Document:

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                                                                 EXHIBIT 10.1

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                              AMENDED AND RESTATED
                            PARTICIPATION AGREEMENT

                           dated as of July 12, 2000

                                     among

                              QUANTUM CORPORATION,
                                   as Lessee

                           SELCO SERVICE CORPORATION,
                        as Lessor and as a Participant,

                            THE BANK OF NOVA SCOTIA,
                        KEYBANK NATIONAL ASSOCIATION AND
                        UNION BANK OF CALIFORNIA, N.A.,
                                as Participants,

                                      and

                            THE BANK OF NOVA SCOTIA,
                                    as Agent

                   Specialty Storage Product Group Facilities

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                               TABLE OF CONTENTS

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SECTION 1         DEFINITIONS; INTERPRETATION...............................................................     2

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

SECTION 3         ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES..........................................     2

         SECTION 3.1           Lessor Commitment............................................................     2

         SECTION 3.2           Participants' Commitments....................................................     2

         SECTION 3.3           Procedures for Acquisition of the Land Interest..............................     3

         SECTION 3.4           Procedures for Advances......................................................     3

         SECTION 3.5           Allocation of Commitments....................................................     3

         SECTION 3.6           Actions on Restructuring Date................................................     4

         SECTION 3.7           Termination, Extension or Reduction of Participants' Commitments.............     4

         SECTION 3.8           Interest Rates; Yield and Payment Dates......................................     6

         SECTION 3.9           Computation of Interest and Yield............................................     7

         SECTION 3.10          Pro Rata Treatment and Payments..............................................     7

         SECTION 3.11          The Account..................................................................     8

         SECTION 3.12          Basic Rent...................................................................     8

         SECTION 3.13          Purchase Payments by Lessee..................................................     8

         SECTION 3.14          Residual Value Guarantee Amount Payment by Lessee............................     9

         SECTION 3.15          Sales Proceeds of Remarketing of Property....................................    10

         SECTION 3.16          Supplemental Rent............................................................    11

         SECTION 3.17          Excepted Payments............................................................    11

         SECTION 3.18          Distribution of Payments After Event of Default..............................    11

         SECTION 3.19          Other Payments...............................................................    12

         SECTION 3.20          Casualty and Condemnation Amounts............................................    13

         SECTION 3.21          Order of Application.........................................................    13

SECTION 4         FEES......................................................................................    13

         SECTION 4.1           Administrative Fee...........................................................    13

         SECTION 4.2           Overdue Fees.................................................................    13

SECTION 5         CERTAIN INTENTIONS OF THE PARTIES.........................................................    13

         SECTION 5.1           Nature of Transaction........................................................    13

         SECTION 5.2           Amounts Due Under Lease......................................................    14
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SECTION 6         CONDITIONS PRECEDENT TO  ACQUISITION OF LAND INTEREST AND ADVANCES........................    15

         SECTION 6.1           Conditions Precedent -- Documentation........................................    15

                  (a)      Acquisition and Funding Request..................................................    15

                  (b)      Closing Date; Operative Documents................................................    15

                  (c)      Environmental Certificate........................................................    16

                  (d)      Preliminary Letter of Value......................................................    16

                  (e)      Deed.............................................................................    16

                  (f)      Lease Supplement; Equipment Schedule.............................................    16

                  (g)      Survey and Title Insurance.......................................................    16

                  (h)      Evidence of Recording and Filing.................................................    17

                  (i)      Evidence of Insurance............................................................    17

                  (j)      Evidence of Use of Proceeds......................................................    17

                  (k)      Taxes............................................................................    17

                  (l)      Opinions of Counsel..............................................................    17

                  (m)      Approvals........................................................................    18

                  (n)      Litigation.......................................................................    18

                  (o)      Requirements of Law..............................................................    18

                  (p)      Responsible Officer's Certificate of the Lessee..................................    18

                  (q)      The Lessee's Resolutions and Incumbency Certificate, etc.........................    18

                  (r)      Responsible Officer's Certificate of the Guarantor...............................    18

                  (s)      The Guarantor's Resolutions and Incumbency Certificate, etc......................    19

                  (t)      Land Interest Acquisition Date...................................................    19

                  (u)      No Material Adverse Effect.......................................................    19

                  (v)      Responsible Officer's Certificate of the Lessor..................................    19

                  (w)      The Lessor's Resolutions and Incumbency Certificate, etc.........................    19

                  (x)      Construction Budget..............................................................    20

                  (y)      Termination of Liens.............................................................    20

                  (z)      Property Purchase Agreement Conditions...........................................    20

         SECTION 6.2           Further Conditions Precedent.................................................    20

                  (a)      Representations and Warranties...................................................    20
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                  (b)      Performance of Covenants........................................................     20

                  (c)      Title...........................................................................     21

                  (d)      No Default......................................................................     21

         SECTION 6.3           Further Condition Precedent.................................................     21

                  (a)      Appraisal.......................................................................     21

         SECTION 6.4           Conditions to Restructuring Date............................................     21

SECTION 7         COMPLETION DATE CONDITIONS...............................................................     22

         SECTION 7.1           Conditions..................................................................     22

                  (a)      Architect's Certificate.........................................................     22

                  (b)      Construction Completion.........................................................     22

                  (c)      Lessee Certification............................................................     22

SECTION 8         REPRESENTATIONS..........................................................................     23

         SECTION 8.1           Representations of the Lessor...............................................     23

                  (a)      Due Organization, etc...........................................................     23

                  (b)      Authorization; No Conflict......................................................     23

                  (c)      Enforceability, etc.............................................................     23

                  (d)      Litigation......................................................................     23

                  (e)      Assignment......................................................................     24

                  (f)      Defaults........................................................................     24

                  (g)      Use of Proceeds.................................................................     24

                  (h)      Securities Act..................................................................     24

                  (i)      Chief Place of Business.........................................................     24

                  (j)      Federal Reserve Regulations.....................................................     24

                  (k)      Investment Company Act..........................................................     24

                  (l)      No Plan Assets..................................................................     24

                  (m)      Equity Source...................................................................     24

         SECTION 8.2           Representations of the Participants.........................................     25

                  (a)      No Plan Assets..................................................................     25

                  (b)      Due Organization, etc...........................................................     25

                  (c)      Authorization; No Conflict......................................................     25
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                  (d)      Enforceability, etc.............................................................     25

                  (e)      Litigation......................................................................     25

         SECTION 8.3           Representations of the Lessee...............................................     26

                  (a)      Corporate Status................................................................     26

                  (b)      Corporate Power and Authority...................................................     26

                  (c)      No Violation....................................................................     26

                  (d)      Litigation......................................................................     26

                  (e)      Governmental Approvals..........................................................     26

                  (f)      Investment Company Act..........................................................     27

                  (g)      Public Utility Holding Company Act..............................................     27

                  (h)      Accuracy of Information Furnished...............................................     27

                  (i)      Taxes...........................................................................     27

                  (j)      Compliance with ERISA...........................................................     27

                  (k)      Environmental and Other Regulations.............................................     28

                  (l)      Offer of Securities, etc........................................................     28

                  (m)      Financial Statements............................................................     28

                  (n)      No Violation or Default.........................................................     28

                  (o)      Title; Possession Under Leases..................................................     28

                  (p)      Patent and Other Rights.........................................................     29

                  (q)      Solvency, Etc...................................................................     29

                  (r)      Catastrophic Events.............................................................     29

         SECTION 8.4           Representations of the Lessee With Respect to the Property on the Land
                               Interest Acquisition Date...................................................     29

                  (a)      Representations.................................................................     29

                  (b)      Property........................................................................     29

                  (c)      Title...........................................................................     30

                  (d)      Insurance.......................................................................     31

                  (e)      Lease...........................................................................     31

                  (f)      Protection of Interests.........................................................     31

                  (g)      Flood Hazard Areas..............................................................     31

                  (h)      Conditions Precedent............................................................     31
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         SECTION 8.5     Representations of the Lessee With Respect to Each Advance.......................      31

            (a)      Representations......................................................................      31

            (b)      Improvements.........................................................................      32

            (c)      No Liens.............................................................................      32

            (d)      Advance..............................................................................      32

            (e)      Lease................................................................................      32

            (f)      Protection of Interests..............................................................      32

            (g)      Title Insurance Date Down Endorsement................................................      32

SECTION 9   PAYMENT OF CERTAIN EXPENSES...................................................................      33

         SECTION 9.1     Transaction Expenses.............................................................      33

         SECTION 9.2     Brokers' Fees and Stamp Taxes....................................................      33

         SECTION 9.3     Obligations......................................................................      33

SECTION 10  OTHER COVENANTS AND AGREEMENTS................................................................      34

         SECTION 10.1    Covenants of the Lessee..........................................................      34

            (a)      Financial Statements.................................................................      34

            (b)      Certificates, Notices and Other Information..........................................      35

            (c)      Payment of Taxes.....................................................................      36

            (d)      Preservation of Existence............................................................      36

            (e)      Maintenance of Properties............................................................      36

            (f)      Maintenance of Insurance.............................................................      36

            (g)      Compliance with Requirements of Law..................................................      36

            (h)      Inspection Rights....................................................................      36

            (i)      Keeping of Records and Books of Account..............................................      37

            (j)      Compliance with ERISA................................................................      37

            (k)      Compliance With Agreements...........................................................      37

            (l)      Indebtedness.........................................................................      37

            (m)      Liens................................................................................      38

            (n)      Fundamental Changes..................................................................      40

            (o)      Dispositions.........................................................................      40

            (p)      Investments..........................................................................      41
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            (q)      Restricted Payments..................................................................      41

            (r)      ERISA................................................................................      42

            (s)      Change in Nature of Business.........................................................      42

            (t)      Transactions with Affiliates.........................................................      42

            (u)      Certain Indebtedness Payments, Etc...................................................      42

            (v)      Financial Covenants..................................................................      43

            (w)      Appraisal............................................................................      44

            (x)      No Impairment of Deposits............................................................      44

         SECTION 10.2    Cooperation with the Lessee......................................................      44

         SECTION 10.3    Covenants of the Lessor..........................................................      45

            (a)      Discharge of Liens...................................................................      45

            (b)      Change of Chief Place of Business....................................................      45

SECTION 11   PARTICIPATIONS...............................................................................      45

         SECTION 11.1    Amendments; Actions on Default...................................................      45

         SECTION 11.2    General..........................................................................      47

         SECTION 11.3    Conflicts........................................................................      47

         SECTION 11.4    Refusal to Give Consents or Fund.................................................      48

         SECTION 11.5    Required Repayments..............................................................      48

         SECTION 11.6    Indemnification..................................................................      49

         SECTION 11.7    Required Supplemental Payments...................................................      49

         SECTION 11.8    Application of Payments Received From Defaulting Participant As a Cure
                         For Payment Defaults.............................................................      50

         SECTION 11.9    Order of Application.............................................................      50

         SECTION 11.10   Investments Pending Dispute Resolution; Overnight Investments....................      50

         SECTION 11.11   Agent to Exercise Lessor's Rights................................................      51

         SECTION 11.12   Exculpatory Provisions Regarding the Lessor......................................      51

SECTION 12  TRANSFERS OF PARTICIPANTS' INTERESTS..........................................................      51

         SECTION 12.1    Restrictions on and Effect of Transfer by Participants...........................      51

            (a)      Required Notice and Effective Date...................................................      52

            (b)      Assumption of Obligations............................................................      52
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                  (c)      Employee Benefit Plans..........................................................     52

                  (d)      Representations.................................................................     52

                  (e)      Amounts; Agent's Fee............................................................     53

                  (f)      Applicable Law..................................................................     53

                  (g)      Effect..........................................................................     53

         SECTION 12.2          Covenants and Agreements of Participants....................................     53

                  (a)      Participations..................................................................     53

                  (b)      Transferee Indemnities..........................................................     54

         SECTION 12.3          Future Participants.........................................................     54

SECTION 13        INDEMNIFICATION..........................................................................     54

         SECTION 13.1          General Indemnification.....................................................     54

         SECTION 13.2          End of Term Indemnity.......................................................     56

         SECTION 13.3          Environmental Indemnity.....................................................     57

         SECTION 13.4          Proceedings in Respect of Claims............................................     58

         SECTION 13.5          General Impositions Indemnity...............................................     60

                  (a)      Indemnification.................................................................     60

                  (b)      Payments........................................................................     60

                  (c)      Reports and Returns.............................................................     60

                  (d)      Income Inclusions...............................................................     61

                  (e)      Withholding Taxes...............................................................     61

                  (f)      Contests of Impositions.........................................................     62

                  (g)      Documentation of Withholding Status.............................................     63

                  (h)      Limitation on Tax Indemnification...............................................     64

                  (i)      Tax Savings.....................................................................     64

         SECTION 13.6          Funding Losses..............................................................     64

         SECTION 13.7          Regulation D Compensation...................................................     64

         SECTION 13.8          Basis for Determining Interest Rate Inadequate or Unfair....................     65

         SECTION 13.9          Illegality..................................................................     65

         SECTION 13.10         Increased Cost and Reduced Return...........................................     66

         SECTION 13.11         Substitution of Participant.................................................     67
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         SECTION 13.12    Indemnity Payments in Addition to Residual Value Guarantee Amount...........     68
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SECTION 14  THE AGENT................................................................................    68

         SECTION 14.1    Appointment.................................................................    68

         SECTION 14.2    Delegation of Duties........................................................    68

         SECTION 14.3    Exculpatory Provisions......................................................    68

         SECTION 14.4    Reliance by Agent...........................................................    69

         SECTION 14.5    Notice of Default...........................................................    69

         SECTION 14.6    Non-Reliance on Agent and Other Participants................................    69

         SECTION 14.7    Indemnification.............................................................    70

         SECTION 14.8    Agent in its Individual Capacity............................................    70

         SECTION 14.9    Successor Agent.............................................................    70

SECTION 15  MISCELLANEOUS............................................................................    71

         SECTION 15.1    Survival of Agreements......................................................    71

         SECTION 15.2    No Broker, etc..............................................................    71

         SECTION 15.3    Notices.....................................................................    71

         SECTION 15.4    Counterparts................................................................    72

         SECTION 15.5    Amendments..................................................................    72

         SECTION 15.6    Headings, etc...............................................................    73

         SECTION 15.7    Parties in Interest.........................................................    73

         SECTION 15.8    GOVERNING LAW...............................................................    73

         SECTION 15.9    Severability................................................................    73

         SECTION 15.10   Liability Limited...........................................................    73

         SECTION 15.11   Further Assurances..........................................................    74

         SECTION 15.12   Submission to Jurisdiction..................................................    74

         SECTION 15.13   Confidentiality.............................................................    74

         SECTION 15.14   WAIVER OF JURY TRIAL........................................................    75

         SECTION 15.15   Usury Savings Clause........................................................    75

         SECTION 15.16   Effect on Original Participation Agreement..................................    75
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                              SCHEDULES
                              ---------

SCHEDULE I        Participants' Commitments
SCHEDULE II       Pricing Grid
SCHEDULE III      Notice Information and Funding Offices
SCHEDULE IV       Environmental Matters
SCHEDULE V        Methodology for Calculating Partial Purchase Option Prices
SCHEDULE 3.6      Advances on Restructuring Date
SCHEDULE 6.4      Conditions to Amendment and Restatement
SCHEDULE 10.1     Existing Indebtedness and Liens

                              APPENDICES
                              ----------

APPENDIX 1        Definitions and Interpretation

                                EXHIBITS
                                --------

EXHIBIT A         Form of Acquisition Request
EXHIBIT B         Form of Funding Request
EXHIBIT C         Form of Environmental Certificate
EXHIBIT D         Opinion of Special Counsel to Lessee
EXHIBIT E         Opinion of Local Counsel to Lessee
EXHIBIT F         Opinion of Special Counsel to Lessor
EXHIBIT G         Opinion of Internal Counsel to Lessor
EXHIBIT H         Form of Architect's Completion Certificate
EXHIBIT I         Form of Lessee's Completion Certificate
EXHIBIT J         Form of Assignment and Acceptance
EXHIBIT K         Form of Participant's Letter
EXHIBIT L         Assignment of Lease and Consent to Assignment
EXHIBIT M         Construction Agency Agreement
EXHIBIT N         Construction Agency Agreement Assignment
EXHIBIT O         Guarantee
EXHIBIT P         Mortgage
EXHIBIT Q         Form of Compliance Certificate
EXHIBIT R         Form of Subordinated Debt Terms
EXHIBIT S         Form of Cash Collateral Agreement
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<PAGE>

                  AMENDED AND RESTATED PARTICIPATION AGREEMENT

     THIS AMENDED AND RESTATED PARTICIPATION AGREEMENT, dated as of July 12,
2000 (this "Participation Agreement"), is entered into by and among QUANTUM
            -----------------------
CORPORATION, a Delaware corporation, as Lessee (together with its permitted
successors and assigns, the "Lessee"); SELCO SERVICE CORPORATION., an Ohio
                             ------
corporation, as Lessor (together with its permitted successors and assigns, the
"Lessor") and as a Participant; THE BANK OF NOVA SCOTIA, KEYBANK NATIONAL
 ------
ASSOCIATION and UNION BANK OF CALIFORNIA, N.A., as Participants (together with
their permitted successors and assigns and SELCO SERVICE CORPORATION, in its
capacity as a Participant, each a "Participant" and collectively the
                                   -----------
"Participants"); and THE BANK OF NOVA SCOTIA, as Agent (in such capacity,
 ------------
together with its successors in such capacity, the "Agent") for the
                                                    -----
Participants.

                             PRELIMINARY STATEMENT

     A.   In accordance with the terms of the Participation Agreement dated as
of August 22, 1997, among Lessee, Lease Plan North America, Inc., as lessor and
a participant (the "Original Lessor"), ABN AMRO Bank N.V., San Francisco
                    ---------------
International Branch, as a participant, and ABN AMRO Bank N.V., San Francisco
International Branch, as agent (the "Original Agent"), as amended by the First
                                     --------------
Amendment to Participation Agreement dated as of June 26, 1998, the Second
Amendment to Participation Agreement dated as of December 18, 1998, the Third
Amendment to Participation Agreement dated as of August 31, 1999, and the Fourth
Amendment to Participation Agreement dated as of November 8, 1999 (said
participation agreement, as so amended, the "Original Participation Agreement"),
                                             --------------------------------
and the lease and the other operative documents executed thereunder,

          (i)   the Original Lessor purchased certain parcels of land designated
     by the Lessee located in Colorado Springs, Colorado;

          (ii)  using Advances from the Original Lessor, the Lessee, as
     Construction Agent, built administration, manufacturing, design, research
     and development and warehouse facilities on such parcels of land for the
     Original Lessor, acquired certain items of Equipment to be used in
     connection with such Improvements and leased, as Lessee, such Equipment,
     Improvements and Land Interest from the Original Lessor; and

          (iii) the Original Lessor obtained financing from the Participants of
     the funding of the costs of acquisition of such Land Interest, the
     construction of the Improvements and the acquisition of such Equipment
     through the purchase of Participation Interests.

     B.   The Lessee and the Participants have requested that the Original
Participation Agreement be amended in certain respects at the time the Lessor
acquires the Original Lessor's interests in the Land Interest, Improvements,
Fixtures and Equipment and its Participation Interest and certain Participants
acquire the Participation Interests of ABN AMRO Bank N.V., San Francisco
International Branch, and the Lessee, the Lessor, the Participants and the Agent
would like to amend the Original Participation Agreement upon the terms and
subject to the

                                       2
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conditions set forth herein. For convenience of reference, the parties wish to
restate the Original Participation Agreement as so amended in its entirety.

     In consideration of the mutual agreements contained in this Participation
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree that the
Original Participation Agreement shall be amended and restated as of the date
hereof to read in its entirety as follows:

                                   SECTION 1

                          DEFINITIONS; INTERPRETATION

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

                                   SECTION 2

                                  CLOSING DATE

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

                                   SECTION 3

                ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES

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

          (a) make Advances (out of funds provided by the Participants) for the
purpose of financing the acquisition of the Land Interest and the Equipment and
construction of the Improvements;

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

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

     SECTION 3.2  Participants' Commitments.  Subject to the terms and
                  -------------------------
conditions hereof, each Participant severally shall purchase a Participation
Interest in the Advances being made by the Lessor at the request of the Lessee
from time to time during the Commitment Period

                                       3
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by making available to the Lessor on each Funding Date an amount in immediately
available funds equal to such Participants' Commitment Percentage of the amount
of the Advance being funded on such Funding Date. Notwithstanding any other
provision hereof, no Participant shall be obligated to purchase its
Participation Interest in any Advance if (i) the amount of such purchase would
exceed its Available Commitment, or (ii) if, after giving effect to the proposed
Advance, the outstanding aggregate amount of such Participant's Participation
Interest in the Advances would exceed such Participant's Commitment.
Notwithstanding the foregoing, until the conditions precedent set forth in
Section 6.3 have been satisfied, the Lessee shall not be permitted to request,
-----------
and the Participants and the Lessor shall not be obligated to fund, Advances
exceeding $38,348,000 in aggregate.

     SECTION 3.3  Procedures for Acquisition of the Land Interest.  The Lessee
                  -----------------------------------------------
shall give the Lessor and the Agent prior written notice not later than 10:00
a.m., San Francisco time, on the proposed Land Interest Acquisition Date,
pursuant to an Acquisition Request substantially in the form of Exhibit A (an
                                                                ---------
"Acquisition Request"), specifying with respect to such Land Interest: (i) the
 -------------------
proposed Land Interest Acquisition Date, (ii) the Land Interest to be acquired,
(iii) the Existing Owner of the Land Interest and the Land Interest Acquisition
Cost, and (iv) the date on which the Lessee will request the Lessor to fund the
Land Interest Acquisition Cost of such Land Interest.  The Agent shall promptly
forward a copy of such Acquisition Request to each Participant.

     SECTION 3.4  Procedures for Advances.  With respect to each funding of an
                  -----------------------
Advance, the Lessee shall give the Lessor and the Agent prior written notice not
later than 10:00 a.m., San Francisco time, three (3) Business Days prior to (or,
in the case of the initial Advance made on the Land Interest Acquisition Date,
on the day of) the proposed Funding Date, pursuant, in each case, to a Funding
Request substantially in the form of Exhibit B (a "Funding Request"), specifying
                                     ---------     ---------------
(i) the proposed Funding Date, (ii) the amount and purpose of the Advance
requested, (iii) the Type of Advance, (iv) the initial Interest Period for such
Advance, (v) the payee of such Advance, and (vi) the allocation of such Advance
to the respective Land Interest Acquisition Cost and Property Improvements Costs
of the Property (and pro rata portions of the related remittances from the
Participants shall likewise be deemed to be so allocated).  The Agent shall
promptly forward a copy of such Funding Request to each Participant.  The Lessee
shall not request more than one Funding Date during any calendar month.  Each
Advance (other than an Interest Payment Advance) shall be in a minimum amount of
$1,000,000 or in amounts of $100,000 in excess thereof.  Subject to the
satisfaction or waiver of the conditions precedent to such Advance set forth in
Section 6, each Participant shall purchase its Participation Interest in such
---------
Advance by making available to the Lessor its proportionate share of such
Advance in immediately available federal funds by wire transfer to the Agent for
deposit to the Lessee's demand deposit account with the Agent not later than
12:00 noon, San Francisco time, on the applicable Funding Date.  Upon (i) the
Lessee's receipt of the funds provided by the Participants with respect to an
Advance, and (ii) satisfaction or waiver of the conditions precedent to such
Advance set forth in Section 6, the Lessee shall (1) in the case of an Advance
                     ---------
for the acquisition of the Land Interest, pay the acquisition price for such
Land Interest to the Existing Owner, and (2) in the case of other Advances, pay
or retain as payment or reimbursement of, Property Improvements Costs, in each
case from the funds provided by the Participants for such Advance.

                                       4
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     SECTION 3.5  Allocation of Commitments.  Schedule I hereto contains an
                  -------------------------   ----------
allocation for each Participant of (i) the amount of its Commitment representing
its Tranche A Participation Interest ("Tranche A Participation Interest
                                       --------------------------------
Commitment"), (ii) the amount of its Commitment representing its Tranche B
----------
Participation Interest ("Tranche B Participation Interest Commitment"), (iii)
                         -------------------------------------------
the amount of its Commitment representing its Tranche C Participation Interest
("Tranche C Participation Interest Commitment"), (iv) the amount of its
  -------------------------------------------
Commitment (and allocation to its Tranche A Participation Interest Commitment,
Tranche B Participation Interest Commitment and Tranche C Participation Interest
Commitment), and (v) the percentage referred to in the definition of the term
"Participation Interest".  The Lessee, the Lessor and the Participants have
 ----------------------
approved all such allocations and percentages.  Schedule I shall be amended as
                                                ----------
required to reflect changes in the allocations set forth thereon due to the
addition of additional Participants pursuant to Section 12.1.
                                                ------------

     SECTION 3.6  Actions on Restructuring Date.  Notwithstanding anything to
                  -----------------------------
the contrary in Section 3.4 or 3.5, on the Restructuring Date (a) certain
                ------------------
Participants shall make Advances as set forth on Schedule 3.6 in the aggregate
                                                 ------------
amount of $300,000 for Transaction Expenses payable by the Lessee on the
Restructuring Date and (b) the Tranche A Participation Interests and the Tranche
B Participation Interests of The Bank of Nova Scotia and KeyBank National
Association shall be reallocated as set forth on Schedule I.
                                                 ----------

     SECTION 3.7  Termination, Extension or Reduction of Participants'
                  ----------------------------------------------------
Commitments.  (a) The Lessor shall have the right, upon not less than three (3)
-----------
Business Days' written notice to the Agent, to terminate the Participants'
Commitments or, from time to time, to reduce the amount of the Participants'
Commitments, provided that (i) after giving effect to such reduction, the
             --------
aggregate outstanding principal amount of the Tranche A Participation Interests
shall not exceed the aggregate Tranche A Participation Interest Commitments,
(ii) after giving effect to such reduction, the aggregate outstanding principal
amount of the Tranche B Participation Interests shall not exceed the aggregate
Tranche B Participation Interest Commitments, (iii) after giving affect to such
reduction, the aggregate outstanding equity investment of the Tranche C
Participation Interests shall not exceed the aggregate Tranche C Participation
Interest Commitments, and (iv) any such reduction shall be made pro rata among
the Participants' Commitments within each Tranche.  As long as there exists no
Event of Default that has occurred and is continuing, the Lessor shall exercise
such right only as directed by the Lessee, and after the occurrence and during
the continuance of an Event of Default the Lessor shall exercise such right only
as directed by the Required Participants.  In the event that, after the
occurrence and during the continuance of an Event of Default, the Lessor and the
Participants exercise such right, the Lessee may exercise its Purchase Option
under Section 20.1 of the Lease upon not less than ten (10) days' written notice
      -------------------------
to the Lessor.

          (b)  The Lessee may, at any time after the first anniversary of the
Effective Date, by written request to the Lessor and Agent (which the Agent
shall promptly forward to each Participant) given not later than ninety (90)
days prior to the then current Maturity Date, request (an "Extension Request")
                                                           -----------------
that the Maturity Date be extended to the date that is one (1) year after such
Maturity Date.  No later than the date (the "Extension Response Date") which is
                                             -----------------------
thirty (30) days after such request has been delivered to each of the
Participants, each Participant will notify the Lessor in writing (with a copy to
the Agent and the Lessee) whether or not it

                                       5
<PAGE>

consents to such Extension Request (which consent may be granted or denied by
each Participant in its sole discretion and may be conditioned on receipt of
such financial information or other documentation as may be specified by such
Participant including without limitation satisfactory appraisals of the
Property), provided that any Participant that fails to so advise the Lessor on
           --------
or prior to the Extension Response Date shall be deemed to have denied such
Extension Request. The extension of the Maturity Date contemplated by any
Extension Request shall become effective as of the Maturity Date then in effect
(the "Extension Effective Date") on or after the Extension Response Date on
      ------------------------
which all of the Participants (other than Non-Consenting Participants which have
been replaced by Replacement Participants in accordance with Section 3.7(c))
                                                             --------------
shall have consented to such Extension Request; provided that:
                                                --------

               (i)   on both the date of the Extension Request and the Extension
     Effective Date, (x) each of the representations and warranties made by the
     Lessee and the Lessor in or pursuant to the Operative Documents shall be
     true and correct in all material respects as if made on and as of each such
     date, except for representations and warranties made as of a specific date,
     which shall be true and correct in all material respects as of such date
     and matters waived by the Required Participants or all of the Participants,
     as applicable, (y) no Event of Default shall have occurred and be
     continuing, and (z) on each of such dates the Agent shall have received a
     certificate of the Lessee and the Lessor, each as to itself, as to the
     matters set forth in clause (x) above and from the Lessee as to the matters
                          ----------
     set forth in clause (y) above;
                  ----------

               (ii)  on the date that is ninety (90) days prior to the date of
     the Extension Effective Date that is the fifth anniversary of the Closing
     Date (and on each Extension Effective Date, if any, that is every fifth
     anniversary thereafter), the Lessee shall deliver to the Lessor and the
     Agent (with sufficient copies for each Participant) an Appraisal of the
     Property in form and substance satisfactory to the Lessor and the Agent;

               (iii) the Agent and the Required Participants shall have
     received satisfactory evidence that the Expiration Date shall, after giving
     effect to any extension thereof which has become effective on or prior to
     such Extension Effective Date, occur on the Maturity Date as so extended;
     and

               (iv)  the Maturity Date shall not be extended for more than two
     (2) one-year periods pursuant to this Section 3.7(b).
                                           --------------

          (c)  The Lessee shall be permitted to replace any Non-Consenting
Participant with a replacement bank or other financial institution (a
"Replacement Participant") at any time on or prior to the date which is thirty
 -----------------------
(30) days after the relevant Extension Response Date; provided that (i) such
                                                      --------
replacement does not conflict with any Requirement of Law, (ii) the Replacement
Participant shall purchase, at par, all of the Participation Interest of such
Non-Consenting Participant on or prior to the date of replacement, (iii) the
Lessee shall be liable to such Non-Consenting Participant under Section 13 of
                                                                ----------
this Participation Agreement if any Advance (or Participation Interest therein)
shall be prepaid (or purchased) other than on the last day of the Interest
Period or Interest Periods relating thereto, (iv) the Replacement Participant,
if not already a Participant, shall be reasonably satisfactory to the Required
Participants, (v) such

                                       6
<PAGE>

replacement shall be made in accordance with the provisions of Section 12 of
                                                               ----------
this Participation Agreement (provided that the relevant Replacement Participant
(or the Lessee for the benefit of such Replacement Participant) shall be
obligated to pay the Transaction Expenses arising in connection therewith), (vi)
the Replacement Participant shall have agreed to be subject to all of the terms
and conditions of this Participation Agreement (including the extension of the
Maturity Date contemplated by the relevant Extension Request) and other
Operative Documents, and (vii) during the continuation of an Event of Default,
the Lessee shall have the exclusive right to designate the Replacement
Participant. The Agent hereby agrees to cooperate with the Lessee in the
Lessee's efforts to arrange one or more Replacement Participants as contemplated
by this Section 3.7(c).
        --------------

     SECTION 3.8  Interest Rates; Yield and Payment Dates.  (a) The Tranche A
                  ---------------------------------------
Participation Interest and the Tranche B Participation Interest in each Advance
shall bear interest at a rate of interest equal to (i) the Alternate Base Rate
plus the Applicable Margin, or (ii) at the Lessee's election in accordance with
Section 3.4 or this Section 3.8, for each day during each Interest Period with
-----------         -----------
respect thereto at a rate per annum for such Interest Period equal to the
Eurodollar Rate determined for such day plus the Applicable Margin.  The Tranche
A Participation Interest and the Tranche B Participation Interest in the initial
Advance shall bear interest at a rate equal to the Alternate Base Rate until
commencement of the initial Interest Period with respect thereto.  The Lessee
shall give irrevocable notice to the Agent, in accordance with the applicable
provisions of Section 3.4 or this Section 3.8, of the length of each Interest
              -----------         -----------
Period to be applicable to each portion of each Advance.  There shall not be
more than twelve Interest Periods outstanding under Sections 3.8(a) and (b) at
                                                    -----------------------
any time.

          (b) The equity portion of each Advance (represented by the Tranche C
Participation Interest in such Advance) shall accrue equity yield (the "Yield")
                                                                        -----
at a rate equal to (i) the Alternate Base Rate plus the Applicable Margin, or
(ii) at the Lessee's election in accordance with Section 3.4 or this Section
                                                 -----------         -------
3.8, for each day during each Interest Period with respect thereto, the
Eurodollar Rate determined for such day plus the Applicable Margin.  This
Tranche C Participation Interest in the initial Advance shall accrue Yield at a
rate equal to the Alternate Base Rate until commencement of the initial Interest
Period with respect thereto.

          (c) If all or a portion of (i) the principal amount or equity portion
of any Advance, (ii) any interest or Yield payable thereon or (iii) any other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum which is equal to the Overdue Rate.

          (d) Interest and Yield shall be payable in cash (except as provided in
paragraph (e) below) in arrears on each Scheduled Payment Date, provided that
-------------                                                   --------
(i) interest or Yield accruing pursuant to paragraph (c) of this Section 3.8
                                           ---------------------------------
shall be payable from time to time on demand and (ii) each prepayment of
Advances shall be accompanied by accrued interest and Yield to the date of such
prepayment on the amount of Advances so prepaid.

          (e) On each date which is three (3) Business Days prior to any
Scheduled Payment Date during the Construction Period, the Lessee shall be
deemed to have requested an Advance comprised of an Interest Payment Advance
pursuant to Section 3.4 and the Lessor shall
            -----------

                                       7
<PAGE>

be deemed to have requested a purchase pursuant to Section 3.2 of Participation
                                                   -----------
Interests in such Advance in an amount equal to the aggregate amount of the
Basic Rent due and payable on such date with respect to accrued interest and
accrued Yield on outstanding Advances. The Funding Date with respect to any such
Interest Payment Advance and purchase of Participation Interests therein shall
be the relevant Scheduled Payment Date (provided that such Advance and the
purchase of such Participation Interests shall be subject to satisfaction of the
applicable conditions precedent set forth in Section 6) and the proceeds of such
                                             ---------
payment shall be applied to pay such accrued interest and accrued Yield. On each
such Funding Date, the Property Cost shall be increased by an amount equal to
the Basic Rent paid on such date with respect to such Property with the proceeds
of such payment, and the Land Interest Acquisition Cost and Property
Improvements Costs shall be increased by their pro rata portions of such
Advance.

     SECTION 3.9  Computation of Interest and Yield.  (a) Whenever it is
                  ---------------------------------
calculated on the basis of the Alternate Base Rate, interest and Yield shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed; and, otherwise, interest and Yield shall be calculated on
the basis of a 360-day year for the actual days elapsed.  The Agent shall as
soon as practicable after the commencement of each Interest Period notify the
Lessor, the Lessee and the Participants of each determination of a Eurodollar
Rate.  Any change in the interest rate or Yield rate on an Advance resulting
from a change in the Alternate Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective.  The Agent shall as soon as practicable
notify the Lessor, the Lessee and the Participants of the effective date and the
amount of each such change in interest rate or Yield rate.

          (b) Each determination of an interest rate or Yield rate by the Agent
pursuant to any provision of this Participation Agreement shall be conclusive
and binding on the Lessor, the Lessee and the Participants in the absence of
manifest error.  The Agent shall, at the request of such parties, deliver to
such parties a statement showing the quotations used by the Agent in determining
any interest rate pursuant to Section 3.9(a).
                              --------------

     SECTION 3.10  Pro Rata Treatment and Payments.  (a) Each participation in
                   -------------------------------
the Advances by the Participants hereunder and each reduction of the Commitments
of the Participants shall be made pro rata among the Tranche A Participants,
Tranche B Participants and Tranche C Participants according to the respective
Commitment Percentages of each such Participant.  Except as otherwise provided
in Sections 3.11 - 3.21, each payment (including each prepayment) by the Lessor
   --------------------
on account of Participation Interests representing the principal amount of or
equity investment in and interest or Yield on the Advances shall be made pro
rata among the Tranche A Participants, Tranche B Participants and Tranche C
Participants according to the respective Participation Interests of each such
Participant.  All payments (including prepayments) to be made by the Lessor
hereunder to the Participants with respect to their Participation Interests,
whether on account of principal, equity investment, interest, Yield or
otherwise, shall be payable to the extent received by the Lessor from or on
behalf of the Lessee and shall be made without setoff or counterclaim and shall
be made prior to 12:00 noon, San Francisco time, on the due date thereof to the
Agent, for the account of the Participants, at the Agent's office referred to in
Section 15.3 of this Participation Agreement, in Dollars and in immediately
------------
available funds.  The Agent shall distribute such payments to the Participants
promptly upon receipt in like funds

                                       8
<PAGE>

as received. If any payment hereunder (other than payments of Participation
Interests in the Advances) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day. If any payment of Participation Interests in an Advance becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension or shortening of the due date of any payment pursuant to the
preceding two sentences, interest or Yield thereon shall be payable at the then
applicable rate during such extension or until such shortened due date, as the
case may be.

          (b) Unless the Agent shall have been notified in writing by any
Participant prior to funding its Participation Interest in an Advance that such
Participant will not make its share of such Advance available to the Agent, the
Agent may assume that such Participant is making such amount available to the
Agent, and the Agent may, in reliance upon such assumption, make available to
the Lessor a corresponding amount.  If such amount is not made available to the
Agent by the required time on the Funding Date therefor, such Participant,
without right of reimbursement from the Lessee to such Participant, shall pay to
the Agent, on demand, such amount with interest thereon at a rate equal to the
daily average Federal Funds Effective Rate for the period until such Participant
makes such amount immediately available to the Agent.  A certificate of the
Agent submitted to any Participant with respect to any amounts owing under this
Section 3.10(b) shall be conclusive in the absence of manifest error.  If such
---------------
Participant's share of such Advance is not made available to the Agent by such
Participant within three (3) Business Days of such Funding Date, the Agent shall
also be entitled to recover such amount with interest thereon at the rate borne
by such Advance, on demand, from the Lessee, to the extent the Agent has made a
corresponding amount of the Advance to the Lessee.

     SECTION 3.11  The Account.  The Agent may if it so desires establish an
                   -----------
account (the "Account") into which the Agent shall deposit all payments,
              -------
receipts and other consideration of any kind whatsoever paid under the Lease and
received by the Agent pursuant to this Participation Agreement, the Lease and
any other Operative Document.  The Agent shall make distributions of such
payments, receipts and other consideration (and, if an Account is used, from the
Account) pursuant to the requirements of Sections 3.12 -3.21 hereof.
                                         -------------------

     SECTION 3.12  Basic Rent.  (a) Each payment (or portion thereof) of Basic
                   ----------
Rent comprising interest or Yield on the Advances (and any payment of interest
on overdue installments of such component of Basic Rent) received by the Agent
shall be distributed by the Agent as promptly as possible (it being understood
that any payments of such component of Basic Rent received by the Agent on a
timely basis and in accordance with the provisions of the Lease shall be
distributed on the date received in the funds so received) to the Participants
pro rata in accordance with, and for application to, the portion of their
Participation Interests in such portion of Basic Rent, as well as in any overdue
interest due to such Participant (to the extent permitted by applicable law).

          (b) Each payment (or portion thereof) of Basic Rent comprising
principal of, or a redemption of the equity investment in, the Advances (and any
payment of interest on

                                       9
<PAGE>

overdue installments of such component of Basic Rent) received by the Agent
shall be distributed as promptly as possible (it being understood that any
payments of such component of Basic Rent received by the Agent on a timely basis
and in accordance with the provisions of the Lease shall be distributed on the
date received in the funds so received) to the Participants pro rata in
accordance with, and for application to, the portion of their Participation
Interests in such portion of Basic Rent then due each Participant.

     SECTION 3.13  Purchase Payments by Lessee.  Any payment received (or offset
                   ---------------------------
against the Cash Collateral) by the Agent as a result of:

          (a) the purchase of the Lessor's interest in all of the Property in
connection with the Lessee's exercise of its Purchase Option under Section 20.1
                                                                   ------------
of the Lease or a portion of the Property in connection with any exercise by the
------------
Lessee of its Partial Purchase Option under Section 20.5 of the Lease, or
                                            -------------------------

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

          (c) the payment of the Asset Termination Value in accordance with
Sections 16.2(b), 16.3 or 16.4 of the Lease, or
-------------------------------------------

          (d) the Lessee failing to fulfill one or more of the conditions to
exercise of the Remarketing Option pursuant to Section 22.1 of the Lease and the
                                               -------------------------
Agent's receipt pursuant to the next-to-last paragraph of Section 22.1 of the
                                                          -------------------
Lease of the Asset Termination Value in accordance with Section 20.2 of the
-----                                                   -------------------
Lease, shall be distributed by the Agent as promptly as possible (it being
-----
understood that any such payment received by the Agent on a timely basis and in
accordance with the provisions of the Lease shall be distributed on the date on
which such funds are so received) to pay in full or redeem the Participant
Balance of each Participant and in the case that the amount so distributed shall
be insufficient to pay in full as aforesaid, then pro rata among the
Participants without priority of one over the other, in the proportion that the
Participant Balance of each bears to the aggregate of all of the Participant
Balances.

          (e) Notwithstanding any other provision in this Participation
Agreement, the Lease or any other Operative Document to the contrary, the
Lessee, the Agent, the Participants and the Lessor agree that upon the maturity
or acceleration of the Lessee's obligation to pay the Asset Termination Value,
Residual Value Guarantee Amount or Purchase Option Price, any and all amounts of
Cash Collateral that have been deposited by the Lessee pursuant to the Cash
Collateral Agreement and that have not been withdrawn by the Lessee or offset or
applied by the Lessor, the Agent or any Participant (in accordance with the
terms of the Cash Collateral Agreement) as of such maturity or acceleration
date, shall be required to be applied by the Agent and the Lessor to satisfy the
Lessee's obligation to pay the unpaid amount of such portion of the Asset
Termination Value, Purchase Option Price or Residual Value Guarantee represented
by the Cash Collateral, notwithstanding the fact that such amounts may not then
be actually available, for any reason attributable to the Lessor, the Agent or
any Participant.  Such reasons include, without limitation, any fraud or
misapplication of funds by the Lessor, the Agent or any Participant, decline in
value of the Collateral or the filing by or against the Lessor, the Agent or

                                       10
<PAGE>

any Participant of any insolvency, bankruptcy, dissolution, liquidation,
reorganization or similar proceeding, but except to the extent resulting from a
proceeding involving the solvency of the Lessee).

