<PAGE>   1


                                                                    EXHIBIT 10.5

Recording requested by and when recorded return to:

Thomas Y. Coleman, Esq.
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California  94111
============================================================================



                           FACILITY 1 LEASE AGREEMENT

                     DEED OF TRUST WITH ASSIGNMENT OF RENTS,

                      SECURITY AGREEMENT AND FIXTURE FILING


                                     BETWEEN


                             NOVELLUS SYSTEMS, INC.


                                       AND


                             LEASE PLAN U.S.A., INC.






                                OCTOBER 15, 1997


===============================================================================

<PAGE>   2
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>     <C>                                                                                <C>
SECTION 1.        INTERPRETATION............................................................2

        1.01.  Definitions..................................................................2
        1.02.  Rules of Construction........................................................2

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

        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 3.        OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS............................8

        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..........................................................18
        3.13.  Lessor Obligations; Right to Perform Lessee Obligations.....................18
        3.14.  Inspection Rights...........................................................18

SECTION 4.        EXPIRATION DATE..........................................................19

        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 5.        DEFAULT..................................................................19

        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 6.        MISCELLANEOUS............................................................27

        6.01.  Notices.....................................................................27
</TABLE>
                                      -i-
<PAGE>   3
                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>     <C>                                                                                <C>
        6.02.  Waivers; Amendments.........................................................27
        6.03.  Successors and Assigns......................................................27
        6.04.  No Third Party Rights.......................................................27
        6.05.  Partial Invalidity..........................................................27
        6.06.  Governing Law...............................................................27
        6.07.  Counterparts................................................................28
        6.08.  Nature of Lessee's Obligations..............................................28

EXHIBITS

        A Facility 1 Land (2.01(a))
</TABLE>


                                      -ii-
<PAGE>   4

                           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 October 15, 1997 is entered into by and between:

                (1) NOVELLUS SYSTEMS, INC., a California corporation ("Lessee");
                and

                (2) LEASE PLAN U.S.A., INC., a Georgia corporation ("Lessor").


                                           RECITALS

        A. Lessee has requested Lessor and the Persons which are "Participants"
under the Participation Agreement referred to in Recital B below (such Persons
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 land designated
        by Lessee, (b) lease such 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 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:



<PAGE>   5

SECTION 1.            INTERPRETATION.

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

        1.02. Rules of 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 2.            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, 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 (the "Facility 1 Land"), but excluding the Improvements
        thereto;

                (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 October, 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 which is the first business day of October,
        2005. Lessee acknowledges that neither Lessor nor any Participant has
        any obligation or commitment (either express or 


                                       2
<PAGE>   6

        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 Interest Component and Principal
                Component for such Rental Period determined as follows:
                             

                                (A) "Interest Component" shall mean, with
                        respect to any Rental Period, the sum of the following:

                                        (1) The product of (x) the Rental Rate
                                for such Rental Period, times (y) 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 (z) a
                                fraction, the numerator of which is the number
                                of days in such Rental Period and the
                                denominator of which is 360; and

                                        (2) 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 (x) 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 (y) the amount of such
                                Advance, times (z) 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.

                                (B) "Principal Component" shall mean, with
                        respect to any Rental Period, zero Dollars ($0.00).

                        (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;

                                       3
<PAGE>   7
                                (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), 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

                                       4
<PAGE>   8
                                (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.

                (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.

                                       5
<PAGE>   9
        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:

                (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, but
                excluding, all Improvements to the Facility 1 Land;

                        (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;

                                       6
<PAGE>   10
                        (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.)

                (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 


                                       7
<PAGE>   11
                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.


SECTION 3.            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.

                                       8
<PAGE>   12
                (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 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 


                                       9
<PAGE>   13

                cancellation, change or lapse shall not be effective as to
                Lessor for thirty (30) days after receipt by Lessor of written
                notice from the insurers of such cancellation, change or lapse.

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

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

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


                                       10
<PAGE>   14
        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, 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); 

                                       11
<PAGE>   15
                        (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;:

                                (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.

                                       12
<PAGE>   16
               (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 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.

                                       13
<PAGE>   17
                      (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 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 

                                       14
<PAGE>   18

        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 "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.

                                       15
<PAGE>   19
               (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.

        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

                                       16
<PAGE>   20

        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 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,

                                       17
<PAGE>   21
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 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.

                                       18
<PAGE>   22
        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 4.            EXPIRATION DATE.

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

        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 5.            DEFAULT.

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

               (a) Non-Payment. Lessee shall (i) fail to pay on the Expiration
        Date any amount payable by Lessee under this Agreement or any other
        Operative Document on such date, (ii) fail to pay within five (5)
        business days after 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

                                       19
<PAGE>   23
                (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 earlier of (i) the Expiration Date, if Lessee is exercising
        the Marketing 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

                                       20
<PAGE>   24
               (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 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

                                       21
<PAGE>   25


        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 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 

                                       22
<PAGE>   26

        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
        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.

                                       23
<PAGE>   27
        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.

                (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.

                                       24
<PAGE>   28
                                (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
               California Civil Code ss.ss. 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.

                                       25
<PAGE>   29
                                (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:

                                (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

                                       26
<PAGE>   30

                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.


SECTION 6.            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

                                       27
<PAGE>   31
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 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

                                       28
<PAGE>   32
        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.]



                                       29
<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:_______________________________
                                                 Name:________________________
                                                 Title:_______________________


LESSOR:                                     LEASE PLAN U.S.A., INC.

                                            By:_______________________________
                                                 Name:________________________
                                                 Title:_______________________

                                       30