so continues in possession, payable upon
demand of Lessor, at a per annum rate equal to the Alternate Rental Rate plus
two percent (2%) and shall pay and perform all of its other Lessee Obligations
under this Agreement and the other Operative Documents in the same manner as
though the Term had not ended; provided, however, that this Paragraph 4.03 shall
not be interpreted to permit such holding over or to limit any right or remedy
of Lessor for such holding over.


SECTION V. DEFAULT.

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

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

                  (b) Specific Defaults. Lessee or any of its Subsidiaries shall
         fail to observe or perform any covenant, obligation, condition or
         agreement set forth in Subparagraph 3.01(b), Paragraph 3.03 or
         Subparagraph 3.07(a) hereof or in Paragraph 5.02 or Paragraph 5.03 of
         the Participation Agreement ; or

                  (c) Other Defaults. Lessee or any of its Subsidiaries shall
         fail to observe or perform any other covenant, obligation, condition or
         agreement contained in this Agreement or any other Operative Document
         (except for those covenants described in Paragraph 5.01(d) below) and
         such failure shall continue for a period of thirty (30) days after
         written notice thereof from Lessor, provided, however, that in the
         event that such failure cannot reasonably be cured within such thirty
         (30) day period, such failure shall not constitute an Event of Default
         hereunder so long as Lessee shall have commenced to cure such failure
         within such thirty (30) day period and shall thereafter diligently
         pursue such cure to completion, provided further that such failure
         shall in all events be cured by the 

                                       19


<PAGE>   24


         earlier of (i) the Expiration Date, if Lessee is exercising the
         Purchase Option, (provided that if the Purchase Option is consummated
         in accordance with the terms of the Purchase Agreement all outstanding
         Defaults shall be deemed waived), or (ii) one hundred and eighty days
         (180) days after Lessor's notice thereof; or

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

                  (e) Cross-Default. (i) Lessee or any of its Subsidiaries shall
         fail to make any payment when due on account of any Indebtedness of
         such Person (other than the Lessee Obligations) and such failure shall
         continue beyond any period of grace provided with respect thereto, if
         the amount of such Indebtedness exceeds $2,500,000 or the effect of
         such failure is to cause, or permit the holder or holders thereof to
         cause, Indebtedness of Lessee and its Subsidiaries (other than the
         Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
         become due or (ii) Lessee or any of its Subsidiaries shall otherwise
         fail to observe or perform any agreement, term or condition contained
         in any agreement or instrument relating to any Indebtedness of such
         Person (other than the Lessee Obligations), or any other event shall
         occur or condition shall exist, if the effect of such failure, event or
         condition is to cause, or permit the holder or holders thereof to
         cause, Indebtedness of Lessee and its Subsidiaries (other than the
         Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
         become due (and/or to be secured by cash collateral); or

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

                  (g) Involuntary Proceedings. Proceedings for the appointment
         of a receiver, trustee, liquidator or custodian of Lessee or any of its
         Material Subsidiaries or of all or a substantial part of the property
         thereof, or an involuntary case or other proceedings 

                                       20


<PAGE>   25


         seeking liquidation, reorganization or other relief with respect to
         Lessee or any of its Material Subsidiaries or the debts thereof under
         any bankruptcy, insolvency or other similar law now or hereafter in
         effect shall be commenced and an order for relief entered or such
         proceeding shall not be dismissed or discharged within thirty (30) days
         of commencement; or

                  (h) Judgments. (i) One or more judgments, orders, decrees or
         arbitration awards requiring Lessee and/or its Subsidiaries to pay an
         aggregate amount of $2,500,000 or more (exclusive of amounts covered by
         insurance issued by an insurer not an Affiliate of Lessee and otherwise
         satisfying the requirements set forth in Subparagraph 3.03(b)) shall be
         rendered against Lessee and/or any of its Subsidiaries in connection
         with any single or related series of transactions, incidents or
         circumstances and the same shall not be satisfied, vacated or stayed
         for a period of thirty (30) consecutive days after the issue or levy;
         (ii) any judgment, writ, assessment, warrant of attachment, tax lien or
         execution or similar process shall be issued or levied against a
         substantial part of the property of Lessee or any of its Subsidiaries
         and the same shall not be released, stayed, vacated or otherwise
         dismissed within thirty (30) days after issue or levy; or (iii) any
         other judgments, orders, decrees, arbitration awards, writs,
         assessments, warrants of attachment, tax liens or executions or similar
         processes which, alone or in the aggregate, are reasonably likely to
         have a Material Adverse Effect are rendered, issued or levied; or

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

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

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

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

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

                  (a) Termination of Commitments. If such Event of Default is an
         Event of Default of the type described in Subparagraph 5.01(f) or
         Subparagraph 5.01(g) affecting Lessee, immediately and without notice
         the obligation of Lessor to make Advances and 

                                       21


<PAGE>   26


         the obligations of the Participants to fund Advances shall
         automatically terminate. If such Event of Default is any other Event of
         Default, Lessor may by written notice to Lessee, terminate the
         obligation of Lessor to make Advances and the obligations of the
         Participants to fund Advances.