     SECTION 3.14  Residual Value Guarantee Amount Payment by Lessee.  The
                   -------------------------------------------------
payment by the Lessee of the Residual Value Guarantee Amount to the Agent in
accordance with Article XXII of the Lease upon the Lessee's exercise of the
                -------------------------
Remarketing Option shall be distributed by the Agent as promptly as possible (it
being understood that any such payment received by the Agent on a timely basis
in accordance with the provisions of the Lease shall be distributed on the date
on which such funds are so received) in the following order of priority:

          first, to the Tranche A Participants for application to pay in full
          -----
     the Tranche A Participation Interest Balance of each Tranche A Participant;

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

          third, to the Tranche C Participants for application to redeem the
          -----
     Tranche C Participation Interest Balance of each Tranche C Participant, and
     in the case where the amounts so distributed shall be insufficient to fully
     redeem as aforesaid, then pro rata among the Tranche C Participants without
     priority of one Tranche C Participant over the other in the proportion that
     each such Tranche C Participant's Tranche C Participation Interest Balance
     bears to the aggregate Tranche C Participation Interest Balances of all
     Tranche C Participants.

     SECTION 3.15  Sales Proceeds of Remarketing of Property.  Any payments
                   -----------------------------------------
received by the Agent as proceeds from the sale of the Property sold pursuant to
the Lessee's exercise of the Remarketing Option pursuant to Article XXII of the
                                                            -------------------
Lease, together with any payment made by the Lessee as a result of an appraisal
-----
pursuant to Section 13.2 of this Participation Agreement, shall be distributed
            ------------
by the Agent as promptly as possible (it being understood that any such payment
received by the Agent on a timely basis and in accordance with the provisions of
the Lease shall be distributed on the date received) in the funds so received in
the following order of priority:

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

                                       11
<PAGE>

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

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

          fourth, the balance, if any, shall be promptly distributed to, or as
          ------
     directed by, the Lessee.

     SECTION 3.16  Supplemental Rent.  All payments of Supplemental Rent
                   -----------------
received by the Agent (excluding any amounts payable pursuant to the preceding
provisions of this Section 3) shall be distributed promptly by Agent upon
                   ---------
receipt thereof to the Persons entitled thereto pursuant to the Operative
Documents.

     SECTION 3.17  Excepted Payments.  Notwithstanding any other provision of
                   -----------------
this Participation Agreement or the Operative Documents, any Excepted Payment
received at any time by the Agent shall be distributed promptly to the Person
entitled to receive such Excepted Payment pursuant to the Operative Documents.

     SECTION 3.18  Distribution of Payments After Event of Default.  (a) All
                   -----------------------------------------------
payments received and amounts realized by the Lessor or the Agent after an Event
of Default exists, including under the Guarantee, the Deed of Trust or the Cash
Collateral Agreement, and proceeds from the sale of any of the Property,
proceeds of any amounts from any insurer or any Governmental Authority in
connection with any Casualty or Condemnation during the continuation of an Event
of Default, or from Lessee as payment in accordance with the Lease, including
any payment received from Lessee pursuant to Section 17 of the Lease, shall, if
                                             -----------------------
received by Lessor, be paid to the Agent as promptly as possible and shall be
distributed by the Agent as promptly as possible (it being understood that any
such payment received by the Agent on a timely basis and in accordance with the
provisions of the Operative Documents shall be distributed on the date received
in the funds so received) in the following order of priority:

          first, so much of such payment or amount as shall be required to
          -----
     reimburse the Lessor or the Agent for any tax, expense or other loss
     incurred by the Lessor or the Agent (including, to the extent not
     previously reimbursed, those incurred in connection with any duties of the
     Agent as the Agent) and any unpaid ongoing fees of the Lessor and the Agent
     shall be distributed to each of them for its own account;

                                      11
<PAGE>

          second, so much of such payments or amounts as shall be required to
          ------
     reimburse the then existing or prior Participants for payments made by them
     to the Lessor pursuant to Section 18.1 of the Lease (to the extent not
                               -------------------------
     previously reimbursed) and to pay such then existing or prior Participants
     the amounts payable to them pursuant to any expense reimbursement or
     indemnification provisions of the Operative Documents shall be distributed
     to each such Participant without priority of one over the other in
     accordance with the amount of such payment or payments payable to each such
     Person;

          third, in the case of a sale of the Property, receipt of Cash
          -----
     Collateral or application of the Cash Collateral, in the order of priority
     set forth in Section 3.15;
                  ------------

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

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

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

          seventh, the balance, if any, of such payment or amounts remaining
          -------
     thereafter shall be promptly distributed to, or as directed by, the Lessee.

     SECTION 3.19  Other Payments.  (a) Except as otherwise provided in Sections
                   --------------                                       --------
3.12, 3.13, 3.18 and paragraph (b) below, (i) any payment received by the Agent
----------------     -------------
for which no provision as to the application thereof is made in the Operative
Documents or elsewhere in this Section 3, and (ii)all payments received and
                               ---------
amounts realized by the Agent under the Lease or otherwise with respect to the
Property, the Deed of Trust or the Cash Collateral to the extent received or
realized at any time after indefeasible payment in full or redemption of the
Participant Balances of all of the Participants and any other amounts due and
owing to the Lessor, the Participants or the Agent, shall be distributed
forthwith by the Agent in the order of priority set

                                      12
<PAGE>

forth in Section 3.13 (in the case of any payment described in clause (i) above)
         ------------                                          ----------
or in Section 3.18 hereof (in the case of any payment described in clause (ii)
      ------------                                                 -----------
above), except, that (i) in the case of any payment described in clause (ii)
                                                                 -----------
above, such payment shall be distributed omitting clause third of such Section
                                                  ----------------------------
3.18; and the balance, if any (in the case of any payment described in clause
----                                                                   ------
(i) or (ii) above), shall be distributed to, or as directed by, the Lessee, and
-----------
(ii) any payments received under the Guaranty shall be distributed solely to the
Participants in accordance with the priorities set forth in Section 3.18.
                                                            ------------

          (b) Except as otherwise provided in Sections 3.12 and 3.13 hereof, any
                                              ----------------------
payment received by the Agent for which provision as to the application thereof
is made in an Operative Document but not elsewhere in this Section 3 shall be
                                                           ---------
distributed forthwith by the Agent to the Person and for the purpose for which
such payment was made in accordance with the terms of such Operative Document.

     SECTION 3.20  Casualty and Condemnation Amounts.  Any amounts payable to
                   ---------------------------------
the Lessor as a result of a Casualty or Condemnation pursuant to Section 15.1 of
                                                                 ---------------
the Lease (but excluding any amounts payable pursuant to Section 16.2 of the
---------                                                -------------------
Lease) shall, if no Lease Event of Default exists, be paid over to Lessee for
-----
the rebuilding or restoration of that portion of the Property to which such
Casualty or Condemnation applied, and any excess proceeds shall be paid to the
Lessee.  If a Lease Event of Default exists, then during the continuance of such
Lease Event of Default, all such amounts shall be held by the Agent as Cash
Collateral and upon exercise of the Lessor's remedies hereunder shall be
distributed pursuant to Section 3.18.
                        ------------

     SECTION 3.21  Order of Application.  To the extent any payment made to any
                   --------------------
Participant pursuant to Sections 3.13, 3.14, 3.15 or 3.16 is insufficient to pay
                        ---------------------------------
in full the Participant Balance of such Participant, then each such payment
shall first be applied to its Participation Interest in accrued interest and
then to its Participation Interest in principal of the Advances.

                                   SECTION 4

                                      FEES

     SECTION 4.1  Administrative Fee.  The Lessee shall pay an administrative
                  ------------------
fee (the "Administrative Fee") to the Agent for its own account as referred to
          ------------------
in, and at such times as provided in, the Fee Letter.

     SECTION 4.2  Overdue Fees.  If all or a portion of any fee due hereunder
                  ------------
shall not be paid when due, such overdue amount shall bear interest, payable by
the Lessee on demand, at a rate per annum equal to the Overdue Rate from the
date of such nonpayment until such amount is paid in full (as well after as
before judgment).

                                      13
<PAGE>

                                   SECTION 5

                       CERTAIN INTENTIONS OF THE PARTIES

     SECTION 5.1  Nature of Transaction.  (a) It is the intent of the parties
                  ---------------------
hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of federal, state and local
income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee.  Nevertheless, the Lessee
acknowledges and agrees that neither the Agent, the Lessor nor any Participant
has made any representations or warranties to the Lessee concerning the tax,
accounting or legal characteristics of the Operative Documents and that the
Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents as it deems appropriate.

     Notwithstanding any provision of this Participation Agreement to the
contrary, the parties hereto agree and declare that: (i) the transactions
contemplated by the Lease are intended to have a dual, rather than single, form;
and (ii) all references in this Participation Agreement to the "lease" of the
Property which fail to reference such dual form do so as a matter of convenience
only and do not reflect the intent of the parties hereto as to the true form of
such arrangements.  The parties hereto agree that, in accordance with their
intentions expressed herein and the substance of the transactions contemplated
hereby, Lessee (and not Lessor) shall be treated as the owner of the Property
for federal, state, and local income and property tax purposes and the Lease
shall be treated as a financing arrangement.  Lessee shall be entitled to take
any deduction, credit, allowance or other reporting, filing or other tax
position consistent with such characterizations.  The Lessor and the
Participants shall file any federal, state or local income tax returns, reports
or other statements in a manner which is consistent with the foregoing
provisions of this Section 5.1; provided, that the Lessor and any Participant
                   -----------  --------
may take a position that is inconsistent with the Lessee's status as owner of
the Property if: (x) there has been a change in law or regulation so requiring
as supported by an opinion of counsel reasonably acceptable to the Lessee that
there is not substantial authority for such a consistent reporting position; or
(y) (A) there has been an administrative or judicial holding that the Lessee is
not the owner of the Property for such tax purposes, (B) the Lessee has no right
to contest such holding pursuant to Section 13.5 of the Participation Agreement,
                                    ------------
and (C) the Lessee's lack of right to contest is not the result of an
Indemnitee's waiver of its right to indemnification pursuant to Section
                                                                -------
13.5(f)(iii) of the Participation Agreement or failure of the amount at issue to
------------
exceed the minimum amount set forth in Section 13.5(f)(iv)(B) of the
                                       ----------------------
Participation Agreement.

          (b) Specifically, without limiting the generality of subsection (a) of
this Section 5.1, the parties hereto intend and agree that with respect to the
     -----------
nature of the transactions evidenced by the Lease in the context of the exercise
of remedies under the Operative Documents, including, without limitation, in the
case of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or statute
of the United States of America or any State or Commonwealth thereof affecting
the Lessee, the Lessor or any Participant or any enforcement or collection
actions, (i) the transactions evidenced by the Operative Documents are loans
made by the Lessor

                                      14
<PAGE>

and the Participants as unrelated third party lenders to the Lessee secured by
the Property, (ii) the obligations of the Lessee under the Lease to pay Basic
Rent and Supplemental Rent or Asset Termination Value in connection with any
purchase of the Property pursuant to the Lease shall be treated as payments of
interest on and principal of, respectively, loans from the Lessor and the
Participants to the Lessee, (iii) the Lease grants a security interest and
mortgage or deed of trust or lien, as the case may be, in the Property and the
collateral described in the Mortgage to the Lessor, the Agent and the
Participants to secure the Lessee's performance and payment of all amounts under
the Lease and the other Operative Documents.

     SECTION 5.2  Amounts Due Under Lease.  Anything else herein or elsewhere to
                  -----------------------
the contrary notwithstanding, it is the intention of the Lessee, the Lessor, the
Participants and the Agent that: (i) the amount and timing of installments of
Basic Rent due and payable from time to time from the Lessee under the Lease
shall be equal to the aggregate payments due to the Participants in respect of
their Participation Interests on each Payment Date; (ii) if the Lessee elects
the Purchase Option or becomes obligated to purchase the Property under the
Lease, the Participation Interests, all fees and all of the interest on overdue
amounts thereon and all other obligations of the Lessee owing to the Lessor, the
Participants and the Agent shall be paid in full by the Lessee; (iii) if the
Lessee properly elects the Remarketing Option, the Lessee shall only be required
to pay to the Lessor the proceeds of the sale of the Property, the Residual
Value Guarantee Amount and any amounts due pursuant to Section 13 of this
                                                       ----------
Participation Agreement and Section 22.2 of the Lease (which aggregate amounts
                            -------------------------
may be less than the Asset Termination Value); and (iv) upon an Event of Default
resulting in an acceleration of the Lessee's obligation to purchase the Property
under the Lease, the amounts then due and payable by the Lessee under the Lease
shall include all amounts necessary to pay in full the Asset Termination Value,
plus all other amounts then due from the Lessee to the Participants, the Agent
and the Lessor under the Operative Documents.

                                   SECTION 6

                            CONDITIONS PRECEDENT TO
                   ACQUISITION OF LAND INTEREST AND ADVANCES

     SECTION 6.1  Conditions Precedent -- Documentation.  The obligation of the
                  -------------------------------------
Lessor to acquire the Land Interest on the Land Interest Acquisition Date and to
make the Advance in respect of such Property on the Funding Date applicable
thereto, the obligation of the Lessor to make an Advance to finance the
acquisition of Equipment or the construction of any Improvements or the funding
of any Interest Payment Advance on any Funding Date, and the obligation of each
Participant to purchase its Participation Interest in, and to make available to
the Lessor its related portion of, each such Advance on such Funding Date are
subject to satisfaction or waiver of the following conditions precedent and the
conditions precedent set forth in Section 6.2 (it being understood that the
                                  -----------
Lessor's obligation to acquire such Land Interest or to finance such Equipment,
if any, or Improvements shall not be subject to the conditions precedent set
forth in this Section 6.1 or Section 6.2 to the extent such conditions are
              -----------    -----------
actions required of the Lessor) on or prior to the Closing Date, the Land
Interest Acquisition Date or such Funding Date, as the case may be:

                                      15
<PAGE>

          (a) Acquisition and Funding Request.  Prior to the Land Interest
              -------------------------------
Acquisition Date or the applicable Funding Date, the Agent and the Lessor shall
have received a fully executed counterpart of the Acquisition Request or Funding
Request, as the case may be, appropriately completed by the Lessee, in
accordance with Sections 3.3 and 3.4, respectively; provided, that this
                --------------------                --------
condition shall be deemed to have been satisfied in connection with an Interest
Payment Advance pursuant to Section 3.8(d) hereof.
                            --------------

          (b) Closing Date; Operative Documents.  The Closing Date shall have
              ---------------------------------
occurred or shall occur simultaneously with the earlier of the initial Funding
Date or Land Interest Acquisition Date and each of the Operative Documents to be
entered into on the Closing Date shall have been duly authorized, executed and
delivered by the parties thereto, and shall be in full force and effect,
including, without limitation, (i) this Participation Agreement, (ii) the Lease,
(iii) the Lease Supplement; (iv) the Guarantee, (v) the Construction Agency
Agreement, (vi) the Construction Agency Agreement Assignment, (vii) the
Mortgage, (viii) the Assignment of Lease and Supplement to Assignment of Lease,
(ix) the Consent to Assignment, (x) the Assignment of Property Purchase
Agreement, (xi) the Deed and (xii) the Cash Collateral Agreement.  No Default or
Event of Default shall exist thereunder and be continuing (both before and after
giving effect to the transactions contemplated by the Operative Documents), and
the Lessor, the Agent and each Participant shall each have received a fully
executed copy of each of such Operative Documents (other than the Lease and
Lease Supplement, of which the Agent shall receive the original and the Lessor
and the Participants shall receive specimens).  On or prior to the Closing Date
or the Land Interest Acquisition Date, as applicable, the Operative Documents
(or memoranda thereof), any supplements thereto and any financing statements in
connection therewith required under the Uniform Commercial Code shall have been
recorded, registered and filed, if necessary, in such manner as to enable the
Lessee's counsel to render its opinion referred to in clauses l(i)(A) and (B)
                                                      -----------------------
below.

          (c) Environmental Certificate.  The Agent, each Participant and the
              -------------------------
Lessor shall have received an Environmental Certificate substantially in the
form of Exhibit C (an "Environmental Certificate") with respect to the Property,
        ---------      -------------------------
provided that such Environmental Certificate shall be delivered not less than
--------
five (5) Business Days prior to the Land Interest Acquisition Date and shall
have been approved by the Agent, the Required Participants and the Lessor, and
accompanied by the Environmental Audit for the Property prepared by Harding
Lawson Associates, dated August 13, 1997.

          (d) Preliminary Letter of Value.  On or prior to the Land Interest
              ---------------------------
Acquisition Date, the Agent, the Lessor and the Participants shall have received
a Preliminary Letter of Value of the Property prepared by the appraiser
preparing the Appraisal referred to in Section 10.1(s), which Preliminary Letter
                                       ---------------
of Value shall (i) show that the Fair Market Sales Value of the Land Interest
with respect to such Property as of the projected Completion Date shall not
exceed twenty-five (25%) of the Fair Market Sales Value of such Land Interest
and the Improvements to be constructed thereon in accordance with the Plans and
Specifications for Property, and (ii) show as of the projected Completion Date
the Fair Market Sales Value of such Land Interest and the Improvements to be
constructed thereon in accordance with the Plans and Specifications, and (iii)
meet the other applicable requirements set forth in clauses (i) and (ii) of the
                                                    --------------------
definition of the "Appraisal" contained in Appendix 1.
                   ---------

                                      16
<PAGE>

          (e) Deed.  On or prior to the Land Interest Acquisition Date, the
              ----
Lessor shall have received a special warranty deed (the "Deed"), in conformity
                                                         ----
with Applicable Law and appropriate for recording with the applicable
Governmental Authorities, with respect to the Land Interest (and all
Improvements located thereon), conveying fee simple title to the Land Interest
(and all Improvements located thereon) to the Lessor, subject only to Permitted
Exceptions.

          (f) Lease Supplement; Equipment Schedule.  The Lessee and the Lessor
              ------------------------------------
shall have delivered (i) on or prior to the Land Interest Acquisition Date, the
original counterpart of the Lease Supplement executed by the Lessee and the
Lessor to the Agent and (ii) on or prior to the applicable Funding Date, a duly
executed Equipment Schedule covering any Equipment, if any, being acquired with
the proceeds of such Advance by the Lessor, together with invoices or appraisals
in form and substance satisfactory to the Agent, the Lessor and the
Participants.

          (g) Survey and Title Insurance.  On or prior to the Land Interest
              --------------------------
Acquisition Date, the Lessee shall have delivered (i) an ALTA/ACSM (1992)(Urban)
Survey of the Property, including Table A numbers 1, 2, 3, 4, 6, 8, 9, 10 and
11, certified to the Lessor, the Participants and the title company and
otherwise in form reasonably acceptable to the Participants, (ii) an ALTA (1992)
owners title insurance policy with extended coverage over the general
exceptions, insuring fee title in the Lessor to the Property, subject only to
the Permitted Exceptions, (iii) an ALTA (1992) Loan Policy insuring the Agent
that the Lien of the Mortgage is a first and primary lien in the Lessor's
interest in the Master Lease and in the fee title to the Property, subject only
to pending disbursements for construction and the Permitted Exceptions, and (iv)
an ALTA (1992) Loan Policy insuring the Agent that the Lien of the Master Lease
is a first and primary Lien in the Lessee's interest in the Property; such
policies each in an amount not less than the estimated Property Cost and to be
reasonably satisfactory to the Lessor, the Agent and the Participants with
extended coverage, access, tax parcel, survey identicality, variable rate,
future advances, usury, comprehensive, fraudulent conveyances, doing business,
mechanics liens and zoning endorsements and such other endorsements as and to
the extent available in such jurisdiction where the Property is located, if
requested by the Agent.

          (h) Evidence of Recording and Filing.  On or prior to the Land
              --------------------------------
Interest Acquisition Date, the Agent shall have received evidence reasonably
satisfactory to it that each of the Deed, the Lease Supplement, the Assignment
of Lease and Supplement to Assignment of Lease, the Consent to Assignment and
the Mortgage shall have been or are being recorded with the appropriate
Governmental Authorities in the order in which such documents are listed in this
clause, and the UCC Financing Statements with respect to the Property being
acquired shall have been or are being filed with the appropriate Governmental
Authorities.

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

          (j) Evidence of Use of Proceeds.  On or prior to the Land Interest
              ---------------------------
Acquisition Date or the applicable Funding Date, the Agent and each Participant
shall have received evidence reasonably satisfactory to the Agent and each
Participant as to the use of the proceeds of the

                                      17
<PAGE>

Advance in accordance with the provisions of Section 8.1(g), which conditions
                                             --------------
shall be satisfied by delivery of the applicable duly executed Funding Request
with respect thereto.

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

          (l) Opinions of Counsel.  On or prior to the Land Interest Acquisition
              -------------------
Date, (i) the Lessee shall have delivered to the Agent, each Participant and the
Lessor (A) an opinion of Wilson, Sonsini, Goodrich & Rosati, counsel to the
Lessee, as to the matters set forth in Exhibit D; and (B) an opinion of local
                                       ---------
counsel licensed to practice in the jurisdiction where the Property is located
as to the matters set forth in Exhibit E; and (ii) the Lessor shall have
                               ---------
delivered to the Agent and each Participant (A) an opinion of special counsel in
the form set forth on Exhibit F; and (B) an opinion of internal counsel to the
                      ---------
Lessor to the effect and in the form set forth in Exhibit G.
                                                  ---------

          (m) Approvals.  All necessary (or, in the reasonable opinion of the
              ---------
Lessor, the Participants or the Agent or any of their respective counsel,
advisable) Governmental Actions and covenants and approvals of or by any
Governmental Authority or other Person, in each case required by any Requirement
of Law, covenant or restriction affecting the Property or the transactions
contemplated thereby to have been obtained by such date shall have been obtained
or made and be in full force and effect.

          (n) Litigation.  No action or proceeding shall have been instituted,
              ----------
nor shall any action or proceeding be threatened, before any Governmental
Authority, nor shall any order, judgment or decree have been issued or proposed
to be issued by any Governmental Authority (i) to set aside, restrain, enjoin or
prevent the full performance of this Participation Agreement, the Lease or any
other Operative Document or any transaction contemplated hereby or thereby or
(ii) which is reasonably likely to have a Material Adverse Effect.

          (o) Requirements of Law.  In the reasonable opinion of the Lessor, the
              -------------------
Participants, the Agent and their respective counsel, the transactions
contemplated by the Operative Documents do not and will not violate any
Requirement of Law and do not and will not subject the Lessor, the Agent or any
Participant to any adverse regulatory or tax prohibitions or constraints.

          (p) Responsible Officer's Certificate of the Lessee.  On or prior to
              -----------------------------------------------
the earlier of the initial Funding Date or the Land Interest Acquisition Date,
the Lessor, each Participant and the Agent shall each have received a
Responsible Officer's Certificate, dated as of the Land Interest Acquisition
Date, of the Lessee stating that (i) each and every representation and warranty
of the Lessee contained in the Operative Documents to which it is a party is
true and correct on and as of the Closing Date; (ii) no Default or Event of
Default under the Lease, the Property Purchase Agreement or the Construction
Agency Agreement has occurred and is continuing; (iii) each Operative Document
to which the Lessee is a party is in full force and effect with respect to it;
and (iv) the Lessee has duly performed and complied with all covenants,

                                      18
<PAGE>

agreements and conditions contained herein or in any Operative Document required
to be performed or complied with by it on or prior to the earlier of the initial
Funding Date or the Land Interest Acquisition Date.

          (q) The Lessee's Resolutions and Incumbency Certificate, etc.  On or
              --------------------------------------------------------
prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received (i) a certificate of the Secretary or an Assistant Secretary of the
Lessee attaching and certifying as to (A) the resolutions of the Board of
Directors of the Lessee, duly authorizing the execution, delivery and
performance by the Lessee of documents and agreements of the type represented by
each Operative Document to which it is or will be a party, (B) its articles of
incorporation and bylaws, and (C) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party, and (ii) a good standing certificate from the appropriate officer
of the state in which the Property is located.

          (r) Responsible Officer's Certificate of the Guarantor.  On or prior
              --------------------------------------------------
to the earlier of the initial Funding Date or the Land Interest Acquisition
Date, the Lessor, each Participant and the Agent shall each have received a
Responsible Officer's Certificate, dated as of the Land Interest Acquisition
Date, of the Guarantor stating that (i) each and every representation and
warranty of the Guarantor contained in the Operative Documents to which it is a
party is true and correct on and as of the Closing Date; (ii) no Default or
Event of Default under the Guarantee has occurred and is continuing; (iii) each
Operative Document to which the Guarantor is a party is in full force and effect
with respect to it; and (iv) the Guarantor has duly performed and complied with
all covenants, agreements and conditions contained herein or in any Operative
Document required to be performed or complied with by it on or prior to the
earlier of the initial Funding Date or the Land Interest Acquisition Date.

          (s) The Guarantor's Resolutions and Incumbency Certificate, etc. On or
              -----------------------------------------------------------
prior to the earlier of the initial Funding Date or the Land Interest
Acquisition Date, the Lessor, each Participant and the Agent shall each have
received a certificate of the Secretary or an Assistant Secretary of the
Guarantor attaching and certifying as to (i) the resolutions of its Board of
Directors duly authorizing the execution, delivery and performance by the
Guarantor of documents and agreements of the type represented by each Operative
Document to which it is or will be a party (ii) its articles of incorporation
and by-laws, and (iii) the incumbency and signature of persons authorized to
execute and deliver on its behalf the Operative Documents to which it is a
party.

          (t) Land Interest Acquisition Date.  The Land Interest Acquisition
              ------------------------------
Date shall occur on or prior to September 30, 1997.

          (u) No Material Adverse Effect.  As of each Funding Date, there shall
              --------------------------
not have occurred any Material adverse change in the Lessee's, the Guarantor's
and their respective subsidiaries capital structure, ownership or consolidated
assets, liabilities, results of operations, or financial condition taken as a
whole from that set forth or contemplated in the most recent financial
statements referred to in Section 8.3(m), and no event or condition shall have
                          --------------
occurred that would result in a Material Adverse Effect.

                                      19
<PAGE>

          (v) Responsible Officer's Certificate of the Lessor.  On or prior to
              -----------------------------------------------
the Land Interest Acquisition Date, the Lessee, the Agent and each Participant
shall have received a certificate of an authorized officer of the Lessor, dated
as of the Land Interest Acquisition Date, stating that (i) each and every
representation and warranty of the Lessor contained in the Operative Documents
to which it is a party is true and correct on and as of the Closing Date, (ii)
each Operative Document to which the Lessor is a party is in full force and
effect with respect to it, and (iii) the Lessor has duly performed and complied
with all covenants, agreements and conditions contained herein or in any
Operative Document required to be performed or complied with by it on or prior
to the Land Interest Acquisition Date.

          (w) The Lessor's Resolutions and Incumbency Certificate, etc.  On or
              ---------------------------------------------------------
prior to the Land Interest Acquisition Date, the Lessee, the Agent and each
Participant shall have received a certificate of the Secretary or an Assistant
Secretary of the Lessor attaching and certifying as to (i) the resolutions of
the Board of Directors duly authorizing the execution, delivery and performance
by the Lessor of documents and agreements of the type represented by each
Operative Document to which it is or will be a party, (ii) the pertinent
provisions of its by-laws and (iii) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party.

          (x) Construction Budget.  On or prior to the Land Interest Acquisition
              -------------------
Date, the Lessor, the Agent and each Participant shall have received a
construction budget with respect to the Property reasonably satisfactory to each
of them.

          (y) Termination of Liens.  On or prior to the Land Interest
              --------------------
Acquisition Date, the Agent, each Participant and the Lessor shall have received
a pay-off letter from each Existing Lender, together with duly executed UCC-3
termination statements, mortgage releases and such other instruments, in form
and substance satisfactory to the Agent, each Participant and the Lessor, as
shall be necessary to terminate and satisfy all Liens created pursuant to the
Existing Financing and all other Liens except Permitted Exceptions.

          (z) Property Purchase Agreement Conditions.  On or prior to the Land
              --------------------------------------
Interest Acquisition Date, the Lessor, the Agent and the Participants shall have
received a copy of the Property Purchase Agreement; the Property Purchase
Agreement shall be in full force and effect and shall have been validly assigned
to the Lessor pursuant to the Assignment of Property Purchase Agreement; and the
conditions to closing under the Property Purchase Agreement shall have been
satisfied to satisfaction of, or waived by, the Lessor, the Agent and the
Participants.

     SECTION 6.2  Further Conditions Precedent.  The obligation of the Lessor to
                  ----------------------------
acquire the Land Interest on the Land Acquisition Date or to make an Advance on
any Funding Date and the obligation of each Participant to purchase its
Participation Interest in, and to make available its related portion of, such
Advance on such Funding Date are subject to satisfaction or waiver of the
following conditions precedent and to satisfaction on or before the Closing
Date, Land Interest Acquisition Date or such Funding Date of the conditions
precedent set forth in Section 6.1 (it being understood that the Lessor's
                       -----------
obligations to acquire the Land Interest and to make Advances to the Lessee and
each Participant's obligation to fund the purchase of its Participation Interest
in an Advance shall not be subject to the conditions precedent set forth in
Section 6.1 and
-----------

                                      20
<PAGE>

this Section 6.2 to the extent such conditions are actions required of the
     -----------
Lessor or such Participant):

          (a) Representations and Warranties.  (i) On the Closing Date, the
              ------------------------------
representations and warranties of the Lessee, the Guarantor, the Lessor and each
Participant contained herein and in each of the other Operative Documents shall
be true and correct as though made on and as of such date, except to the extent
such representations or warranties relate solely to an earlier date, in which
case such representations and warranties shall have been true and correct on and
as of such earlier date; and (ii) on the Land Interest Acquisition Date (if such
date occurs after the Closing Date) and each other Funding Date, the
representations and warranties of the Lessee contained herein and in each of the
Operative Documents shall be true and correct as though made on and as of such
date; in each case except to the extent such representations or warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true an correct on and as of such earlier date.

          (b) Performance of Covenants.  (i) On the Closing Date the parties
              ------------------------
hereto shall have performed their respective agreements contained herein and in
the other Operative Documents to be performed by them on or prior to such date,
and (ii) on the Land Interest Acquisition Date (if such date occurs after the
Closing Date) and each other Funding Date the Lessee shall have performed its
respective agreements contained herein and in the other Operative Documents to
be performed by it on or prior to such date.

          (c) Title.  Title to the Property shall conform to the representations
              -----
and warranties set forth in Section 8.4(c).
                            --------------

          (d) No Default.  There shall not have occurred and be continuing any
              ----------
Default or Event of Default under any of the Operative Documents, and no Default
or Event of Default under any of the Operative Documents will have occurred
after giving effect to the acquisition of the Property and/or the making of the
Advance requested by such Funding Request, as the case may be.

     SECTION 6.3  Further Condition Precedent.  The obligation of the Lessor to
                  ---------------------------
make any Advance in respect of the Property on a Funding Date after the Land
Interest Acquisition Date, the obligation of the Lessor to make the initial
Advance to finance the acquisition of Equipment or the construction of any
Improvements or the funding of any Interest Payment Advance on any Funding Date,
and the obligation of each Participant to purchase its Participation Interest
in, and to make available to the Lessor its related portion of, each such
Advance on such Funding Date are subject to satisfaction or waiver of the
following condition precedent and the conditions precedent set forth in Section
                                                                        -------
6.1 and Section 6.2 (it being understood that the Lessor's obligation to finance
---     -----------
such Equipment, if any, or Improvements shall not be subject to the conditions
precedent set forth in this Section 6.3 or Section 6.1 or Section 6.2 to the
                            -----------    -----------    -----------
extent such conditions are actions required of the Lessor) on or prior to such
Funding Date:

          (a) Appraisal.  On or prior to such Funding Date, the Agent, the
              ---------
Lessor and the Participants shall have received an Appraisal of that portion of
the Property not subject to the Appraisal referred to in Section 10.1(s) and
                                                         ---------------
prepared by the appraiser preparing the Appraisal

                                      21
<PAGE>

referred to in Section 10.1(s), which Appraisal shall (i) show that the Fair
               ---------------
Market Sales Value of that portion of the Land Interest with respect to
such Property as of the projected Completion Date shall not exceed twenty-five
(25%) of the Fair Market Sales Value of such portion of the Land Interest and
the Improvements to be constructed thereon in accordance with the Plans and
Specifications for such Property, and (ii) show as of the projected Completion
Date the Fair Market Sales Value of such Land Interest and the Improvements to
be constructed thereon in accordance with the Plans and Specifications, and
(iii) meet the other applicable requirements set forth in the definition of the
"Appraisal" contained in Appendix 1.
 ---------

          If any of the conditions precedent set forth in this Section 6.3 or in
                                                               -----------
Section 6.1 or Section 6.2 (if such conditions apply to subsequent Funding
-----------    -----------
Dates) shall not have been satisfied on any Funding Date subsequent to the
initial Funding Date and the Lessor and the Participants refuse to fund the
requested Advance, the Lessee may exercise its Purchase Option under Section
                                                                     -------
20.1 of the Lease upon not less than ten (10) days' written notice to the
-----------------
Lessor, the Agent and the Participants.

     SECTION 6.4  Conditions to Restructuring Date.  The assignments of and
                  --------------------------------
amendments to the Operative Documents to take effect on the Restructuring Date
are subject to satisfaction or waiver of the conditions precedent set forth on

Schedule 6.4; provided, however, that the title insurance policies or
------------  --------  -------
commitments described in Part III.A. of Schedule 6.4 may include standard
                         ---------------------------
exceptions for rights or claims of parties in possession, easements or claims of
easements, and discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any facts which a correct survey would disclose and which are
not shown by the public records, if not later than forty-five (45) days after
the Restructuring Date, the Lessee delivers a current ALTA survey certified to
the Lessor, the Participants and the title company in a form which will enable
the title company to issue such title insurance policies without such standard
exceptions or any new exceptions disclosed by such survey.  The Lessee covenants
to deliver to the Agent the survey and title insurance policies or commitments
described in the proviso to the preceding sentence and any failure to deliver
such items to the Agent may give rise to a Lease Event of Default under Section
                                                                        -------
17.1(d) of the Lease, but in no event shall the cure period provided by such
--------------------
section exceed thirty (30) days.

                                   SECTION 7

                           COMPLETION DATE CONDITIONS

     SECTION 7.1  Conditions.  The occurrence of the Completion Date shall be
                  ----------
subject to the fulfillment to the satisfaction of, or waiver by, the Required
Participants of the following conditions precedent:

          (a) Architect's Certificate.  The Lessee shall have furnished to the
              -----------------------
Lessor and Agent a (i) certificate of the Architect (substantially in the form
of Exhibit H) dated at or about the Completion Date and stating that (a) the
   ---------
Improvements have been completed substantially in accordance with the Plans and
Specifications and the Property is ready for occupancy, (b) the Property, as so
completed, complies in all material respects with all Applicable Laws, and

                                      22
<PAGE>

certifying that attached thereto are true and complete copies of an "as built"
or "record" set of the Plans and Specifications, and a plat of survey of the
Property "as built" showing all paving, driveways, fences and exterior
improvements; and (ii) a date-down endorsement to or amendment and restatement
of the title insurance policies described in Section 6.1(g).
                                             --------------

          (b) Construction Completion.  The construction of the Improvements
              -----------------------
shall have been completed substantially in accordance with the Plans and
Specifications and all Applicable Law, and such Property shall be ready for
occupancy and operation.  All Fixtures, Equipment and other Improvements
contemplated under the Plans and Specifications to be incorporated into or
installed in the Property shall have been incorporated or installed free and
clear of all Liens except for Permitted Liens.

          (c) Lessee Certification.  The Lessee shall have furnished the Lessor
              --------------------
and the Agent with a certification of the Lessee (substantially in the form of

Exhibit I) as follows:
---------

               (i) The representations and warranties of the Lessee with respect
     to the Property set forth in Section 8.4(b) are true and correct as of the
                                  --------------
     Completion Date.  All amounts owing to third parties for the construction
     of the Improvements have been paid in full.

               (ii) No changes or modifications were made to the related Plans
     and Specifications after the Closing Date that have had a Material adverse
     effect on the value, use or useful life of the Property.

                                   SECTION 8

                                REPRESENTATIONS

     SECTION 8.1  Representations of the Lessor.  The Lessor represents and
                  -----------------------------
warrants to each of the other parties hereto as follows:

          (a) Due Organization, etc.  It is a corporation duly organized,
              ----------------------
validly existing and in good standing under the laws of the State of Ohio and
has the corporate power and authority to enter into and perform its obligations
under each of the Operative Documents to which it is or will be a party and each
other agreement, instrument and document to be executed and delivered by it in
connection with or as contemplated by each such Operative Document to which it
is or will be a party.

          (b) Authorization; No Conflict.  The execution, delivery and
              --------------------------
performance of each Operative Document to which it is or will be a party has
been duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) does or will require any approval or consent of any trustee or
holders of any of its indebtedness or obligations, (ii) does or will contravene
any current United States or Ohio law, governmental rule or regulation, (iii)
does or will contravene or result in any breach of or constitute any default
under, or result in the creation of any Lien upon any of its property under,

                                      23
<PAGE>

its articles of incorporation or by-laws, or any indenture, mortgage, deed of
trust, conditional sales contract, credit agreement or other agreement or
instrument to which it is a party or by which it or its properties may be bound
or affected or (iv) does or will require any Governmental Action by any
Governmental Authority, except such as have been obtained on the Lessee's or the
Lessor's behalf.

          (c) Enforceability, etc.  Each Operative Document to which the Lessor
              --------------------
is or will be a party has been duly executed and delivered by the Lessor and
each such Operative Document to which the Lessor is a party constitutes, or upon
execution and delivery will constitute, a legal, valid and binding obligation
enforceable against the Lessor in accordance with the terms thereof, except as
the same may be limited by insolvency, bankruptcy, reorganization or other laws
relating to or affecting creditors' rights or by general equitable principles.

          (d) Litigation.  There is no action or proceeding pending or, to its
              ----------
knowledge, threatened to which it is a party, before any Governmental Authority
that, if adversely determined, would materially and adversely affect its ability
to perform its obligations under the Operative Documents to which it is a party,
would have a material adverse effect on the financial condition of the Lessor or
would question the validity or enforceability of any of the Operative Documents
to which it is or will become a party.

          (e) Assignment.  It has not assigned or transferred any of its right,
              ----------
title or interest in or under the Lease except to the Agent, for the benefit of
the Participants, in accordance with this Participation Agreement and the other
Operative Documents.

          (f) Defaults.  No Default or Event of Default under the Operative
              --------
Documents attributable to it has occurred and is continuing.

          (g) Use of Proceeds.  The proceeds of the purchase of the
              ---------------
Participation Interests shall be applied by the Lessor solely in accordance with
the provisions of the Operative Documents.

          (h) Securities Act.  Neither the Lessor nor any Person authorized by
              --------------
the Lessor to act on its behalf has offered or sold any interest in the Lease,
or in any similar security relating to the Property, or in any security the
offering of which for the purposes of the Securities Act would be deemed to be
part of the same offering as the offering of the aforementioned securities to,
or solicited any offer to acquire any of the same from, any Person other than
the Agent and the Participants, and neither the Lessor nor any Person authorized
by the Lessor to act on its behalf will take any action which would subject the
issuance or sale of any interest in the Lease or the Property to the provisions
of Section 5 of the Securities Act or require the qualification of any Operative
Document under the Trust Indenture Act of 1939, as amended.

          (i) Chief Place of Business.  The Lessor's chief place of business,
              -----------------------
chief executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Participation Agreement and
each other Operative Document are kept are located at 54 State Street, Albany,
New York 12207.

                                      24
<PAGE>

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

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

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

          (m) Equity Source.  (i) The source of its 3.520838% minimum equity
              -------------
investment in the Tranche C Participation Interest is full recourse debt the
obligee of which is KeyBank National Association, the ultimate parent of the
Lessor; (ii) the Lessor will not obtain residual insurance or any other residual
guarantee to ensure recovery of its equity investment; and (iii) the Lessor will
be liable for any decline in the fair value of the residual interest and has,
and is expected to continue to have during the term of the Lease, other
significant assets, in addition to and of a value that exceeds its equity
investment, that are at risk.

     SECTION 8.2  Representations of the Participants.  Each Participant
                  -----------------------------------
represents and warrants to the Lessor, each of the other Participants and the
Lessee as follows:

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

          (b) Due Organization, etc.  It is either (i) a duly organized and
              ----------------------
validly existing corporation in good standing under the laws of the state of its
incorporation, or (ii) a national banking association duly organized and validly
existing under the laws of the United States or (iii) a banking corporation duly
organized and validly existing under the laws of the jurisdiction of its
organization, and, in each case, has the corporate power and authority to
execute, deliver and carry out the terms and provisions of the Operative
Documents to which it is a party.

          (c) Authorization; No Conflict.  The execution, delivery and
              --------------------------
performance of each Operative Document to which it is or will be a party has
been duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) does or will require any approval or consent of any trustee or
holders of any

                                      25
<PAGE>

of its indebtedness or obligations, (ii) does or will contravene any current
law, governmental rule or regulation of the United States or the state or
country of its organization, (iii) does or will contravene or result in any
breach of or constitute any default under, or result in the creation of any Lien
upon any of its property under, its certificate of incorporation or bylaws,
articles of association or other organizational documents or any indenture,
mortgage, deed of trust, conditional sales contract, credit agreement or other
agreement or instrument to which it is a party or by which it or its properties
may be bound or affected or (iv) does or will require any Governmental Action by
any Governmental Authority.

          (d) Enforceability, etc.  Each Operative Document to which it is a
              -------------------
party has been, or on or before the Closing Date or applicable Funding Date or
Land Interest Acquisition Date will be, duly executed and delivered by it and
each such Operative Document to which it is a party constitutes, or upon
execution and delivery will constitute, a legal, valid and binding obligation
enforceable against it in accordance with the terms thereof, except as the same
may be limited by insolvency, bankruptcy, reorganization or other laws relating
to or affecting creditors' rights or by general equitable principles.

          (e) Litigation.  There is no action or proceeding pending or, to its
              ----------
knowledge, threatened to which it is or will be a party before any Governmental
Authority that is reasonably likely to be adversely determined and, if adversely
determined, would materially and adversely affect its ability to perform its
obligations under the Operative Documents to which it is a party.

     SECTION 8.3  Representations of the Lessee.  The Lessee represents and
                  -----------------------------
warrants to each of the other parties hereto that:

          (a) Corporate Status.  The Lessee (i) is a corporation duly organized,
              ----------------
validly existing and in good standing under the laws of the State of Delaware
and (ii) has duly qualified and is authorized to do business and has obtained a
certificate of authority to transact business as a foreign corporation in the
States of California and Colorado and in each other jurisdiction where the
failure to so qualify is reasonably likely to be Material.

          (b) Corporate Power and Authority.  The Lessee has corporate power and
              -----------------------------
authority to execute, deliver and carry out the terms and provisions of the
Operative Documents to which it is or will be a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Operative Documents to which it is or will be a party and has or will
have duly executed and delivered each Operative Document required to be executed
and delivered by it and, assuming the due authorization, execution and delivery
thereof on the part of each other party thereto, each such Operative Document
constitutes or will constitute a legal, valid and binding obligation enforceable
against it in accordance with its terms, except as the same may be limited by
insolvency, bankruptcy, reorganization or other laws relating to or affecting
the enforcement of creditors' rights or by general equitable principles.

          (c) No Violation.  Neither the execution, delivery and performance by
              ------------
the Lessee of the Operative Documents to which it is or will be a party nor
compliance with the terms and provisions thereof, nor the consummation by the
Lessee of the transactions contemplated therein (i) will result in a violation
by the Lessee of any applicable provision of any

                                      26
<PAGE>

law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality having jurisdiction over the Lessee or the
Property that would (x) adversely affect the validity or enforceability of the
Operative Documents to which the Lessee is a party, or the title to, or value or
condition of, the Property, or (y) have a Material Adverse Effect on the
consolidated financial position, business or consolidated results of operations
of the Lessee, or (z) have an adverse effect on the ability of the Lessee to
perform its obligations under the Operative Documents, (ii) will conflict with
or result in any breach under, or (other than pursuant to the Operative
Documents) result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of Lessee pursuant to the
terms of, any indenture, loan agreement or other agreement for borrowed money to
which the Lessee is a party or by which it or any of its property or assets is
bound or to which it may be subject (other than Permitted Liens), or (iii) will
violate any provision of the certificate or articles of incorporation or bylaws
of the Lessee.

          (d) Litigation.  There are no actions, suits or proceedings pending
              ----------
or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to
have a Material Adverse Effect or (ii) that question the validity of the
Operative Documents or the rights or remedies of the Lessor, the Agent or the
Participants with respect to the Lessee or the Property under the Operative
Documents.

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

          (f) Investment Company Act.  The Lessee is not an "investment company"
              ----------------------
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act.

          (g) Public Utility Holding Company Act.  The Lessee is not a "holding
              ----------------------------------
company, or a "subsidiary company," or an "affiliate" of a "holding company", or
of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

          (h) Accuracy of Information Furnished.  None of the Operative
              ---------------------------------
Documents and none of the other certificates, statements or information
furnished to the Lessor, the Agent or any Participant by or on behalf of the
Lessee or any of its Subsidiaries in connection with the Operative Documents or
the transactions contemplated thereby (taken together with all such Operative
Documents, certificates, statements or information) contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood by the Lessor,
the Agent or any Participant that the projections and forecasts provided by the
Lessee are not to be viewed as facts and that actual results during the period
or

                                      27
<PAGE>

periods covered by such projections and forecasts may differ from the
projected or forecasted results).

          (i) Taxes.  All United States federal income tax returns and all other
              -----
Material tax returns which are required to have been filed have been or will be
prepared in accordance with applicable law and filed by or on behalf of the
Lessee by the respective due dates, including extensions, and all taxes due with
respect to the Lessee pursuant to such returns or pursuant to any assessment
received by the Lessee have been or will be paid.  The charges, accruals and
reserves on the books of the Lessee in respect of taxes or other governmental
charges are, in the opinion of the Lessee, adequate.

          (j) Compliance with ERISA.  Each member of the ERISA Group has
              ---------------------
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all Material respects
with the presently applicable provisions of ERISA and the Code with respect to
each Plan.  No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan, (ii)
failed to make any contribution or payment to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement, or made any amendment to any Plan or
Benefit Arrangement, which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.

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

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

          (m) Financial Statements.  The audited consolidated statement of
              --------------------
financial position of the Lessee and its consolidated Subsidiaries as of March
31, 1997 and the related consolidated statements of income, shareholder's equity
and cash flows for the fiscal year then ended, reported on by Ernst & Young,
LLP, a copy of which has been delivered to each of the Lessor, the Participants
and the Agent, present fairly in all material respects, in conformity with
generally accepted accounting principles, the financial position of the Lessee
as of such date and its results of operations and cash flows for such fiscal
year.

                                      28
<PAGE>

          (n) No Violation or Default.  Neither the Lessee nor any of the
              -----------------------
Lessee's Subsidiaries is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person or (ii) any Contractual Obligation
of such Person, where, in each case, such violation or default is reasonably
likely to have a Material Adverse Effect.  Without limiting the generality of
the foregoing, neither the Lessee nor any of the Lessee's Subsidiaries (A) is in
violation of any Environmental Laws, (B) to the best of the Lessee's knowledge,
has any liability or potential liability under any Environmental Laws or (C) has
received written notice or other written communication of an investigation or is
under investigation by any Governmental Authority having jurisdiction over the
Lessee or any of the Lessee's Subsidiaries having authority to enforce
Environmental Laws, where, in each case, such violation, liability or
investigation could reasonably be expected to have a Material Adverse Effect,
nor, to the best of the Lessee's knowledge, have any Hazardous Materials been
released or disposed of on any of the properties owned by the Lessee or the
Lessee's Subsidiaries which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.  No Event of Default
or Default has occurred and is continuing.

          (o) Title; Possession Under Leases.  The Lessee and the Lessee's
              ------------------------------
Subsidiaries (i) own and have good title (without regard to minor defects of
title), or leasehold interests in, all their other respective properties and
assets which are material to the business of the Lessee and its Subsidiaries
taken as a whole as reflected in the most recent Financial Statements delivered
to the Agent (except those assets and properties disposed of since the date of
such Financial Statements in compliance with this Participation Agreement) and
(ii) own and have good title (without regard to minor defects of title) to, or
leasehold interests in, all respective properties and assets acquired by the
Lessee and the Lessee's Subsidiaries since such date which are material to the
business of the Lessee and its Subsidiaries taken as a whole (except those
assets and properties disposed of in compliance with this Participation
Agreement).  Such assets and properties are subject to no Lien, except for
Permitted Liens.

          (p) Patent and Other Rights.  The Lessee and the Lessee's Subsidiaries
              -----------------------
own or license under validly existing agreements (or could obtain such
ownership, possession or license on terms not materially adverse to the Lessee
and its Subsidiaries, taken as a whole, and under circumstances that could not
reasonably be expected to have a Material Adverse Effect), and have the full
right to license without the consent of any other Person, all patents, licenses,
trademarks, trade names, trade secrets, service marks, copyrights and all rights
with respect thereto, which are material to conduct the businesses of the Lessee
and its Subsidiaries (taken as a whole) as now conducted.

          (q) Solvency, Etc.  The Lessee and each of its Material Subsidiaries
              -------------
is Solvent and, after the execution and delivery of the Operative Documents and
the consummation of the transactions contemplated thereby, will be Solvent.

          (r) Catastrophic Events.  Neither the Lessee nor any of the Lessee's
              -------------------
Subsidiaries and none of their properties is affected by any fire, explosion,
strike, lockout or other labor dispute, earthquake, embargo or other casualty
that is reasonably likely to have a Material Adverse Effect.  As of the Closing
Date, there are no disputes presently subject to grievance procedure,
arbitration or litigation under any of the collective bargaining agreements,

                                      29
<PAGE>

employment contracts or employee welfare or incentive plans to which the Lessee
or any of the Lessee's Subsidiaries is a party, an there are no strikes,
lockouts, work stoppages or slowdowns, or, to the best knowledge of the Lessee,
jurisdictional disputes or organizing activities occurring or threatened which
alone or in the aggregate are reasonably likely to have a Material Adverse
Effect.

     SECTION 8.4  Representations of the Lessee With Respect to the Property on
                  -------------------------------------------------------------
the Land Interest Acquisition Date.  The Lessee hereby represents and warrants
----------------------------------
as follows:

          (a) Representations.  The representations and warranties of the
              ---------------
Construction Agent and the Lessee set forth in the Operative Documents are true
and correct.  The Construction Agent and the Lessee are in compliance in with
their respective obligations under the Operative Documents and there exists no
Default or Event of Default.

          (b) Property.  Such Property consists of the Land Interest on which
              --------
administration, manufacturing design and warehouse facilities will be
constructed pursuant to the Construction Agency Agreement.  Such Property is
located in the State of Colorado.  Such Property as improved in accordance with
the related Plans and Specifications and the use thereof by the Lessee and its
agents, assignees, employees, invitees, lessees, licensees, contractors and
tenants will comply in all material respects with all Requirements of Law
(including, without limitation, Title III of the Americans with Disabilities
Act, all zoning and land use laws and Environmental Laws) and Insurance
Requirements, except for such Requirements of Law as the Lessee shall be
contesting in good faith by appropriate proceedings.  The related Plans and
Specifications have been or will be prepared in all material respects in
accordance with applicable Requirements of Law (including, without limitation,
Title III of the Americans with Disabilities Act, applicable Environmental Laws
and building, planning, zoning and fire codes) and upon completion of the
facility in accordance with the Plans and Specifications, such facility and the
other Improvements on such Property will not encroach in any manner onto any
adjoining land (except as permitted by express written easements or as insured
by appropriate title insurance) and such facility and other Improvements will
comply in all Material respects with all applicable Requirements of Law
(including, without limitation, Title III of the Americans with Disabilities
Act, all applicable Environmental Laws and building, planning, zoning and fire
codes).  Upon completion of such facility in accordance with the related Plans
and Specifications, the Improvements including, without limitation, structural
members, the plumbing, heating, air conditioning and electrical systems thereof,
and all water, sewer, electric, gas, telephone and drainage facilities will be
completed in a workmanlike manner and in accordance with the Plans and
Specifications and will be in first class working condition and fit for use as
administration, manufacturing design and warehouse facilities, and all other
utilities required to adequately service the Improvements for their intended use
are or will be available and "tapped on" and hooked up pursuant to adequate
permits (including any that may be required under applicable Environmental
Laws).  There is no action, suit or proceeding (including any proceeding in
condemnation or eminent domain or under any Environmental Law) pending or, to
the best of the Lessee's knowledge, threatened with respect to the Lessee, its
Affiliates or such Property which adversely affects the title to, or the use,
operation or value of, the Property.  As of the Land Interest Acquisition Date,
no fire or other casualty with respect to the Property shall have occurred, and
as of each other Funding Date, no fire or other casualty with respect to the

                                      30
<PAGE>

Property shall have occurred that constitutes a Significant Casualty with
respect to which the Lessee shall have delivered a Termination Notice under
Section 16.1 of the Lease.  The Property has or will have available all material
-------------------------
services of public facilities and other utilities necessary for use and
operation of such facility and the other Improvements for their primary intended
purposes, including, without limitation, adequate water, gas and electrical
supply, storm and sanitary sewerage facilities, telephone, other required public
utilities and means of access to such facility from publicly dedicated streets
and public highways for pedestrians and motor vehicles.  All utilities serving
such Property, or proposed to serve such Property in accordance with the related
Plans and Specifications, are located in, and vehicular access to the
Improvements on such Property is provided by, either public rights-of-way
abutting such Property or Appurtenant Rights.  All material licenses, approvals,
authorizations, consents, permits (including, without limitation, building,
demolition and environmental permits, licenses, approvals, authorizations and
consents), easements and rights-of-way, including proof and dedication, required
for (x) the use, treatment, storage, transport, disposal or disposition of any
Hazardous Substance on, at, under or from such Property during the construction
of the Improvements thereon, and (y) construction of such Improvements in
accordance with the related Plans and Specifications and the Construction Agency
Agreement have either been obtained from the appropriate Governmental
Authorities having jurisdiction or from private parties, as the case may be, or
will be obtained from the appropriate Governmental Authorities having
jurisdiction or from private parties, as the case may be, prior to commencing
any such construction or use and operation, as applicable and will in each case
be maintained by the Lessee during the periods for which they are required by
Applicable Law or such Governmental Authorities.

          (c) Title.  The Deed providing for the acquisition of the Property is
              -----
sufficient to convey title to the Property in fee simple, subject only to
Permitted Exceptions.  Upon conveyance of the Deed on the Land Interest
Acquisition Date, the Lessor will own fee simple title in the Land Interest and
any Improvements and will have the right to grant the Mortgage on the Property.
The Lessor will at all times during the Term have good title to all Equipment
wherever located and to any Improvements.

          (d) Insurance.  The Lessee has obtained insurance coverage covering
              ---------
the Property which meets the requirements of Article XIV of the Lease, and such
                                             ------------------------
coverage is in full force and effect.

          (e) Lease.  Upon the execution and delivery of the Lease Supplement to
              -----
the Lease, (i) the Lessee will have unconditionally accepted the Property and
will be bound by the terms of the Lease Supplement and will have a valid
leasehold interest in the Property, subject only to the Permitted Exceptions;
(ii) the Lessee's obligation to pay Rent will be an independent covenant and no
right of deduction or offset will exist with respect to any Rent or other sums
payable under the Lease; and (iii) no Rent under the Lease will have been
prepaid and the Lessee will have no right to prepay the Rent, except as
specifically set forth therein.

          (f) Protection of Interests.  (i) On the Land Interest Acquisition
              -----------------------
Date, the Lease Supplement, the Assignment of Lease, the Supplement to
Assignment of Lease, the Consent to Assignment and the Mortgage are each in a
form sufficient, and have been recorded in all recording offices necessary, to
grant perfected first priority liens on the Property to the

                                      31
<PAGE>

Agent or the Lessor, as the case may be, (ii) the Agent Financing Statements are
each in a form sufficient, and have been filed in all filing offices necessary,
to create a valid and perfected first priority security interest in the Lessor's
interest in all Equipment, if any, to be located on the Property and the
Improvements; and (iii) the Lessor Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to perfect the
Lessor's interest under the Lease to the extent the Lease is a security
agreement.

          (g) Flood Hazard Areas.  No portion of the Property is located in an
              ------------------
area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, or if any portion of the Property
is located in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, then flood insurance has
been obtained for the Property or such portion thereof in accordance with
Section 14.2(b) of the Lease and in accordance with the National Flood Insurance
----------------------------
Act of 1968, as amended.

          (h) Conditions Precedent.  All conditions precedent contained in this
              --------------------
Participation Agreement and in the other Operative Documents relating to the
acquisition and leasing of the Property by the Lessor have been satisfied in
full or waived.

     SECTION 8.5  Representations of the Lessee With Respect to Each Advance.
                  ----------------------------------------------------------
The Lessee hereby represents and warrants as of each Funding Date on which an
Advance is made as follows:

          (a) Representations.  The representations and warranties of the
              ---------------
Construction Agent and the Lessee set forth in the Operative Documents
(including the representations and warranties set forth in Sections 8.3 and 8.4)
                                                           --------------------
are true and correct in all Material respects on and as of such Funding Date,
except to the extent such representations or warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true and correct in all Material respects on and as of such earlier date.  The
Construction Agent and the Lessee are in compliance in all Material respects
with their respective obligations under the Operative Documents and there exists
no Default or Event of Default which is continuing.  No Default or Event of
Default will occur as a result of, or after giving effect to, the Advance
requested by the Acquisition Request or the Funding Request on such date.

          (b) Improvements.  Construction of the Improvements to date has been
              ------------
performed in a good and workmanlike manner, substantially in accordance with the
Plans and Specifications and in compliance with all Insurance Requirements and
Requirements of Law.

          (c) No Liens.  There have been no Liens against the Property since the
              --------
recordation of the Deed, the Lease Supplement, the Assignment of Lease, the
Consent to Assignment or the Mortgage other than Permitted Exceptions and Liens
that have been removed or bonded by or on behalf of the Lessee to the
satisfaction of the Lessor and the Agent.  The Participation Interests funding
such Advance are secured by the Lien of the Mortgage.

          (d) Advance.  The amount of the Advance requested represents amounts
              -------
owing in respect of the acquisition price of the Land Interest or amounts that
the Lessee

                                      32
<PAGE>

reasonably believes will be due in the sixty (60) days following such Advance
from the Lessee to third parties in respect of Property Improvements Costs, or
amounts paid by the Lessee to third parties in respect of Property Costs for
which the Lessee has not previously been reimbursed by an Advance. The
conditions precedent to such Advance and the related remittances by the
Participants with respect thereto set forth in Section 6 have been satisfied.
                                               ---------

          (e) Lease.  Upon the execution and delivery of each Equipment Schedule
              -----
to the Lease, the Lessee will have unconditionally accepted the Equipment, if
any, subject to the Lease Supplement and will have good and marketable title to
a valid and subsisting leasehold interest in such Equipment, subject only to
Permitted Exceptions.

          (f) Protection of Interests.  On each Funding Date for the acquisition
              -----------------------
of Equipment, (i) the Lease Supplement, the applicable Equipment Schedule and
the Mortgage are each a form sufficient to grant perfected Liens on the Lessee's
and the Lessor's interests, respectively, in the Equipment to the Lessor and
Agent, respectively, (ii) the Agent Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to create a
valid and perfected first priority security interest in such interest in such
Equipment, and (iii) the Lessor Financing Statements are each in a form
sufficient, and have been filed in all filing offices necessary, to perfect the
Lessor's interest in such Equipment under the Lease to the extent the Lease is a
security agreement.

          (g) Title Insurance Date Down Endorsement.  Prior to each Advance
              -------------------------------------
during the Construction Period and prior to an Advance following the
Construction Period for Property Improvement Costs to which a mechanics' lien
could take priority over the lien of the Mortgage or the lien of the Lease, the
Lessee shall furnish the Lessor at the Lessee's expense an endorsement or other
coverage reasonably acceptable to the Agent from the title insurance company
issuing the policies pursuant to Section 6.1, insuring the Lessor and the Agent
                                 -----------
that (i) all mechanics' or similar liens and claims for such liens which could
arise from that part of the Property Improvements Costs previously paid for, if
any, or to be paid for with the then proposed Advance, have been waived and (ii)
there has not been filed with respect to all or any parts of the Land Interest
and Improvements any mechanics' or similar liens or claims of such liens that
are not discharged of record, or insured over by the title insurance company, in
respect of any part of the Land Interest and Improvements.

                                   SECTION 9

                          PAYMENT OF CERTAIN EXPENSES

     The Lessee agrees, for the benefit of the Lessor, the Agent and the
Participants, that:

     SECTION 9.1  Transaction Expenses.  (a) The Lessee shall pay, or cause to
                  --------------------
be paid, from time to time all Transaction Expenses in respect of the
transactions consummated on the Closing Date, the Land Interest Acquisition Date
or any Funding Date, it being understood and agreed that neither the Agent, the
Lessor nor any Participant shall be required to advance any Transaction Expenses
in connection with the closing.  Such Transaction Expenses may be added

                                      33
<PAGE>

to the Property Cost to the extent supported by the Appraisal and agreed by the
Agent and the Participants.

          (b) The Lessee shall pay or cause to be paid (i) all Transaction
Expenses of the Lessor, (ii) the Administrative Fee, (iii) all Transaction
Expenses reasonably incurred by the Lessee, the Agent or the Lessor in entering
into any future amendments or supplements with respect to any of the Operative
Documents, whether or not such amendments or supplements are ultimately entered
into, or giving or withholding of waivers or consents hereto or thereto, in each
case (except after the occurrence of an Event of Default) which have been
requested by or approved by the Lessee, (iv) all Transaction Expenses incurred
by the Lessor, the Lessee or the Agent in connection with any purchase of the
Property by the Lessee or other Person pursuant to Articles XVI, XVII, XX or
                                                   -------------------------
XXII of the Lease, and (v) all Transaction Expenses incurred by any of the other
-----------------
parties hereto in respect of enforcement of any of their rights or remedies
against the Lessee in respect of the Operative Documents.

     SECTION 9.2  Brokers' Fees and Stamp Taxes.  The Lessee shall pay or cause
                  -----------------------------
to be paid any brokers' fees and any and all stamp, transfer and other similar
taxes, fees and excises, if any, including any interest and penalties, which are
payable in connection with the transactions contemplated by this Participation
Agreement and the other Operative Documents.

     SECTION 9.3  Obligations.  The Lessee shall pay, on or before the due date
                  -----------
thereof, all costs, expenses and other amounts required to be paid by the
Mortgage and the Assignment of Lease.

                                  SECTION 10

                        OTHER COVENANTS AND AGREEMENTS

     SECTION 10.1 Covenants of the Lessee. So long as this Participation
                  -----------------------
Agreement is in effect, the Lessee shall, and shall (except in the case of the
Lessee's reporting covenants) cause each Subsidiary, to::

          (a)  Financial Statements. Deliver to the Agent and each Participant,
               --------------------
in form and detail satisfactory to the Agent and the Required Participants:

               (i) as soon as available, but in any event within (A) ninety (90)
     days after the end of each fiscal year of the Lessee, or, (B) if the Lessee
     has been granted an extension by the Securities and Exchange Commission
     permitting the late filing by the Lessee of any annual report on form 10-K,
     the earlier of (x) 120 days after the end of each fiscal year of the Lessee
     or (y) the last day of any such extension, a consolidated balance sheet of
     the Lessee and its Subsidiaries as at the end of such fiscal year, and the
     related consolidated statements of income and cash flows for such fiscal
     year, setting forth in each case in comparative form the figures for the
     previous fiscal year, all in reasonable detail, audited and accompanied by
     a report and opinion of an independent certified public accountant of
     nationally recognized standing, which report and opinion shall be

                                      34
<PAGE>

     prepared in accordance with GAAP and shall not be subject to any
     qualifications or exceptions as to the scope of the audit nor to any
     qualifications and exceptions not reasonably acceptable to the Required
     Participants;

               (ii)  as soon as available, but in any event within (A) forty-
     five (45) days after the end of each of the first three fiscal quarters of
     each fiscal year of the Lessee, or, (B) if the Lessee has been granted an
     extension by the Securities and Exchange Commission permitting the late
     filing by the Lessee of any quarterly report on form 10-Q, the earlier of
     (x) sixty (60) days after the end of each of the first three fiscal
     quarters of each fiscal year of the Lessee or (y) the last day of any such
     extension, a consolidated balance sheet of the Lessee and its Subsidiaries
     as at the end of such fiscal quarter, and the related consolidated
     statements of income and cash flows for such fiscal quarter and for the
     portion of the Lessee's fiscal year then ended, setting forth in each case
     in comparative form the figures for the corresponding fiscal quarter of the
     previous fiscal year and the corresponding portion of the previous fiscal
     year, all in reasonable detail and certified by a Responsible Officer of
     the Lessee as fairly presenting the financial condition, results of
     operations and cash flows of the Lessee and its Subsidiaries in accordance
     with GAAP, subject only to normal year-end audit adjustments and the
     absence of footnotes; and

               (iii) Reports required to be delivered pursuant to clauses (i)
                                                                  -----------
     and (ii) of this Section 10.1(a) shall be deemed to have been delivered on
     --------------------------------
     the date on which the Lessee posts such reports on the Lessee's website on
     the Internet at the website address listed on Schedule III hereof or when
                                                   ------------
     such report is posted on the Securities and Exchange Commission's website
     at www.sec.gov.; provided that (A) the Lessee shall deliver paper copies of
                      --------
     the reports referred to in such clauses (i) and (ii) of this Section
                                     ------------------------------------
     10.1(a) to the Agent or any Participant who requests the Lessee to deliver
     -------
     such paper copies until written request to cease delivering paper copies is
     given by the Agent or such Participant, (B) the Lessee shall notify the
     Agent and the Participants of the posting of any such new material, and (C)
     in every instance the Lessee shall provide paper copies of the Compliance
     Certificates required by clause (i) of Section 10.1(b) to the Agent and
                              -----------------------------
     each Participant.  Except for the Compliance Certificates referred to in
     such clause (i) of Section 10.1(b), the Agent shall have no obligation to
          -----------------------------
     request the delivery or to maintain copies of the reports referred to in
     clauses (i) and (ii) of this Section 10.1(a), and in any event shall have
     --------------------------------------------
     no responsibility to monitor compliance by the Lessee with any such request
     for delivery, and each Participant shall be solely responsible for
     requesting delivery to it or maintaining its copies of such reports.

          (b)  Certificates, Notices and Other Information.  Deliver to the
               -------------------------------------------
Agent and each Participant, in form and detail satisfactory to the Agent and the
Required Participants:

               (i)  concurrently with the delivery of the financial statements
     referred to in clauses (i) and (ii) of Section 10.1(a), a duly completed
                    ---------------------------------------
     Compliance Certificate signed by a Responsible Officer of the Lessee;

                                      35
<PAGE>

               (ii)   promptly after the same are available, copies of each
     annual report, proxy or financial statement or other report or
     communication sent to the stockholders of the Lessee, and copies of all
     annual, regular, periodic and special reports and registration statements
     which the Lessee may file or be required to file with the Securities and
     Exchange Commission under Sections 13 or 15(d) of the Securities Exchange
     Act of 1934, and not otherwise required to be delivered to the Agent
     pursuant hereto;

               (iii)  promptly after the occurrence thereof, notice of any
     Default or Event of Default;

               (iv)   notice of any change in accounting policies or financial
     reporting practices by the Lessee or any Subsidiary that is material to the
     Lessee or to the Lessee and its Subsidiaries on a consolidated basis;

               (v)    promptly after the commencement thereof, notice of any
     litigation, investigation or proceeding affecting the Lessee where the
     reasonably expected damages to the Lessee exceed the Threshold Amount, or
     in which injunctive relief or similar relief is sought, which relief, if
     granted, has a Material Adverse Effect;

               (vi)   promptly after the occurrence thereof, notice of any
     Reportable Event with respect to any Plan or the intent to terminate any
     Plan, or the institution of proceedings or the taking or expected taking of
     any other action to terminate any Plan or withdraw from any Plan;

               (vii)  promptly after the occurrence thereof, notice of any
     Material Adverse Effect; and

               (viii) promptly, such other data and information as from time to
     time may be reasonably requested by the Agent, or, through the Agent or any
     Participant.  Notwithstanding any provision of this Participation Agreement
     to the contrary, so long as no Default or Event of Default shall have
     occurred and be continuing, neither the Lessee nor any of its Subsidiaries
     shall be required to disclose, permit the inspection, examination,
     photocopying or making extracts of, or discuss, any document, information
     or other matter that (A) constitutes non-financial trade secrets or non-
     financial proprietary information, or (B) the disclosure of which to any
     Participant, or their designated representative, is then prohibited by law
     or any agreement binding on the Lessee or any of its Subsidiaries that was
     not entered into by the Lessee or any such Subsidiary for the purpose of
     concealing information from the Participants.

          Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer of the Lessee setting forth details of the
occurrence referred to therein and stating what action the Lessee has taken and
proposes to take with respect thereto.

          (c)  Payment of Taxes.  Pay and discharge when due all material taxes,
               ----------------
assessments, and governmental charges, except for any such tax, assessment,
charge, or levy

                                      36
<PAGE>

which is an Ordinary Course Lien under subsection (b) of the definition of such
                                       -------------
term and except as otherwise provided in Section 13 hereof or Article XIII of
                                         ----------           ------------
the Lease.

          (d)  Preservation of Existence. Preserve and maintain its existence,
               -------------------------
licenses, permits, rights, franchises and privileges necessary or desirable in
the normal conduct of its business, except (i) as permitted by Section 10.1(n),
                                                               ---------------
or (ii) where failure to do so does not have a Material Adverse Effect.

          (e)  Maintenance of Properties.  Maintain, preserve and protect all of
               -------------------------
its material properties and equipment necessary in the operation of its business
in good order and condition, subject to wear and tear in the ordinary course of
business, and not permit any waste of its properties, except where failure to do
so would not reasonably be expected to have a Material Adverse Effect..

          (f)  Maintenance of Insurance.  Maintain liability and casualty
               ------------------------
insurance with responsible insurance companies satisfactory to the Agent in such
amounts and against such risks as is customary for similarly situated
businesses.

          (g)  Compliance with Requirements of Law.  (i) Comply with all
               -----------------------------------
Requirements of Law, noncompliance with which has a Material Adverse Effect; and
(ii) conduct its operations and keep and maintain its property in material
compliance with all Environmental Laws.

          (h)  Inspection Rights.  At any time during regular business hours and
               -----------------
as often as reasonably requested upon reasonable notice, permit the Agent or any
Participant, or any employee, agent or representative thereof, to examine, audit
and make copies and abstracts from the Lessee's records and books of account and
to visit and inspect its properties and to discuss its affairs, finances and
accounts with any of its officers and key employees, and, upon request, furnish
promptly to the Agent or any Participant true copies of all financial
information and internal management reports made available to their senior
management.

          (i)  Keeping of Records and Books of Account.  Keep adequate records
               ---------------------------------------
and books of account reflecting all financial transactions in conformity with
GAAP, consistently applied, and in material conformity with all applicable
requirements of any Governmental Authority having regulatory jurisdiction over
the Lessee or any applicable Subsidiary.

          (j)  Compliance with ERISA.  Cause, and cause each of its ERISA
               ---------------------
Affiliates to:  (i) maintain each Plan in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law; (ii) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; and (iii) make all required contributions to any
Plan subject to Section 412 of the Code.

          (k)  Compliance With Agreements.  Promptly and fully comply with all
               --------------------------
Contractual Obligations to which any one or more of them is a party, except for
any such Contractual Obligations (i) the nonperformance of which would not cause
a Default or Event of Default, (ii) then being contested by any of them in good
faith by appropriate proceedings, or

                                      37
<PAGE>

(iii) if the failure to comply therewith could not reasonably be expected to
have a Material Adverse Effect.

          (l)  Indebtedness. Create, incur, assume or suffer to exist any
               ------------
Indebtedness, except for the following ("Permitted Indebtedness"):
              ------                     ----------------------

               (i)    The obligations of the Lessee under the Operative
Documents;

               (ii)   Indebtedness outstanding on the date hereof and listed on
     Schedule 10.1 and any refinancings, refundings, renewals or extensions
     -------------
     thereof, provided that the amount of such Indebtedness is not increased at
              --------
     the time of such refinancing, refunding, renewal or extension except by an
     amount equal to the premium or other amount paid, and fees and expenses
     incurred, in connection with such refinancing and by an amount equal to any
     utilized commitments thereunder;

               (iii)  Ordinary Course Indebtedness;

               (iv)   Indebtedness of the Lessee under the Convertible
     Subordinated Debentures;

               (v)    Indebtedness of the Lessee under any letter of credit
     facility (a "Permitted LC Agreement"), provided that (A) the only credit
                  ----------------------    --------
     extended to the Lessee pursuant to any Permitted LC Agreement consists of
     letters of credit issued for the benefit of MKE or its affiliates to secure
     obligations owed by the Lessee to the beneficiaries for the purchase price
     of inventory; (B) the sum at any time of the aggregate face amount of all
     letters of credit issued and outstanding under all Permitted LC Agreements,
     plus the aggregate amount of all unremedied drawings under such letters of
     ----
     credit, does not exceed $85,000,000; and (C) the Indebtedness of the Lessee
     under any Permitted LC Agreement is at all times either unsecured or
     secured by Liens permitted pursuant to Section 10.1(m);
                                            ---------------

               (vi)   Indebtedness of the Lessee and its Subsidiaries under
     loans and Capital Leases incurred by the Lessee or any of its Subsidiaries
     to finance the acquisition by such Person of real property, improvements,
     fixtures, equipment or other fixed assets (together with attachments,
     ascensions, additions, "soft costs" and proceeds thereof), provided that in
                                                                --------
     each case, (A) such Indebtedness is incurred by such Person at the time of,
     or not later than six (6) months after, the acquisition by such Person of
     the property so financed, and (B) such Indebtedness does not exceed the
     purchase price of the property so financed;

               (vii)  Indebtedness of the Lessee and any of its Subsidiaries
     under Synthetic Lease Obligations;

               (viii) Indebtedness of the Lessee and its Subsidiaries under
     initial or successive refinancings, refundings, renewals or extensions of
     any Indebtedness permitted by clauses (v), (vi) and (vii) above, provided
                                   ---------------------------        --------
     that the amount of such Indebtedness is not

                                      38
<PAGE>

     increased at the time of such refinancing, refunding, renewal or extension
     except by an amount equal to the premium or other amount paid, and fees and
     expenses incurred, in connection with such refinancing;

               (ix)  Indebtedness of the Lessee and its Subsidiaries in respect
     of any Permitted Receivables Facility;

               (x)   Indebtedness of the Lessee to any of the Lessee's
     Subsidiaries, Indebtedness of any of the Lessee's Subsidiaries to the
     Lessee or Indebtedness of any of the Lessee's Subsidiaries to any of the
     Lessee's other Subsidiaries;

               (xi)  Subordinated Indebtedness of the Lessee to any Person,
     provided that (A) such Indebtedness contains subordination provisions no
     --------
     less favorable to the Agent and the Participants than those set forth in
     Exhibit R or as otherwise approved by the Required Participants and (B) the
     ---------
     aggregate principal amount of all Subordinated Debt of the Lessee
     outstanding (including the Convertible Subordinated Debentures) does not
     exceed $700,000,000 at any time; and

               (xii) Indebtedness not exceeding, in the aggregate at any time,
     ten percent (10%) of the total consolidated assets of the Lessee and its
     Subsidiaries determined as of the end of the most recent fiscal quarter.

          (m)  Liens.  Incur, assume or suffer to exist, any Lien upon any of
               -----
its property, assets or revenues, whether now owned or hereafter acquired,
except for the following ("Permitted Liens"):
                           ---------------
               (i)   Liens in favor of any of the Agent or any Participant
     securing the obligations of the Lessee under the Operative Documents;

               (ii)  Liens existing on the date hereof and listed on Schedule
                                                                     --------
     10.1 and any renewals or extensions thereof, provided that the property
     ----                                         --------
     covered thereby is not increased and any renewal or extension of the
     obligations secured or benefited thereby is permitted by Section 10.1(l);
                                                              ---------------

               (iii) Ordinary Course Liens;

               (iv)  Liens securing Investments which constitute Permitted
     Investments under Section 10.1(p);
                       ---------------

               (v)   Liens on cash or cash equivalents securing reimbursement
     obligations of the Lessee under letters of credit (other than any letters
     of credit issued under the Loan Documents) in an aggregate amount of all
     such cash and cash equivalents not to exceed $100,000,000;

               (vi)  Liens in respect of any Permitted Receivables Facility;

                                      39
<PAGE>

               (vii)  Liens on the property or assets of any corporation which
     becomes a Subsidiary of the Lessee after the date of this Participation
     Agreement, provided that (A) such Liens exist at the time such corporation
                --------
     became a Subsidiary, and (B) such Liens were not created in contemplation
     of such acquisition by the Lessee;

               (viii) Rights of vendors or lessors under conditional sale
     agreements, Capital Leases or other title retention agreements, provided
                                                                     --------
     that in each case, (A) such rights secure or otherwise relate to Permitted
     Indebtedness, (B) such rights do not extend to any property other than
     property acquired with the proceeds of such Permitted Indebtedness
     (together with accessions, additions, replacements and proceeds thereof),
     and (z) such rights do not secure any Indebtedness other than Permitted
     Indebtedness;

               (ix)   Liens securing Indebtedness and any related obligations of
     the Lessee or any of its Subsidiaries which constitutes Permitted
     Indebtedness under clause (vii) of Section 10.1(l) (or refinancings of such
                        -------------------------------
     Indebtedness under clause (viii) of Section 10.1(l)), provided that such
                        --------------------------------   --------
     Liens cover only those assets subject to Synthetic Lease Obligations
     (together with accessions, additions, replacements and proceeds thereof);

               (x)    Liens incurred in connection with leases, subleases,
     licenses and sublicenses granted to Persons not interfering in any material
     respect with the business of the Lessee and its Subsidiaries and any
     interest or title of a lessee or licensee under any such leases, subleases,
     licenses or sublicenses;

               (xi)   Liens in favor of the Lenders in connection with the
     letter of credit cash collateral account established in accordance with the
     Loan Documents; and

               (xii)  Liens not otherwise permitted hereunder on the property or
     assets of the Lessee and any of its Subsidiaries securing (A) borrowed
     money Indebtedness, (B) all obligations of the Lessee arising other than in
     connection with any securitization which are evidenced by bonds,
     debentures, notes or other similar instruments, or (C) Indebtedness
     consisting of letter of credit reimbursement obligations (including
     pursuant to a Permitted LC Agreement), provided that, in each case, (x) the
                                            --------
     aggregate principal amount of all Indebtedness secured by such Liens does
     not exceed at any time ten percent (10%) of the total assets of the Lessee
     and its Subsidiaries determined as of the end of the fiscal quarter
     immediately preceding the date of determination and (y) such Liens do not
     encumber current assets of the Lessee and its Subsidiaries in excess of
     $50,000,000.

          (n)  Fundamental Changes. Merge or consolidate with or into any Person
               -------------------
or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or
dissolution or sell all or substantially all of its assets, except that:
                                                            ------

               (i)    any Subsidiary may merge with (A) the Lessee, provided
                                                                    --------
     that the Lessee shall be the continuing or surviving corporation, (B) any
     one or more Subsidiaries,

                                      40
<PAGE>

     and (C) any joint venture, partnership or other Person, so long as such
     joint venture, partnership and other Person will, as a result of making
     such merger and all other contemporaneous related transactions, become a
     Subsidiary;

               (ii)  any Subsidiary may sell all or substantially all of its
     assets (upon voluntary liquidation or otherwise), to the Lessee or to
     another Subsidiary;

               (iii) the Lessee may merge into or consolidate with any other
     Person, provided that (A) the Lessee is the surviving corporation, and (B)
             --------
     immediately after giving effect to such merger or consolidation, no Default
     or Event of Default shall have occurred and be continuing; and

               (iv)  any Subsidiary may merge or consolidate with or into any
     other Person or sell all or substantially all of its assets to the extent
     such transaction is a Disposition otherwise permitted under Section 10.1(o)
                                                                 ---------------
     or an Investment otherwise permitted under Section 10.1(p) and immediately
                                                ---------------
     after giving effect to such merger or consolidation, no Default or Event of
     Default shall have occurred and be continuing.

          (o)  Dispositions. Make any Dispositions, except:
               ------------                         ------

               (i)   Ordinary Course Dispositions;

               (ii)  Dispositions permitted by Section 10.1(n);
                                               ---------------

               (iii) Dispositions which constitute the making of or liquidation
     of Permitted Investments;

               (iv)  Dispositions of assets on commercially reasonable terms or
     accounts receivables in connection with a Permitted Receivables Facility by
     the Lessee and its Subsidiaries (it being understood that any determination
     as to whether a particular Disposition is on commercially reasonable terms
     shall take into consideration any larger business transaction to which such
     particular Disposition is related); and

               (v)   Dispositions not otherwise permitted hereunder not
     exceeding twenty percent (20%) of Consolidated Tangible Net Worth for the
     four fiscal quarter period ending as of the end of the fiscal quarter
     immediately preceding the date of determination.

          (p)  Investments. Make any Investments, except for the following
               -----------                        ------
("Permitted Investments"):
  ---------------------

               (i)   Investments existing on March 31, 2000;

               (ii)  Ordinary Course Investments;

               (iii) Investments permitted by Section 10.1(l) or Section
                                              ---------------    -------
     10.1(n);
     -------

                                      41
<PAGE>

               (iv)  Investments arising from rights received by the Lessee and
     its Subsidiaries upon the required payment of any permitted contingent
     obligations of the Lessee and its Subsidiaries;

               (v)   Investments in the nature of Acquisitions, provided that
                                                                --------
     the aggregate amount of such Acquisitions in any period of four consecutive
     fiscal quarters does not exceed twenty percent (20%) of Consolidated
     Tangible Net Worth as determined as of the fiscal quarter immediately
     preceding the date of determination;

               (vi)  Investments of the Lessee and its Subsidiaries in Swap
     Contracts, provided that all such arrangements are entered into in
                --------
     connection with bona fide hedging operations and not for speculation;

               (vii)  Investments by Quantum Technology Ventures (or any other
     Subsidiary of the Lessee with the primary purpose of making venture
     investments) and other Investments which the Lessee's Board of Directors
     determines to be strategic for the Lessee in an aggregate cost basis, at
     any time invested for all such entities and investments together, not to
     exceed the sum of (A) $150,000,000 and (B) the aggregate gain or loss on
     such Investments previously made under this clause (vii); and
                                                 ------------

               (viii) Investments not otherwise permitted hereunder, provided
                                                                     --------
     that the aggregate amount of such other Investments made after March 31,
     2000 (less any return on any such Investments) does not exceed twenty
     percent (20%) of Consolidated Tangible Net Worth as determined as of the
     fiscal quarter immediately preceding the date of determination.

          (q)  Restricted Payments. Make any Restricted Payments, except as
               -------------------                                ------
follows:

               (i)    the Lessee may pay dividends or other distributions
     payable solely in shares of capital stock of the Lessee or any Subsidiary
     or payable by a Subsidiary to the Lessee or to another Subsidiary;

               (ii)   the Lessee may distribute rights pursuant to a shareholder
     rights plan or redeem such rights, provided that such redemption is in
                                        --------
     accordance with the terms of such shareholder rights plan;

               (iii)  the Lessee may make Restricted Payments in connection with
     or pursuant to any of its Employee Benefits Plans or in connection with the
     employment, termination or compensation of its employees, officers or
     directors;

               (iv)   the Lessee may make Restricted Payments with the Net
     Security Proceeds received from a substantially concurrent issuance of
     Equity Securities or capital stock or with its Equity Securities or capital
     stock or the Lessee may convert any Equity Securities in accordance with
     their terms into other Equity Securities;

               (v)    the Lessee may purchase Equity Securities pursuant to one
     or more stock repurchase programs, provided that (A) no Default or Event of
                                        --------
     Default shall have

                                      42
<PAGE>

     occurred and be continuing, and (B) after giving effect to any such
     repurchases the Lessee shall be in compliance with Section 10.1(v); and
                                                        --------------

               (vi)   any Subsidiary of the Lessee may declare or pay any
     dividends in respect of its Equity Securities or purchase or redeem shares
     of its Equity Securities or make distributions to shareholders not
     otherwise permitted hereunder, provided that the aggregate amount paid or
                                    --------
     distributed in any period of four consecutive quarters (excluding any
     amounts covered by clause (ii) above) does not exceed five percent (5%) of
                        -----------
     Consolidated Tangible Net Worth as determined as of the fiscal quarter
     immediately preceding the date of determination.