                  (b) Appointment of a Receiver. Lessor may apply to any court
         of competent jurisdiction for, and obtain appointment of, a receiver
         for the Facility 1 Property.

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

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

                  (e) Protection of Facility 1 Property. Lessor may enter, take
         possession of, manage and operate all or any part of the Facility 1
         Property or take any other actions which it reasonably determines are
         necessary to protect the Facility 1 Property and the rights and
         remedies of the Lessor Parties under this Agreement and the other
         Operative Documents, including (i) taking and possessing all of
         Lessee's books and records relating to the Facility 1 Property; (ii)
         entering into, enforcing, modifying, or canceling subleases on such
         terms and conditions as Lessor may consider proper; (iii) obtaining and
         evicting tenants; (iv) fixing or modifying sublease rents; (v)
         collecting and receiving any payment of money owing to Lessee; (vi)
         completing any unfinished Improvements; and/or (vii) contracting for
         and making repairs and alterations.

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

         5.03. Lease Remedies. If the transaction evidenced by this Agreement
and the other Operative Documents is treated as a lease, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such Event
of Default is waived, Lessor may, with the consent of the Required Participants,
or shall, upon instructions from the Required Participants, exercise any one or
more of the following rights and remedies in addition to those rights and
remedies set forth in Paragraph 5.02 provided that prior to exercising any
remedies provided by this Section 5.03, Lessor shall give Lessee not less than
three (3) business days notice during which time Lessee may exercise the
Purchase Option, and provided the Purchase Option is thereafter consummated in
accordance with the terms of the Purchase Agreement, Lessor shall not exercise
any of the remedies under this Section 5.03:

                  (a) Termination of Lease. Lessor may, by written notice to
         Lessee, terminate this Agreement on a Termination Date which is prior
         to the Scheduled Expiration Date, subject to Subparagraph 3.02(1) of
         the Purchase Agreement. Such Termination Date shall be the last day of
         a Rental Period unless Required Participants shall otherwise direct. On

                                       22


<PAGE>   27


         such Termination Date (which shall then be the Expiration Date), Lessee
         shall pay all unpaid Base Rent accrued through such date, all
         Supplemental Rent due and payable on or prior to such date and all
         other amounts payable by Lessee on the Expiration Date pursuant to this
         Agreement and the other Operative Documents. Lessee also shall pay to
         Lessor, in addition to all accrued Base Rent, the worth at the time of
         such payment of the amount by which the unpaid Base Rent through the
         Scheduled Expiration Date exceeds the amount of such rental loss for
         the same period that Lessee proves could reasonably be avoided.

                  (b) Continuation of Lease. Lessor may exercise the rights and
         remedies provided by California Civil Code Section 1951.4, including
         the right to continue this Agreement in effect after Lessee's breach
         and abandonment and recover Rent as it becomes due. Acts of maintenance
         or preservation, efforts to relet the Facility 1 Property, the
         appointment of a receiver upon Lessor's initiative to protect its
         interest under this Agreement or withholding consent to or terminating
         a sublease shall not of themselves constitute a termination of Lessee's
         right to possession.

                  (c) Removal and Storage of Facility 1 Property. Lessor may
         enter the Facility 1 Property and remove therefrom all Persons and
         property, store such property in a public warehouse or elsewhere at the
         cost of and for the account of Lessee and sell such property and apply
         the proceeds therefrom pursuant to applicable California law.

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

                  (a) Acceleration of Lessee Obligations. Lessor may, by written
         notice to Lessee, terminate this Agreement on a Termination Date which
         is prior to the Scheduled Expiration Date, subject to Subparagraph
         3.02(1) of the Purchase Agreement, and declare all unpaid Lessee
         Obligations due and payable on such Termination Date. Such Termination
         Date shall be the last day of a Rental Period unless Required
         Participants shall otherwise direct. On such Termination Date (which
         shall then be the Expiration Date), Lessee shall pay all unpaid Base
         Rent accrued through such date, all Supplemental Rent due and payable
         on or prior to such date and all other amounts payable by Lessee on the
         Expiration Date pursuant to this Agreement and the other Operative
         Documents.