          (r)  ERISA. At any time engage in a transaction which could be subject
               -----
to Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (i) engage
in any non-exempt "prohibited transaction" (as defined in Section 4975 of the
Code); (ii) fail to comply with ERISA or any other applicable  Requirements of
Law; or (iii) incur any material "accumulated funding deficiency" (as defined in
Section 302 of ERISA), which, with respect to each event listed above, has a
Material Adverse Effect.

          (s)  Change in Nature of Business. Engage, either directly or
               ----------------------------
indirectly through Affiliates, in any line of business other than the digital
storage business, any other business incidental or reasonably related thereto,
or any businesses that are, as determined by the Board of Directors of the
Lessee, appropriate extensions thereof.

          (t)  Transactions with Affiliates. Enter into any transaction of any
               ----------------------------
kind with any Affiliate (other than transactions among the Lessee or any of its
Subsidiaries and any Subsidiary) of the Lessee other than arm's-length
transactions with Affiliates that are otherwise permitted hereunder.

          (u)  Certain Indebtedness Payments, Etc. Neither the Lessee nor any of
               ----------------------------------
its Subsidiaries shall pay, prepay, redeem, purchase, defease or otherwise
satisfy in any manner prior to the scheduled payment thereof any Subordinated
Debt except as otherwise permitted under this Section 10.1(u); amend, modify or
                                              ---------------
otherwise change the terms of any document, instrument or agreement evidencing
Subordinated Debt such that such amendment, modification or change would (i)
cause the outstanding aggregate principal amount of all such Subordinated Debt
so amended, modified or changed to be increased as a consequence of such
amendment, modification or change, (ii) cause the subordination provisions
applicable to such Subordinated Debt to be less favorable to the Agent and the
Participants than those set forth on Exhibit R, (iii) increase the interest rate
                                     ---------
applicable thereto, or (iv) accelerate the scheduled payment thereof, except
that, subject to the other terms and provisions hereof, the Lessee may (A)(1)
call for redemption of the entire outstanding amount of the Convertible
Subordinated Debentures and, (2) to the extent such Convertible Subordinated
Debentures are not converted prior to the redemption date, redeem up to thirty
percent (30%) of any such outstanding Convertible Subordinated Debentures less
the amount of Subordinated Debt purchased by the Lessee pursuant to clause
                                                                    ------
(B)(ii) of this Section 10.1(u), provided that (x) no Default or Event of
-------------------------------  --------
Default has occurred and is continuing or would result from such call for
redemption or redemption and (y) the closing price of the common stock shall
have exceeded one hundred twenty percent

                                      43
<PAGE>

(120%) of the then applicable conversion price for twenty (20) trading days
within a period of thirty (30) consecutive trading days ending within five (5)
trading days prior to the notice of redemption. The Lessee shall not cause or
permit any of its obligations, except the obligations constituting Senior
Indebtedness to constitute "Designated Senior Indebtedness" under the Indenture
governing the Convertible Subordinated Debentures (it being understood that the
obligations of the Lessee under the Operative Documents shall at all times
constitute "Designated Senior Indebtedness"); (B)(1) pay, prepay, redeem,
purchase, defease or otherwise satisfy in any manner any Subordinated Debt, with
the Net Security Proceeds from the substantially contemporaneous issuance of
Equity Securities by the Lessee or in exchange for Equity Securities of the
Lessee, and (2) otherwise purchase outstanding Subordinated Debt, provided that
                                                                  --------
the aggregate value of all such Subordinated Debt repurchased, together with the
amount of all redemptions undertaken pursuant to clause (A) of this Section
                                                 --------------------------
10.1(u), does not at any time exceed thirty (30%) of the total amount of any
-------
Convertible Subordinated Debentures outstanding as of March 31, 2000; and (C)
the Lessee may convert, or honor a conversion request with respect to, any such
Subordinated Debt into Equity Securities of the Lessee in accordance with the
terms of, and pay any cash to holders of such Subordinated Debt in connection
with, such a conversion solely to the extent representing the value of any
fractional shares.

          (v)  Financial Covenants.
               -------------------

               (i)  Consolidated Tangible Net Worth.  Permit Consolidated
                    -------------------------------
     Tangible Net Worth on the last day of any fiscal quarter (such date to be
     referred to herein as a "determination date"), commencing with the fiscal
     quarter ended March 31, 2000, to be less than the greater of (A) seventy-
     five percent (75%) of Consolidated Tangible Net Worth as of March 31, 2000,
     or (B) the sum of (1) an amount equal to seventy-five percent (75%) of
     Consolidated Tangible Net Worth as of March 31, 2000; plus (2) an amount
                                                           ----
     equal to seventy-five percent (75%) of the sum of positive Consolidated Net
     Income (ignoring any quarterly losses) for each fiscal quarter after the
     quarter ended March 31, 2000, through and including the quarter ending on
     the determination date; plus (3) an amount equal to seventy-five (75%) of
                             ----
     the Net Security Proceeds of all Equity Securities issued by the Lessee
     (excluding any issuance where the Net Security Proceeds to the Lessee
     therefor are less than $10,000,000) during the period commencing on March
     31, 2000 and ending on the determination date; plus (4) an amount equal to
                                                    ----
     seventy-five percent (75%) of the increase in the value of outstanding
     Equity Securities resulting, in accordance with GAAP, from any conversion
     of Convertible Subordinated Debentures into such Equity Securities; minus
                                                                         -----
     (5) the lesser of (x) the aggregate amount paid by the to repurchase Equity
     Securities during the period commencing on March 31, 2000 and ending on the
     determination date and (y) $200,000,000; and minus (6) the lesser of (x)
                                                  -----
     the aggregate amount of charges taken by the Lessee for In-Process Research
     & Development associated with Acquisitions during the period commencing on
     March 31, 2000 and ending on the determination date, and (y) $100,000,000,
     provided that any such charges were taken by the Lessee during the quarter
     --------
     in which any such Acquisition was completed.

                                      44
<PAGE>

               (ii)  Minimum Quick Ratio.  Permit the Quick Ratio determined as
                     -------------------
     of the last day of any fiscal quarter of the Lessee (commencing with the
     quarter ending March 31, 2000) to be less than 1.10:1.

               (iii) Maximum Leverage Ratio.  Permit the Leverage Ratio,
                     ----------------------
     determined as of the last day of any fiscal quarter of the Lessee,
     commencing with the fiscal quarter ending March 31, 2000 (measured on a
     rolling four quarter basis for the four fiscal quarters ended), to be
     greater than 2.00:1.

               (iv)  Minimum Profitability.  Suffer or permit there to exist, as
                     ---------------------
     of the last day of any fiscal quarter, for the four fiscal quarters ending
     on such date, commencing with the fiscal quarter ending March 31, 2000, (A)
     any two fiscal quarters in which the aggregate negative Consolidated Net
     Income for such fiscal quarters exceeds five percent (5%) of Consolidated
     Tangible Net Worth as of such date, or (B) cumulative Consolidated Net
     Income for such four-quarter period of less than $1.00.  For purposes of
     calculating this covenant, charges for In-Process Research & Development
     associated with Acquisitions shall be excluded, provided that (x) any such
                                                     --------
     charges are taken during the quarter in which any such Acquisitions are
     completed, and (y) the aggregate amount of any such charges taken does not
     exceed $100,000,000 during the term of this Participation Agreement.

          (w)  Appraisal.  On or prior to the date that is not later than thirty
               ---------
(30) days (or such later date as is acceptable to the Agent and the Lessor)
after the Land Interest Acquisition Date, the Agent, the Lessor and the
Participants shall have received an Appraisal of that portion of the Phase I
project on the Land Interest described in the Preliminary Letter of Value
delivered pursuant to Section 6.1(d), which Appraisal shall (i) show that the
                      --------------
Fair Market Sales Value of the Land Interest with respect to such Property as of
the projected Completion Date shall not exceed twenty-five (25%) of the Fair
Market Sales Value of such Land Interest and the Improvements to be constructed
thereon in accordance with the Plans and Specifications for Property, and (ii)
show as of the projected Completion Date the Fair Market Sales Value of such
Land Interest and the Improvements to be constructed thereon in accordance with
the Plans and Specifications, and (iii) meet the other applicable requirements
set forth in the definition of the term "Appraisal" contained in Appendix 1.

          (x)  No Impairment of Deposits.  The Lessee shall not, nor shall it
               -------------------------
permit any of its Subsidiaries to, directly or indirectly, enter into or become
bound by any agreement, instrument, indenture or other obligation which could
directly or indirectly restrict, prohibit or require the consent of any Person
to the making by the Lessee of any deposit of Cash Collateral or the realization
thereon or utilization thereof (or of any earnings thereon or of any other
Collateral) by the Lessor, the Agent or any of the Participants.

     SECTION 10.2  Cooperation with the Lessee.  The Lessor, the Participants
                   ---------------------------
and the Agent shall, to the extent reasonably requested by the Lessee (but
without assuming additional liabilities, duties or other obligations on account
thereof), at the Lessee's expense, cooperate with the Lessee in connection with
its covenants contained herein including, without limitation, at any time and
from time to time, upon the request of the Lessee, to promptly and duly execute
and

                                      45
<PAGE>

deliver any and all such further instruments, documents and financing statements
(and continuation statements related thereto) as the Lessee may reasonably
request in order to perform such covenants.

     SECTION 10.3  Covenants of the Lessor.  The Lessor hereby agrees that so
                   -----------------------
long as this Participation Agreement is in effect:

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

          (b)  Change of Chief Place of Business.  The Lessor shall give prompt
               ---------------------------------
notice to the Lessee and the Agent if the Lessor's chief place of business or
chief executive office, or the office where the records concerning the accounts
or contract rights relating to the Property are kept, shall cease to be located
at 54 State Street, Albany, New York 12207, or if it shall change its name,
identity or corporate structure.

                                  SECTION 11

                                PARTICIPATIONS

     SECTION 11.1  Amendments; Actions on Default.  (a) The Lessor shall have
                   ------------------------------
the right to forebear from exercising rights against the Lessee to the extent
the Lessor shall determine in good faith that such forbearance is appropriate
and is permitted by Section 15.5 and Sections 11.1, 11.2 and 11.3.  Upon the
                    ------------     ----------------------------
direction of the Required Participants, the Lessor shall execute any waiver,
modification or amendment of the Lease or the Construction Agency Agreement
requested by the Lessee; provided, that: (i) the waiver, modification or
                         --------
amendment is not prohibited by the forgoing provisions of this Participation
Agreement, (ii) the waiver, modification or amendment does not (A) increase the
amount the Lessor may be required to pay to the Lessee or anyone else, or (B)
reduce or postpone (and cannot reasonably be expected to reduce or postpone) any
payments that the Lessor would, but for such modification or amendment, be
expected to receive, or (C) release the Lessor's interest in all or a
substantial part of the Property; and (iii) the Lessor is not excused from
executing the waiver, modification or amendment by Section 11.3.
                                                   ------------

          (b)  The Lessor will, with reasonable promptness, provide each
Participant with copies of all default notices it sends or receives under the
Lease or Construction Agency Agreement and notify each Participant of any Event
of Default under the Lease of which it is aware and of any other matters which,
in the Lessor's reasonable judgment, are likely to

                                      46
<PAGE>

materially affect the payments each Participant will be required to make or be
entitled to receive under this Participation Agreement, but the Lessor will not
in any event be liable to any Participant for the Lessor's failure to do so
unless such failure constitutes gross negligence or willful misconduct on the
part of the Lessor.

          (c) Before taking possession of the Property or exercising foreclosure
or offset rights against the Property or filing any lawsuit against the Lessee
because of any breach by the Lessee of the Operative Documents or if requested
in writing by any Participant at any time when an Event of Default has occurred
and is continuing, the Lessor shall promptly call a meeting with each
Participant and the Agent to discuss what, if anything, the Lessor should do.
Such meeting shall be scheduled during regular business hours in the offices of
the Agent, or another appropriate location in San Francisco, California, not
earlier than five (5) and not later than twenty (20) Business Days after the
Lessor's receipt of the written request from a Participant.  If the Required
Participants shall direct the Lessor in writing to (a) send any default notices
required before a Default can become an Event of Default, or (b) bring a lawsuit
against the Lessee to enforce the Operative Documents when an Event of Default
has occurred and is continuing, then the Lessor shall send the notice or bring
the suit, and the Lessor shall prosecute any such suit with reasonable diligence
using reputable counsel.  However, if the Agent is not a member of the Required
Participants voting pursuant to this subsection 11.1(d) in favor of the giving
                                     ------------------
of any such notice or the bringing of any such suit, then the Lessor may require
that it first receive the written agreement (in form reasonably acceptable to
the Lessor) of the members of the Required Participants so voting to indemnify
the Agent and the Lessor from and against all costs, liabilities and claims that
may be incurred by or asserted against the Lessor because of the action the
Required Participants direct the Agent or the Lessor to take.  In no event shall
any Participant instigate any suit or other action directly against the Lessee
with respect to the Operative Documents or the Property, even if such
Participant would, but for this Participation Agreement, be entitled to do so as
a third party beneficiary or otherwise under the Operative Documents.

          (d) In the event the Lessee or its designee fails to purchase the
Property after any exercise of its Purchase Option or Expiration Date Purchase
Obligation or following the occurrence and continuance of an Event of Default,
the Lessor shall, if the Required Participants shall agree in writing, bring
suit against the Lessee to enforce the Operative Documents in such form as shall
be recommended by reputable counsel, and thereafter the Lessor shall prosecute
the suit with reasonable diligence in accordance with the advice of reputable
counsel.  If the Lessor acquires the interests of the Lessee in any of the
Property as a result of such suit or otherwise, the Lessor shall thereafter
proceed with reasonable diligence to sell the Property in a commercially
reasonable manner to one or more bona fide third party purchasers and shall in
any event endeavor to consummate the sale of the entire Property (through a
single sale of the entire Property or a series of sales of parts) within five
(5) years following the date the Lessor recovers possession of the Property at
the best price or prices the Lessor believes are reasonably attainable within
such time.  Further, after the Designated Payment Date and prior to the Lessor's
sale of the entire Property, the Lessor shall retain a property management
company experienced in the area where the Property is located to manage the
operation of the Property and pursue the leasing of any completed Improvements
which are part of the Property.  The Lessor shall not retain an Affiliate of the
Lessor to act as the property manager except under a bona fide, arms-length

                                      47
<PAGE>

management contract containing commercially reasonable terms.  Further, after
the Designated Payment Date and until the Lessor sells the Property, the Lessor
shall (i) endeavor in good faith to maintain, or shall obtain the agreement of
one or more of such tenants to maintain, the Property in good order and repair,
(ii) procure and maintain casualty insurance against risks customarily insured
against by owners of comparable properties, in amounts sufficient to eliminate
the effects of coinsurance, (iii) keep and allow each Participant to review
accurate books and records covering the operation of the Property, and (iv) pay
prior to delinquency all taxes and assessments lawfully levied against the
Property.

          (e) Notwithstanding the foregoing, Defaulting Participants shall have
no voting or consent rights under this Section 11.1 and no rights to require the
                                       ------------
Lessor to call a meeting pursuant to Section 11.1(d) until they cease to be
                                     ---------------
Defaulting Participants.  During any period that any Defaulting Participants
have no voting rights under this Section 11.1, only the Commitment Percentages
                                 ------------
of the other Participants that still have voting rights will be considered for
purposes of determining the Required Participants.

     SECTION 11.2  General.  Subject to the limitations set forth in Section
                   -------                                           -------
11.1 and Section 14:
----     ----------

          (a) The Lessor shall have the exclusive right to take any action and
to exercise any available powers, rights and remedies to enforce the obligations
of the Lessee under the Operative Documents, or to refrain from taking any such
action or exercising any such power, right or remedy.

          (b) The Lessor shall be entitled to (i) give any consent, waiver or
approval requested by the Lessee with respect to any construction or other
approval contemplated in the Lease or (ii) waive or consent to any adverse title
claims affecting the Property, provided that, in either case, such action will
                               --------
not have a material adverse effect on the Lessee's obligations or ability to
make the payments required under the Operative Documents, the Lessor's rights
and remedies under the Operative Documents or any Participant's rights
hereunder.

     SECTION 11.3  Conflicts.  Notwithstanding anything to the contrary herein
                   ---------
contained, the Lessor shall be entitled, even over the objection of each
Participant or the Required Participants, (i) to take any action required of the
Lessor by, or to refrain from taking any action prohibited by, the Operative
Documents or any law, rule or regulation to which the Lessor is subject
(provided, that this Section shall not be construed to authorize the Lessor to
take any action required by a modification of the Operative Documents prohibited
by Section 11.1), and (ii) after notice to the Participants, to bring and
   ------------
prosecute a suit against the Lessee in the form recommended by and in accordance
with advice of reputable counsel at any time when a breach of the Operative
Documents by the Lessee shall have put the Lessor (or any of its officers or
employees) at risk of criminal prosecution or significant liability to third
parties or at any time after the Lessee or its designee fails to purchase the
Property on the Designated Payment Date.  Nothing herein contained shall be
construed to require the Lessor to agree to modify the Operative Documents or to
take any action or refrain from taking any action in any manner that could
increase the Lessor's liability to the Lessee or others, that could reduce or
postpone

                                      48
<PAGE>

payments to which the Lessor is entitled thereunder, or that could reduce the
scope and coverage of the indemnities provided for the Lessor's benefit therein.

     SECTION 11.4  Refusal to Give Consents or Fund.  If any Participant
                   --------------------------------
declines to consent to any amendment, modification, waiver, release or consent
for which such Participant's consent is requested or required by reason of this
Participation Agreement, or if any Participant fails to pay any amount owed by
it hereunder, the Lessor shall have the right, but not the obligation and
without limiting any other remedy of the Lessor, to terminate such Participant's
rights to receive any further payments under Section 3 of this Participation
                                             ---------
Agreement (other than payments required because of the Lessor's collection of
any Rent applied by the Lessor as reimbursement for a Defaulted Amount or
interest on a Defaulted Amount) by paying such Participant a termination fee
equal to the total of:

               (i)  all amounts actually advanced by such Participant to the
     Lessor under Section 3.4 hereof before the termination; excluding, however,
     any such amounts that were repaid to such Participant before the
     termination by actual payments made to such Participant by the Lessor of,
     or the Lessor's offset against, sums representing:

                    (A) Such Participant's Commitment Percentage times any
          payments of Rent received by the Lessor under the Lease; plus

                    (B) Such Participant's Commitment Percentage times any sales
          proceeds received by the Lessor under the Lease; and

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

                    (A) the then accrued but unpaid Basic Rent due under the
          Lease; plus

                    (B) interest on past due amounts described in the preceding

          clause (A) computed at the Federal Funds Effective Rate; plus
          ----------

                    (C) interest on any amounts (other than interest itself)
          past due from the Lessee or its designees under the Operative
          Documents, computed at the Federal Funds Effective Rate.

     Such Participant's rights to receive payments equal to such Participant's
Commitment Percentage of any Rent applied by the Lessor as reimbursement for a
Defaulted Amount or interest on a Defaulted Amount shall not be impaired or
affected by any termination contemplated in this Section 11.4; accordingly, the
                                                 ------------
Lessor shall not, as a condition to such a termination, be required to reimburse
such Participant for any payments such Participant has made in connection with
Defaulted Amounts pursuant to Section 3.3.
                              -----------

     SECTION 11.5  Required Repayments.  Each Participant shall repay to the
                   -------------------
Lessor, upon written request or demand by the Lessor (i) any sums paid by the
Lessor to such Participant under this Participation Agreement from, or that were
computed by reference to, any Rent or other amounts which the Lessor shall be
required to return or pay over to another party, whether

                                      49
<PAGE>

pursuant to any bankruptcy or insolvency law or proceeding or otherwise and (ii)
any interest or other amount that the Lessor is also required to pay to another
party with respect to such sums. Such repayment by any Participant shall not
constitute a release of such Participant's right to receive such Participant's
Commitment Percentage times the amount of any such Rent or any such other amount
(or any interest thereon) that the Lessor may later recover.

     SECTION 11.6  Indemnification.  Each Participant agrees to indemnify and
                   ---------------
defend the Lessor (to the extent not reimbursed by the Lessee within ten (10)
days after demand) from and against such Participant's Commitment Percentage of
any and all liabilities, obligations, claims, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this Section 11.6 collectively called "Covered
                                       ------------                      -------
Liabilities") which to any extent (in whole or in part) may be imposed on,
-----------
incurred by or asserted against the Lessor growing out of, resulting from or in
any other way associated with the Property or the Operative Documents (including
the enforcement thereof, whether exercised upon the Lessor's own initiative or
upon the direction of the Required Participants) and the transactions and events
at any time associated therewith or contemplated therein.  The foregoing
indemnification shall apply whether or not such Covered Liabilities are in any
way or to any extent caused, in whole or in part, by any negligent act or
omission of any kind by the Lessor; provided, only that no Participant shall be
                                    --------
obligated under this Section 11.6 to indemnify the Lessor (i) for Covered
                     ------------
Liabilities incurred in connection with any transfer or assignment by the Lessor
of its right to receive Rent or its rights and interests in and to the Property,
the Operative Documents or this Participation Agreement to its Affiliates or
(ii) for that portion or percentage, if any, of any of the Covered Liabilities
which is proximately caused by: (A) the Lessor's own gross negligence or willful
misconduct; (B) any representation made by the Lessor in the Operative Documents
that is false in any material respect and that the Lessor knew was false at the
time of the Lessor's execution of the Operative Documents; or (C) Lessor Liens
not claimed by, through or under any of the Participants.  After each
Participant has paid its Percentage of any Covered Liabilities, each Participant
shall be entitled to payment from the Lessor of an amount equal to the Adjusted
Percentage (as defined below) of any payments subsequently received by the
Lessor as Excess Reimbursement (as defined below) for such Covered Liabilities.
As used in this Section "Adjusted Percentage" shall equal (i) such Participant's
                         -------------------
Commitment Percentage, divided by (ii) the sum of the Commitment Percentages of
all Participants who have paid the Lessor their respective shares of the Covered
Liabilities at issue.  As used in this Section, the term "Excess Reimbursement"
                                                          --------------------
shall mean, for the Covered Liabilities at issue, amounts reimbursed or paid by
the Lessee to or on behalf of the Lessor on account of such Covered Liabilities
in excess of (i) such Covered Liabilities, times (ii) the Commitment Percentages
of any Participants that have not paid the Lessor their respective Percentages
of such Covered Liabilities.

     SECTION 11.7  Required Supplemental Payments.  In the event that the Lessee
                   ------------------------------
fails to pay any Required Supplemental Payment when due (a "Defaulted Amount"),
                                                            ----------------
the Lessor shall notify each Participant of such Defaulted Amount, whereupon
each Participant shall pay to the Lessor an amount equal to such Participant's
Commitment Percentage times the Defaulted Amount; such payment from Participant
to the Lessor shall be due prior to 2:00 p.m., San Francisco time, on the date
of such notice if such notice is given by 12:00 noon, San Francisco time,
otherwise prior to 12:00 noon, San Francisco time, on the next Business Day
following

                                      50
<PAGE>

such notice. After payment of a Participant's Commitment Percentage times the
Defaulted Amount, any payments subsequently received by the Lessor from the
Lessee as reimbursement for such Defaulted Amount, and any interest received by
the Lessor from the Lessee that accrued on the Defaulted Amount after the date
of such Participant's payment of its Commitment Percentage times the Defaulted
Amount, will constitute Supplemental Rent for purposes of computing payments due
such Participant under this Participation Agreement.

     SECTION 11.8  Application of Payments Received From Defaulting Participant
                   ------------------------------------------------------------
As a Cure For Payment Defaults.  If after a failure to make a payment required
------------------------------
by Section 3.4, any Defaulting Participant cures such failure, in whole or in
   -----------
part, by paying to the Lessor all or part of such payment and interest thereon
at the Late Payment Rate, then the Lessor shall apply the payments so made to
the Lessor, net of the costs of collecting such payments (the "Net Cure
                                                               --------
Proceeds"), or other funds available to the Lessor equal to the Net Cure
--------
Proceeds, in the following order before applying the same to any other purpose:

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

               (ii) second, to make further Advances to the Lessee under this
                    ------
     Participation Agreement to the extent the Lessor is required or deems it
     appropriate to do so; provided, that such further Advances do not cause the
                           --------
     total Property Cost to exceed the sum of the Commitments.

     SECTION 11.9  Order of Application.  For purposes of this Participation
                   --------------------
Agreement, the Lessor shall be entitled, but not required, to apply any payments
received from the Lessee under the Operative Documents to satisfy (1) unpaid
Required Supplemental Payments (and interest thereon) not included in Rent, if
any, and (2) costs incurred by the Lessor because of any sale under the Lease
before applying such payments to satisfy the Lessee's other obligations,
regardless of how the Lessee may have designated such payments.

     SECTION 11.10 Investments Pending Dispute Resolution; Overnight
                   -------------------------------------------------
Investments.  Whenever the Lessor in good faith determines that it does not have
-----------
all information needed to determine how payments to Participants must be made on
account of any then existing Participation Interests which the Lessor has
received, or whenever the Lessor in good faith determines that there is any
dispute among the Participants about payments which must be made on account of
Participation Interests actually received by the Lessor, the Lessor may choose
to defer the payments which are the subject of such missing information or
dispute.  However, to minimize any such deferral, the Lessor shall attempt
diligently to obtain any missing information needed to determine how payments to
the Participants must be made.  Also, pending any such deferral, or if the
Lessor is otherwise required to invest funds pending distribution to the
Participants, the Lessor shall invest funds equal to (i) the total of the
Commitment Percentages of all Participants to whom payments have not been made
with respect to the Participation Interests at issue, times (ii) the total
percentages at issue.  In addition, the Lessor shall endeavor to invest payments
of Participation Interests it receives after 12:00 noon, San Francisco time, on
the day in question that are to be paid to a Participant on the next Business
Day pursuant to Section 3; provided that the Lessor shall have no liability to
                ---------  --------
any Participant if the Lessor is unable to make

                                      51
<PAGE>

such investments. Investments by the Lessor shall be in the overnight federal
funds market pending distribution, and the interest earned on each dollar of
principal so invested shall be paid to the Person entitled to receive such
dollar of principal when the principal is paid to such Person.

     SECTION 11.11  Agent to Exercise Lessor's Rights.  The Lessor has assigned
                    ---------------------------------
its interest in the Lease to the Agent, for the benefit of the Participants,
pursuant to the Assignment of Lease.  To the extent provided therein, the
rights, remedies, duties and responsibilities of the Lessor contained in this
Section 11 and in the other Operative Documents with respect thereto shall be
----------
exercisable by, binding upon and inure to the benefit of the Agent, for the
benefit of the Participants.

     SECTION 11.12  Exculpatory Provisions Regarding the Lessor.  Subject to the
                    -------------------------------------------
provisions of Section 11.11, each Participant hereby irrevocably authorizes the
              -------------
Lessor to take such actions on its behalf as are expressly vested in or
delegated to the Lessor by the terms of this Participation Agreement and the
other Operative Documents, together with such powers as are reasonably
incidental thereto.  The provisions of the following Sections of this
Participation Agreement are hereby incorporated by reference into this Section
                                                                       -------
11.12, substituting the word "Lessor" for "Agent" therein:
-----

               (i)   Section 14.1 - second sentence.
                     ------------

               (ii)  Section 14.2 - all.
                     ------------

               (iii) Section 14.3 - all.
                     ------------

               (iv)  Section 14.4 - all.
                     ------------

               (v)   Section 14.5 - first sentence.
                     ------------

               (vi)  Section 14.6 - last sentence.
                     ------------

                                  SECTION 12

                     TRANSFERS OF PARTICIPANTS' INTERESTS

     SECTION 12.1  Restrictions on and Effect of Transfer by Participants.  No
                   ------------------------------------------------------
Participant may (without the prior written consent of the Agent and Lessee (not
to be unreasonably withheld)) assign, convey or otherwise transfer (including
pursuant to a participation) all or any portion of its right, title or interest
in, to or under its Participation Interest or any of the Operative Documents or
the Property, provided that (x) any Participant may pledge its interest without
              --------
the consent of the Agent or the Lessee to any Federal Reserve Bank, (y) without
the prior written consent of the Agent, any Participant may transfer all or any
portion of its interest to any Affiliate of such Participant or to any other
existing Participant and (z) the Lessor may not transfer its Tranche C
Participation Interest in the absence of an Event of Default; provided; further,
                                                              --------  -------
that in

                                      52
<PAGE>

the case of any transfer (other than to such Affiliate) each of the
following conditions and any other applicable conditions of the other Operative
Documents are satisfied:

          (a)  Required Notice and Effective Date.  Any Participant desiring to
               ----------------------------------
effect a transfer of its interest shall give written notice of each such
proposed transfer to the Lessee, the Agent and each other Participant at least
five (5) Business Days prior to such proposed transfer, setting forth the name
of such proposed transferee, the percentage or interest to be retained by such
Participant, if any, and the date on which such transfer is proposed to become
effective.  All reasonable out-of-pocket costs (including, without limitation,
legal expenses) incurred by the Lessor, the Agent or any Participant in
connection with any such disposition by a Participant under this Section 12.1
                                                                 ------------
shall be borne by such transferring Participant.  In the event of a transfer
under this Section 12.1, any expenses incurred by the transferee in connection
           ------------
with its review of the Operative Documents and its investigation of the
transactions contemplated thereby shall be borne by such transferee or the
relevant Participant, as they may determine, but shall not be considered costs
and expenses which the Lessee is obligated to pay or reimburse under Section 9.
                                                                     ---------
Any such proposed transfer shall become effective upon the later of (i) the date
proposed in the transfer notice referred to above and (ii) the date on which all
conditions to such transfer set forth in this Section 12.1 shall have been
                                              ------------
satisfied.

          (b)  Assumption of Obligations.  Any transferee pursuant to this
               -------------------------
Section 12.1 shall execute and deliver to the Agent and the Lessee an Assignment
------------
and Acceptance in substantially the form attached as Exhibit J ("Assignment and
                                                     ---------   --------------
Acceptance"), duly executed by such transferee and the transferring Participant,
----------
and a letter in substantially the form of the Participant's Letter attached
hereto as Exhibit K ("Participant's Letter"), and thereupon the obligations of
          ---------   --------------------
the transferring Participant under the Operative Documents shall be
proportionately released and reduced to the extent of such transfer.  Upon any
such transfer as above provided, the transferee shall be deemed to be bound by
all obligations (whether or not yet accrued) under, and to have become a party
to, all Operative Documents to which its transferor was a party, shall be deemed
the pertinent "Participant" for all purposes of the Operative Documents and
shall be deemed to have made that portion of the payments pursuant to this
Participation Agreement previously made or deemed to have been made by the
transferor represented by the interest being conveyed; and each reference herein
and in the other Operative Documents to the pertinent "Participant" shall
thereafter be deemed a reference to the transferee, to the extent of such
transfer, for all purposes.  Upon any such transfer, the Agent shall deliver to
each Participant, the Lessor and the Lessee a new Schedule I and Schedule II to
                                                  ----------     -----------
this Participation Agreement, revised to reflect the relevant information for
such new Participant and the Commitment of such new Participant (and the revised
Commitment of the transferor Participant if it shall not have transferred its
entire interest).

          (c)  Employee Benefit Plans.  No Participant may make any such
               ----------------------
assignment, conveyance or transfer to or in connection with any arrangement or
understanding in any way involving any employee benefit plan (or its related
trust), as defined in Section 3(3) of ERISA, or with the assets of any such plan
(or its related trust), as defined in Section 4975(e)(1) of the Code.

                                      53
<PAGE>

          (d)  Representations.  Notwithstanding anything to the contrary set
               ---------------
forth above, no Participant may assign, convey or transfer its interest to any
Person, unless such Person shall have delivered to the Agent and the Lessee a
certificate confirming the accuracy of the representations and warranties set
forth in Section 8 with respect to such Person (other than as such
         ---------
representation or warranty relates to the execution and delivery of Operative
Documents) and representing that such Person has, independently and without
reliance upon the Agent, any other Participant or, except to the extent of the
Lessee's representations made under the Operative Documents when made, the
Lessee, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into this transaction,
the Property and the Lessee and made its own decision to enter into this
transaction.

          (e)  Amounts; Agent's Fee.  Any transfer of a Tranche A Participation
               --------------------
Interest shall be in a principal amount which is equal to or greater than
$2,000,000; provided, that no such minimum transfer limitation shall be imposed
            --------
on a transfer of a Tranche B Participation Interest or, if permitted to be
transferred under Section 12.1, a Tranche C Participation Interest.  Each
                  ------------
transferring Participant shall pay to the Agent a transfer fee of $2,500.

          (f)  Applicable Law.  Such transfer shall comply with Applicable Law
               --------------
and shall not require registration under any securities law applicable thereto.

          (g)  Effect.  From and after any transfer of its Participation
               ------
Interest the transferring Participant shall be released, to the extent assumed
by the transferee, from its liability and obligations hereunder and under the
other Operative Documents to which such transferor is a party in respect of
obligations to be performed on or after the date of such transfer. Upon any
transfer by a Participant as above provided, any such transferee shall be deemed
a "Participant" for all purposes of such documents and each reference herein to
a Participant shall thereafter be deemed a reference to such transferee for all
purposes to the extent of such transfer, except as the context may otherwise
require.  Notwithstanding any transfer as provided in this Section 12.1, the
                                                           ------------
transferor shall be entitled to all benefits accrued and all rights vested prior
to such transfer, including, without limitation, rights to indemnification under
this Participation Agreement or any other Operative Document.

     SECTION 12.2  Covenants and Agreements of Participants.
                   ----------------------------------------

          (a)  Participations.  Each Participant covenants and agrees that it
               --------------
will not grant Participations in its Participation Interest to any Person (a

"Sub-Participant") unless such participation complies with Applicable Law and
----------------
does not require registration under any securities law applicable thereto and
such Sub-Participant (i) is a bank or other financial institution and (ii)
represents and warrants, in writing, to such Participant for the benefit of the
Participants, the Lessor and the Lessee that (A) no part of the funds used by it
to acquire an interest in any Participation Interest constitutes assets of any
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code)
and (B) such Sub-Participant is acquiring its interest for investment purposes
without a view to the distribution thereof.  Any such Person shall require any
transferee of its interest in its Participation Interest to make the
representations and warranties set forth in the preceding sentence, in writing,
to such Person for its benefit and the benefit of the Participants, the Lessor

                                      54
<PAGE>

and Lessee. In the event of any such sale by a Participant of a participating
interest in its Participation Interest to a Sub-Participant, such Participant's
obligations under this Participation Agreement and under the other Operative
Documents shall remain unchanged, such Participant shall remain solely
responsible for the performance thereof, such Participant shall remain the
holder of its Participation Interest, for all purposes under this Participation
Agreement and under the other Operative Documents, and the Lessor, the Agent
and, except as set forth in Section 12.2(b), the Lessee shall continue to deal
                            ---------------
solely and directly with such Participant in connection with such Participant's
rights and obligations under this Participation Agreement and under the other
Operative Documents.

          (b) Transferee Indemnities.  Each Sub-Participant shall be entitled to
              ----------------------
the benefits of Sections 13.5, 13.6, and 13.7 and 13.10 with respect to its
                ---------------------------------------
participation in the Participation Interests outstanding from time to time;
provided that no Sub-Participant shall be entitled to receive any greater amount
--------
pursuant to such Sections than the transferor Participant would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Participant to such Sub-Participant had no such transfer or
participation occurred.

     SECTION 12.3  Future Participants.  Each Participant shall be deemed to be
                   -------------------
bound by and, upon compliance with the requirements of this Section 12, will be
                                                            ----------
entitled to all of the benefits of the provisions of, this Participation
Agreement.

                                  SECTION 13

                                INDEMNIFICATION

     SECTION 13.1  General Indemnification.  The Lessee agrees, whether or not
                   -----------------------
any of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against, any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not such Claim arises or accrues prior to the Closing Date or
after the Expiration Date, in any way relating to or arising out of:

          (a) any of the Operative Documents or any of the transactions
contemplated thereby or any violation thereof, and any amendment, modification
or waiver in respect thereof;

          (b) the Property, the Lease or any part thereof or interest therein;

          (c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing,
disposition, operation, condition, sale (including, without limitation, any sale
pursuant to Sections 16.2, 16.3, 16.4, 17.2(c), 17.2(e) or 17.4 of the Lease or
            ----------------------------------------------------------------
any sale pursuant to Articles XX or XXII of the
                     --------------------------

                                      55
<PAGE>

Lease, return or other disposition of all or any part or any interest in the
-----
Property or the imposition of any Lien (or incurring of any liability to refund
or pay over any amount as a result of any Lien) thereon, including, without
limitation: (1) Claims or penalties arising from any violation of federal, state
or local law, rule, regulation or order or in tort (strict liability or
otherwise), (2) latent or other defects, whether or not discoverable, (3) any
Claim based upon a violation or alleged violation of the terms of any
restriction, easement, condition or covenant or other matter affecting title to
the Property, (4) the making of any Modifications in violation of any standards
imposed by any insurance policies required to be maintained by Lessee pursuant
to the Lease which are in effect at any time with respect to the Property or any
part thereof, (5) any Claim for patent, trademark or copyright infringement, and
(6) Claims arising from any public improvements with respect to the Property
resulting in any charge or special assessments being levied against the Property
or any plans to widen, modify or realign any street or highway adjacent to the
Property;

          (d) the offer, issuance or sale of the Participation Interests,
provided that (i) the Lessor shall not be entitled to indemnification under this
--------
clause (d) if it shall have been determined by a court of competent jurisdiction
----------
to have breached its representation set forth in Section 8.1(h), (ii) no
                                                 --------------
Participant shall be entitled to indemnification under this clause (d) if it
                                                            ----------
shall have been determined by a court of competent jurisdiction to have breached
its representation set forth in Section 8.2(f) and (iii) neither the Lessor nor
                                --------------
any Participant shall be entitled to indemnification under this clause (d) with
                                                                ----------
respect to any Claim which a court of competent jurisdiction determines to have
arisen out of the gross negligence or willful misconduct of the Lessor, the
Agent or any Participant or its agents, employees or contractors (other than the
Lessee) or any misrepresentation of a material fact made by the Lessor, the
Agent or such Participant, unless the misrepresentation was made in reliance
upon and in conformity with information furnished to the Lessor or such
Participant, as applicable, by the Lessee or its agents, employees or
contractors;

          (e) the breach by the Lessee of any covenant, representation or
warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;

          (f) the retaining or employment of any broker, finder or financial
advisor by the Lessee to act on its behalf in connection with this Participation
Agreement, or the incurring of any fees or commissions to which the Lessor might
be subjected by virtue of entering into the transactions contemplated by this
Participation Agreement;

          (g) the existence of any Lien on or with respect to the Property, the
Improvements, the Equipment, any Basic Rent or Supplemental Rent, title thereto,
or any interest therein including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of the Property or by reason
of labor or materials furnished or claimed to have been furnished to the Lessee,
the Existing Owner, the Lessor or any of their contractors or agents or by
reason of the financing of the Property or any personalty or equipment purchased
or leased by the Lessee or Improvements or Modifications constructed by the
Lessee, except Lessor Liens and Liens in favor of the Agent or the Lessor;

                                      56
<PAGE>

          (h) the transactions contemplated by the Lessee hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section 4975(c)
of the Code (other than any Claim resulting from a breach of representation or
warranty of the Lessor or any Participant); or

          (i) the Existing Financing, any documentation relating thereto, the
Existing Participants, the Existing Owner, or the purchase of the Property by
the Lessor, or any matters arising therefrom or related thereto; provided,
                                                                 --------
however, the Lessee shall not be required to indemnify (x) the Lessor for any
-------
Claim to the extent arising from any misrepresentation by the Lessor under
Section 8.1 (e) or (l) or from the failure by the Lessor to comply with Section
----------------------                                                  -------
10.3(a), or (y) any Indemnitee under this Section 13.1 for any of the following:
-------                                   ------------
(1) any Claim to the extent resulting from the willful misconduct or gross
negligence of such Indemnitee or its agents, employees or contractors (other
than the Lessee and its agents, employers or contractors) (it being understood
that the Lessee shall be required to indemnify an Indemnitee even if the
ordinary (but not gross) negligence of such Indemnitee caused or contributed to
such Claim), (2) any Claim resulting from Lessor Liens which the Lessor is
responsible for discharging under the Operative Documents, (3) any Claim to the
extent attributable to acts or events occurring after the expiration of the Term
or the termination of the Lessee's right to possess and control the Property
(but not any claim to the extent attributable to acts or events occurring prior
to or during the Term or occurring at any time that the Lessee is in actual
possession or control of the Property), (4) any Imposition or other claims for
Taxes, and (5) any Claims of the type(s) described in Sections 13.2 (only with
                                                      -------------
respect to claims in respect of a decline in the Fair Market Sales Value of the
Property as a result of an event described in Section 13.2(b) and the Lessee's
                                              ---------------
exercise of the Remarketing Option), 13.6, 13.7, 13.8 and 13.10.  It is
                                     --------------------------
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of and shall be separate and independent
from any remedy under the Lease or any other Operative Document.  Without
limiting the express rights of any Indemnitee under this Section 13.1, this
                                                         ------------
Section 13.1 shall be construed as an indemnity only and not a guaranty of
------------
residual value of the Property or as a guaranty of the Participation Interests.

     SECTION 13.2  End of Term Indemnity.
                   ---------------------

          (a) If the Lessee elects the Remarketing Option and there would, after
giving effect to the proposed remarketing transactions, be a Shortfall Amount,
then prior to the Maturity Date and as a condition to the Lessee's right to
complete the remarketing of the Property pursuant to Section 22.1 of the Lease,
                                                     -------------------------
the Lessee shall cause to be delivered to the Lessor at least thirty (30) days
prior to either the Expiration Date or the last day of the Remarketing Period,
if Section 17.2(h) of the Lease is applicable, at the Lessee's sole cost and
   ----------------------------
expense, a report from an appraiser selected by the Lessor and reasonably
satisfactory to the Agent and the Required Participants in form and substance
satisfactory to the Lessor, the Agent and the Required Participants (the "End of
                                                                          ------
the Term Report") which shall state the appraiser's conclusions as to the reason
---------------
for any decline in the Fair Market Sales Value of the Property from that
anticipated for such date in the Appraisal delivered on the Closing Date.

          (b) Prior to the Expiration Date, the Lessee shall pay to the Lessor
an amount (not to exceed the Shortfall Amount) equal to the portion of the
Shortfall Amount that the End of

                                      57
<PAGE>

the Term Report demonstrates was the result of a decline in the Fair Market
Sales Value of the Property due to:

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

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

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

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

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

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

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

               (viii) the failure of the Lessor to have good and marketable fee
     title to the Property free and clear of all Liens (including Permitted
     Liens and Permitted Exceptions) and exceptions to title, except (A) such
     Liens or exceptions to title that existed on the Closing Date and were
     disclosed in the policy of title insurance delivered pursuant to Section
                                                                      -------
     6.1; (B) Lessor Liens; and (C) to the extent any such liability arising as
     ---
     a result of a title defect is offset by the proceeds of title insurance.

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

                                      58
<PAGE>

transactions contemplated by the Operative Documents or any other matter
referred to in paragraphs (a) through (i) of Section 13.1 arising in whole or in
               ------------------------------------------
part, out of:

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

          (b) any activity, including, without limitation, construction, carried
on or undertaken on or off the Property, and whether by the Lessee, the Lessor,
the Existing Owner or any predecessor in title or any employees, agents,
contractors or subcontractors of the Lessee, the Lessor (if such activity was
undertaken with the consent or at the direction of the Lessee), the Existing
Owner or any predecessor in title, or any other Persons (including such
Indemnitee), in connection with the handling, treatment, removal, storage,
decontamination, cleanup, transport or disposal of any Hazardous Substances that
at any time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Property;

          (c) loss of or damage to any property or the environment (including,
without limitation, cleanup costs, response costs, remediation and removal
costs, cost of corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to any Person, and
all expenses associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or under
Environmental Laws;

          (d) any claim concerning lack of compliance with Environmental Laws,
or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a Lien on the
land records;

          (e) any residual contamination on or under the Property, or affecting
any natural resources, or any contamination of any property or natural resources
arising in connection with the generation, use, handling, storage, transport or
disposal of any such Hazardous Substances, and irrespective of whether any of
such activities were or will be undertaken in accordance with applicable
Environmental Laws; or

          (f) any material inaccuracies, misrepresentations, misstatements, and
omissions and any conflicting information contained in or omitted from the
Environmental Audit; provided, however, the Lessee shall not be required to
                     --------  -------
indemnify any Indemnitee under this Section 13.3 for (1) any Claim to the extent
                                    ------------
resulting from the willful misconduct or gross negligence of such Indemnitee or
its agents, employees and contractors (other than the Lessee and its agents,
employees and contractors) (it being understood that the Lessee shall be
required to indemnify an Indemnitee even if the ordinary (but not gross)
negligence of such Indemnitee caused or contributed to such Claim), (2) subject
to the provisions Section 15.2 of the Lease, any Claim to the extent
                  -------------------------
attributable to acts or events occurring after the expiration of the Term or the
termination of the Lessee's right to possess and control the Property (but not
any claim to the extent attributable to acts or events occurring prior to or
during the Term or occurring at any time that the Lessee is in actual possession
or control of the Property), (3) any Imposition or other claims for Taxes of the
type(s) described in Section 13.5 or (4) any Claims of the type(s) described in
                     ------------
Sections 13.2 (only with respect to claims in respect of a decline in the Fair
-------------
Market

                                      59
<PAGE>

Sales Value of the Property and the Lessee's exercise of the Remarketing
Option), 13.6, 13.7, 13.8 and 13.10.  It is expressly understood and agreed that
         --------------------------
the indemnity provided for herein shall survive the expiration or termination of
and shall be separate and independent from any remedy under the Lease or any
other Operative Document.

     SECTION 13.4  Proceedings in Respect of Claims.  With respect to any amount
                   --------------------------------
that the Lessee is requested by an Indemnitee to pay by reason of Section 13.1
                                                                  ------------
or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to any
-------
payment, submit such additional information to the Lessee as the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment.

          In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof,
and the Lessee shall be entitled, at its expense, to participate in, and, to the
extent that the Lessee desires to, assume and control the defense thereof;
provided, however, that the Lessee shall have acknowledged in writing its
--------  -------
obligation to fully indemnify such Indemnitee in respect of such action, suit or
proceeding, and the Lessee shall keep such Indemnitee fully apprised of the
status of such action, suit or proceeding and shall provide such Indemnitee with
all information with respect to such action, suit or proceeding as such
Indemnitee shall reasonably request, and provided further, that the Lessee shall
                                         ----------------
not be entitled to assume and control the defense of any such action, suit or
proceeding if and to the extent that, (A) in the reasonable opinion of such
Indemnitee, (x) such action, suit or proceeding involves any possibility of
imposition of criminal liability or any risk of material civil liability on such
Indemnitee or will involve a material risk of the sale, forfeiture or loss of,
or the creation of any Lien (other than a Permitted Exception) on the Property
or any part thereof unless, in the case of civil liability or Lien, the Lessee
shall have posted a bond or other security satisfactory to the relevant
Indemnitee in respect to such risk or (y) the control of such action, suit or
proceeding would involve an actual or potential conflict of interest, (B) such
proceeding involves Claims not fully indemnified by the Lessee which the Lessee
and the Indemnitee have been unable to sever from the indemnified claim(s), or
(C) an Event of Default under the Lease has occurred and is continuing.  The
Indemnitee may participate in a reasonable manner at its own expense and with
its own counsel in any proceeding conducted by the Lessee in accordance with the
foregoing.  The Lessee shall not enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 13.1
                                                                    ------------
or 13.3 without the prior written consent of the Indemnitee which consent shall
-------
not be unreasonably withheld in the case of a money settlement not involving an
admission of liability of such Indemnitee.

          Each Indemnitee shall at the expense of the Lessee cooperate with and
supply the Lessee with such information and documents reasonably requested by
the Lessee as are necessary or advisable for the Lessee to participate in any
action, suit or proceeding to the extent permitted by Section 13.1 or 13.3.
                                                      --------------------
Unless an Event of Default under the Lease shall have occurred and be
continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 13.1
                                                                    ------------
or 13.3 without the prior written consent of the Lessee, which consent shall not
-------
be unreasonably withheld, unless such Indemnitee waives its right to be
indemnified under Section 13.1 or 13.3 with respect to such Claim.
                  --------------------

                                      60
<PAGE>

          Upon payment in full of any Claim by the Lessee pursuant to Section
                                                                      -------
13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further
------------
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to preserve
any such claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such claims.

          Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
                                                          --------------------
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable and, if requested by the Lessee, such determination shall be verified
by a nationally recognized independent accounting firm mutually acceptable to
the Lessee and the Indemnitee at the expense of the Lessee.

     SECTION 13.5  General Impositions Indemnity.
                   -----------------------------

          (a) Indemnification.  The Lessee shall pay and assume liability for,
              ---------------
and does hereby agree to indemnify, protect and defend the Property and all
Indemnitees, and hold them harmless against, all Impositions on an After Tax
Basis.

          (b) Payments.  (i) Subject to the terms of Section 13.5(f), the Lessee
              --------                               ---------------
shall pay or cause to be paid all Impositions directly to the taxing authorities
where feasible and otherwise to the Indemnitee, as appropriate, and the Lessee
shall at its own expense, upon such Indemnitee's reasonable request, furnish to
such Indemnitee copies of official receipts or other satisfactory proof
evidencing such payment.

              (ii)  In the case of Impositions for which no contest is conducted
     pursuant to Section 13.5(f) and which the Lessee pays directly to the
                 ---------------
     taxing authorities, the Lessee shall pay such Impositions prior to the
     latest time permitted by the relevant taxing authority for timely payment.
     In the case of Impositions for which the Lessee reimburses an Indemnitee,
     the Lessee shall do so within twenty (20) days after receipt by the Lessee
     of demand by such Indemnitee describing in reasonable detail the nature of
     the Imposition and the basis for the demand (including the computation of
     the amount payable), but in no event shall the Lessee be required to pay
     such reimbursement prior to ten (10) days before the latest time permitted
     by the relevant taxing authority for timely payment.  In the case of
     Impositions for which a contest is conducted pursuant to Section 13.5(f),
                                                              ---------------
     the Lessee shall pay such Impositions or reimburse such Indemnitee for such
     Impositions, to the extent not previously paid or reimbursed pursuant to
     subsection (a), prior to the latest time permitted by the relevant taxing
     authority for timely payment after conclusion of all contests under Section
                                                                         -------
     13.5(f).
     -------

              (iii) At the Lessee's request, the amount of any indemnification
     payment by the Lessee pursuant to subsection (a) shall be verified and
     certified by an independent public accounting firm mutually acceptable to
     the Lessee and the

                                      61
<PAGE>

     Indemnitee. The fees and expenses of such independent public accounting
     firm shall be paid by the Lessee unless such verification shall result in
     an adjustment in the Lessee's favor of five percent (5%) or more of the
     payment as computed by the Indemnitee, in which case such fee shall be paid
     by the Indemnitee.

          (c) Reports and Returns.  The Lessee shall be responsible for
              -------------------
preparing and filing any real and personal property or ad valorem tax returns in
respect of the Property.  In case any other report or tax return shall be
required to be made with respect to any obligations of the Lessee under or
arising out of subsection (a) and of which the Lessee has knowledge or should
have knowledge, the Lessee, at its sole cost and expense, shall notify the
relevant Indemnitee of such requirement and (except if such Indemnitee notifies
the Lessee that such Indemnitee intends to file such report or return) (A) to
the extent required or permitted by and consistent with Applicable Law, make and
file in its own name such return, statement or report; and (B) in the case of
any other such return, statement or report required to be made in the name of
such Indemnitee, advise such Indemnitee of such fact and prepare such return,
statement or report for filing by such Indemnitee or, where such return,
statement or report shall be required to reflect items in addition to any
obligations of the Lessee under or arising out of subsection (a), provide such
Indemnitee at the Lessee's expense with information sufficient to permit such
return, statement or report to be properly made with respect to any obligations
of the Lessee under or arising out of subsection (a).  Such Indemnitee shall,
upon the Lessee's request and at the Lessee's expense, provide any data
maintained by such Indemnitee (and not otherwise available to or within the
control of the Lessee) with respect to the Property which the Lessee may
reasonably require to prepare any required tax returns or reports.  Each
Indemnitee agrees to use its best efforts to send to the Lessee a copy of any
written request or other notice that the Indemnitee receives with respect to any
reports or returns required to be filed with respect to the Property or the
transactions contemplated by the Operative Documents, it being understood that
no Indemnitee shall have any liability for failure to provide such copies.

          (d) Income Inclusions.  If as a result of the payment or reimbursement
              -----------------
by the Lessee of any expenses of the Lessor or the payment of any Transaction
Expenses incurred in connection with the transactions contemplated by the
Operative Documents, the Lessor or any Participant shall suffer a net increase
in any federal, state or local income tax liability, the Lessee shall indemnify
such Persons (without duplication of any indemnification required by subsection
(a)) on an After Tax Basis for the amount of such increase.  The calculation of
any such net increase shall take into account any current or future tax savings
realized or reasonably expected to be realized by such person in respect
thereof, as well as any interest, penalties and additions to tax payable by the
Lessor, or any Participant or such Affiliate, in respect thereof.

          (e) Withholding Taxes.  As between the Lessee on one hand, and the
              -----------------
Lessor or the Agent and any Participant on the other hand, the Lessee shall be
responsible for, and, subject to the provisions of Sections 13.5(g) and (h), the
                                                   ------------------------
Lessee shall indemnify and hold harmless the Lessor, the Agent and the
Participants (without duplication of any indemnification required by subsection
(a)) on an After Tax Basis against, any obligation for United States or foreign
withholding taxes imposed in respect of payments with respect to the
Participation Interests or with respect to Rent payments under the Lease or
payments of the Asset Termination Value or Purchase Option Price (and, if the
Lessor, the Agent or any Participant receives a

                                      62
<PAGE>

demand for such payment from any taxing authority, the Lessee shall discharge
such demand on behalf of the Lessor, the Agent or such Participant).
Notwithstanding the foregoing provisions of this Section 13.5(e) or any other
                                                 --------------
provision of any Operative Document to the contrary, the Lessee shall not be
responsible for and shall not be required to indemnify or otherwise hold
harmless any Person from or against any withholding tax imposed as a collection
device for, or in substitution or lieu of, an income, franchise or similar tax
to the extent such income, franchise or similar tax would not otherwise be
subject to indemnification pursuant to this Section 13.5 (a "Qualified
                                            ------------     ---------
Withholding Tax"). As used herein, Qualified Withholding Taxes include, without
---------------
limitation, any withholding taxes arising under Section 871, 881, 1441 or 1442
of the Code and any similar taxes arising under state, local or foreign law as
well as any withholding tax imposed as a collection device for, or in
substitution or lieu of the Imposition that qualifies as an "income tax" within
the meaning of United States Treasury Regulation Section 1.901-2.

          (f)  Contests of Impositions.  (i) If a written claim is made against
               -----------------------
any Indemnitee or if any proceeding shall be commenced against such Indemnitee
(including a written notice of such proceeding), for any Impositions, such
Indemnitee shall promptly notify the Lessee in writing and shall not take action
with respect to such claim or proceeding without the consent of the Lessee for
thirty (30) days after the receipt of such notice by the Lessee; provided,
                                                                 --------
however, that, in the case of any such claim or proceeding, if action shall be
-------
required by law or regulation to be taken prior to the end of such 30-day
period, such Indemnitee shall, in such notice to the Lessee, inform the Lessee
of such shorter period, and no action shall be taken with respect to such claim
or proceeding without the consent of the Lessee before two (2) days before the
end of such shorter period; provided, further, that the failure of such
                            --------  -------
Indemnitee to give the notices referred to this sentence shall not diminish the
Lessee's obligation hereunder except to the extent such failure precludes the
Lessee from contesting all or part of such claim.

               (ii)  If, within thirty (30) days of receipt of such notice from
     the Indemnitee (or such shorter period as the Indemnitee has notified the
     Lessee is required by law or regulation for the Indemnitee to commence such
     contest), the Lessee shall request in writing that such Indemnitee contest
     such Imposition, the Indemnitee shall, at the expense of the Lessee, in
     good faith conduct and control such contest (including, without limitation,
     by pursuit of appeals) relating to the validity, applicability or amount of
     such Impositions (provided, however, that (A) if such contest involves a
                       --------  -------
     tax other than a tax on net income and can be pursued independently from
     any other proceeding involving an unindemnified tax liability of such
     Indemnitee, the Indemnitee, at the Lessee's request, shall allow the Lessee
     to conduct and control such contest and (B) in the case of any contest, the
     Indemnitee may request the Lessee to conduct and control such contest) by,
     in the sole discretion of the Person conducting and controlling such
     contest, (1) resisting payment thereof, (2) not paying the same except
     under protest, if protest is necessary and proper, (3) if the payment be
     made, using reasonable efforts to obtain a refund thereof in appropriate
     administrative and judicial proceedings, or (4) taking such other action as
     is reasonably requested by the Lessee from time to time.

               (iii) The party controlling any contest shall consult in good
     faith with the non-controlling party and shall keep the non-controlling
     party reasonably informed as to the conduct of such contest; provided, that
                                                                  --------
     all decisions ultimately shall be made in the

                                      63
<PAGE>

     sole discretion of the controlling party except that no decision shall be
     made to concede an indemnified issue without the prior consent of Lessee
     (which consent shall not be unreasonably withheld). The parties agree that
     an Indemnitee may at any time decline to take further action with respect
     to the contest of any Imposition and may settle such contest if such
     Indemnitee shall waive its rights to any indemnity from the Lessee that
     otherwise would be payable in respect of such claim (and any future claim
     by any taxing authority, the contest of which is precluded by reason of
     such resolution of such claim) and shall pay to the Lessee any amount
     previously paid or advanced by the Lessee pursuant to this Section 13.5 by
                                                                ------------
     way of indemnification or advance for the payment of an Imposition other
     than expenses of such contest.

               (iv) Notwithstanding the foregoing provisions of this Section
                                                                     -------
     13.5, an Indemnitee shall not be required to take any action and the Lessee
     ----
     shall not be permitted to contest any Impositions in its own name or that
     of the Indemnitee unless (A) the Lessee shall have agreed such Imposition
     is subject to indemnity hereunder and shall pay to such Indemnitee on
     demand and on an After Tax Basis all reasonable costs, losses and expenses
     that such Indemnitee actually incurs in connection with contesting such
     Impositions, including, without limitation, all reasonable legal,
     accounting and investigatory fees and disbursements, (B) in the case of a
     claim that must be pursued in the name of an Indemnitee (or an Affiliate
     thereof), the amount of the potential indemnity (taking into account all
     similar or logically related claims that have been or could be raised in
     any audit involving such Indemnitee for which the Lessee may be liable to
     pay an indemnity under this Section 13.5) exceeds $10,000, (C) the
                                 ------------
     Indemnitee shall have reasonably determined that the action to be taken
     will not result in any material danger of sale, forfeiture or loss of the
     Property, or any part thereof or interest therein, will not interfere with
     the payment of Rent, and will not result in risk of criminal liability, (D)
     if such contest shall involve the payment of the Imposition prior to the
     contest, the Lessee shall provide to the Indemnitee an interest-free
     advance in an amount equal to the Imposition that the Indemnitee is
     required to pay (with no additional net after-tax cost to such Indemnitee),
     (E) in the case of a claim that must be pursued in the name of an
     Indemnitee (or an Affiliate thereof), the Lessee shall have provided to
     such Indemnitee an opinion of independent tax counsel selected by the
     Indemnitee and reasonably satisfactory to the Lessee stating that a
     reasonable basis exists to contest such claim (or, in the case of an appeal
     of an adverse judicial determination, an opinion of such counsel to the
     effect that there is substantial authority for the position asserted in
     such appeal) and (F) no Event of Default hereunder shall have occurred and
     be continuing.  In no event shall an Indemnitee be required to appeal an
     adverse judicial determination to the United States Supreme Court.  In
     addition, an Indemnitee shall not be required to contest any claim in its
     name (or that of an Affiliate) if the subject matter thereof shall be of a
     continuing nature and shall have previously been decided adversely by a
     court of competent jurisdiction pursuant to a contest completed in
     accordance with the provisions of this Section 13.5, unless there shall
                                            ------------
     have been a change in law (or interpretation thereof) and the Indemnitee
     shall have received, at the Lessee's expense, an opinion of independent tax
     counsel selected by the Indemnitee and reasonably acceptable to the Lessee
     stating

                                      64
<PAGE>

     that as a result of such change in law (or interpretation thereof), it is
     more likely than not that the Indemnitee will prevail in such contest.

          (g)  Documentation of Withholding Status.  Each Participant (or any
               -----------------------------------
successor thereto or transferee thereof) that is organized under the laws of a
jurisdiction outside of the United States of America and each Lessor that is
organized under the laws of a jurisdiction outside of the United States of
America shall:

               (i)  on or before the date it becomes a party to any Operative
     Document, deliver to the Lessee any certificates, documents, or other
     evidence that shall be required by the Code or Treasury Regulations issued
     pursuant thereto to establish its exemption from United States Federal
     withholding requirements, including (A) two valid, duly completed, original
     copies of Internal Revenue Service Form W-8BEN or Form W-8ECI or successor
     applicable form, properly and duly executed, certifying in each case that
     such party is entitled to receive payments pursuant to the Operative
     Documents without deduction or withholding of United States Federal income
     taxes, or (B) a valid, duly completed, original copy of Internal Revenue
     Service Form W-8 or Form W-9 or applicable successor form, properly and
     duly executed, certifying that such party is entitled to an exemption from
     United States of America backup withholding tax; and

               (ii) so long as it shall be legally entitled to do so, on or
     before the date that any such form described above expires or becomes
     obsolete, or after the occurrence of any event requiring a change in the
     most recent such form previously delivered to the Lessee, deliver to the
     Lessee two further valid, duly completed, original copies of any such form
     or certification, properly and duly executed.

          (h)  Limitation on Tax Indemnification.  The Lessee shall not be
               ---------------------------------
required to indemnify any Indemnitee, or to pay any increased amounts to any
Indemnitee or tax authority with respect to any Impositions pursuant to this
Section 13.5 to the extent that (i) such Imposition is attributable to such
------------
Indemnitee's failure to comply with the provisions of Section 13.5(g); or (ii)
                                                      ---------------
to the extent such Imposition constitutes or is collected by means of a
Qualified Withholding Tax.

          (i)  Tax Savings.  In the event an Indemnitee receives a refund (or
               -----------
similar tax savings) in respect of any Imposition paid or reimbursed by the
Lessee which was not considered in calculating the After Tax Basis with respect
to such payment or reimbursement by Lessee, such Indemnitee shall within thirty
(30) days thereafter remit the amount of such refund (or tax savings) to the
Lessee, provided that the amount so remitted shall not exceed the lesser of: (i)
        --------
the amount received by such Indemnitee as a refund (or tax savings) net of all
reasonable costs and expenses incurred by such Indemnitee in connection with
obtaining and paying such amount; and (ii) (a) the amount of all prior payments
by the Lessee to such Indemnitee with respect to Impositions, plus any refunded
interest, less (b) the amount of all prior payments by the Indemnitee to the
Lessee under this Section 13.5(i).
                  ---------------

     SECTION 13.6  Funding Losses.  If any payment of any Advance or any portion
                   --------------
of any Participation Interest is made on any day other than the last day of an
Interest Period applicable

                                      65
<PAGE>

thereto, or if the Lessee fails to utilize the proceeds of any purchase of
Participation Interests after notice has been given to any Participant in
accordance with Section 3 or 4, the Lessee shall reimburse each Participant
                --------------
within fifteen (15) days after demand for any Funding Losses provided that such
                                                             --------
Participant shall have delivered to the Lessee a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the absence of
manifest error, and provided further that such loss shall in no event exceed the
                    ----------------
interest on the Advances which would have been payable for the balance of such
Interest Period or other period, less the amount actually earned by such
Participant on such Advances. Such Participant will, at the request of the
Lessee, furnish such additional information concerning the determination of such
loss as the Lessee may reasonably request.

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

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

          (a) deposits in dollars (in the applicable amounts) are not being
offered to the Agent in the relevant market for such Interest Period or any
Participants shall advise the Agent that the Eurodollar Rate as determined by
the Agent will not adequately and fairly reflect the cost to such Participant of
funding its Participation Interest in any Advance for such Interest Period; or

          (b) any Participant determines that, by reason of the adoption, on or
after the date of this Participation Agreement, of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any Governmental

                                      66
<PAGE>

Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Participant (or its Funding Office)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or governmental agency, it is restricted, directly
or indirectly, in the amount it may hold of (i) a category of liabilities that
includes deposits by reference to which, or on the basis of which, the interest
rates applicable to Advances to fund its Participation Interest Commitment based
on the Eurodollar Rate are directly or indirectly determined, or (ii) the
category of assets which includes Advances to fund its Participation Interest
Commitment based on the Eurodollar Rate; the Agent shall forthwith give notice
thereof to the Lessee and the Participants, whereupon until the Agent notifies
the Lessee that the circumstances giving rise to such suspension no longer
exist, each outstanding Advance shall begin to bear interest on the last day of
the then current Interest Period applicable thereto at a rate per annum equal to
the sum of (i) the Participants' average cost of funds employed to fund their
Participation Interests, as notified to the Agent and the Lessee, plus (ii) the
Applicable Margin for Eurodollar Rate-based Advances at such time.

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

     SECTION 13.10 Increased Cost and Reduced Return. (a) In the event that
                   ---------------------------------
the adoption of any applicable law, rule or regulation, or any change therein or
in the interpretation or application thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by any Participant with any

                                      67
<PAGE>

request or directive after the date hereof (whether or not having the force of
law) of any such authority, central bank or comparable agency:

               (i)   does or shall subject such Participant to any additional
     tax of any kind whatsoever with respect to the Operative Documents or any
     purchase of a Participation Interest in any Advance, or change the basis or
     the applicable rate of taxation of payments to such Participant of its
     Participation Interest or any other amount payable hereunder (except for
     the imposition of or change in (x) any tax on or measured by the overall
     net income of such Participant including, without limitation, any tax that
     qualifies as an "income tax" within the meaning of United States Treasury
     Regulation Section 1.901-2 and which is not an Imposition or (y) any
     Qualified Withholding Tax);

               (ii)  does or shall impose, modify or hold applicable any
     reserve, special deposit, insurance assessment, compulsory loan or similar
     requirement against assets held by, or deposits or other liabilities in or
     for the account of, advances or loans by, or other credit extended by, or
     any other acquisition of funds by, any office of such Participant which are
     not otherwise included in determination of the rate of interest on Advances
     hereunder; or

               (iii) does or shall impose on such Participant any other
     condition; and the result of any of the foregoing is to increase the cost
     to such Participant of purchasing or maintaining its Participation Interest
     in any Advance or to reduce any amount receivable hereunder with respect
     thereto, then in any such case, the Lessee shall promptly pay such
     Participant, upon its demand, any additional amounts necessary to
     compensate such Participant for such increased cost or reduced amount
     receivable which such Participant deems to be material as determined by
     such Participant provided, however, that the Lessee shall not be obligated
                      --------  -------
     to pay any Participant for any such increased costs or reduced amounts
     incurred more than sixty (60) days prior to the date of such Participant's
     demand for payment if such demand was made more than sixty (60) days after
     the latest of (A) the date such Participant received actual notice of such
     increased cost or reduced amount, (B) the effective date of such change or
     (C) the date such change occurred or was enacted.

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

                                      68
<PAGE>

Participant such additional amount or amounts as will compensate such
Participant (or its parent) for such reduction.

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

     SECTION 13.11  Substitution of Participant.  If (i) the obligation of any
                    ---------------------------
Participant to purchase or maintain its Participation Interest has been
suspended pursuant to this Section 13, or (ii) any Participant has demanded
                           ----------
compensation or given notice of its intention to demand compensation under
Sections 13.1, 13.2, 13.5 or 13.10, the Lessee shall have the right, with the
----------------------------------
assistance of the Agent, to seek one or more mutually satisfactory substitute
banks or financial institutions (which may be one or more of the Participants)
to replace such Participant under the Operative Documents.

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

                                  SECTION 14

                                   THE AGENT

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

                                      69
<PAGE>

implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Participation Agreement or any other
Operative Document or otherwise exist against the Agent.

     SECTION 14.2  Delegation of Duties.  The Agent may execute any of its
                   --------------------
duties under this Participation Agreement and the other Operative Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties.  The Agent shall not
be responsible for the negligence or misconduct of any agents or attorneys-in-
fact selected by it with reasonable care.

     SECTION 14.3  Exculpatory Provisions.  Neither the Agent nor any of its
                   ----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Participation Agreement or any other
Operative Document (except for its or such Person's own gross negligence or
willful misconduct) or (b) responsible in any manner to any of the Participants
or any other party to the Operative Documents for any recitals, statements,
representations or warranties made by the Lessor or the Lessee or any officer
thereof contained in this Participation Agreement or any other Operative
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Participation Agreement or any other Operative Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Participation Agreement or any other Operative Document or for any failure of
the Lessor or the Lessee to perform its obligations hereunder or thereunder.
The Agent shall not be under any obligation to any Participant or any other
party to the Operative Documents to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Participation Agreement or any other Operative Document, or to inspect the
properties, books or records of the Lessor or the Lessee.

     SECTION 14.4  Reliance by Agent.  The Agent shall be entitled to rely, and
                   -----------------
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Lessor or the Lessee), independent accountants and
other experts selected by the Agent.  The Agent shall be fully justified in
failing or refusing to take any action under this Participation Agreement or any
other Operative Document unless it shall first receive such advice or
concurrence of the Required Participants as it deems appropriate or it shall
first be indemnified to its satisfaction by the Participants against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.  The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Participation
Agreement and the other Operative Documents in accordance with a request of the
Required Participants, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Participants.

     SECTION 14.5  Notice of Default.  The Agent shall not be deemed to have
                   -----------------
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received

                                      70
<PAGE>

notice from a Participant, the Lessor or the Lessee describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Agent receives such a notice, the Agent shall give notice thereof
to the other parties hereto. Subject to the provisions of Section 11 and Section
                                                          ----------     -------
15.5 hereof, the Agent shall take such action with respect to such Default or
----
Event of Default as shall be reasonably directed by the Required Participants;
provided that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Participants.

     SECTION 14.6  Non-Reliance on Agent and Other Participants.  Each
                   --------------------------------------------
Participant expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Lessor or the Lessee, shall be
deemed to constitute any representation or warranty by the Agent to any
Participant.  Each Participant represents to the Agent that it has,
independently and without reliance upon the Agent or any other Participant, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Lessor, the Lessee and
the Property and made its own decision to purchase its Participation Interest
hereunder and enter into this Participation Agreement.  Each Participant also
represents that it will, independently and without reliance upon the Agent, the
Lessor or any other Participant, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Participation
Agreement and the other Operative Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Lessor and the Lessee.
Except for notices, reports and other documents expressly required to be
furnished to the Participants by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Participant with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Lessor or the Lessee which
may come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.

     SECTION 14.7  Indemnification.  The Participants agree to indemnify the
                   ---------------
Agent in its capacity as such (to the extent not reimbursed by the Lessee and
without limiting the obligation of the Lessee to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought under this Section 14.7 (or, if indemnification is
                                     ------------
sought after the date upon which the Commitments shall have terminated and the
Participation Interests shall have been paid in full, ratably in accordance with
their Commitment Percentages immediately prior to such date), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Participation Interests) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of, the Commitments,
this Participation Agreement, the Property, any of the other Operative Documents
or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by
any of them under or in connection with any of the foregoing; provided that no
                                                              --------

                                      71
<PAGE>

Participant shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or willful
misconduct of the Agent.  The agreements in this Section 14.7 shall survive the
                                                 ------------
payment of the Participation Interests and all other amounts payable hereunder.

     SECTION 14.8  Agent in its Individual Capacity.  The Agent and its
                   --------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Lessor or the Lessee as though the Agent were not the
Agent hereunder and under the other Operative Documents.  With respect to its
Participation Interest purchased by it, the Agent shall have the same rights and
powers under this Participation Agreement and the other Operative Documents as
any Participant and may exercise the same as though it were not the Agent, and
the terms "Participant" and "Participants" shall include the Agent in its
individual capacity.

     SECTION 14.9  Successor Agent.  The Agent may resign as Agent upon twenty
                   ---------------
(20) days' notice to the Participants, the Lessor or the Lessee.  If the Agent
shall resign as Agent under this Participation Agreement and the other Operative
Documents, then the Required Participants shall appoint a successor agent for
the Participants, which successor agent shall be a commercial bank organized
under the laws of the United States of America or any State thereof or under the
laws of another country which is doing business in the United States of America
and having a combined capital, surplus and undivided profits of at least
$100,000,000 (and if no Default or Event of Default exists, shall be approved by
the Lessee (which consent shall not be unreasonably withheld)), whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent, and
the term "Agent" shall mean such successor agent effective upon such appointment
and approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Participation Agreement.  If no successor
Agent has accepted appointment as Agent by the date which is twenty (20) days
following a resigning Agent's notice of resignation, the resigning Agent's
resignation shall nevertheless thereupon become effective and the Participants
shall perform all of the duties of the Agent hereunder until such time, if any,
as the Required Participants appoint a successor Agent as provided above.  After
any retiring Agent's resignation as Agent, all of the provisions of this Section
                                                                         -------
14 shall inure to its benefit as to any actions taken or omitted to be taken by
--
it while it was Agent under this Participation Agreement and the other Operative
Documents.

                                  SECTION 15

                                 MISCELLANEOUS

     SECTION 15.1  Survival of Agreements.  The representations, warranties,
                   ----------------------
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Participation Agreement, the
transfer of the Property to the Lessor, the construction of any Improvements,
any disposition of any interest of the Lessor in the Property or any
Improvements, payment of the Advances and the Participation Interests and any
disposition thereof and shall be

                                      72
<PAGE>

and continue in effect notwithstanding any investigation made by any party and
the fact that any party may waive compliance with any of the other terms,
provisions or conditions of any of the Operative Documents. Except as otherwise
expressly set forth herein or in other Operative Documents, the indemnities of
the parties provided for in the Operative Documents shall survive the expiration
or termination of any thereof.

     SECTION 15.2  No Broker, etc.  Each of the parties hereto represents to the
                   --------------
others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Participation Agreement or
the transactions contemplated herein, nor has it authorized any broker, finder
or financial adviser retained or employed by any other Person so to act.  Any
party who is in breach of this representation shall indemnify and hold the other
parties harmless from and against any liability arising out of such breach of
this representation.

     SECTION 15.3  Notices.  Unless otherwise specifically provided herein, all
                   -------
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing and delivered (i) personally, (ii) by a
nationally recognized overnight courier service, (iii) by mail (by registered or
certified mail, return receipt requested, postage prepaid) or (iv) by facsimile,
in each case directed to the address of such Person as indicated on Schedule
                                                                    --------
III.  Any such notice shall be effective upon receipt or refusal.
---

          From time to time any party may designate a new address for purposes
of notice hereunder by written notice to each of the other parties hereto in
accordance with this Section.

     SECTION 15.4  Counterparts.  This Participation Agreement may be executed
                   ------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

     SECTION 15.5  Amendments.  Subject to the provisions of Section 11 hereof,
                   ----------                                ----------
no Operative Document nor any of the terms thereof may be terminated, amended,
supplemented, waived or modified with respect to the Lessee, the Lessor, the
Agent or any Participant, except (a) in the case of a termination, amendment,
supplement, waiver or modification to be binding on the Lessee, the Lessor or
the Agent, with the written agreement or consent of such party, and (b) in the
case of a termination, amendment, supplement, waiver or modification to be
binding on the Participants, with the written agreement or consent of the
Required Participants; provided, however, that
                       --------  -------

          (x)  no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant:

               (i) modify any of the provisions of Section 11 of this
                                                   ----------
     Participation Agreement or this Section 15.5, change the definition of
                                     ------------
     "Required Participants" or modify or waive any provision of an Operative
     Agreement requiring action by the foregoing;

                                      73
<PAGE>

               (ii)  amend, modify, waive or supplement any of the provisions of
     Sections 3.6, 3.7 or 3.10 - 3.21 of this Participation Agreement or the
     --------------------------------
     representations of such Participant in Section 8 or the covenants in
                                            ---------
     Sections 7 and 10 of this Participation Agreement;
     -----------------

               (iii) reduce, modify, amend or waive any fees or indemnities in
     favor of any Participant, including without limitation amounts payable
     pursuant to Section 13 (except that any Person may consent to any
                 ----------
     reduction, modification, amendment or waiver of any indemnity or fee
     payable to it);

               (iv)  modify, postpone, reduce or forgive, in whole or in part,
     any payment of Rent (other than pursuant to the terms of any Operative
     Agreement), any payment in respect of its Participation Interest, or any
     payment of the Asset Termination Value, Residual Value Guarantee Amount,
     amounts due pursuant to Section 22.2 of the Lease, or interest or, subject
                             -------------------------
     to clause (iii) above, any other amount payable under the Lease or this
        ------------
     Participation Agreement, or modify the definition or method of calculation
     of Rent (other than pursuant to the terms of any Operative Agreement),
     Participation Interest, Asset Termination Value, Shortfall Amount, Residual
     Value Guarantee Amount, Required Supplemental Payments, Property
     Improvements Cost, Participant Balance, Tranche A Participation Interest
     Balance, Tranche B Participation Interest Balance, or any other definition
     which would affect the amounts to be advanced or which are payable under
     the Operative Documents; or

               (v)   consent to any assignment of the Lease, releasing the
     Lessee from its obligations in respect of the payments of Rent and the
     Asset Termination Value or changing the absolute and unconditional
     character of such obligation; and

          (y)  no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Required Participants, be made to the Lease or Section 6 of this
                                                   ---------
Participation Agreement or the definition of "Event of Default".

     SECTION 15.6  Headings, etc.  The Table of Contents and headings of the
                   -------------
various Sections of this Participation Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.

     SECTION 15.7  Parties in Interest.  Except as expressly provided herein,
                   -------------------
none of the provisions of this Participation Agreement are intended for the
benefit of any Person except the parties hereto.  Subject to the provisions of
Section 25.1 of the Lease, the Lessee shall not assign or transfer any of its
-------------------------
rights or obligations under the Operative Documents without the prior written
consent of the Lessor, the Agent and the Participants, except that the Lessee
may without such consent assign rights or obligations of the Lessee under the
Operative Documents to an Affiliate of the Lessee, provided that the Lessee
                                                   --------
remains primarily liable with respect to such obligations and provides its full
unconditional and irrevocable guaranty of such Subsidiary's obligations under
the Operative Documents, such guaranty to be in form and substance reasonably
satisfactory to the Required Participants.  If the Lessor, the Agent and the
Participants

                                      74
<PAGE>

consent to any such assignment or transfer to a Person not an Affiliate of the
Lessee, the Lessee shall remain primarily liable with respect to such
obligations and provide its full and unconditional guaranty of such Person's
obligations under the Operative Documents, such guaranty to be in form and
substance reasonably satisfactory to the Required Participants.

     SECTION 15.8  GOVERNING LAW.  THIS PARTICIPATION AGREEMENT SHALL IN ALL
                   -------------
RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY
CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF
THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.

     SECTION 15.9  Severability.  Any provision of this Participation Agreement
                   ------------
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

     SECTION 15.10 Liability Limited.  (a) The parties hereto agree that the
                   -----------------
Lessor shall have no personal liability whatsoever to the Lessee, the Agent or
any Participant or their respective successors and assigns for any claim based
on or in respect of the Lease or any of the other Operative Documents or arising
in any way from the transactions contemplated hereby or thereby; provided,
                                                                 --------
however, that the Lessor shall be liable in its individual capacity (a) for its
-------
own willful misconduct or gross negligence (or negligence in the handling of
funds), (b) for liabilities that may result from its breach of the covenant to
remove Lessor Liens set forth in Section 10.3, or (c) for any Tax based on or
                                 ------------
measured by any fees, commission or compensation received by it for acting as
the Lessor as contemplated by the Operative Documents.  It is understood and
agreed that, except as provided in the preceding proviso: (i) the Lessor shall
have no personal liability under any of the Operative Documents; (ii) all
obligations of the Lessor to the Lessee, the Agent and the Participants are
solely nonrecourse obligations and shall be enforceable solely against the
interest of the Lessor in the Property; and (iii) all such personal liability of
the Lessor is expressly waived and released as a condition of, and as
consideration for, the execution and delivery of the Operative Documents by the
Lessor.  Notwithstanding anything contained herein, the limitations on liability
stated in the preceding provisions of this Section 15.10(a) shall not apply to
                                           ----------------
liability of the Lessor arising because of a breach of the Lessor's obligation
to remove Lessor Liens or because of its receiving Advances and failing to
disburse Advances to the Lessee in accordance with the Operative Documents, or
failure to disburse proceeds from the sale of the Property in accordance with
the Lease and this Participation Agreement.

          (b) No Participant shall have any obligation to any other Participant
or to the Lessee, the Lessor or the Agent with respect to transactions
contemplated by the Operative Documents, except those obligations of such
Participant expressly set forth in the Operative Documents or except as set
forth in the instruments delivered in connection therewith, and no Participant
shall be liable for performance by any other party hereto of such other party's
obligations under the Operative Documents except as otherwise so set forth.

                                      75
<PAGE>

     SECTION 15.11  Further Assurances.  The parties hereto shall promptly cause
                    ------------------
to be taken, executed, acknowledged or delivered, at the sole expense of the
Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry out and
effectuate the intent and purposes of this Participation Agreement, the other
Operative Documents, and the transactions contemplated hereby and thereby
(including, without limitation, the preparation, execution and filing of any and
all Uniform Commercial Code financing statements and other filings or
registrations which the parties hereto may from time to time request to be filed
or effected).  The Lessee, at its own expense and without need of any prior
request from any other party, shall take such action as may be necessary
(including any action specified in the preceding sentence), or (if the Lessor
shall so request) as so requested, in order to maintain and protect all security
interests provided for hereunder or under any other Operative Document.

     SECTION 15.12  Submission to Jurisdiction.  The Lessee hereby submits to
                    --------------------------
the nonexclusive jurisdiction of the United States District Court for the
Northern District of Illinois and of any Illinois state court sitting in Cook
County for purposes of all legal proceedings arising out of or relating to the
Operative Documents or the transactions contemplated hereby.  The Lessee
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.

     SECTION 15.13  Confidentiality.  The Lessor, the Agent and each Participant
                    ---------------
represent that they will maintain the confidentiality of the transactions
contemplated by, and of any written or oral information provided under, the
Operative Documents by or on behalf of the Lessee (hereinafter collectively
called "Confidential Information"), subject to the Lessor's, the Agent's and
        ------------------------
each Participant's (a) obligation to disclose any such Confidential Information
pursuant to a request or order under applicable laws and regulations or pursuant
to a subpoena or other legal process, (b) right to disclose any such
Confidential Information to its bank examiners, Affiliates, auditors, counsel
and other professional advisors and to other Participants, (c) right to disclose
any such Confidential Information in connection with any litigation or dispute
involving the Participants and the Lessee or any of its Subsidiaries and
Affiliates and (d) right to provide such information to Sub-Participants,
prospective Sub-Participants to which sales of participating interests are
permitted pursuant to this Participation Agreement and prospective assignees to
which assignments of interests are permitted pursuant to this Participation
Agreement, but only if (i) such Sub-Participant, prospective Sub-Participant or
prospective assignee agrees in writing to maintain the confidentiality of such
information on terms substantially similar to those of this Section as if it
were a "Participant" party hereto and (ii) the Lessee receives copies of such
written agreement prior to the release of such information.  Notwithstanding the
foregoing, any such information supplied to a Participant, Sub-Participant,
prospective Sub-Participant or prospective assignee under this Participation
Agreement shall cease to be Confidential Information if it is or becomes known
to such Person by other than unauthorized disclosure, or if it becomes a matter
of public knowledge.

     SECTION 15.14  WAIVER OF JURY TRIAL.  EACH OF THE LESSEE, THE AGENT, THE
                    --------------------
LESSOR, AND EACH PARTICIPANT HEREBY IRREVOCABLY WAIVES

                                      76
<PAGE>

ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     SECTION 15.15  Usury Savings Clause.  Nothing contained in this
                    --------------------
Participation Agreement or the other Operative Documents shall be deemed to
require the payment of interest or other charges by the Lessee or any other
Person in excess of the amount which may be may lawfully be charged under any
applicable usury laws.  In the event that the Lessor or any other Person shall
collect moneys under the Participation Agreement or any other Operative Document
which are deemed to constitute interest (including, without limitation, the
Basic Rent or Supplemental Rent) which would increase the effect interest rate
to a rate in excess of that permitted to be charged by applicable law, all such
sums deemed to constitute interest in excess of the legal rate shall, upon such
determination, at the option of the Person to whom such payment was made, be
returned to the Person making such payment or credited against other amounts
owed by the person making such payment.