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

                  (c) Judicial Foreclosure. Lessor may bring an action in any
         court of competent jurisdiction to foreclose the security interest in
         the Facility 1 Property granted to Lessor by this Agreement or any of
         the other Operative Documents.

                                       23


<PAGE>   28


                  (d) Power of Sale. Lessor may cause some or all of the
         Facility 1 Property, including any Personal Property Collateral, to be
         sold or otherwise disposed of in any combination and in any manner
         permitted by applicable Governmental Rules.

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

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

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

                                    (C) Upon receipt of any written request,
                           Lessor will make the Facility 1 Property available to
                           any bona fide prospective purchaser for inspection
                           during reasonable business hours.

                                    (D) Notwithstanding, Lessor shall be under
                           no obligation to consummate a sale if, in its
                           judgment, none of the offers received by it equals
                           the fair value of the Facility 1 Property offered for
                           sale.

                                    (E) If Lessor so requests, Lessee shall
                           assemble all of the Personal Property Collateral and
                           make it available to Lessor at the site of the
                           Facility 1 Land. Regardless of any provision of this
                           Agreement or any other Operative Document, Lessor
                           shall not be considered to have accepted any property
                           other than cash or immediately available funds in
                           satisfaction of any Lessee Obligation, unless Lessor
                           has given express written notice of its election of
                           that remedy in accordance with California Uniform
                           Commercial Code Section 9505.

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

                      (ii) Lessor's Sales of Real Property or Mixed Collateral.
                  Lessor may choose to dispose of some or all of the Facility 1
                  Property which consists solely of Real Property Collateral in
                  any manner then permitted by applicable Governmental Rules,
                  including without limitation a nonjudicial trustee's sale
                  pursuant to 

                                       24


<PAGE>   29


                  California Civil Code Section 2924 et seq. In its discretion,
                  Lessor may also or alternatively choose to dispose of some or
                  all of the Facility 1 Property, in any combination consisting
                  of both Real Property Collateral and Personal Property
                  Collateral, together in one sale to be held in accordance with
                  the law and procedures applicable to real property, as
                  permitted by Section 9501(4) of the California Uniform
                  Commercial Code. Lessee agrees that such a sale of Personal
                  Property Collateral together with Real Property Collateral
                  constitutes a commercially reasonable sale of the Personal
                  Property Collateral. (For purposes of this power of sale,
                  either a sale of Real Property Collateral alone, or a sale of
                  both Real Property Collateral and Personal Property Collateral
                  together in accordance with California Uniform Commercial Code
                  Section 9501(4), will sometimes be referred to as a "Lessor's
                  Sale.")

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

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

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

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

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

                                    (F) Lessor shall execute and deliver to the
                           purchaser(s) a deed or deeds conveying the Facility 1
                           Property being sold without any covenant or warranty
                           whatsoever, express or implied. The recitals in any
                           such deed of any matters or facts, including any
                           facts bearing upon the regularity or validity of any
                           Lessor's Sale, shall be conclusive proof of their
                           truthfulness. Any such deed shall be conclusive
                           against all Persons as to the facts recited in it.

                  (e)      Foreclosure Sales.

                       (i) Single or Multiple. If the Facility 1 Property
                  consists of more than one lot, parcel or item of property,
                  Lessor may:

                                       25


<PAGE>   30



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

                                    (B) Elect to dispose of the lots, parcels
                           and/or items through a single consolidated sale or
                           disposition to be held or made under the power of
                           sale granted in Subparagraph 5.04(d), or in
                           connection with judicial proceedings, or by virtue of
                           a judgment and decree of foreclosure and sale; or
                           through two or more such sales or dispositions; or in
                           any other manner Lessor may deem to be in its best
                           interests (any such sale or disposition, a
                           "Foreclosure Sale;" any two or more, "Foreclosure
                           Sales").

                  If Lessor chooses to have more than one Foreclosure Sale,
                  Lessor at its option may cause the Foreclosure Sales to be
                  held simultaneously or successively, on the same day, or on
                  such different days and at such different times and in such
                  order as it may deem to be in its best interests. No
                  Foreclosure Sale shall terminate or affect the security
                  interests granted to Lessor in the Facility 1 Property by this
                  Agreement on any part of the Facility 1 Property which has not
                  been sold, until all of the Lessee Obligations have been paid
                  in full.

                      (ii) Credit Bids. At any Foreclosure Sale, any Person or
                  any Lessor Party, may bid for and acquire the Facility 1
                  Property or any part of it to the extent permitted by then
                  applicable Governmental Rules. Instead of paying cash for that
                  property, Lessor may settle for the purchase price by
                  crediting the sales price of the Facility 1 Property against
                  the Lessee Obligations in any order and proportions as Lessor
                  in its sole discretion may choose.

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

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

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

                                       26


<PAGE>   31


SECTION VI.       MISCELLANEOUS.

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

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

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

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

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

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

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

         6.08. Nature of Lessee's Obligations.

                  (a) Independent Obligation. The obligation of Lessee to pay
         the amounts payable by Lessee under this Agreement and the other
         Operative Documents and to perform the other Lessee Obligation are
         absolute, unconditional and irrevocable obligations which are separate
         and independent of the obligations of the Lessor Parties 

                                       27


<PAGE>   32


         under this Agreement and the other Operative Documents and all other
         events and circumstances, including the events and circumstances set
         forth in Subparagraph 6.08(c).

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

                  (c) Full Payment and Performance. Lessee shall make all
         payments under this Agreement and the other Operative Documents in the
         full amounts and at the times required by the terms of this Agreement
         and the other Operative Documents without setoff, deduction or
         reduction of any kind and shall perform all other Lessee Obligations as
         and when required, without regard to any event or circumstances
         whatsoever, including (i) the condition of the Facility 1 Property
         (including any Improvements to the Facility 1 Property made prior to
         the Commencement Date or during the Term); (ii) title to the Facility 1
         Property (including possession of the Facility 1 Property by any Person
         or the existence of any Lien or any other right, title or interest in
         or to any of the Facility 1 Property in favor of any Person); (iii) the
         value, habitability, usability, design, operation or fitness for use of
         the Facility 1 Property; (iv) the availability or adequacy of utilities
         and other services to the Facility 1 Property; (v) any latent, hidden
         or patent defect in the Facility 1 Property; (vi) the zoning or status
         of the Facility 1 Property or any other restrictions on the use of the
         Facility 1 Property; (g) the economics of the Facility 1 Property;
         (vii) any Casualty or Condemnation; (viii) the compliance of the
         Facility 1 Property with any applicable Governmental Rule or Insurance
         Requirement; (ix) any failure by any Lessor Party to perform any of its
         obligations under this Agreement or any other Operative Document; or
         (x) the exercise by any Lessor Party of any of its remedies under this
         Agreement or any other Operative Document; provided, however, that this
         Paragraph 7.08 shall not abrogate any right which Lessee may have to
         recover damages from any Lessor Party for any material breach by such
         Lessor Party of its obligations under this Agreement or any other
         Operative Document to the extent permitted hereunder or thereunder.

                          [The signature page follows.]

                                       28


<PAGE>   33


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

LESSEE:                                     NOVELLUS SYSTEMS, INC.
                                             
                                            By: /s/ JOHN CHENAULT
                                               ---------------------------------
                                                            
                                              Name:  John Chenault 
                                              Title: Executive V.P. Operations


LESSOR:                                     LEASE PLAN NORTH AMERICA, INC.


                                            By: /s/ ROBIN S. YIN
                                               ---------------------------------
                                                     
                                              Name:  Robin S. Yin
                                              Title: Group Vice President



                                       29


<PAGE>   34


STATE OF CALIFORNIA                 )
                                    )        ss
COUNTY OF Santa Clara               )

                  On 6/9, 1997, before me, Ciska Perry a Notary Public in and
for the State of California, personally appeared John Chenault, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.

                  Witness my hand and official seal.


                                        /s/ Ciska Perry
                                        -------------------

[SEAL]

<PAGE>   35

STATE OF CALIFORNIA                 )
                                    )        ss
COUNTY OF Santa Clara               )

                  On 6/9, 1997, before me, Ciska Perry a Notary Public in and
for the State of California, personally appeared , Robin S. Yim,  personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.

                  Witness my hand and official seal.


                                        /s/ Ciska Perry
                                        -------------------

[SEAL]



<PAGE>   36

                                    EXHIBIT A

                                 FACILITY 1 LAND

PARCEL TWO:

PCL. 2 as shown on that certain Parcel Map filed in the office of the Recorder
of the County of Santa Clara, State of California on August 18, 1983 in Book 516
of Maps, page(s) 34 and 35, Santa Clara County Records.