     SECTION 15.16  Effect on Original Participation Agreement.  Effective upon
                    ------------------------------------------
the Restructuring Date, all parties hereto agree that this Participation
Agreement and Schedules I, II, III and V, Appendix I and Exhibit Q attached
              --------------------------  ----------     ---------
hereto shall amend, restate in their entirety and replace, without notation, the
Original Participation Agreement and Schedules I, II, III and V, Appendix I and
                                     --------------------------  ----------
Exhibit Q attached thereto; provided, however, that with respect to the period
---------                   --------  -------
prior to the Restructuring Date nothing contained herein shall (i) operate as a
waiver of any right, power or remedy of the Lessor, the Agent or any Participant
under the Original Participation Agreement or any other Operative Document or
(ii) extinguish or impair any obligations of the Lessee under the Original
Participation Agreement or any other Operative Document except to the extent any
such obligation is actually satisfied by Lessee; and provided, further, that all
                                                     --------  -------
Advances outstanding under the Original Participation Agreement shall remain
outstanding and shall be deemed to have been made under this Participation
Agreement on a pro rata basis by the Participants hereunder in accordance with
their respective Participant Balances.

                           [signature pages follow]

                                      77
<PAGE>

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

                                   QUANTUM CORPORATION, as Lessee

                                   By:________________________________________
                                   Name:
                                   Title:

                                   SELCO SERVICE CORPORATION., as Lessor

                                   By:________________________________________
                                   Name:
                                   Title:

                                   THE BANK OF NOVA SCOTIA, as Agent

                                   By:________________________________________
                                   Name:
                                   Title:

                                   THE BANK OF NOVA SCOTIA, as a Participant

                                   By:________________________________________
                                   Name:
                                   Title:

                                   KEYBANK NATIONAL ASSOCIATION, as a
                                   Participant

                                   By:________________________________________
                                   Name:
                                   Title:

                                      S-1
<PAGE>

                                   SELCO SERVICE CORPORATION, as a Participant

                                   By:________________________________________
                                   Name:
                                   Title:

                                   UNION BANK OF CALIFORNIA, N.A., as a
                                   Participant

                                   By:________________________________________
                                   Name:
                                   Title:

                                      S-2
<PAGE>

                                  SCHEDULE I

<TABLE>
<CAPTION>
                                                                               Commitment
Participant                        Commitments                                 Percentage
-----------                        -----------                                 ----------
<S>                                <C>                            <C>                        <C>
THE BANK OF NOVA SCOTIA            Tranche A Participation        $21,827,558.85              34.75%
                                   Interest:

                                   Tranche B Participation        $ 2,474,385.66               3.94%
                                   Interest:

KEYBANK NATIONAL ASSOCIATION       Tranche A Participation        $20,102,551.58              32.01%
                                   Interest:

                                   Tranche B Participation        $ 1,988,164.44               3.17%
                                   Interest:

UNION BANK OF CALIFORNIA, N.A.     Tranche A Participation        $12,507,900.46              19.92%
                                   Interest:

                                   Tranche B Participation        $ 1,692,245.31               2.69%
                                   Interest:

SELCO SERVICE CORPORATION          Tranche C Participation        $ 2,211,228.49               3.52%
                                   Interest:

     TOTAL COMMITMENT:                                            $62,804,034.79             100.00%
                                                                  ==============
</TABLE>
<PAGE>

                                  SCHEDULE II

                                 PRICING GRID

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                            Applicable Margin in Basis Points per annum
-------------------------------------------------------------------------------------------------
                                       Eurodollar Advances          Alternate Base Rate Advances
-------------------------------------------------------------------------------------------------
 Level     Leverage Ratio             Tranche       Tranche           Tranche         Tranche
                                      A and B          C              A and B            C
-------------------------------------------------------------------------------------------------
<S>        <C>                        <C>           <C>               <C>             <C>
   1            *0.75:1                112.50        200.00            12.50          100.00
-------------------------------------------------------------------------------------------------
   2     **0.75:1 but ***1.00:1        125.00        200.00            25.00          100.00
-------------------------------------------------------------------------------------------------
   3     **1.00:1 but ***1.25:1        137.50        200.00            37.50          100.00
-------------------------------------------------------------------------------------------------
   4     **1.25:1 but ***1.50:1        150.00        200.00            50.00          100.00
-------------------------------------------------------------------------------------------------
   5           **1.50:1                175.00        200.00            75.00          100.00
-------------------------------------------------------------------------------------------------
</TABLE>

*   less than
**  more than or equals to
*** more than

                                  EXPLANATION

1.   The Applicable Margin for each Eurodollar Rate Advance or Alternate Base
     Rate Advance will be based upon the Leverage Ratio as set forth in the most
     recent Compliance Certificate received by the Agent pursuant to clause (i)
                                                                     ----------
     of Section 10.1(b) of the Participation Agreement; provided, however, that
     -------------------------------------------------  --------  -------
     from July 12, 2000, until October, 19, 2000, the Applicable Margin shall be
     fixed as indicated for pricing level 3 set forth above.

2.   The Applicable Margin shall be in effect from the date the most recent
     Compliance Certificate is received by the Agent to but excluding the date
     the next Compliance Certificate is received.

                                     II-1
<PAGE>

                                 SCHEDULE III

                    Notice Information and Funding Offices

Lessee:        QUANTUM CORPORATION
               500 McCarthy Boulevard
               Milpitas, California 95035

               Attention:   Lauren Halden, Assistant Treasurer

                            Telephone: (408) 894-4906
                            Facsimile: (408) 894-4562
                            Email: lauren.halden@quantum.com

Lessor:        SELCO SERVICE CORPORATION
               54 State Street
               Albany, New York 12207

               Attention:   Donald Davis, Vice President

                            Telephone: (518) 486-8984
                            Facsimile: (518) 487-4635
                            Email:

                                     III-1
<PAGE>

Agent:         THE BANK OF NOVA SCOTIA
               580 California Street, Suite 2100
               San Francisco, California 94104

               Attention:     Chris Osborn, Director

                              Telephone:  (415) 986-1100
                              Facsimile:  (415) 397-0791
                              Email:  cosborn@scotiacapital.com

               Operations Contact:

               THE BANK OF NOVA SCOTIA
               600 Peachtree Street N.E., Suite 2700
               Atlanta, GA 30308

               Attention:     Michael Silveira or Sonia McKoy

                              Telephone:  (404) 877-1522 or 877-1553
                              Facsimile:  (404) 888-8998
                              Email:  michael_silveira@scotiacapital.com or
                                      sonia_mckoy@scotiacapital

                                     III-2
<PAGE>

Participant:   THE BANK OF NOVA SCOTIA
               580 California Street, Suite 2100
               San Francisco, California 94104

               Attention:     Chris Osborn

                              Telephone:  (415) 986-1100
                              Facsimile:  (415) 397-0791
                              Email:  cosborn@scotiacapital.com

Operations Contact:

               THE BANK OF NOVA SCOTIA
               600 Peachtree Street N.E., Suite 2700
               Atlanta, GA 30308

               Attention:     Michael Silveira or Sonia McKoy

                              Telephone:  (404) 877-1522 or 877-1553
                              Facsimile:  (404) 888-8998
                              Email:  michael_silveira@scotiacapital.com or
                                      sonia_mckoy@scotiacapital

Payment
Instructions:  The Bank of Nova Scotia
               One Liberty Plaza
               New York, New York
               ABA No.:  026002532
               Account No.:  0610135 BNS San Francisco Loan Servicing
               Reference:  Quantum Corporation Lease

                                     III-3
<PAGE>

Participant:  KEYBANK NATIONAL ASSOCIATION
               700 Fifth Avenue, 46th Floor
               Seattle, Washington 98104

               Attention:     Mary K. Young

                              Telephone:  (206) 684-6085
                              Facsimile:  (206) 684-6035
                              Email: mary_k_young@keybank.com

Operations Contact:

               KEYBANK NATIONAL ASSOCIATION
               431 E. Parkcenter Boulevard
               Boise, Idaho 83706

               Attention:     Andrea Eaton/Specialty Services Team

                              Telephone:  (800) 297-5518
                              Facsimile:  (800) 297-5495
                              Email:  andrea_eaton@keybank.com

Payment
Instructions:  KeyBank National Association
               Seattle, Washington
               ABA No.: 125000574
               Account Name: Western Loan Services
               Account  No.: 01500163
               Attention: Specialty Services Team
               Reference: Quantum

                                     III-4
<PAGE>

Participant:   SELCO SERVICE CORPORATION
               54 State Street
               Albany, New York 12207

               Attention:     Donald Davis, Vice President

                              Telephone:  (518) 486-8984
                              Facsimile:  (518) 487-4635
                              Email:

Payment
Instructions:  KeyBank National Association
               Cleveland, Ohio
               ABA No.:  041001039
               Account No.: 010027501
               Attention:  Don Davis/SELCO
               Reference:  Quantum

                                     III-5
<PAGE>

Participant:   UNION BANK OF CALIFORNIA, N.A.
               99 Almaden Street, Suite 200
               San Jose, California 95113

               Attention:     Sarabelle Hitchner

                              Telephone:  (408) 279-7208
                              Facsimile:  (408) 280-7163
                              Email:  sarabelle.hitchner@uboc.com

Operations Contact:

               UNION BANK OF CALIFORNIA, N.A.
               1980 Saturn Street
               Monterey Park, California  91755

               Attention:     Gohar Karapetyan

                              Telephone:  (323) 720-2679
                              Facsimile:  (323) 724-6198
                              Email:   gohar.karapetyan@uboc.com

Payment
Instructions:  UNION BANK OF CALIFORNIA, N.A.
               1980 Saturn Street
               Monterey, California 91755
               ABA No.:  122-000-496
               Account No.: 070196431
               Reference:  Quantum Corporation

                                     III-6
<PAGE>

                                  SCHEDULE V

          Methodology for Calculating Partial Purchase Option Prices
          ----------------------------------------------------------

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                           Bank Financed Only
                                        Final Cost Summary ($000)
                                               By Building
                                                 June '00
-------------------------------------------------------------------------------------------------------
                                                                       $K
-------------------------------------------------------------------------------------------------------
                                    Total
-------------------------------------------------------------------------------------------------------
             Item                    $K         Bldg. A       Bldg. B       Bldg. C       Bldg. D Land
-------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>           <C>           <C>
Land
-------------------------------------------------------------------------------------------------------
Acres                                40.7           18           7.8           8.7               6.2
-------------------------------------------------------------------------------------------------------
% by Bldg.                                          44%           19%           22%               15%
-------------------------------------------------------------------------------------------------------
Cost                                4,354        1,916           827           958               653
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Bldg. + FFE                        50,716       24,421         9,607        16,188               500
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
   Total Land, Bldg. + FFE         55,070       26,337        10,434        17,146             1,153
-------------------------------------------------------------------------------------------------------
                                                    48%           19%           31%                2%
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Fees
-------------------------------------------------------------------------------------------------------
Design & Construction               3,690        1,771           701         1,144                74
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Closing                               404          194            77           125                 8
-------------------------------------------------------------------------------------------------------
Construction Interest               3,340        1,603           635         1,035                67
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Total                              62,504       29,905        11,847        19,452             1,300
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
$/SF                                  155          152           149           153              N/A
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>

                                      V-1
<PAGE>

                                                                    SCHEDULE 3.6

                        ADVANCES ON RESTRUCTURING DATE

Participant                             Proportionate Share of Advances
-----------                             -------------------------------

The Bank of Nova Scotia                           $150,000.00

KeyBank National Association                      $148,989.77

SELCO Service Corporation                         $  1,010.23

     TOTAL                                        $300,000.00
                                                  ===========
<PAGE>

                                                                    SCHEDULE 6.4

                    CONDITIONS TO AMENDMENT AND RESTATEMENT

I.   Assignments and Transfers

     A.   The Original Lessor shall have executed and delivered to the Lessor:

          1.   A special warranty deed, in conformity with Applicable Law and
               appropriate for recording with the applicable Governmental
               Authorities, with respect to the Land Interest (and all
               Improvements located thereon), conveying fee simple title to the
               Land Interest (and all Improvements located thereon) to the
               Lessor.

          2.   A bill of sale conveying the Original Lessor's interests in the
               Equipment and Fixtures to the Lessor.

          3.   UCC-3 assignments conveying the Original Lessor's interests in
               the Lessor Financing Statements to the Lessor.

     B.   The Original Lessor and the Lessor shall have executed and delivered a
          Lessor Assignment and Acceptance assigning the rights and obligations
          of the Original Lessor under the Operative Documents and its Tranche C
          Participation Interest to the Lessor, and the Lessee and the
          Participants shall have consented to such Lessor Assignment and
          Acceptance.

     C.   The Original Agent and the Agent shall have executed and delivered an
          Resignation and Assignment by Agent and Acceptance by Successor Agent
          assigning the rights and obligations of the Original Agent under the
          Operative Documents to the Agent, and the Lessee and the Participants
          shall have consented to such Resignation and Assignment by Agent and
          Acceptance by Successor Agent.

     D.   The Original Lessor, the Original Agent, the Lessor and the Agent
          shall have executed and delivered an Assignment and Amendment of the
          Mortgage and an Assignment and Assumption of Interests in Lease and
          Consent and the Lessee shall have consented to such Assignment and
          Assumption of Interests in Lease and Consent, in form appropriate for
          recording with the applicable Governmental Authorities.

     E.   The Original Agent shall have executed and delivered UCC-3 assignments
          conveying the Original Agent's interests in the Agent Financing
          Statements to the Agent.

     F.   ABN AMRO Bank N.V., San Francisco International Branch, The Bank of
          Nova Scotia and KeyBank National Association shall have executed and
          delivered an Assignment and Acceptance assigning the Tranche A
          Participation Interest and

                                     6.4-1
<PAGE>

          Tranche B Participation Interest of ABN AMRO Bank N.V., San Francisco
          International Branch, to The Bank of Nova Scotia and KeyBank National
          Association.

II.  Amended and Restated Operative Documents

     A.   The Lessee, the Lessor, the Participants and the Agent shall have
          executed and delivered the Amended and Restated Participation
          Agreement.

     B.   The Lessee and the Lessor shall have executed and delivered the
          Amended and Restated Master Lease and an Amended and Restated Lease
          Supplement No. 1, in form appropriate for recording with the
          applicable Governmental Authorities.

     C.   The Guarantor shall have executed and delivered a consent to such
          amended and restated Operative Documents.

     D.   The Lessor shall have executed and delivered Agent Financing
          Statements in form appropriate for filing in New York.

III. Title Documents

     A.   Commitments to issue the following revised title insurance policies
          shall have been delivered to the Agent in an amount not less than the
          Property Cost and reasonably satisfactory to the Lessor and the Agent
          with extended coverage, access, tax parcel, survey identicality,
          variable rate, future advances, usury, comprehensive, fraudulent
          conveyances, doing business, mechanics liens and zoning endorsements
          and such other endorsements as and to the extent available in the
          jurisdiction where the Property is located:

          1.   An ALTA (1992) owners title insurance policy with extended
               coverage over the general exceptions, insuring fee title in the
               Lessor to the Property, subject only to Permitted Exceptions.

          2.   An ALTA (1992) loan policy insuring the Agent that the Lien of
               the Mortgage, as assigned and amended, is a first and primary
               lien in the Lessor's interest in the Lease, as assigned, amended
               and restated, and in the fee title to the Property, subject only
               to the Permitted Exceptions.

          3.   An ALTA (1992) loan policy insuring the Agent that the Lien of
               the Lease, as assigned, amended and restated, is a first and
               primary Lien in the Lessee's interest in the Property.

     B.   The Lessor and the Agent shall have received evidence reasonably
          satisfactory that each of the special warranty deed described in Item
          I.A.1, the Amended and Restated Master Lease and Amended and Restated
          Lease Supplement No. 1 described in Item II.B. and the Assignment and
          Amendment of the Mortgage and the Assignment and Assumption of
          Interests in Lease and Consent described in

                                     6.4-2
<PAGE>

          Item I.D. have been or are being recorded with the appropriate
          Governmental Authorities in the order listed in this clause and the
          UCC-3 assignments to the Lessor Financing Statements described in Item
          I.A.3, the UCC-3 assignments to the Agent Financing Statements
          described in Item I.E. and the Agent Financing Statements described in
          Item II.D. have been or are being filed with the appropriate
          Governmental Authorities.

IV.  Lessee Corporate Documents

     A.   The Lessee shall have delivered a certificate of an authorized officer
          of the Lessee, dated as of the date of the Amended and Restated
          Participation Agreement, stating that (i) each and every
          representation and warranty of the Lessee contained in the Operative
          Documents to which it is a party is true and correct in all material
          respects as if made on the Restructuring Date (except for
          representations and warranties expressly made as of a specified date,
          which are true and correct as of such date), (ii) no Default or Event
          of Default under the Operative Documents has occurred and is
          continuing as of the Restructuring Date; and (iii) each Operative
          Document to which the Lessee is a party is in full force and effect
          with respect to it.

     B.   The Lessee shall have delivered a certificate of the Secretary or an
          Assistant Secretary of the Lessee attaching and certifying as to (i)
          the resolutions of the Board of Directors duly authorizing the
          execution, delivery and performance by the Lessee of documents and
          agreements of the type represented by each Operative Document to be
          executed as of the Restructuring Date, and (ii) the incumbency and
          signature of persons authorized to execute and deliver on its behalf
          the Operative Documents to be executed by it as of the Restructuring
          Date.

V.   Lessor Corporate Documents

     A.   The Lessor shall have delivered a certificate of an authorized officer
          of the Lessor, dated as of the date of the Amended and Restated
          Participation Agreement, stating that (i) each and every
          representation and warranty of the Lessor contained in the Operative
          Documents to which it is a party is true and correct on and as of the
          Restructuring Date, and (ii) each Operative Document to which the
          Lessor is a party is in full force and effect with respect to it.

     B.   The Lessor shall have delivered a certificate of the Secretary or an
          Assistant Secretary of the Lessor attaching and certifying as to (i)
          the resolutions of the Board of Directors duly authorizing the
          execution, delivery and performance by the Lessor of documents and
          agreements of the type represented by each Operative Document to which
          it is or will be a party, (ii) the pertinent provisions of its by-laws
          and (iii) the incumbency and signature of persons authorized to
          execute and deliver on its behalf the Operative Documents to which it
          is a party.

VI.  Insurance

                                     6.4-3
<PAGE>

     The Lessor and the Agent shall have received evidence that they are named
     as additional insureds and loss payees and the mortgagee endorsement with
     respect to the insurance required pursuant to the Lease.

VII. Fees and Expenses

     A.   All fees and expenses payable to the Agent, the Lessor or the
          Participants set forth in an invoice received on or prior to the
          Restructuring Date (including fees payable pursuant to the Fee Letter)
          shall have been paid.

     B.   All reasonable fees and expenses of counsels to the Agent and the
          Lessor through the Restructuring Date shall have been paid.

                                     6.4-4
<PAGE>

                                    10.1-1
<PAGE>

                                                                  SCHEDULE 10.01

                        EXISTING INDEBTEDNESS AND LIENS

INDEBTEDNESS

     1.        Reimbursement Agreement between Sumitomo Bank, Ltd. and Quantum
          Peripherals (Europe), S.A., dated September 14, 1998, related to
          outstanding letters of credit in an amount not to exceed $85,000,000.

     2.        Tax Ownership Operating Lease (Colorado Springs, CO) between
          Quantum Corporation and Lease Plan North America, Inc., dated August
          25, 1997.

     3.        Mortgage (Louisville, CO and Shrewsbury, MA), dated August 22,
          1995, between Quantum Corporation and QD Investors securing
          $39,226,000 in outstanding principal as of December 31, 1999.

     4.        Reimbursement Agreement between Fleet National Bank and ATL
          Products, Inc., a Subsidiary of Quantum Corporation, dated February 3,
          1999, related to an outstanding letter of credit in favor of National
          Westminster Bank, plc in the amount of (Pounds)300,000.

LIENS
     1.        Lien (State: CO, file # 19992029330, dated 5/19/99) established
          under the Equipment Lease Agreement between Quantum Corporation and
          Prentiss Property Services, as Debtor, and BCL Capital.

     2.        Lien (State: CO, file # 19992024197, dated 4/29/99) established
          under the Equipment Lease Agreement between Quantum Corporation and
          Colorado Business Leasing, Inc.

     3.        Lien (State: CO, file # 19982060561, dated 9/24/98) established
          under the Master Lease Agreement between Quantum Corporation and Avnet
          Computer, a division of Avnet, Inc.

     4.        Lien (State: CO, file # 19972076228, dated 9/5/97) established
          under the Financing Statement between Quantum Corporation and Lease
          Plan North America, Inc.

     5.        Lien (State: CO, file # 199F0722387, dated 9/5/97) established
          under the Financing Statement between Quantum Corporation and Lease
          Plan North America, Inc.

                                    10.1-2
<PAGE>

     6.        Lien (State: CO, file # 962097106, dated 12/30/96) established
          under the Agreement between Quantum Corporation and American Leasing,
          Inc.

     7.        Lien (State: CO, file # 962081967, dated 10/31/96) established
          under the Agreement between Quantum Corporation and Finzer Leasing,
          Inc.

     8.        Lien (State: CA, file # 9732260586, dated 11/18/97) established
          under the Lease Agreement between ATL Products, Inc. and Sun
          Microsystems Finance.

     9.        Lien (State: CA, file # 9807660402, dated 3/16/98) established
          under the Lease Agreement between ATL Products, Inc. and Union Bank of
          California, N.A.

     10.       Lien (State: CA, file # 9821760711, dated 8/4/98) established
          under the Subordination Agreement between ATL Products, Inc. and
          Mellon US Leasing, a Division of Mellon Leasing Corporation.

     11.       Lien (State: CA, file # 9830060877, dated 10/23/98) established
          under the Equipment Schedule between ATL Products, Inc. and Mellon US
          Leasing, a Division of Mellon Leasing Corporation.

     12.       Lien (State: CA, file # 9903660704, dated 2/4/99) established
          under the Equipment Schedule between ATL Products, Inc. and Mellon US
          Leasing, a Division of Mellon Leasing Corporation.

     13.       Lien (State: CA, file # 9714961077, dated 5/27/97) established
          under rental between ATL Products, Inc. and Inter-Tel Leasing, Inc.

     14.       Lien (State: CA, file # 9719760464, dated 7/11/97) established
          under the Agreement between ATL Products, Inc. and Imperial Bank.

     15.       Lien (State: CA, file # 9510460180, dated 4/10/95) established
          under the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

     16.       Lien (State: CA, file # 9510460187, dated 4/10/95) established
          under the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

     17.       Lien (State: CA, file # 9526460720, dated 9/18/95) established
          under the Alternative Purchase Plan between Quantum Corporation and
          AT&T Capital Services Corporation.

     18.       Lien (State: CA, file # 9620660866, dated 6/22/96) established
          under the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

                                    10.1-3
<PAGE>

     19.       Lien (State: CA, file # 9623360189, dated 8/16/96) established
          under the Security Agreement between Quantum Corporation and Orix
          Credit Alliance, Inc.

     20.       Lien (State: CA, file # 9636660392, dated 12/30/96) established
          under the Equipment Lease Agreement between Quantum Corporation and
          American Leasing, Inc.

     21.       Lien (State: CA, file # 9724660679, dated 9/2/97) established
          under the Financing Statement between Quantum Corporation and ABN AMRO
          Bank, N.V. San Francisco International Branch, as Agent.

     22.       Lien (State: CA, file # 9733960635, dated 12/1/97) established
          under the Security Agreement between Quantum Corporation and Unisource
          Worldwide, Inc.

     23.       Lien (State: CA, file # 9813360891, dated 5/12/98) established
          under the Agreement between Quantum Corporation and AT&T Capital
          Corporation, Instrument and Data Services.

     24.       Lien (State: CA, file # 9818960462, dated 7/6/98) established
          under the Agreement between Quantum Corporation and Employment
          Development Department.

     25.       Lien (State: CA, file # 9934060376, dated 12/1/99) established
          under the Agreement between Quantum Corporation and Newcourt
          Technologies Corp (dba Newcourt Financial-Technology Rentals &
          Services.

     26.       Lien (State: CA, file # 9934060391, dated 12/1/99) established
          under the Agreement between Quantum Corporation and Newcourt
          Technologies Corp (dba Newcourt Financial-Technology Rentals &
          Services).

     27.       Lien (State: CA, file # 0003860457, dated 2/2/00) established
          under the Equipment Agreement between Quantum Corporation and ATEL
          Business Credit, Inc.

     28.       Lien (State: MA, file # 345962, dated 5/25/95) established under
          the Schedule between Quantum Corporation and Comdisco, Inc.

     29.       Lien (State: MA, file # 343626, dated 10/11/95) established under
          the Agreement between Quantum Corporation and Comdisco, Inc.

     30.       Lien (State: MA, file # 371364, dated 2/23/96) established under
          the Agreement between Quantum Corporation and Business Credit Leasing.

     31.       Lien (State: MA, file # 425668, dated 10/25/96) established under
          the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

                                    10.1-4
<PAGE>

     32.       Lien (State: MA, file # 456959, dated 3/25/97) established under
          the Agreement between Quantum Corporation and Sanwa Leasing
          Corporation.

     33.       Lien (State: MA, file # 449499, dated 2/18/97) established under
          the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

     34.       Lien (State: MA, file # 459264, dated 4/7/97) established under
          the Agreement between Quantum Corporation and Sanwa Leasing
          Corporation.

     35.       Lien (State: MA, file # 468158, dated 5/12/97) established under
          the Financing Agreement between Quantum Corporation and Hewlett-
          Packard Company.

     36.       Lien (State: MA, file # 518464, dated 12/22/97) established under
          the Agreement between Quantum Corporation and Sanwa Leasing
          Corporation.

     37.       Lien (State: MA, file # 582939, dated 10/9/98) established under
          the Agreement between Quantum Corporation and Hewlett-Packard Company.

                                    10.1-5
<PAGE>

                                                                       EXHIBIT Q
                                                      TO PARTICIPATION AGREEMENT

                        FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date: _______________________,___

To:  The Bank of Nova Scotia, as Agent

Ladies and Gentlemen:

     Reference is made to that certain Amended and Restated Participation
Agreement, dated as of July 12, 2000 between Quantum Corporation, a Delaware
corporation (the "Lessee"), SELCO Service Corporation, an Ohio corporation (the
                  ------
"Lessor"), the Participants from time to time party thereto, The Bank of Nova
 ------
Scotia, as agent (the "Agent"), (said agreement, as amended, restated, extended,
                       -----
supplemented or otherwise modified in writing from time to time, the
"Participation Agreement;" the terms defined therein being used herein as
 -----------------------
therein defined).

     The undersigned Responsible Officer hereby certifies as of the date hereof
that he is the ____________________________________ of the Lessee, and that, as
such, he is authorized to execute and deliver this Compliance Certificate to the
Agent on the behalf of the Lessee, and that:

           [Use following for fiscal year-end financial statements]

     1.   Attached hereto as Schedule 1 are the year-end audited financial
statements required by clause (i) of Section 10.1(a) of the Participation
                       --------------------------------------------------
Agreement for the fiscal year of the Lessee ended as of the above date, together
---------
with the report and opinion of an independent certified public accountant
required by such section.

          [Use following for fiscal quarter-end financial statements]

     1.   Attached hereto as Schedule 1 are the unaudited financial statements
                             ----------
required by clause (ii) of Section 10.1(a) of the Participation Agreement for
            -------------------------------------------------------------
the fiscal quarter of the Lessee ended as of the above date.  Such financial
statements fairly present the financial condition, results of operations and
changes in financial position of the Lessee and its Subsidiaries in accordance
with GAAP as at such date and for such periods, subject only to normal year-end
audit adjustments and the absence of footnotes.

     2.   The undersigned has reviewed and is familiar with the terms of the
Participation Agreement and has made, or has caused to be made under his
supervision, a detailed review of the transactions and conditions (financial or
otherwise) of the Lessee during the accounting period covered by the attached
financial statements.

                                      Q-1
<PAGE>

     3.   A review of the activities of the Lessee and its Subsidiaries during
such fiscal period has been made under my supervision with a view to determining
whether during such fiscal period the Lessee performed and observed all its
respective obligations under the Operative Documents, and

                                 [select one:]

     [to the knowledge of the undersigned during such fiscal period, the Lessee
performed and observed each covenant and condition of the Operative Documents
applicable to it.]

                                    --or--

     [the following covenants or conditions have not been performed or observed
and the following is a list of all such Defaults and its nature and status:]

     4.   The following financial covenant analyses and information set forth on
Schedule 2 attached hereto are true and accurate on and as of the date of this
Compliance Certificate.

     IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate as of ________________, ___________.

                                        QUANTUM CORPORATION

                                        By:____________________

                                        Name:__________________

                                        Title:_________________

                                      Q-2
<PAGE>

         For the Quarter/Year ended _______________ ("Statement Date")
                                                      --------------

                                  SCHEDULE 2
                         to the Compliance Certificate
                                 ($ in 000's)

I.   Section 10.1(v)(i) - Minimum Consolidated Tangible Net Worth.

     A.   Actual Consolidated Tangible Net Worth at Statement Date:

<TABLE>
     <S>                                                                          <C>
          1.  Shareholders' Equity:                                               $________________

          2.  Intangible Assets:                                                  $________________

          3.  Consolidated Tangible Net Worth  (Lines I.A.1 less Line I.A.2):     $________________

     B.   75% of Consolidated Tangible Net Worth as of March 31, 2000             $________________

     C.   Amount equal to 75% of the sum of positive Consolidated Net             $________________
          Income (ignoring any quarterly losses) for each fiscal quarter
          after the quarter ended March 31, 2000, through and including the
          quarter ending on the Statement Date:

     D.   Amount equal to 75% of the Net Security Proceeds of all Equity          $________________
          Securities issued by the Lessee (excluding any issuance where the
          Net Security Proceeds to the Lessee are less than $10,000,000)
          during the period commencing on March 31, 2000 and ending on the
          Statement Date:

     E.   Amount equal to 75% of the increase in the value of                     $________________
          outstanding Equity Securities resulting from any conversion of
          Convertible Subordinated Debentures into Equity Securities during
          the period commencing on March 31, 2000 and ending on the
          Statement Date:

     F.   Lesser of (i) the aggregate amount paid by the Lessee to                $________________
          repurchase Equity Securities during the period commencing on
          March 31, 2000 and ending on the Statement Date, and (ii)
          $200,000,000:

     G.   Lesser of (i) the aggregate amount of charges taken by the              $________________
          Lessee for In Process Research & Development associated
</TABLE>

                                      Q-3
<PAGE>

          with Acquisitions during the period commencing on March 31, 2000 and
          ending on the Statement Date, and (ii) $100,000,000; provided that any
          such amounts were paid during the quarter in which any such
          Acquisition was completed:

<TABLE>
     <S>  <C>                                                              <C>
     H.   Sum of: Lines I.B + I.C + I.D + I.E less I.F less I.G:           $_____________________

     I.   Greater of Line I.B and I.H:                                     $_____________________

     J.   Excess (deficiency) for covenant compliance (Lines I.A.3 less    $_____________________
          I.I):
</TABLE>

                                      Q-4
<PAGE>

II.  Section 10.1(v)(ii) - Minimum Quick Ratio.

     A.   Quick Assets:

<TABLE>
<S>       <C>                                                                                  <C>
          1.   Amount of cash and cash equivalents of the Lessee and its                       $___________________
               Subsidiaries (excluding restricted cash) as of the Statement Date:

          2.   Amount of all accounts receivable of the Lessee and its                         $___________________
               Subsidiaries, less all reserves therefor, as of the Statement Date:

          3.   Amount of Quick Assets as of Statement Date (Lines II.A.1 + 2):                 $___________________

     B.   Current Liabilities:

          1.   Amount of current liabilities of the Lessee and its                             $___________________
               Subsidiaries as of the Statement Date (including any such
               liabilities outstanding under the Loan Documents and the
               Operative Documents):

          2.   Aggregate amount of outstanding obligations under the                           $___________________
               Loan Documents with respect to the principal amount of
               loans, the undrawn face amount of letters of credit and
               unreimbursed drawings under letters of credit (to the extent
               not included in Line II.B.1):

          3.   For one year prior to the Maturity Date, the aggregate
               outstanding Synthetic Lease Obligations under the Operative
               Documents:

          4.   Amount of total current liabilities of the Lessee and its                       $___________________
               Subsidiaries as of the Statement Date (Line II.B.1 + 2 + 3):

     C.   Quick Ratio ((Line II.A.3  Line II.B.3):                                             _______________ to 1

          Minimum required:                                                                               1.10 to 1
</TABLE>

                                      Q-5
<PAGE>

III. Section 10.1(v)(iii) - Maximum Leverage Ratio.

     A.   Consolidated EBITDA measured on a rolling four quarter basis
          for the four fiscal quarters ended as of the Statement Date
          ("Subject Period"):
            --------------

<TABLE>
     <S>  <C>                                                             <C>

          1.  Consolidated Net income for Subject Period:                 $___________________

          2.  Consolidated Interest Charges for Subject Period:           $___________________

          3.  Provision for income taxes for Subject Period:              $___________________

          4.  Depreciation expenses for Subject Period:                   $___________________

          5.  Amortization expenses for intangibles for Subject Period:   $___________________

          6.  Amount written off in connection with In-Process Research   $___________________
              & Development related to the Meridian Acquisition (in the
              second fiscal quarter of year 2000 only):

          7.  Amount of charge taken in connection with HDD (in the       $___________________
              second fiscal quarter of year 2000 only):

          8.  Amount of charge taken in connection with DSS (in the       $___________________
              fourth fiscal quarter of year 2000 only):

          9.  Lesser of (i) the aggregate amount of charges taken by      $___________________
              the Lessee for In Process Research & Development associated
              with Acquisitions during the period commencing on March 31,
              2000 and ending on the Statement Date, and (ii)
              $100,000,000; provided that any such amounts were paid
                            --------
              during the quarter in which any such Acquisition was
              completed:

          10. Consolidated EBITDA (Lines III.A.1 + 2 + 3 + 4 + 5 + 6 +    $___________________
              7 + 8 + 9):

     B.   Consolidated Funded Indebtedness at Statement Date:             $___________________

     C.   Leverage Ratio (Line III.B  Line III.A.10):                      ________________to 1

          Maximum permitted:                                                          2.00 to 1
</TABLE>

                                      Q-6
<PAGE>

IV.  Section 10.1(v)(iv) - Minimum Profitability.

<TABLE>
     <S>                                                                    <C>
     A.  5% of Consolidated Tangible Net Worth as of Statement Date:        $_____________________

     B.  Aggregate amount of the two greatest quarterly losses incurred     $_____________________
         during the four quarters immediately preceding the Statement Date:

     C.  Excess (deficiency) for covenant compliance (Line IV.A less        $_____________________
         Line IV.B):

     D.  Cumulative Consolidated Net Income for the four quarters           $_____________________
         immediately preceding the Statement Date:

     E.  Excess (deficiency) for covenant compliance (Line IV.D less        $_____________________
         $1.00):
</TABLE>

                                      Q-7<PAGE>

                                                                    Exhibit 10.2

Prepared by and upon recording return to:

Thomas Y. Coleman, Esq.
Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, California 94111

                             AMENDED AND RESTATED
                                 MASTER LEASE

                          dated as of July 12, 2000,

                          SELCO SERVICE CORPORATION,

                                 as the Lessor

                                      and

                             QUANTUM CORPORATION,

                                 as the Lessee

                  Specialty Storage Product Group Facilities

This Lease is superior to a deed of trust dated as of August 22, 1997, in favor
of ABN AMRO Bank N.V., San Francisco International Branch, as agent (the
"Original Agent"), under the Participation Agreement, dated as of August 22,
 --------------
1997 (the "Original Participation Agreement"), among the Lessee, Lease Plan
           --------------------------------
North America, Inc., as lessor (the "Original Lessor"), the Original Agent and
                                     ---------------
the Participants.  The Lessor is the successor in interest to the Original
Lessor and the Original Participation Agreement has been amended and restated by
the Amended and Restated Participation Agreement, dated as of July 12, 2000 (the
"Participation Agreement"), among the Lessee, the Lessor, the Participants and
 -----------------------
The Bank of Nova Scotia, the successor in interest to the Original Agent (the

"Agent").  This Lease has been executed in counterparts.  To the extent, if any,
 -----
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on
this Lease may be created through the transfer or possession of any counterpart
other than the original counterpart containing the receipt therefor executed by
the Agent on the signature page hereof.

THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES.
SEE ARTICLE VII.
    -----------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                          Page
<S>                                                                                                       <C>
Article I        .....................................................................................      1

     1.1     Definitions; Interpretation..............................................................      1

Article II       .....................................................................................      1

     2.1     Acceptance and Lease of Property.........................................................      1

     2.2     Acceptance Procedure.....................................................................      2

     2.3     Lease Term...............................................................................      2

     2.4     Title....................................................................................      2

Article III      .....................................................................................      3

     3.1     Rent.....................................................................................      3

     3.2     Payment of Basic Rent....................................................................      3

     3.3     Supplemental Rent........................................................................      3

     3.4     Method of Payment........................................................................      3

Article IV       .....................................................................................      4

     4.1     Utility Charges..........................................................................      4

Article V        .....................................................................................      4

     5.1     Quiet Enjoyment..........................................................................      4

Article VI       .....................................................................................      4

     6.1     Net Lease................................................................................      4

     6.2     No Termination or Abatement..............................................................      5

Article VII      .....................................................................................      5

     7.1     Ownership of the Property................................................................      5

Article VIII     .....................................................................................      7

     8.1     Condition of the Property................................................................      7

     8.2     Possession and Use of the Property.......................................................      8

Article IX       .....................................................................................      8

     9.1     Compliance with Requirements of Law and Insurance Requirements...........................      8

Article X        .....................................................................................      9

     10.1    Maintenance and Repair; Return...........................................................      9
</TABLE>

                                      -i-
<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                            Page
<S>                                                                                                         <C>
Article XI       .....................................................................................      9

     11.1    Modifications, Substitutions and Replacements............................................      9

Article XII      .....................................................................................     10

     12.1    Warranty of Title........................................................................     10

     12.2    Grants and Releases of Easements.........................................................     10

Article XIII     .....................................................................................     11

     13.1    Permitted Contests Other Than in Respect of Indemnities..................................     11

Article XIV      .....................................................................................     12

     14.1    Public Liability and Workers' Compensation Insurance.....................................     12

     14.2    Hazard and Other Insurance...............................................................     12

     14.3    Coverage.................................................................................     12

     14.4    Indemnification..........................................................................     14

Article XV       .....................................................................................     14

     15.1    Casualty and Condemnation................................................................     14

     15.2    Environmental Matters....................................................................     16

     15.3    Notice of Environmental Matters..........................................................     17

Article XVI      .....................................................................................     17

     16.1    Termination by the Lessee upon Certain Events............................................     17

     16.2    Procedures...............................................................................     17

     16.3    Termination by the Lessor upon Certain Events............................................     18

     16.4    Purchase of Property.....................................................................     18

Article XVII     .....................................................................................     18

     17.1    Lease Events of Default..................................................................     18

     17.2    Remedies.................................................................................     21

     17.3    Waiver of Certain Rights.................................................................     24

     17.4    Power of Sale and Foreclosure............................................................     24

     17.5    Remedies Cumulative......................................................................     25

     17.6    Lessee's Right to Cure...................................................................     25
</TABLE>

                                     -ii-
<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                          Page
<S>                                                                                                       <C>
Article XVIII     ......................................................................................    25

     18.1     The Lessor's Right to Cure the Lessee's Lease Defaults....................................    25

Article XIX       ......................................................................................    25

     19.1     Provisions Relating to the Lessee's Termination of this Lease or Exercise of Purchase
              Option or Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other
              Events....................................................................................    25

Article XX        ......................................................................................    26

     20.1     Purchase Option...........................................................................    26

     20.2     Expiration Date Purchase Obligation.......................................................    27

     20.3     Acceleration of Purchase Obligation.......................................................    27

     20.4     Cash Collateral...........................................................................    27

     20.5     Partial Purchase Option Exercisable After Subdivision.....................................    28

Article XXI       ......................................................................................    29

     21.1     Renewal...................................................................................    29

Article XXII      ......................................................................................    30

     22.1     Option to Remarket........................................................................    30

     22.2     Certain Obligations Continue..............................................................    33

     22.3     Support Obligations.......................................................................    33

Article XXIII     ......................................................................................    33

     23.1     Holding Over..............................................................................    33

Article XXIV      ......................................................................................    34

     24.1     Risk of Loss..............................................................................    34

Article XXV       ......................................................................................    34

     25.1     Subletting and Assignment.................................................................    34

Article XXVI      ......................................................................................    34

     26.1     Estoppel Certificates.....................................................................    34

Article XXVII     ......................................................................................    35

     27.1     Right to Inspect..........................................................................    35

     27.2     No Waiver.................................................................................    35
</TABLE>

                                     -iii-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Page
<S>                                                                                                           <C>
Article XXVIII  ............................................................................................    35

     28.1     Acceptance of Surrender.......................................................................    35

Article XXIX    ............................................................................................    35

     29.1     No Merger of Title............................................................................    35

Article XXX     ............................................................................................    36

     30.1     Notices.......................................................................................    36

Article XXXI    ............................................................................................    36

     31.1     Miscellaneous.................................................................................    36

     31.2     Amendments and Modifications..................................................................    37

     31.3     Successors and Assigns........................................................................    37

     31.4     Headings and Table of Contents................................................................    37

     31.5     Counterparts..................................................................................    37

     31.6     GOVERNING LAW.................................................................................    37

     31.7     Limitations on Recourse.......................................................................    37

     31.8     Original Executed Counterpart.................................................................    38

     31.9     Usury Savings Clause..........................................................................    38

     31.10    Effect on Original Lease......................................................................    38
</TABLE>

                                  APPENDICES

Schedule 1    Amortization of Property Improvements Cost

                                   EXHIBITS

Exhibit A     Form of Lease Supplement
Exhibit B     Form of Equipment Schedule

                                   SCHEDULE

Appendix 1    Definition and Interpretation

                                     -iv-
<PAGE>

                       AMENDED AND RESTATED MASTER LEASE

     THIS AMENDED AND RESTATED MASTER LEASE (including all Lease Supplements and
Equipment Schedules from time to time executed and delivered, this "Lease"),
                                                                    -----
dated as of July 12, 2000, between SELCO SERVICE CORPORATION, an Ohio
corporation, having its principal office at 54 State Street, Albany, New York
12207, as the lessor (the "Lessor"), and QUANTUM CORPORATION, a Delaware
                           ------
corporation, having a principal office at 500 McCarthy Boulevard, Milpitas,
California 95305, as the lessee (the "Lessee").
                                      ------

                             W I T N E S S E T H:

     A.  WHEREAS, the Original Lessor has transferred its interests in the Land
Interest, Improvements, Fixtures and Equipment to the Lessor and assigned to the
Lessor the Original Lessor's interests under the Master Lease, dated as of
August 22, 1997 (the "Original Lease"), between the Original Lessor and the
                      --------------
Lessee;

     B.  WHEREAS, the Lessee has requested that the Original Lease be amended in
certain respects at the time the Lessor acquires the Original Lessor's interests
in the Land Interest, Improvements, Fixtures and Equipment, and the Lessee, the
Lessor, the Participants and the Agent would like the Original Lease to be
amended upon the terms and subject to the conditions set forth herein; and

     C.  WHEREAS, for convenience of reference, the parties wish to restate the
Original Lease as so amended in its entirety;

     NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Original Lease shall be amended
and restated as of the date hereof to read in its entirety as follows:

                                   ARTICLE I

     1.1  Definitions; Interpretation.  Capitalized terms used but not otherwise
          ---------------------------
defined in this Lease have the respective meanings specified in Appendix 1 to
                                                                -------------
this Lease; and the rules of interpretation set forth in Appendix 1 to this
----------                                               ------------------
Lease shall apply to this Lease.
-----

                                  ARTICLE II

     2.1  Acceptance and Lease of Property.  Effective as of the Effective Date,
          --------------------------------
the Lessor, subject to the satisfaction or waiver of the conditions set forth in
Section 6 of the Participation Agreement, hereby agrees to accept delivery of
----------------------------------------
the Land Interest to be delivered on the Land Interest Acquisition Date pursuant
to the terms of the Participation Agreement, and simultaneously to lease to the
Lessee hereunder for the Term (as defined in Section 2.3), the Lessor's interest
                                             -----------
in such Land Interest and the Lessor's interest in any Improvements existing
thereon, and to lease to the Lessee any Improvements which thereafter may be
constructed thereon and any Equipment, if any, which may be purchased, utilizing
proceeds of an Advance, for use in connection therewith pursuant to the
Construction Agency Agreement, this Lease or
<PAGE>

the Participation Agreement, and the Lessee hereby agrees, expressly for the
direct benefit of the Lessor, to lease commencing on the Land Interest
Acquisition Date from the Lessor for the Term, the Lessor's interest in such
Land Interest to be delivered on such Land Interest Acquisition Date and any
Improvements existing thereon and to lease any Improvements which thereafter may
be constructed thereon and such Equipment pursuant to the Construction Agency
Agreement, this Lease and the Participation Agreement.