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.

PARCEL TWO-A:

A non-exclusive easement for ingress and egress over PCL. 1, as said parcel is
shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa
Clara County Records, as granted in an instrument recorded May 23, 1985 in Book
J353, page 1565 and being more particularly described as follows:

                                     Strip 1

A strip of land 26.00 feet wide extending entirely across said PCL. 1 and Lying
13.00 feet on each side of a line as follows:

Beginning at the Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 34.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 59" E., 540.00 feet to the
Northeasterly line of said PCL. 1.

                                     Strip 2

A strip of land 40.00 feet wide extending entirely across said PCL. 1 and Lying
contiguous to and Southeasterly of a line described as follows:

Beginning at the most Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 429.25 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 48" E., 600.00 feet to the
Northeasterly line of said PCL. 1; the Northerly terminus of said 40 foot wide
strip of land being the Northeasterly line of said PCL. 1.

(LEGAL DESCRIPTION CONTINUED NEXT PAGE)


<PAGE>   37


LEGAL DESCRIPTION: (Continued)

PARCEL TWO-A: (Continued)

                                     Strip 3

A strip of land 26.00 feet wide, extending Northeasterly from the Southwesterly
line of said PCL. 1 to the Northwesterly line of the above described and
designated Strip 2 and Lying 13.00 feet on each side of a line described as
follows:

Beginning at the Westerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 34.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 48" E. 566.00 feet; thence S.
52(degrees) 27' 12" E., 355.25 feet to said Northwesterly line of said Strip 2.

                                     Strip 4

A strip of land 13.00 feet wide Lying contiguous to and Northwesterly of the
Northwesterly line of the above described and designated Strip 2 and extending
Southwesterly from the Northeasterly line of said PCL. 1 approximately 21.00
feet to the Northeasterly line of the above described and designated Strip 3.

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.

PARCEL TWO-B:

The right from time to time to construct, install, maintain, replace, remove,
and use storm drain sewers, together with a right of way therefor, over a
portion of PCL. 1 as said parcel is shown on the Parcel Map recorded in Book 516
of Maps, at pages 34 and 35, Santa Clara County Records, as granted in an
instrument recorded May 23, 1985 in Book J353, page 1565 and being more
particularly described as follows:

(LEGAL DESCRIPTION CONTINUED NEXT PAGE)



<PAGE>   38


LEGAL DESCRIPTION: (Continued)

PARCEL TWO-B: (Continued)

                                     Strip 1

A strip of land 10.00 feet wide extending entirely across said PCL. 1 and Lying
5.00 feet on each side of a line described as follows:

Beginning at the most Westerly corner of said PCL. 1 said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 402.75 feet to the true point of beginning of said
strip of land; thence along the centerline of a existing storm drain line the
following courses: thence N. 37(degrees) 32' 48" E., 28.00 feet to a point
herein designated Point A; thence N. 52(degrees) 27' 12" W., 278.00 feet; thence
N. 00(degrees) 51' 00" E., 198.30 feet; thence N. 37(degrees) 32' 33" E., 279.75
feet; thence S. 51(degrees) 19' 51" E., 89.02 feet; thence N. 50(degrees) 06'
47" E., 133.18 feet; thence N. 37(degrees) 32' 48" E., 5.00 feet to the
Northeasterly line of said PCL 1.

                                     Strip 2

A strip of land 10 feet wide extending Northeasterly from the Northeasterly line
of the above described and designated Strip 1 and Lying 5.00 feet on each side
of a line which begins at said Point A; thence along the centerline of an
existing storm drain line the following courses: thence N. 26(degrees) 55' 37"
E., 154.65 feet; thence N. 32(degrees) 55' 53" E., 96.31 feet; thence N.
43(degrees) 21' 28" E., 113.58 feet; thence N. 54(degrees) 44' 21" E., 105.72
feet to a point herein designated as Point B; thence S. 41(degrees) 57' 14" E.,
65.85 feet; thence N. 37(degrees) 32' 48" E., 62.00 feet to the Northeasterly
line of said PCL 2.

                                     Strip 3

A strip of land 5.00 feet wide Lying contiguous to and Southwesterly of the
Northeasterly line of said PCL. 1 and extending Southeasterly from the
Southeasterly line of the above described and designated Strip 2 approximately
225 feet.