     2.2  Acceptance Procedure.  (a) The Lessor hereby authorizes one or more
          --------------------
employees of the Lessee, to be designated by the Lessee, as the authorized
representative or representatives of the Lessor to accept delivery on behalf of
the Lessor of the Property identified on the Acquisition Request or an Equipment
Schedule.

          (b) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee on the Land Interest Acquisition Date of a Lease Supplement in the
form of Exhibit A hereto (appropriately completed) shall, without further act,
        ---------
constitute the irrevocable acceptance by the Lessee of the Property which is the
subject thereof for all purposes of this Lease and the other Operative Documents
on the terms set forth therein and herein, and that the Property (including the
Improvements constructed thereon) shall be deemed to be included in the
leasehold estate of this Lease and shall be subject to the terms and conditions
of this Lease as of the Land Interest Acquisition Date.

          (c) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee of an Equipment Schedule in the form of Exhibit B hereto
                                                   ---------
(appropriately completed) on or prior to the applicable Funding Date with
respect to the acquisition of Equipment shall, without further act, constitute
the irrevocable acceptance of the Equipment which is the subject thereof for all
purposes of this Lease and the other Operative Documents on the terms set forth
therein and herein, and that the Equipment shall be deemed to be included in the
leasehold estate of this Lease and shall be subject to the terms and conditions
of this Lease as of such Funding Date.

     2.3  Lease Term.  The term of this Lease (the "Term") shall begin on the
          ----------                                ----
Land Interest Acquisition Date and shall end on April 19, 2003, unless the Term
is renewed or earlier terminated in accordance with the provisions of this
Lease.

     2.4  Title.  The Property is leased to the Lessee without any
          -----
representation or warranty of title, condition of the Improvements or permitted
uses, express or implied, by the Lessor and subject to the rights of parties in
possession, the existing state of title (including, without limitation, the
Permitted Exceptions) and all applicable Requirements of Law.  The Lessee shall
in no event have any recourse against the Lessor for any defect in or exception
to title to the Property, other than for any such defect or exception
constituting a Lessor Lien.  The Lessee expressly waives and releases the Lessor
from any common law or statutory covenant of quiet enjoyment, provided that the
                                                              --------
Lessor shall be obligated to remove Lessor Liens.

                                       2
<PAGE>

                                  ARTICLE III

     3.1  Rent. ii)  During the Term, the Lessee shall pay Basic Rent on each
          ----
Payment Date, on the date required under Section 22.1(i) in connection with the
                                         ---------------
Lessee's exercise of the Remarketing Option and on any date on which this Lease
shall terminate.

          (b) Basic Rent shall be due and payable (i) during the Construction
Period, in the manner set forth in Section 3.8(d) of the Participation Agreement
                                   ---------------------------------------------
and (ii) thereafter, in lawful money of the United States and shall be paid by
wire transfer of immediately available funds on the due date therefor to such
account or accounts at such bank or banks or to the Agent or in such other
manner as the Agent shall from time to time direct.

          (c) Neither the Lessee's inability or failure to take possession of
all or any portion of the Property when delivered by the Lessor, nor the
Lessor's inability or failure to deliver all or any portion of the Property to
the Lessee on or before the Land Interest Acquisition Date or the applicable
Funding Date, whether or not attributable to any act or omission of the Lessee
or any act or omission of the Lessor, or for any other reason whatsoever, shall
delay or otherwise affect the Lessee's obligation to pay Rent for the Property
from and after commencement of the Term.

     3.2  Payment of Basic Rent.  Basic Rent shall be paid absolutely net to the
          ---------------------
Lessor, so that this Lease shall yield to the Lessor the full amount thereof,
without setoff, deduction or reduction, whether or not the Lessee's quiet
possession of the Property is disturbed, except as otherwise expressed herein
and in Section 13.5(e) of the Participation Agreement.
       ----------------------------------------------

     3.3  Supplemental Rent.  The Lessee shall pay to the Lessor or the Person
          -----------------
entitled thereto any and all Supplemental Rent promptly as the same shall become
due and payable, and if the Lessee fails to pay any Supplemental Rent, the
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent.  The Lessee
shall pay to the Lessor, as Supplemental Rent, among other things, on demand, to
the extent permitted by Applicable Law, interest at the applicable Overdue Rate
on any installment of Basic Rent not paid when due for the period for which the
same shall be overdue and on any payment of Supplemental Rent not paid when due
or demanded by the Lessor for the period from the due date or the date of any
such demand, as the case may be, until the same shall be paid.  The expiration
or other termination of the Lessee's obligations to pay Basic Rent hereunder
shall not limit or modify the obligations of the Lessee with respect to
Supplemental Rent.  Unless expressly provided otherwise in this Lease, in the
event of any failure on the part of the Lessee to pay and discharge any
Supplemental Rent as and when due, the Lessee shall also promptly pay and
discharge any fine, penalty, interest or cost which may be assessed or added
under any agreement with a third party for nonpayment or late payment of such
Supplemental Rent, all of which shall also constitute Supplemental Rent.

     3.4  Method of Payment.  Each payment of Rent shall be made by the Lessee
          -----------------
to the Agent by 12:00 noon, San Francisco time at the place of payment in funds
consisting of lawful currency of the United States of America which shall be
immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day, in

                                       3
<PAGE>

which case such payment shall be made on the next succeeding Business Day or as
otherwise required by the definition of the term "Interest Period" set forth in
Appendix 1 hereto.  Payments initiated after 12:00 noon, San Francisco time
----------
shall be deemed received on the next succeeding Business Day.

                                  ARTICLE IV

     4.1  Utility Charges.  The Lessee shall pay or cause to be paid all charges
          ---------------
for electricity, power, gas, oil, water, telephone, sanitary sewer service and
all other rents and utilities used in or on the Property during the Term.  The
Lessee shall be entitled to receive any credit or refund with respect to any
utility charge paid by the Lessee and the amount of any credit or refund
received by the Lessor on account of any utility charges paid by the Lessee, net
of the costs and expenses reasonably incurred by the Lessor in obtaining such
credit or refund, shall be promptly paid over to the Lessee.  All charges for
utilities imposed with respect to the Property for a billing period during which
this Lease expires or terminates shall be adjusted and prorated on a daily basis
between the Lessor and the Lessee, and each party shall pay or reimburse the
other for each party's pro rata share thereof, except that if the Lessee retains
possession of the Property after termination or expiration of this Lease, no
such adjustment and proration shall be made.

                                   ARTICLE V

     5.1  Quiet Enjoyment.  Subject to the rights of the Lessor contained in
          ---------------
Section 17.2 and the other terms of this Lease and so long as no Event of
------------
Default shall have occurred and be continuing, the Lessee shall peaceably and
quietly have, hold and enjoy the property for the Term, free of any claim or
other action by the Lessor or anyone rightfully claiming by, through or under
the Lessor (other than the Lessee) with respect to any matters arising from and
after the first day of the Term.

                                  ARTICLE VI

     6.1  Net Lease.  This Lease shall constitute a net lease.  It is the
          ---------
further express intent of Lessor and Lessee that the obligations of Lessor and
Lessee hereunder shall be separate and independent covenants and agreements and
that the Basic Rent and Supplemental Rent, and all other charges and sums
payable by Lessee hereunder, shall commence at the times provided herein and
shall continue to be payable in all events unless the obligations to pay the
same shall be terminated pursuant to an express provision in this Lease.  Any
present or future law to the contrary notwithstanding, this Lease shall not
terminate, nor shall the Lessee be entitled to any abatement, suspension,
deferment, reduction, setoff, counterclaim, or defense with respect to the Rent,
nor shall the obligations of the Lessee hereunder be affected (except as
expressly herein permitted and by performance of the obligations in connection
therewith) by reason of: (i) any defect in the condition, merchantability,
design, construction, quality or fitness for use of the Property or any part
thereof, or the failure of the Property to comply with all Requirements of Law,
including any inability to occupy or use the Property by reason of such non-
compliance; (ii) any damage to, removal, abandonment, salvage, loss,
contamination of or Release from, scrapping or destruction of or any requisition
or taking of the Property or any part thereof;

                                       4
<PAGE>

(iii) any restriction, prevention or curtailment of or interference with any use
of the Property or any part thereof including eviction; (iv) any defect in title
to or rights to the Property or any Lien on such title or rights or on the
Property (other than Lessor Liens); (v) any change, waiver, extension,
indulgence or other action or omission or breach in respect of any obligation or
liability of or by the Lessor, the Agent or any Participant; (vi) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceedings relating to the Lessee, the Lessor, the
Agent, any Participant, or any other Person, or any action taken with respect to
this Lease by any trustee or receiver of the Lessee, the Lessor, the Agent, any
Participant or any other Person, or by any court, in any such proceeding; (vii)
any claim that the Lessee has or might have against any Person, including
without limitation the Lessor, any vendor, manufacturer, contractor of or for
the Property, the Agent or any Participant; (viii) any failure on the part of
the Lessor to perform or comply with any of the terms of this Lease, any other
Operative Document or any other agreement; (ix) any invalidity or
unenforceability or illegality or disaffirmance of this Lease or against or by
the Lessee or any provision hereof or any of the other Operative Documents or
any provision of any thereof; (x) the impossibility or illegality of performance
by the Lessee, the Lessor or both; (xi) any action by any court, administrative
agency or other Governmental Authority; (xii) any restriction, prevention or
curtailment of or interference with the construction on or any use of the
Property or any part thereof; or (xiii) any other cause or circumstances whether
similar or dissimilar to the foregoing and whether or not the Lessee shall have
notice or knowledge of any of the foregoing. The parties intend that the
obligations of the Lessee hereunder shall be covenants and agreements that are
separate and independent from any obligations of the Lessor hereunder or under
any other Operative Documents and the obligations of the Lessee shall continue
unaffected unless such obligations shall have been modified or terminated in
accordance with an express provision of this Lease.

     6.2  No Termination or Abatement.  The Lessee shall remain obligated under
          ---------------------------
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting the Lessor, the Agent or any Participant, or any action
with respect to this Lease or any Operative Document which may be taken by any
trustee, receiver or liquidator of the Lessor, the Agent or any Participant or
by any court with respect to the Lessor, the Agent or any Participant.  The
Lessee hereby waives all right (i) to terminate or surrender this Lease (except
as provided herein) or (ii) except as otherwise provided in this Lease or the
Participation Agreement with regard to withholding taxes, to avail itself of any
abatement, suspension, deferment, reduction, setoff, counterclaim or defense
(other than the defense of payment) with respect to any Rent.  The Lessee shall
remain obligated under this Lease in accordance with its terms and the Lessee
hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease.  Notwithstanding any such statute or otherwise, the Lessee shall be
bound by all of the terms and conditions contained in this Lease.

                                  ARTICLE VII

     7.1  Ownership of the Property.  (a) It is the intent of the parties hereto
          -------------------------
that: (i) this Lease constitutes an "operating lease" pursuant to Statement of
Financial Accounting Standards

                                       5
<PAGE>

No. 13, as amended, for purposes of Lessee's financial reporting, and (ii) for
purposes of federal, state, and local income or franchise taxes and for any
other tax imposed on or measured by income, the transaction contemplated hereby
is a financing arrangement and preserves ownership in the Property in the
Lessee. Nevertheless, the Lessee and the Lessor acknowledge and agree that none
of the Lessee, the Agent, the Lessor nor any Participant has made any
representations or warranties to the Lessee concerning the tax, accounting or
legal characteristics of the Operative Documents and that they have obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Documents as they deem appropriate. Accordingly, and notwithstanding any
provision of this Lease to the contrary, the Lessor and the Lessee agree and
declare that: (i) the transactions contemplated hereby are intended to have a
dual, rather than a single, form; and (ii) all references in this Lease to the
"lease" of the Property which fail to reference such dual form do so as a matter
of convenience only and do not reflect the intent of the Lessor and the Lessee
as to the true form of such arrangements.

          (b) Anything to the contrary in the Operative Documents
notwithstanding, the Lessor and the Lessee intend and agree that with respect to
the nature of the transactions evidenced by this Lease in the context of the
exercise of remedies under the Operative Documents, including, without
limitation, in the case of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, the Lessor, or any Participant or any
enforcement or collection actions, (i) the transactions evidenced by this Lease
are loans made by the Lessor and the Participants as unrelated third party
lenders to the Lessee secured by the Property, (ii) the obligations of the
Lessee under this Lease to pay Basic Rent and Supplemental Rent or Asset
Termination Value in connection with a purchase of the Property pursuant to this
Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor and the Participants to the Lessee, and
(iii) this Lease grants a security interest and mortgage or deed of trust or
lien, as the case may be, in the Property and the collateral described in the
Mortgage to the Lessor, the Agent and the Participants to secure the Lessee's
performance under and payment of all amounts under this Lease and the other
Operative Documents.

          (c) Specifically, without limiting the generality of subsection (b) of
                                                               -----------------
this Section 7.1, the Lessor and the Lessee further intend and agree that, for
----------------
the purpose of securing the Lessee's obligations for the repayment of the above-
described loans from the Lessor and the Participants to the Lessee, (i) this
Lease shall also be deemed to be a security agreement and financing statement
within the meaning of Article 9 of the Uniform Commercial Code (and
specifically, a construction mortgage, as said term is defined in Section 9-
313(1)(c) of the Uniform Commercial Code) and a real property mortgage or deed
of trust; (ii) the conveyance provided for in Article II shall be deemed to be a
                                              ----------
grant by the Lessee to the Lessor, the Agent and the Participants of a mortgage
lien and security interest in all of the Lessee's right, title and interest in
and to the Property and the collateral described in the Mortgage and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, investments, securities or other property, whether in the form of cash,
investments, securities or other property (it being understood that the Lessee
hereby mortgages and warrants and grants a security interest in the Property and
the collateral described in the Mortgage to the Lessor, the Agent and the
Participants to secure such loans); (iii) the possession by the Lessor or any of
its agents of notes

                                       6
<PAGE>

and such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party" for purposes of perfecting the security interest pursuant to Section 9-
305 of the Uniform Commercial Code; and (iv) all Accounts established with
Defeasance Deposit Depositary Bank pursuant to the Cash Collateral Agreement
shall be "security accounts" within the meaning of Section 8501 of the Uniform
Commercial Code, all Collateral from time to time on deposit in any such Account
shall be deemed to be a "financial asset" within the meaning of Section
8102(a)(9) of the Uniform Commercial Code, and the execution and delivery by the
Lessee and the Agent of the Notice of Security Interest attached to the Cash
Collateral Agreement as Attachment No. 2 and the execution and delivery of the
Acknowledgement and Agreement of Depositary Bank attached to the Notice of
Security Interest shall be deemed to grant to the Agent "control" of the
Collateral within the meaning of Section 8106 of the Uniform Commercial Code for
the purpose of perfecting a security interest in a financial asset pursuant to
Section 9115(1)(e) of the Uniform Commercial Code; provided however, if any
                                                   -------- -------
Account is determined to be a deposit account within the meaning of Section
9302(1)(g) of the Uniform Commercial Code, the Notice of Security Interest
delivered pursuant to the Cash Collateral Agreement constitutes notice for the
purpose of perfecting a security interest in a deposit account pursuant to that
Section. The Lessor and the Lessee shall, to the extent consistent with this
Lease, take such actions and execute, deliver, file and record such other
documents, financing statements, mortgages and deeds of trust as may be
necessary to ensure that, if this Lease were deemed to create a security
interest in the Property in accordance with this Section, such security interest
would be deemed to be a perfected security interest of first priority under
Applicable Law and will be maintained as such throughout the Term.

          (d) Specifically, without limiting the generality of anything
contained in this Section 7.1, the Lessor and the Lessee further intend and
                  -----------
agree that, for purposes of filing federal, state and local returns, reports and
other statements relating to income or franchise taxes, or any other taxes
imposed upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor the
Participants shall take a position on their respective federal, state and local
returns, reports and other statements relating to income or franchise taxes that
is inconsistent with the Lessee's status as owner of the Property, provided that
                                                                   --------
the Lessor and any Participant may take a position that is inconsistent with the
Lessee's status as owner of the Property if: (x) there has been a change in law
or regulation so requiring as supported by an opinion of counsel reasonably
acceptable to the Lessee that there is not substantial authority for such a
consistent reporting position; or (y) (A) there has been an administrative or
judicial holding that the Lessee is not the owner of the Property for such tax
purposes, (B) the Lessee has no right to contest such holding pursuant to
Section 13.5 of the Participation Agreement, and (C) the Lessee's lack of right
-------------------------------------------
to contest is not the result of an Indemnitee's waiver of its right to
indemnification pursuant to Section 13.5(f)(iii) of the Participation Agreement
                            ---------------------------------------------------
or failure of the amount at issue to exceed the minimum amount set forth in

Section 13.5(f)(iv)(B) of the Participation Agreement.
-----------------------------------------------------

                                       7
<PAGE>

                                 ARTICLE VIII

     8.1  Condition of the Property.  THE LESSEE ACKNOWLEDGES AND AGREES THAT
          -------------------------
ALTHOUGH THE LESSOR WILL HOLD FEE TITLE TO THE PROPERTY, THE LESSEE IS SOLELY
RESPONSIBLE FOR THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS.  THE
LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING THE PROPERTY "AS IS"
WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR,
THE AGENT OR ANY PARTICIPANT AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE
OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF
FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D)
VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF.  NEITHER
THE LESSOR, THE AGENT NOR ANY PARTICIPANT HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE
DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (INCLUDING BUT NOT
LIMITED TO ANY IMPLIED LIABILITY RELATING TO A COVENANT OF QUIET ENJOYMENT,
WHICH THE LESSEE HEREBY EXPRESSLY WAIVES), VALUE, HABITABILITY, USE, CONDITION,
DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR
ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER THE LESSOR, THE
AGENT NOR ANY PARTICIPANT SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREIN OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY
WITH ANY REQUIREMENT OF LAW.  THE FOREGOING IS SUBJECT TO THE PROVISIONS OF
SECTION 5.1 HEREOF AND SECTION 10.3(a) OF THE PARTICIPATION AGREEMENT.
-----------            ----------------------------------------------

     8.2  Possession and Use of the Property.  The Property may be used only for
          ----------------------------------
such purposes as are permitted by Applicable Law and consistent with all
Insurance Requirements and in compliance with any covenants, conditions and
restrictions of record and any ordinance or law affecting the use and occupancy
of the Property; and provided that such uses do not Materially increase the
                     --------
liability, directly or indirectly, of the Lessor or Materially adversely affect
the value, utility or remaining useful life of the Property from that which
would obtain if the Property were to be used as administration, manufacturing,
design, research and development and warehouse facilities.  The Lessee shall
pay, or cause to be paid, all charges and costs required in connection with the
use of the Property as contemplated by this Lease and the Construction Agency
Agreement.  The Lessee shall not commit or permit any waste of the Property or
any part thereof (provided, that waste shall not include ordinary wear and tear
                  --------
and damage by fire or other peril).

                                  ARTICLE IX

     9.1  Compliance with Requirements of Law and Insurance Requirements.
          --------------------------------------------------------------
Subject to the terms of Article XIII relating to permitted contests, the Lessee,
                        ------------
at its sole cost and expense, shall (a) comply with all Requirements of Law
(including all Environmental Laws) and comply with all Insurance Requirements
relating to the Property, including the construction, use,

                                       8
<PAGE>

operation, maintenance, repair and restoration thereof and the remarketing
thereof pursuant to Article XXII, whether or not compliance therewith shall
                    ------------
require structural or extraordinary changes in the Improvements or interfere
with the use and enjoyment of the Property, and (b) procure, maintain and comply
with all licenses, permits, orders, approvals, consents and other authorizations
required for the construction, use, maintenance and operation of the Property
and for the use, operation, maintenance, repair and restoration of the
Improvements.

                                   ARTICLE X

     10.1  Maintenance and Repair; Return.  (a) Except for ordinary wear and
           ------------------------------
tear, the Lessee, at its sole cost and expense, shall maintain the Property in
good working order, mechanical condition and repair and make all necessary
repairs thereto, of every kind and nature whatsoever, whether interior or
exterior, ordinary or extraordinary, structural or nonstructural or foreseen or
unforeseen, in each case as required by all Requirements of Law and Insurance
Requirements and on a basis consistent with the operation and maintenance of
commercial properties comparable in type and location to the Property and in
compliance with prudent industry practice.

          (b) The Lessor shall under no circumstances be required to build any
improvements on the Property, make any repairs, replacements, alterations or
renewals of any nature or description to the Property, make any expenditure
whatsoever in connection with this Lease (except for Advances required under the
Participation Agreement) or maintain the Property in any way.  The Lessor shall
not be required to maintain, repair or rebuild all or any part of the Property,
and the Lessee waives any right to (i) require the Lessor to maintain, repair,
or rebuild all or any part of the Property, or (ii) make repairs at the expense
of the Lessor pursuant to any Requirement of Law, Insurance Requirement,
contract, agreement, or covenant, condition or restriction in effect at any time
during the Term.

          (c) The Lessee shall, upon the expiration or earlier termination of
this Lease, vacate and surrender the Property to the Lessor in its then-current,
"AS IS" condition, subject to Sections 9.1, 10.1(a), 11.1, 12.1, 15.1(e), 15.2,
                              -------------------------------------------------
20.1, 22.1 and 23.1.
-------------------

          (d) The Lessee warrants that it shall cause the Improvements currently
under construction or currently planned to be constructed on the Property to be
designed and constructed in a workmanlike manner and in accordance with all
Requirements of Law, prior to the Outside Completion Date so that, prior to such
date, such Improvements will be fit for their intended purpose.

                                  ARTICLE XI

     11.1  Modifications, Substitutions and Replacements.  (a) The Lessee, at
           ---------------------------------------------
its sole cost and expense, may at any time and from time to time make
alterations, renovations, improvements and additions to the Property or any part
thereof and substitutions and replacements therefor (collectively,
"Modifications"); provided that: (i) no Modification shall Materially impair the
 -------------    --------
value, utility or useful life of the Property or any part thereof from that
which existed immediately prior to such Modification; (ii) the Modification
shall be done expeditiously and in a

                                       9
<PAGE>

good and workmanlike manner; (iii) subject to the provisions of Article XIII
                                                                ------------
concerning contests, the Lessee shall comply with all Requirements of Law
(including all Environmental Laws) and comply with all Insurance Requirements
applicable to the Modification, including the obtaining of all permits and
certificates of occupancy, and the structural integrity of the Property shall
not be adversely affected; (iv) subject to the terms of Article XIII relating to
                                                        ------------
permitted contests, the Lessee shall pay all costs and expenses and shall
discharge (or cause to be insured or bonded over) within sixty (60) days after
the same shall be filed (or otherwise become effective) any Liens arising with
respect to the Modification; and (v) such Modifications shall comply with
Sections 8.2 and 10.1. All Modifications required to be made pursuant to a
---------------------
Requirement of Law generally applicable to buildings comparable to the Property
or an Insurance Requirement ("Required Modification") and all Modifications
                              -------- ------------
which are replacements or substitutions of the Property, all Modifications of
the utility and building services Equipment and sections of the Improvements
which are not readily removable without impairing the utility or remaining
useful life of the Property shall remain part of the realty and shall be subject
to this Lease, and title thereto shall immediately vest in the Lessor. All other
Modifications and all trade fixtures, machinery, equipment or other tangible
personal property (other than Equipment or replacements or substitutions for
Equipment) shall at all times be Lessee's property ("Lessee's Property") and
                                                     -----------------
Lessee may remove the same at any time during the Term, subject, however, to the
terms of Section 10.1(a); provided that such trade fixtures, machinery,
         ---------------  --------
equipment or other property do not impair the value, utility or remaining useful
life of the Property; provided, further, that the Lessee shall keep and maintain
                      --------  -------
at the Property and shall not remove from the Property any Equipment.

          (b) The Lessee shall deliver to the Lessor and the Agent a brief
written narrative of any Modification, other than as described in the Plans and
Specifications delivered by the Lessee to the Lessor and the Agent on the Land
Interest Acquisition Date, to be done in connection with any Modification to the
Property the cost of which is anticipated to exceed $500,000 in the aggregate.

                                  ARTICLE XII

     12.1  Warranty of Title.  (a) The Lessee agrees that except as otherwise
           -----------------
provided herein and subject to the terms of Article XIII relating to permitted
                                            ------------
contests, the Lessee shall not directly or indirectly create or allow to remain,
and shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon the Property (or the
Lessor's interest therein) or any Modifications or any Lien, attachment, levy or
claim with respect to the Rent or with respect to any amounts held by the Agent
pursuant to the Participation Agreement or the other Operative Documents, other
than Permitted Exceptions and Lessor Liens.

          (b) Nothing contained in this Lease shall be construed as constituting
the consent or request of the Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to the Property
or any part thereof.  NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, ANY
PARTICIPANT NOR THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF
<PAGE>

THROUGH OR UNDER THE LESSEE AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH
LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE
LESSOR IN AND TO THE PROPERTY.

     12.2  Grants and Releases of Easements.  Provided that no Lease Event of
           --------------------------------
Default shall have occurred and be continuing and subject to the provisions of
Articles VIII, IX, X and XI, the Lessor hereby consents in each instance to the
---------------------------
following actions by the Lessee, in the name and stead of the Lessor, but at the
Lessee's sole cost and expense: (a) the granting of easements, licenses, rights-
of-way and other rights and privileges in the nature of easements reasonably
necessary or desirable for the completion of construction of the Improvements,
use, repair, operation or maintenance of the Property as herein provided; (b)
the release of existing easements or other rights in the nature of easements
which are for the benefit of the Property; (c) the execution of petitions to
have the Property annexed to any municipal corporation or utility district; and
(d) the execution of amendments to any covenants and restrictions affecting the
Property; provided, however, in each case the Lessee shall have delivered to the
          --------  -------
Lessor a Responsible Officer's Certificate stating that (i) such grant, release,
dedication or transfer does not materially impair the value, utility and
remaining useful life of the Property, (ii) such grant, release, dedication or
transfer is reasonably necessary in connection with the completion of
construction of the Improvements, use, operation maintenance, alteration or
improvement of the Property, (iii) the Lessee shall remain obligated under this
Lease and under any instrument executed by the Lessee consenting to the
assignment of the Lessor's interest in this Lease as security for indebtedness,
in each such case in accordance with their terms, as though such grant, release,
dedication or transfer, had not been effected, and (iv) the Lessee shall pay and
perform any obligations of the Lessor under such grant, release, dedication or
transfer, and (v) such easements, rights-of-way and other rights shall be
subordinate and subject to the Lien of the Mortgage.  Without limiting the
effectiveness of the foregoing, provided that no Lease Event of Default shall
                                --------
have occurred and be continuing, the Lessor shall, upon the request of the
Lessee, and at the Lessee's sole cost and expense, execute and deliver any
instruments necessary or appropriate to confirm any such grant, release,
dedication or transfer to any Person permitted under this Section 12.2.
                                                          ------------

                                 ARTICLE XIII

     13.1  Permitted Contests Other Than in Respect of Indemnities.  Except to
           -------------------------------------------------------
the extent otherwise provided for in Section 13 of the Participation Agreement,
                                     -----------------------------------------
the Lessee, on its own or on the Lessor's behalf but at the Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Requirement of Law, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
                    -----------
encroachment, and the Lessor agrees not to pay, settle or otherwise compromise
any such item, provided that (a) the commencement and continuation of such
               --------
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against, the Property, the Lessor, the Agent and the
Participants or the Lessee shall have bonded or otherwise secured such amount in
a manner satisfactory to the Lessor and the Agent; (b) there shall be no risk of
the imposition of a Lien (other than Permitted Exceptions or Liens for which
adequate security (in the opinion of the Lessor) for payments in the event of an
unsuccessful contest has been posted) on the Property

                                      11
<PAGE>

and no part of the Property nor any Rent would be in any danger of being sold,
forfeited, lost or deferred; (c) at no time during the permitted contest shall
there be a risk of the imposition of criminal liability or material civil
liability on the Lessor, the Agent or any Participant for failure to comply
therewith (unless, in the case of civil liability, the Lessee shall have bonded
or otherwise secured such amount in a manner satisfactory to the Lessor and the
Agent); and (d) in the event that, at any time, there shall be a material risk
of extending the application of such item beyond the end of the Term, then the
Lessee shall deliver to the Lessor a Responsible Officer's Certificate
certifying as to the matters set forth in clauses (a), (b) and (c) of this
                                          --------------------------------
Section 13.1. The Lessor, at the Lessee's sole cost and expense, shall execute
------------
and deliver to the Lessee such authorizations and other documents as may
reasonably be required in connection with any such contest and, if reasonably
requested by the Lessee, shall join as a party therein at the Lessee's sole cost
and expense.

                                  ARTICLE XIV

     14.1  Public Liability and Workers' Compensation Insurance.  During the
           ----------------------------------------------------
Term, the Lessee shall procure and carry, at the Lessee's sole cost and expense,
commercial general liability insurance, including contractual liability, for
claims for injuries or death sustained by persons or damage to property while on
the Property and such other public liability coverages as are ordinarily
procured by Persons who own or operate similar properties and consistent with
prudent business practice, which policies shall include contractual liability
endorsements covering the Lessee's indemnification obligations in Section 14.4.
                                                                  ------------
Such insurance shall be on terms and in amounts (which shall be reasonably
acceptable to the Lessor and in the event of liability insurance shall not
require coverage in excess of $10,000,000) that are no less favorable than
insurance maintained by the Lessee with respect to similar properties that it
owns and that are in accordance with prudent business practice and may be
provided under blanket policies maintained by or on behalf of the Lessee.  The
policy shall be endorsed to name the Lessor, the Agent and each Participant as
additional insureds.  The policy shall also specifically provide that the policy
shall be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which the Lessor, the Agent or the
Participants may have in force.  The Lessee shall, in the construction of the
Improvements and the operation of the Property (including in connection with any
Modifications thereof) comply with the applicable workers' compensation laws and
protect the Lessor, the Agent and the Participants against any liability under
such laws.

     14.2  Hazard and Other Insurance.  During the Term, the Lessee shall keep,
           --------------------------
or cause to be kept, the Property insured against loss or damage by fire, flood,
and other risks typically included in policies in the state of Colorado for
facilities similar to the Property in an amount not less than the then current
replacement cost of the buildings and improvements on the Property (provided,
                                                                    --------
that the Lessee's flood insurance may have a sublimit of not less than
$50,000,000) and on terms that are no less favorable than insurance covering
other similar properties owned or leased by the Lessee or any of its Affiliates
and that are in accordance with prudent business practice.  The Lessee may
provide such coverage under blanket policies maintained by the Lessee.  During
the construction of any Improvements the Lessee shall also maintain builders'
risk insurance.  Each policy of insurance maintained by the Lessee pursuant to
this Section 14.2 shall provide that all insurance proceeds in respect of any
     ------------
loss or occurrence shall be paid to and

                                      12
<PAGE>

adjusted solely by the Lessee except from and after the date on which the
insurer receives written notice from the Lessor or the Agent that a Lease Event
of Default exists (and unless and until such insurer receives written notice
from the Lessor or the Agent that all Lease Events of Default have been cured),
all losses shall be adjusted solely by, and all insurance proceeds shall be paid
solely to, the Agent (or the Lessor if the Participation Interests have been
fully paid) for application pursuant to Article XV.
                                        ----------

     14.3  Coverage.  (a) The Lessee shall furnish the Lessor and the Agent with
           --------
certificates showing the insurance required under Sections 14.1 and 14.2 to be
                                                  ----------------------
in effect and naming the Lessor, the Agent and each Participant as additional
insureds and, with respect to the insurance required under Section 14.2, loss
                                                           ------------
payees along with the Lessee, as their respective interests may appear, and
showing the mortgagee endorsement required by Section 14.3(c).  All such
                                              ---------------
insurance shall be at the cost and expense of the Lessee.  Such certificates
shall include a provision for thirty (30) days' advance written notice by the
insurer to the Lessor and the Agent in the event of cancellation of or any
reduction to less than ninety percent (90%) of Replacement Value (or, in the
case of Flood insurance, less than ninety percent (90%) of the sublimit
specified in Section 14.2) in the coverage provided by such insurance.
             ------------

           (b) The Lessee agrees that the insurance policy or policies required
by Sections 14.1 and 14.2 shall include (i) a clause in substantially the
   ----------------------
following form pursuant to which such policy shall provide that it will not be
invalidated should the Lessee waive, in writing, prior to a loss, any or all
rights of recovery against any party for losses covered by such policy, and that
the insurance in favor of the Lessor, the Agent and the Participants, and their
respective rights under and interests in said policies shall not be invalidated
or reduced by any act or omission or negligence of the Lessee or any other
Person having any interest in the Property, and (ii) a so-called "Waiver of
Subrogation Clause".  The Lessee hereby waives any and all such rights against
the Lessor, the Agent and the Participants to the extent of payments made under
such policies.  The Lessor, the Agent and the Participants hereby waive all such
rights against the Lessee to the extent of payments made to the Lessor under any
of such policies.

           (c) All such insurance shall be written by reputable insurance
companies that are financially sound and solvent and otherwise reasonably
appropriate considering the amount and type of insurance being provided by such
companies.  Any insurance company selected by the Lessee which is rated in
Best's Key Rating Guide or any successor thereto (or if there be none, an
organization having a similar national reputation) shall have a general
policyholder rating of "A-" and a financial rating of at least 10 in Best's Key
Rating Guide or be otherwise acceptable to the Lessor, the Agent and the
Required Participants.  All insurance policies required by Section 14.2 shall
                                                           ------------
include a standard form mortgagee endorsement in favor of the Agent.

           (d) The Lessor shall not carry separate insurance concurrent in kind
or form or contributing in the event of loss with any insurance required under
this Article XIV except that the Lessor may carry separate liability insurance
     -----------
(at its sole cost) so long as (i) the Lessee's insurance is designated as
primary and in no event excess or contributory to any insurance the Lessor may
have in force which would apply to a loss covered under the Lessee's policy and

                                      13
<PAGE>

(ii) each such insurance policy will not cause the Lessee's insurance required
under this Article XIV to be subject to a coinsurance exception of any kind.
           -----------

          (e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, and shall renew or replace
                      ------------     ------------
each policy prior to the expiration date thereof.  Throughout the Term, at the
time each of the Lessee's insurance policies is renewed (but in no event less
frequently than once each year), the Lessee shall deliver to the Lessor and the
Agent certificates of insurance evidencing that all insurance required by this
Article XIV is being maintained by the Lessee with respect to the Property and
-----------
is in effect.

          (f) Notwithstanding the other provisions of this Article XIV, the
                                                           -----------
Lessee may provide the insurance coverage required under this Article XIV
                                                              -----------
through its self-insurance program, so long as the Lessee remains in compliance
with the Consolidated Tangible Net Worth covenant in clause (i) of Section
                                                     ---------------------
10.1(v) to the Participation Agreement.
--------------------------------------

          (g) Notwithstanding anything to the contrary contained in the
Operative Documents: (i) the Lessee hereby waives, releases and discharges the
Lessor, the Agent and each Participant and their agents and employees from all
claims whatsoever arising out of loss, claim, expense or damage to or
destruction covered or coverable by insurance required under this Article XIV
                                                                  -----------
notwithstanding that such loss, claim, expense or damage may have been caused by
the Lessor, the Agent or any Participant or any of their agents or employees,
and the Lessee agrees to look to the insurance coverage only in the event of
such loss; and (ii) the Lessor, the Agent and the Participants hereby waive,
release and discharge the Lessee and its agents and employees from all claims
whatsoever arising out of loss, claim, expense, or damage to or destruction
covered by insurance required under this Article XIV to the extent of payments
                                         -----------
made to the Lessor notwithstanding that such loss, claim, expense or damage may
have been caused by the Lessee or any of its agents or employees.

     14.4  Indemnification.  In addition to the indemnification provisions
           ---------------
provided for in Section 13 of the Participation Agreement, to the fullest extent
                -----------------------------------------
allowed by law, the Lessee shall at all times during the Term, and to the extent
resulting from acts or events occurring prior to or during the Term or during
any other period when the Lessee is in possession and control of the Property,
indemnify, defend and hold each Indemnitee harmless against and from any and all
Claims by or on behalf of any Person arising from the construction of the
Improvements or conduct or management, or from any work or things whatsoever
done in or about the Property, and will further indemnify, defend and hold each
Indemnitee harmless against and from any and all Claims arising during the Term
of this Lease, from any condition of the Property, the Improvements or any
street, curb or sidewalk adjoining the Property, or of any passageways or space
therein or appurtenant thereto, or arising from any breach or default on the
part of the Lessee in the performance of any covenant or agreement on the part
of the Lessee to be performed, pursuant to the terms of this Lease or the
Construction Agency Agreement, or arising from any act or negligence of the
Lessee, its agents, servants, employees or licensees, or arising from any
accident, injury or damage whatsoever caused to any Person occurring during the
term of this Lease, in or about the Property, or upon the sidewalk and the land
adjacent thereto, other than in any of the foregoing cases (a) any Claim
resulting from a voluntary act or omission of the Indemnitee not in compliance
with any of the terms of the Operative Documents not caused by or

                                      14
<PAGE>

attributable to acts or omissions of the Lessee or any third party who is not an
Affiliate or an employee, agent or contractor of an Indemnitee or its
Affiliates, and (b) any Claim resulting from the gross negligence or willful
misconduct of an Indemnitee. Any action, suit or proceeding in respect of any
such Claim shall be handled in the manner set forth in Section 13.4 of the
                                                       -------------------
Participation Agreement.
-----------------------

                                  ARTICLE XV

     15.1  Casualty and Condemnation.  (a) Subject to the provisions of this
           -------------------------
Article XV and Article XVI (in the event the Lessee delivers, or is obligated to
----------     -----------
deliver, a Termination Notice), and except during the occurrence and
continuation of a Lease Default, the Lessee shall be entitled to receive (and
the Lessor shall pay over to the Lessee, if received by the Lessor, and hereby
irrevocably assigns to the Lessee all of the Lessor's right, title and interest
in) any award, compensation or insurance proceeds to which the Lessee or the
Lessor may become entitled by reason of their respective interests in the
Property (i) if all or a portion of the Property is damaged or destroyed in
whole or in part by a Casualty or (ii) if the use, access, occupancy, easement
rights or title to the Property or any part thereof, is the subject of a
Condemnation; provided, however, if a Lease Default shall have occurred and be
              --------  -------
continuing, such award, compensation or insurance proceeds shall be paid
directly to the Agent or, if received by the Lessee, shall be held in trust for
the Agent, and shall be paid over by the Lessee to the Agent (or, if the
Participation Interests have been fully paid, to the Lessor) and held in
accordance with the terms of this paragraph (a).  If, contrary to such
                                  -------------
provision, any such award, compensation or insurance proceeds are paid to the
Lessor or the Lessee, rather than to the Agent, the Lessor and the Lessee, as
the case may be, hereby agree to transfer any such payment to the Agent.  All
amounts held by the Lessor or the Agent when a Lease Default exists hereunder on
account of any award, compensation or insurance proceeds either paid directly to
the Lessor or the Agent or turned over to the Lessor or the Agent shall either
be (x) paid to the Lessee for the repair of damage caused by such Casualty or
Condemnation in accordance with paragraph (e) of this Section 15.1, or (y) held
                                ----------------------------------
in an interest bearing account reasonably acceptable to the Lessor and the
Lessee until applied to the purchase price of the Property on the Termination
Date, with any Excess Proceeds being payable to the Lessee.

          (b) The Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof.  At the Lessee's reasonable request, and at the Lessee's sole
cost and expense, the Lessor and the Agent shall participate in any such
proceeding, action, negotiation, prosecution or adjustment.  The Lessor and the
Lessee agree that this Lease shall control the rights of the Lessor and the
Lessee in and to any such award, compensation or insurance payment.

          (c) If the Lessor or the Lessee shall receive notice of a Casualty or
of an actual, pending or threatened Condemnation of the Property or any interest
therein, the Lessor or the Lessee, as the case may be, shall give notice thereof
to the other and to the Agent promptly after the receipt of such notice.