(LEGAL DESCRIPTION CONTINUED NEXT PAGE)



<PAGE>   39


LEGAL DESCRIPTION: (Continued)

PARCEL TWO-B: (Continued)

                                     Strip 4

A strip of land 10.00 feet wide extending Northeasterly from the Northeasterly
line of the above described and designated Strip 2 to the Northeasterly line of
said PCL. 1 and Lying 5.00 feet on each side of a line that begins at said Point
B; thence along the centerline of an existing storm drain line N. 37(degrees)
32' 48" E., 50.00 feet to the Northeasterly line of said PCL. 1.

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.

PARCEL TWO-C:

The right from time to time to construct, install, inspect, maintain, replace,
remove and use any and all Public Service Facilities necessary or useful,
together with a right of way therefor, over a portion of PCL. 1 as said parcel
is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35,
Santa Clara County Records, as granted in an instrument recorded May 23, 1985 in
Book J353, page 1565 and being more particularly described as follows:

                                     Strip 5

A strip of land 15.00 feet wide extending entirely across said PCL. 1 and Lying
7.50 feet on each side of a line described as follows:

Beginning at the most Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 60.50 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 59" E., 394.80 feet to a point herein
designated Point C; thence N. 37(degrees) 32' 59" E., 105.20 feet; thence N.
7(degrees) 27' 01" W., 56.57 feet to the Northeasterly line of said PCL. 1.

                                     Strip 6

A strip of land 15.00 feet wide extending Northerly from the Northerly line of
the above described and designated Strip 5 to the Northeasterly line of said
PCL. 1 and Lying 7.5 feet on each side of a line that begins at said Point C;
thence N. 30(degrees) 01' 00" E., 59.5 feet; thence N. 8(degrees) 41' 00" E.,
98.44 feet to the Northeasterly line of said PCL. 1.

(LEGAL DESCRIPTION CONTINUED NEXT PAGE)



<PAGE>   40


LEGAL DESCRIPTION: (Continued)

PARCEL TWO-C: (Continued)

                                     Strip 7

A strip of land 15.00 feet wide extending entirely across said PCL. 1 and Lying
7.5 feet and each side of a line described as follows:

Beginning at the most Westerly corner of said PCL. 1 said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 30.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 33" E., 600.00 feet to the
Northeasterly line of said PCL. 1.

                                     Strip 8

That area located within those portions of PCL.1, of the Parcel Map mentioned
hereinabove, Lying within the easements designated as "P.S.E.", as shown on said
Parcel Map.

PARCEL TWO-D:

A non-exclusive easement for Landscaping, Lighting and Irrigation Facilities
over PCL. 1, as said parcel is shown on the Parcel Map recorded in Book 516 of
Maps, at pages 34 and 35, Santa Clara County Records, as granted in an
instrument recorded May 23, 1985 in Book J353, page 1565 and being more
particularly described as follows:

A strip of land 10.00 feet wide extending Southeasterly from the Northwesterly
line of said PCL. 1 and PCL. 2 and Lying 5.00 feet on each side of a line that
begins at the most Northerly corner of said PCL. 1 and runs thence along the
Northeasterly line of said PCL. 1, S. 52(degrees) 27' 12" E. 375.00 feet.

Excepting Therefrom that portion lying within the bounds of Parcel Two mentioned
hereinabove.

APN: 097-03-047, 048, 051
ARB: 097-3-04, 04.01, 14

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.

(LEGAL DESCRIPTION CONTINUED NEXT PAGE)



<PAGE>   41


LEGAL DESCRIPTION: (Continued)

PARCEL THREE:

All of Parcel 4, as shown upon that Parcel Map which was filed for record in the
Office of the Recorder of the County of Santa Clara, State of California on July
13, 1984 in Book 531 of Maps, at pages 41 and 42.

APN: 097-0-049, 056
ARB: 097-03-005.03 & 015.01

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.

PARCEL FOUR:

All of Lot 43, as shown on that certain Map entitled Tract No. 7526, which Map
was filed for record in the office of the Recorder of the County of Santa Clara,
State of California on October 27, 1983, in Book 520 of Maps page(s) 28, 29 
and 30.

APN: 097-52-013

EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.




<PAGE>   42


                                   SCHEDULE 1

                 HAZARDOUS MATERIALS USED ON THE FACILITY 1 LAND

                   As set forth in that certain Hazardous Materials Business
Plan (HMBP) for Novellus Systems, Inc. dated 4/1/97 prepared by Environmental
Quality Solutions.