                                      15
<PAGE>

          (d) In the event of a Casualty or receipt of notice by the Lessee or
the Lessor of a Condemnation, the Lessee may deliver to the Lessor and the Agent
a Termination Notice with respect to the Property pursuant to Section 16.1.  If
                                                              ------------
the Lessee does not deliver a Termination Notice within seventy-five (75) days
after such occurrence, then this Lease shall (subject to the terms and
conditions thereof) remain in full force and effect, and the Lessee shall, at
the Lessee's sole cost and expense, promptly and diligently restore the Property
pursuant to paragraph (e) of this Section 15.1 and otherwise in accordance with
            ----------------------------------
this Lease.  If the Lessee delivers a Termination Notice within seventy-five
(75) days after such occurrence, a Significant Event shall irrevocably be deemed
to have occurred with respect to the Property, and, in such event, this Lease
shall terminate and the Lessee shall purchase the Property on the next Payment
Date (but in no event later than seventy-five (75) days after such occurrence)
(a "Termination Date") pursuant to Article XVI hereof.
    ----------------               -----------

          (e) If pursuant to this Section 15.1 this Lease shall continue in full
                                  ------------
force and effect following a Casualty or Condemnation, the Lessee shall, at its
sole cost and expense (and, without limitation, if any award, compensation or
insurance payment is not sufficient to restore the Property in accordance with
this paragraph, the Lessee shall pay the shortfall), promptly and diligently
repair any damage to the Property caused by such Casualty or Condemnation or
substitute new Equipment for the affected Equipment in conformity with the
requirements of Sections 10.1 and 11.1 using the as-built Plans and
                ----------------------
Specifications for the Property (as modified to give effect to any subsequent
Modifications, any Condemnation affecting the Property and all applicable
Requirements of Law) so as to restore the Property to at least the same
condition, operation, function and value as existed immediately prior to such
Casualty or Condemnation; provided, the substitution of any Equipment for any
                          --------
such affected Equipment previously financed with an Advance shall, at the
Lessor's reasonable request, be subject to delivery of an independent third-
party appraisal reasonably satisfactory to the Lessor and the Required
Participants by an appraiser satisfactory to the Lessor and the Required
Participants showing both (i) a current Fair Market Sales Value and (ii)
expected Fair Market Sales Value as of the then current Expiration Date and the
dates on which any potential Renewal Term would expire, in each case equal to or
greater than such values at such dates for the Equipment being replaced.  In the
event of such restoration, title to the Property shall remain with the Lessor;
provided, that (i) title to any such substituted equipment shall vest in the
--------
Lessor in the event that such equipment replaces Equipment previously financed
with an Advance and such equipment shall constitute Equipment thereafter for all
purposes of this Lease, and (ii) the Lessor shall assign all of its right, title
and interest to the Lessee in any such replaced equipment in the event that such
equipment replaces Equipment previously financed with an Advance without
representation or warranty of any kind other than that such equipment is free of
Lessor Liens.  Upon completion of such restoration, the Lessee shall furnish the
Lessor an architect's certificate of substantial completion and a Responsible
Officer's Certificate confirming that such restoration has been completed
pursuant to this Lease.

          (f) In no event shall a Casualty or Condemnation with respect to which
this Lease remains in full force and effect under this Section 15.1 affect the
                                                       ------------
Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its
                                             -----------
obligations and pay any amounts due on the Expiration Date or pursuant to
Articles XIX and XX.
-------------------

                                      16
<PAGE>

          (g) Any Excess Proceeds received by the Lessor or the Agent in respect
of a Casualty or Condemnation shall be turned over to the Lessee, provided that
                                                                  --------
no Lease Event of Default or Lease Default has occurred and is continuing.  Any
Excess Proceeds which are not turned over to the Lessee due to the existence of
a Lease Event of Default or a Lease Default shall be applied against the
Lessee's obligations under the Lease, and any excess remaining after such
obligations have been satisfied shall be paid to the Lessee.

     15.2  Environmental Matters.  Promptly upon the Lessee's actual knowledge
           ---------------------
of the presence of Hazardous Substances in any portion of the Property in
concentrations and conditions that constitute an Environmental Violation, the
Lessee shall notify the Lessor in writing of such condition.  In the event of
such Environmental Violation, the Lessee shall, not later than thirty (30) days
after the Lessee has actual knowledge of such Environmental Violation, either,
if such Environmental Violation is a Significant Event, deliver to the Lessor
and the Agent a Responsible Officer's Certificate and a Termination Notice with
respect to the Property pursuant to Section 16.1, or, if such Environmental
                                    ------------
Violation is not a Significant Event, at the Lessee's sole cost and expense,
promptly and diligently commence any Response Actions necessary to investigate,
remove, clean up or remediate the Environmental Violation in accordance with the
terms of Section 9.1.  If the Lessee does not deliver a Termination Notice with
         -----------
respect to the Property pursuant to Section 16.1, the Lessee shall, upon
                                    ------------
completion of Response Actions by the Lessee, cause to be prepared by an
environmental consultant reasonably acceptable to the Lessor a report describing
the Environmental Violation and the Response Actions taken by the Lessee (or its
agents) for such Environmental Violation, and a statement by the consultant that
the Environmental Violation has been remedied in compliance in all material
respects with applicable Environmental Law.  Each such Environmental Violation
shall be remedied prior to the Expiration Date.  Nothing in this Article XV
                                                                 ----------
shall reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3
                                                     ---------------------------
of the Participation Agreement.
------------------------------

     15.3  Notice of Environmental Matters.  Promptly, but in any event within
           -------------------------------
the thirty (30) Business Days from the date the Lessee has actual knowledge
thereof, the Lessee shall provide to the Lessor written notice of any material
pending or threatened claim, action or proceeding involving any Environmental
Law or any Release on or in connection with the Property.  All such notices
shall describe in reasonable detail the nature of the claim, action or
proceeding and the Lessee's proposed response thereto.  In addition, the Lessee
shall provide to the Lessor, within thirty (30) Business Days of receipt, copies
of all material written communications with any Governmental Authority relating
to any Environmental Law in connection with the Property.  The Lessee shall also
promptly provide such detailed reports of any such Material environmental claims
as may reasonably be requested by the Lessor and the Agent.

                                  ARTICLE XVI

     16.1  Termination by the Lessee upon Certain Events.  If either: (i) the
           ---------------------------------------------
Lessee or the Lessor shall have received notice of a Condemnation, and the
Lessee shall have delivered to the Lessor a Responsible Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and the Lessee shall have delivered to the Lessor a Responsible Officer's
Certificate that such Casualty is a Significant Casualty; or (iii) an

                                      17
<PAGE>

Environmental Violation occurs or is discovered and the Lessee shall have
delivered to the Lessor a Responsible Officer's Certificate stating that, in the
reasonable, good-faith judgment of the Lessee, the cost to remediate the same
will cause the same to be a Significant Event, or (iv) if the Lessee shall not
have delivered a Termination Notice with respect to such Environmental Violation
described in clause (iii) but the requirements of Section 16.4 are met with
             ------------                         ------------
respect to such Environmental Violation; then, (A) the Lessee shall,
simultaneously with the delivery of the Responsible Officer's Certificate
pursuant to the preceding clause (i), (ii) or (iii) deliver a written notice in
                          -------------------------
the form described in Section 16.2(a) (a "Termination Notice"), or (B) if clause
                      ---------------     ------------------              ------
(iv) is applicable, the Lessor may deliver a Termination Notice pursuant to
----
Section 16.4; provided, that if such Environmental Violation was not caused by
------------
nor within the control of the Lessee, the Lessee may exercise either its
Purchase Option or Remarketing Option pursuant to Section 17.2(h).
                                                  ---------------

     16.2 Procedures.  (a) A Termination Notice shall contain: (i) notice of
          ----------
termination of this Lease with respect to the Property or the affected portion
thereof on a date that is no later than thirty (30) days after the occurrence of
the applicable event described in clause (i), (ii) or (iii) of Section 16.1 (the
                                  -----------------------------------------
"Termination Date"), such termination to be effective upon the Lessee's payment
 ----------------
of the Asset Termination Value (or portion thereof representing the Property
Cost of the affected portion of the Property); and (ii) a binding and
irrevocable agreement of the Lessee to pay the Asset Termination Value and
purchase the Property on the Termination Date.

          (b) On the Termination Date, the Lessee shall pay to the Lessor the
Asset Termination Value (or such portion thereof, as applicable), plus all other
amounts owing in respect of Rent for the Property (including Supplemental Rent)
theretofore accruing, and the Lessor shall convey the Lessor's interest in the
Property or such portion thereof to the Lessee (or the Lessee's designee) all in
accordance with Section 19.1, as well as any Net Proceeds with respect to the
                ------------
Casualty or Condemnation giving rise to the termination of this Lease with
respect to the Property theretofore received by the Lessor.

     16.3 Termination by the Lessor upon Certain Events.  If the Lessor
          ---------------------------------------------
reasonably determines that any change in, or change by a Governmental Authority
in the interpretation of, any applicable law after the date hereof would result
in it or any Participant being unable to continue to hold legal or beneficial
title to all or any portion of the Property or, except as provided in Section
                                                                      -------
16.4 hereof, subject it or any Participant to onerous regulations or onerous
----
liability on account thereof, the Lessor may deliver a Termination Notice with
respect to the Lease to the Agent, the Participants and the Lessee, such
termination to be effective on the Termination Date specified therein, which
date shall not be earlier than thirty (30) days following the date the notice is
delivered to the Lessee.  In the event the Lessor exercises its termination
option, the Lessee may exercise the Remarketing Option provided in Section 22.1
                                                                   ------------
hereof by giving notice to the Lessor within ten (10) Business Days of receipt
of the notice from the Lessor.  If the Lessee does not exercise its Remarketing
Option, the Lessee shall be obligated to purchase the Property in accordance
with Section 20.2 hereof on the Termination Date for the purchase price set
     ------------
forth therein.

     16.4  Purchase of Property.  Upon receipt of any notice pursuant to Section
           --------------------                                          -------
15.2 or 15.3, the Lessor or the Required Participants, at the Lessee's expense,
---- -------
shall have the right to select an

                                      18
<PAGE>

independent environmental consultant acceptable to the Lessee, which acceptance
shall not be unreasonably withheld or delayed, to determine the estimated cost
of conducting any clean-up or remediation required as a result of the
Environmental Violation disclosed in such notice. If such independent
environmental consultant determines that the cost of any such clean-up or
remediation would exceed $5,000,000, the Lessor shall, subject to the proviso at
the end of Section 16.1, at the direction of the Required Participants, by
           ------------
written notice require the Lessee to purchase, or arrange for an Affiliate or
other third party to purchase, the Property on the Expiration Date by delivering
a Termination Notice following the requirements of Section 16.2 hereof, unless
                                                   ------------
the Environmental Violation was not caused by nor within the control of the
Lessee, in which later case the provisions of Section 17.2(h) shall apply.
                                              --------------

                                 ARTICLE XVII

     17.1 Lease Events of Default.  The occurrence of any one or more of the
          -----------------------
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute a "Lease Event of
                                                             --------------
Default":
-------

          (a) the Lessee shall fail to make payment of (i) any Basic Rent (other
than a payment of Basic Rent due on the Expiration Date or Termination Date)
within five (5) Business Days after the same has become due and payable, (ii)
any Partial Purchase Option Price or other amounts due on a Partial Purchase
Date pursuant to Section 20.5, after the same has become due and payable, or
                 ------------
(iii) Basic Rent, Purchase Option Price, Asset Termination Value or Residual
Value Guarantee Amount or other amounts due on the Expiration Date or the
Termination Date, including, without limitation, amounts due pursuant to
Sections 16.2, 16.3, 16.4, 20.1, 20.2, 20.3 or 22.1, after the same has become
---------------------------------------------------
due and payable;

          (b) the Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in clause (a) of this Section) due and
                                             ----------
payable within thirty (30) days after written notice thereof;

          (c) the Lessee shall fail to maintain insurance as required by Article
                                                                         -------
XIV of this Lease, and such failure is either a failure to have in force a
---
policy of insurance substantially meeting the requirements of Article XIV, or if
                                                              -----------
such policy is in effect, then any deviation of such policy from the
requirements of Article XIV is not cured within twenty (20) days after the
                -----------
earlier of (i) receipt of written notice thereof or (ii) the Lessee having
knowledge thereof;

          (d) the Lessee shall fail to observe or perform any term, covenant or
condition of the Lessee under this Lease, the Participation Agreement or any
other Operative Document to which it is a party (other than those described in
Section 17.1(a), (b),or (c) hereof), or any representation or warranty set forth
---------------------------
in this Lease or in any other Operative Document or in any document entered into
in connection herewith or therewith or in any document, certificate or financial
or other statement delivered in connection herewith or therewith shall be false
or inaccurate in any Material way, and such failure or misrepresentation or
breach of warranty shall remain uncured for a period of thirty (30) days after
receipt of written notice thereof; provided,
                                   --------

                                      19
<PAGE>

that if such failure to perform is not capable of being cured within such period
but is capable of being cured within one hundred eighty (180) days after the
occurrence of such default and the Lessee is proceeding diligently to cure such
default, the Lessee shall be entitled to request an additional period (not to
exceed one hundred eighty (180) days from the date of such default) to cure such
default;

          (e) the Lessee or any of the Lessee's Subsidiaries (i) shall fail to
make a payment or payments in an aggregate amount of $2,500,000 or more when due
under the terms of any Funded Debt to be paid by such Person (excluding this
Lease or any intercompany indebtedness between the Lessee and any of its
Subsidiaries, but including any other evidence of indebtedness of the Lessee or
any of its Subsidiaries to any Participant) and such failure shall continued
beyond any period of grace provided with respect thereto, or (ii) shall fail to
make any other payment or payments when due under or otherwise default in the
observance or performance of any other agreement, term or condition contained in
any such Funded Debt, and the effect of such failure or default is to cause, or
permit the holder or holders thereof to cause, indebtedness in an aggregate
amount of $10,000,000 or more to become due prior to its stated date of
maturity; or (iii) there shall occur to exist any other event or condition which
causes, or permits the holder or holders of such indebtedness to cause,
indebtedness in an aggregate amount of $10,000,000 or more to become due prior
to its stated date of maturity (whether through holder puts, mandatory
redemptions or prepayments or otherwise);

          (f) the Lessee or any of Lessee's Material Subsidiaries (except with
respect to clause (v) below) 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 it or any of its creditors, (iv) be dissolved or
liquidated in full or in part, (v) no longer be Solvent; (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 (vii) take any
action for the purpose of effecting any of the foregoing;

          (g) proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Lessee or any of the Lessee's 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 the Lessee or any of the Lessee's 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 sixty (60) days of commencement;

          (h) a final nonappealable judgment or order for the payment of money
in excess of $10,000,000 (exclusive of amounts which are covered by insurance
issued by an insurer satisfying the requirements set forth in Section 10.1(d) of
                                                              ------------------
the Participation Agreement) shall be rendered against the Lessee or any of its
---------------------------
Subsidiaries and the same shall remain undischarged and unpaid for a period of
thirty (30) days during which execution shall not be effectively stayed;

                                      20
<PAGE>

          (i) any Reportable Event occurs 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, or any Employee
Benefit Plan shall be terminated with unfunded liabilities within the meaning of
Title IV of ERISA or a trustee shall be appointed by the PBGC to administer any
Employee Benefit Plan, in each case which could reasonably be expected to have a
Material Adverse Effect;

          (j) any Change of Control shall occur;

          (k) a Guarantee Event of Default shall have occurred and be
continuing;

          (l) if the Lessee shall not have exercised its Purchase Option
pursuant to Section 20.1 hereof and the Lessee shall have validly exercised its
            ------------
Remarketing Option pursuant to Section 22.1 hereof, the Lessee shall have failed
                               ------------
(i) to consummate a sale of the Property in the manner provided therein on the
Expiration Date and to pay to the Agent (or such other Person as the Agent may
direct) pursuant to such Section the Residual Value Guarantee Amount and the
other amounts required thereby, or (ii) to purchase the Lessor's interest in the
Property on the Expiration Date as provided in Section 20.2 hereof and to pay to
                                               ------------
the Lessor the Asset Termination Value therefor on the Expiration Date as
required thereby;

          (m) a Construction Agency Agreement Event of Default shall have
occurred and be continuing;

          (n) the Lessee shall have abandoned or constructively abandoned all or
any material portion of the Property for a period of thirty (30) consecutive
days; or

          (o) an Environmental Violation shall occur that, in the reasonable
opinion of the Lessor and the Required Participants, based on an Environmental
Audit, constitutes a Significant Event and the Lessee shall not, within thirty
(30) days after notice from the Lessor, have delivered a Termination Notice with
respect thereto pursuant to Section 16.1 hereof or, if so delivered, repurchase
                            ------------
of the Property shall not have been consummated on the Termination Date pursuant
to Section 16.2 hereof; or
   ------------

          (p) the Lessee shall have elected to or be required to purchase the
Property pursuant to Sections 16.3 or 16.4 hereof and such purchase shall not
                     ---------------------
have been consummated on the Termination Date pursuant to either such Section.

     17.2 Remedies.  Upon the occurrence of any Lease Event of Default and at
          --------
any time thereafter, the Lessor may, so long as such Lease Event of Default is
continuing, do one or more of the following as the Lessor in its sole discretion
shall determine, without limiting any other right or remedy the Lessor may have
on account of such Lease Event of Default (including, without limitation, the
obligation of the Lessee to purchase the Property as set forth in Section 20.3)
                                                                  ------------
upon notice to the Lessee (if not otherwise provided for below):

          (a) The Lessor may, by notice to the Lessee, rescind or terminate this
Lease only as to all of the Property as of the date specified in such notice;
however, (i) no reletting, reentry or taking of possession of the Property (or
any portion thereof) by the Lessor will be

                                      21
<PAGE>

construed as an election on the Lessor's part to terminate this Lease unless a
written notice of such intention is given to the Lessee, (ii) notwithstanding
any reletting, reentry or taking of possession, the Lessor may at any time
thereafter elect to terminate this Lease for a continuing Lease Event of
Default, (iii) no act or thing done by the Lessor or any of its agents,
representatives or employees and no agreement accepting a surrender of the
Property shall be valid unless the same be made in writing and executed by the
Lessor and (iv) no termination pursuant to this Section shall terminate Lessee's
right to cure such Lease Event of Default set forth in Section 17.6 hereof by
                                                       ------------
purchasing the Property pursuant to Section 20.1 hereof prior to such time
                                    ------------
as a foreclosure upon or sale of the Property has been completed.

          (b)  The Lessor may (i) demand that the Lessee, and the Lessee shall
upon the written demand of the Lessor, return the Property promptly to the
Lessor in the manner and condition required by, and otherwise in accordance with
all of the provisions of, Articles VIII, IX and X hereof as if the Property were
                          -----------------------
being returned at the end of the Term, and the Lessor shall not be liable for
the reimbursement of the Lessee for any costs and expenses incurred by the
Lessee in connection therewith and (ii) without prejudice to any other remedy
which the Lessor may have for possession of the Property, and to the extent and
in the manner permitted by Applicable Law, enter upon the Property and take
immediate possession of (to the exclusion of the Lessee) the Property or any
part thereof and expel or remove the Lessee and any other Person who may be
occupying the Property, by summary proceedings or otherwise, all without
liability to the Lessee for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise and, in addition to the Lessor's other damages, to the extent and in
the manner permitted by Applicable Law with respect to remedies for a breach of
a real estate lease, the Lessee shall be responsible for all costs and expenses
incurred by the Lessor and/or the Agent or the Participants in connection with
any reletting, including, without limitation, brokers' fees and all costs of any
alterations or repairs made by the Lessor;

          (c)  The Lessor may (i) sell all or any part of the Property at public
or private sale, as the Lessor may determine, free and clear of any rights of
the Lessee and without any duty to account to the Lessee with respect to such
action or inaction or any proceeds with respect thereto (except to the extent
required by clause (ii) below if the Lessor shall elect to exercise its rights
            -----------
thereunder) in which event the Lessee's obligation to pay Basic Rent hereunder
for periods commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if the Lessor shall so
elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (the parties agreeing that the Lessor's actual damages
would be difficult to predict, but the aforementioned liquidated damages
represent a reasonable approximation of such amount) (in lieu of Basic Rent due
for periods commencing on or after the Payment Date coinciding with such date of
sale (or, if the sale date is not a Payment Date, the Payment Date next
preceding the date of such sale)), an amount equal to (A) the excess, if any, of
(1) the Asset Termination Value calculated as of such Payment Date (including
all Rent due and unpaid to and including such Payment Date), over (2) the net
proceeds of such sale, if any (that is, after deducting all costs and expenses
incurred by the Lessor, the Agent and the Participants incident to such
conveyance, including, without limitation, repossession costs, brokerage
commissions, prorations, transfer taxes, fees and expenses for counsel, title
insurance fees,

                                      22
<PAGE>

survey costs, recording fees, and any repair or alteration costs); plus (B)
interest at the Overdue Rate on the foregoing amount from such Payment Date
until the date of payment, and any excess of the sale proceeds over such Asset
Termination Value and any other sums owing by the Lessee under the Operative
Documents shall be remitted to the Lessee;

          (d)  The Lessor may, at its option, not terminate the Lease with
respect to the Property, and continue to collect all Basic Rent, Supplemental
Rent, and all other amounts due the Lessor (together with all costs of
collection) and enforce the Lessee's obligations under this Lease as and when
the same become due, or are to be performed, and at the option of the Lessor,
upon any abandonment of the Property by the Lessee or re-entry of same by the
Lessor, the Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease and may make such reasonable alterations and necessary
repairs in order to relet the Property, and relet the Property or any part
thereof for such term or terms (which may be for a term extending beyond the
Term of this Lease) and at such rental or rentals and upon such other terms and
conditions as the Lessor in its reasonable discretion may deem advisable; and
upon each such reletting all rentals actually received by the Lessor from such
reletting shall be applied to the Lessee's obligations hereunder and the other
Operative Documents in such order, proportion and priority as the Lessor may
elect in the Lessor's sole and absolute discretion.  If such rentals received
from such reletting during any period be less than the Rent with respect to the
Property to be paid during that period by the Lessee hereunder, the Lessee shall
pay any deficiency, as calculated by the Lessor, to the Lessor on the next
Payment Date;

          (e)  Unless the Property has been sold in its entirety, the Lessor
may, whether or not the Lessor shall have exercised or shall thereafter at any
time exercise any of its rights under paragraph (b), (c) or (d) of this Section
                                      -----------------------------------------
17.2 with respect to the Property or portions thereof, demand, by written notice
----
to the Lessee specifying a date (a "Termination Date") not earlier than ten (10)
                                    ----------------
Termination Date, the Property (or the remaining portion thereof) in accordance
with the provisions of Article XIX and Section 20.3;
                       -----------     ------------

          (f)  The Lessor may exercise any other right or remedy that may be
available to it under the Operative Documents or otherwise under Applicable Law,
or proceed by appropriate court action (legal or equitable) to enforce the terms
hereof or to recover damages for the breach hereof.  Separate suits may be
brought to collect any such damages for any period(s), and such suits shall not
in any manner prejudice the Lessor's right to collect any such damages for any
subsequent period(s), or the Lessor may defer any such suit until after the
expiration of the Term, in which event such suit shall be deemed not to have
accrued until the expiration of the Term; or

          (g)  The Lessor may retain and apply against the Lessor's damages all
sums which the Lessor would, absent such Lease Event of Default, be required to
pay to, or turn over to, the Lessee pursuant to the terms of this Lease.

          (h)  Notwithstanding anything contained in this Lease to the contrary,
in the event that (A) the Lease Event of Default resulting in the exercise of
remedies by the Lessor hereunder is solely the result of a Construction Agency
Agreement Event of Default pursuant to

                                      23
<PAGE>

Section 5.1(b) or (c) of the Construction Agency Agreement or is a Lease
------------------------------------------------------------------------
Event of Default under Section 17.1(o) where the occurrence of such
                       ---------------
Environmental Violation was not caused by or within the control of the Lessee
or under Section 10.1(d) (each, a "Specified Event of Default"), or (B) the
         ---------------           --------------------------
proviso at the end of Section 16.1 applies, the Lessee shall have the option
                      ------------
to (i) remarket the Property for one hundred eighty (180) days after the
occurrence of such Specified Event of Default in accordance with Article XXII
                                                                 ------------
(which period shall constitute the Remarketing Period), with the purchase of
the Property to be consummated no later than the date that is one hundred
eighty (180) days following the occurrence of such Specified Event of Default
(which date shall constitute the Expiration Date if such option is exercised),
or (ii) exercise its Purchase Option under Section 20.1, with the purchase of
                                           ------------
the Property by the Lessee to be consummated, and the other payments required
thereunder to be made to the Lessor, on the next Payment Date following the
occurrence of such Specified Event of Default (which date shall constitute
the Expiration Date if such option is exercised).  The Lessee shall notify the
Lessor within ten (10) days after the occurrence of such Specified Event of
Default which option it is exercising.  If the Lessee elects to remarket the
Property the Lessee shall pay to the Lessor (i) the maximum Residual Value
Guarantee Amount on the date it furnishes such notice of exercise of the
Remarketing Option (the "Option Notice Date"), (ii) all breakage costs incurred
                         ------------------
by the Participants for the duration of all then current Interest Periods under
the Participation Agreement with respect to the amount so paid following notices
thereof by the Agent, (iii) Basic Rent with respect to the Tranche A
Participation Interests on the amount so paid accrued to and payable on the
Option Notice Date, (iv) Basic Rent when due with respect to the unpaid portion
of the Tranche B Participation Interests and/or Tranche C Participation
Interests to the date of sale of the Property and (v) the other payments
required under Section 22.1 when required thereunder and no later than the
               ------------
Expiration Date.  If the Lessee exercises neither of such options or, if one of
such options is exercised but the Lessor does not receive the payments required
above or by such Article or Section on the dates referred to above, such failure
to exercise or failure to receive payment shall constitute a Lease Event of
Default that is not a Specified Event of Default and the Lessor shall be
entitled to exercise any of its remedies set forth in Sections 17.2(a) - (g).
                                                      ----------------------
If the Lessee properly exercises its Remarketing Option under this Section
                                                                   -------
17.2(h), pays the Residual Value Guarantee Amount as required above and is
-------
unable to arrange for the sale of the Property on the new Expiration Date, such
failure to sell the Property shall constitute a Lease Event of Default that is
not a Specified Event of Default and the Lessor shall be entitled to exercise
any of its remedies set forth in Sections 17.2(a) - (g); provided that in such
                                 ----------------------  --------
event the portion of Asset Termination Value which may be recovered from the
Lessee under any of such Sections shall not exceed, in addition to any other
payments required by such Sections, that portion of the Asset Termination Value
that remains unpaid after payment of the Residual Value Guarantee Amount as
provided in this Section 17.2(h).
                 ---------------

     17.3  Waiver of Certain Rights.  If this Lease shall be terminated pursuant
           ------------------------
to Section 17.2, the Lessee waives, to the fullest extent permitted by law, (a)
   ------------
any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt or limiting the Lessor with respect to the
election of remedies; and (d) any other rights which might otherwise limit or
modify any of the Lessor's rights or remedies under this Article XVII.
                                                         ------------

                                      24
<PAGE>

     17.4  Power of Sale and Foreclosure.  In the event that a court of
           -----------------------------
competent jurisdiction rules that this Lease constitutes a mortgage, deed of
trust or other secured financing as is the intent of the parties pursuant to
Section 7.1, and subject to the availability of such remedy under applicable
-----------
law, then the Lessor and the Lessee agree that (i) the Lessee hereby grants a
Lien against the Property WITH POWER OF SALE, and that, upon the occurrence of
any Lease Event of Default the Lessor shall have the power and authority, to the
extent provided by law, after proper notice and lapse of such time as may be
required by law, to sell the Property at the time and place of sale fixed by the
Lessor in said notice of sale, either as a whole, or in separate lots or parcels
or items and in such order as the Lessor may elect, at auction to the highest
bidder for cash in lawful money of the United States payable at the time of
sale; accordingly, it is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN
THIS INSTRUMENT; A POWER OF SALE MAY ALLOW THE LESSOR TO TAKE THE PROPERTY AND
SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
LESSEE UNDER THIS INSTRUMENT, and (ii) upon the occurrence of a Lease Event of
Default, the Lessor, in lieu of or in addition to exercising any power of sale
hereinabove given, may proceed by a suit or suits in equity or at law, whether
for a foreclosure hereunder, or for the sale of the Property, or against the
Lessee on a recourse basis for the Asset Termination Value, or the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Property, or for the
enforcement of any other appropriate legal or equitable remedy.  The parties
hereto intend that, in addition to any other debt or obligation secured by the
Lien granted pursuant to this Section 17.4, such Lien shall secure unpaid
                              ------------
balances of Rent and Supplemental Rent and other extensions of credit made by
the Lessor to the Lessee after this Lease is delivered to the appropriate
recording offices of Colorado, whether made pursuant to an obligation of the
Lessee or otherwise, and such Rent and Supplemental Rent shall be secured to the
same extent as if such future payment obligations of Rent and Supplemental Rent
were on account of obligatory advances to be made under a construction loan;
provided such obligations secured hereby at any one time shall not exceed the
--------
lesser of: (i) the maximum principal sum permitted by the laws of Colorado; or
(ii) one hundred thirty-two million Dollars ($132,000,000) together with
interest or Yield thereon calculated at the rates provided in the Participation
Agreement.

     17.5  Remedies Cumulative.  The remedies herein provided shall be
           -------------------
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise, including, without limitation, any
mortgage foreclosure remedies.

     17.6  Lessee's Right to Cure.  Notwithstanding any provision contained in
           ----------------------
the Lease or any other Operative Agreement, if a Lease Event of Default has
occurred and is continuing, the Lessee shall have the right to cure such Lease
Event of Default by exercising its Purchase Option at any time prior to such
time as a foreclosure upon or sale of the Property has been completed.

                                 ARTICLE XVIII

     18.1  The Lessor's Right to Cure the Lessee's Lease Defaults.  The Lessor,
           ------------------------------------------------------
without waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Default or Lease Event of
Default (other than those described in

                                      25
<PAGE>

Sections 7.1(g), (h) and (i))for the account and at the sole cost and expense of
----------------------------
the Lessee, including the failure by the Lessee to maintain the insurance
required by Article XIV, and may, to the fullest extent permitted by law, and
            -----------
notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon
the Property for such purpose and take all such action thereon as may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
the Lessee. All out-of-pocket costs and expenses so incurred (including fees and
expenses of counsel), together with interest thereon at the Overdue Rate from
the date on which such sums or expenses are paid by the Lessor, shall be paid by
the Lessee to the Lessor on demand, as Supplemental Rent.

                                  ARTICLE XIX

     19.1  Provisions Relating to the Lessee's Termination of this Lease or
           ----------------------------------------------------------------
Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and
-----------------------------------------------------------------------------
Conveyance Upon Certain Other Events.  (a) In connection with any termination of
------------------------------------
this Lease pursuant to the terms of Article XVI (if the Lessee is obligated to
                                    -----------
purchase the Property), or in connection with the Lessee's exercise of its
Purchase Option, Remarketing Option or Expiration Date Purchase Obligation, upon
the date on which this Lease is to terminate or upon the Expiration Date, and
upon tender by the Lessee of the amounts set forth in Sections 16.2(b), 17.2(h),
                                                      --------------------------
20.1, 20.2, 20.3, or 22.1 as applicable, the Lessor shall execute and deliver to
-------------------------
the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a
quitclaim or warranty deed to the extent required by local custom and by the
Lessee's title insurance company to the extent necessary to enable the Lessee to
obtain customary title insurance at closing of the Lessor's right, title and
interest in the Property (which shall include a release, quitclaim and
assignment of all of the Lessor's right, title and interest in and to any Net
Proceeds not previously received by the Lessor), subject to the Permitted Liens
and the Permitted Exceptions (other than Lessor Liens) and any encumbrance
caused by the fault, neglect or intention of the Lessee, in recordable form and
otherwise in conformity with local custom and free and clear of the Mortgage and
any Lessor Liens attributable to the Lessor; provided that in the event a
                                             --------
warranty deed is required, the Lessee shall defend, indemnify and hold harmless
the Lessor from and against any and all Claims relating to title to the Property
other than Lessor Liens.  The Improvements and the Equipment shall be conveyed
to the Lessee "AS IS" and in their then present condition of title and physical
condition.

           (b) If the Lessee properly exercises the Remarketing Option, then the
Lessee shall, on the Expiration Date, and at its own cost, transfer possession
of the Property to the independent purchaser thereof, by surrendering the same
into the possession of the Lessor or such purchaser, as the case may be, free
and clear of all Liens other than Lessor Liens, in good condition (as modified
by Modifications permitted by this Lease), ordinary wear and tear excepted, in
compliance with Applicable Law, and in "broom-swept clean" condition.  The
Lessee shall cooperate reasonably with the Lessor and the independent purchaser
of the Property in order to facilitate the purchase by such purchaser of the
Property which cooperation shall include the following, all of which the Lessee
shall do on or before the Expiration Date: providing all books and records
regarding the maintenance and ownership of the Property and all know-how, data
and technical information relating thereto, providing a current copy of the "as
built" Plans and Specifications for the Property, granting or assigning all
licenses necessary for

                                      26
<PAGE>

the operation and maintenance of the Property and cooperating reasonably in
seeking and obtaining all necessary Governmental Action. The obligations of the
Lessee under this paragraph shall survive the expiration or termination of this
Lease.

                                  ARTICLE XX

     20.1  Purchase Option.  Without limitation of the Lessee's purchase
           ---------------
obligation pursuant to Sections 20.2, 20.3 or 20.5, unless the Lessee shall have
                       ---------------------------
given notice of its intention to exercise the Remarketing Option and the Lessor
shall have entered into a binding contract to sell the Property, the Lessee
shall have the option (exercisable by giving the Lessor irrevocable written
notice (the "Purchase Notice") of the Lessee's election to exercise such option)
             ---------------
to purchase, or to designate a third party to purchase, the Property on the date
specified in such Purchase Notice, which date shall be a Payment Date.  The
purchase price shall be equal to the Asset Termination Value plus all other
amounts owing in respect of Rent (including Supplemental Rent) theretofore
accruing (the "Purchase Option Price").  The Lessee shall deliver the Purchase
               ---------------------
Notice to the Lessor not less than thirty (30) days prior to the purchase date
or as otherwise provided pursuant to Section 17.2(h).  If the Lessee exercises
                                     ---------------
its option to purchase the Property pursuant to this Section 20.1 (the "Purchase
                                                     ------------       --------
Option"), the Lessor shall transfer to the Lessee all of the Lessor's right,
------
title and interest in and to the Property as of the date specified in the
Purchase Notice upon receipt of the Purchase Option Price and all Rent and other
amounts then due and payable under this Lease and any other Operative Document,
in accordance with Section 19.l(a).  The Lessee may assign the Purchase Option
                   ---------------
to a third party separately from any permitted assignment by the Lessee of its
rights and obligations under Section 25.1 hereof without the consent of the
                             ------------
Lessor; provided that the Lessee shall remain primarily liable for the
        --------
performance of any such assignees in connection with the exercise of the
Purchase Option in accordance with the provisions of Section 25.1 hereof.
                                                     ------------

     20.2  Expiration Date Purchase Obligation.  Unless (a) the Lessee shall
           -----------------------------------
have properly exercised the Purchase Option pursuant to Section 20.1 and
                                                        ------------
purchased the Property pursuant thereto, (b) the Lessee shall have properly
exercised the Remarketing Option and shall have fulfilled all of the conditions
of clauses (a) through (k) of Section 22.1 hereof and the Lessor shall have sold
   ---------------------------------------
its interest in the Property pursuant thereto, or (c) the Lessee shall have
properly exercised the Renewal Option pursuant to Section 21.1 and the terms and
                                                  ------------
conditions of a Renewal Term shall have been agreed upon pursuant to such
Section, then, subject to the terms, conditions and provisions set forth in this
Article, and in accordance with the terms of Section 19.1(a), the Lessee shall
                                             ---------------
purchase from the Lessor, and the Lessor shall assign to the Lessee without
recourse, on the Expiration Date of the Term (as such Term may be renewed
pursuant to Section 21.1) all of the Lessor's right, title and interest in the
            ------------
Property (subject to all existing Liens, other than the Mortgage and Lessor
Liens) for an amount equal to the Asset Termination Value.  The Lessee may
designate, in a notice given to the Lessor not less than ten (10) Business Days
prior to the closing of such purchase (time being of the essence), the
transferee or transferees to whom the conveyance shall be made (if other than to
the Lessee), in which case such conveyance shall (subject to the terms and
conditions set forth herein) be made to such designee; provided, however, that
                                                       --------  -------
such designation of a transferee or transferees shall not cause the Lessee to be
released, fully or partially, from any of its obligations under this Lease,

                                      27
<PAGE>

including, without limitation, the obligation to pay the Lessor an amount equal
to the Asset Termination Value that was not fully and finally paid by such
designee on such Expiration Date.

     20.3  Acceleration of Purchase Obligation.  (a) The Lessee shall be
           -----------------------------------
obligated to purchase for an amount equal to the Asset Termination Value, the
Lessor's interest in the Property (notwithstanding any prior election to
exercise its Purchase Option pursuant to Section 20.1) (i) automatically and
                                         ------------
without notice upon the occurrence of any Lease Event of Default specified in
clause (f) or (g) of Section 17.1, and (ii) as provided for at Section 17.2(e)
---------------------------------                              ---------------
immediately upon written demand of the Lessor upon the occurrence of any other
Lease Event of Default.

           (b) The Lessee shall be obligated to purchase for an amount equal to
the Asset Termination Value (plus all other amounts owing in respect of Rent
(including Supplemental Rent) theretofore accruing), immediately upon written
demand of the Lessor, the Lessor's interest in the Property at any time during
the Term when the Lessor's interest in the Property is foreclosed due to an
event arising out of a violation of the warranty of title contained in Section
                                                                       -------
12.1 hereof and the Lessor ceases to have title as contemplated by Section 12.1.
----                                                               ------------

     20.4  Cash Collateral.  To the extent the Depository Bank holds any
           ---------------
Collateral pursuant to the Cash Collateral Agreement and if, under the Cash
Collateral Agreement or any Attachment thereto or Notice thereunder, the Lessor
is entitled to give notice to the Depository Bank to apply such Collateral to
any of its obligations hereunder or under the Operative Documents, whether in
connection with the exercise of its Purchase Option, any purchase obligation or
the exercise of its Remarketing Option, the Lessor or the Agent shall, upon
receipt of such notice from the Lessee, direct the Depository Bank to apply such
Cash Collateral to such obligations of the Lessee to the extent so directed by
the Lessee.

     20.5  Partial Purchase Option Exercisable After Subdivision.  (a) The
           -----------------------------------------------------
Lessee may, in the Lessor's name, but at the Lessee's sole cost and expense,
subdivide the Land Interest into not more than four (4) parcels (each such
parcel, together with the Improvements, Fixtures, Modifications and Equipment
located on such parcel, a "Subdivided Parcel"), in one or more transactions, in
                           -----------------
compliance with all Requirements of Law, provided that (i) no Lease Default has
                                         --------
occurred and is continuing, (ii) such subdivision does not materially impair the
value, utility or remaining useful life of any Subdivided Parcel, (iii) the
Lessee's obligations and the interests and Liens of the Lessor, the Agent and
the Participants arising under this Lease and the other Operative Documents
remain in full force and effect and are not diminished or subordinated in any
respect as a result of such subdivision, and (iv) any obligations of the Lessor
with respect to such subdivision are paid or performed by the Lessee at the
Lessee's sole cost and expense.  Upon the completion of any such subdivision,
the Lessor shall allocate the Asset Termination Value among the Subdivided
Parcels in accordance with the methodology set forth on Schedule V to the
                                                        -----------------
Participation Agreement, which shall be the purchase price applicable to each
-----------------------
Subdivided Parcel under this Section 20.5 (the "Partial Purchase Option Price").
                             ------------       -----------------------------

           (b) Upon completion of any subdivision of the Land Interest in
accordance with Section 20.5(a), the Lessee shall have the option (exercisable
                ---------------
by giving the Lessor irrevocable written notice (the "Partial Purchase Notice")
                                                      -----------------------
of the Lessee's election to exercise

                                      28
<PAGE>

such option) without terminating this Lease to purchase, or to designate a third
party to purchase, any Subdivided Parcel for the Partial Purchase Option Price
applicable to such Subdivided Parcel on the date specified in such Partial
Purchase Notice, which shall be a Payment Date (the "Partial Purchase Date").
                                                     ---------------------
The Lessee shall deliver any Partial Purchase Notice to the Lessor not less than
thirty (30) days prior to the Partial Purchase Date. If the Lessee exercises its
option to purchase any Subdivided Parcel pursuant to this Section 20.5 (a
                                                          ------------
"Partial Purchase Option"), so long as no Lease Default has occurred and is
 -----------------------
continuing, the Lessor shall transfer to the Lessee all of the Lessor's right,
title and interest in and to the Subdivided Parcel specified in any Partial
Purchase Notice as of the Partial Purchase Date upon receipt of the Partial
Purchase Option Price applicable to such Subdivided Parcel and all Rent and
other amounts then due and payable under this Lease and any other Operative
Document, in accordance with Section 20.5(c). The Lessee may assign a Partial
                             ---------------
Purchase Option to a third party separately from any permitted assignment by the
Lessee of its rights and obligations under Section 25.1 hereof without the
                                           ------------
consent of the Lessor; provided that the Lessee shall remain primarily liable
                       --------
for the performance of any such assignees in connection with the exercise of any
Partial Purchase Option in accordance with Section 25.1 hereof. Upon payment to
                                           ------------
the Lessor of the Partial Purchase Option Price with respect to any Subdivided
Parcel, the Asset Termination Value shall be reduced by the amount of the
Partial Purchase Option Price paid.

           (c) In connection with the Lessee's exercise of a Partial Purchase
Option with respect to any Subdivided Parcel, upon the applicable Partial
Purchase Date and upon tender by the Lessee of the amounts set forth in Section
                                                                        -------
20.5(b), the Lessor shall execute and deliver to the Lessee (or to the Lessee's
-------
designee) at the Lessee's cost and expense a quitclaim or warranty deed to the
extent required by local custom and by the Lessee's title insurance company to
the extent necessary to enable the Lessee to obtain customary title insurance at
closing of the Lessor's right, title and interest in such Subdivided Parcel
(which shall include a release, quitclaim and assignment of all of the Lessor's
right, title and interest in and to any Net Proceeds to the extent payable with
respect to such Subdivided Parcel and not previously received by the Lessor),
subject to the Permitted Liens and the Permitted Exceptions (other than Lessor
Liens) and any encumbrance caused by the fault, neglect or intention of the
Lessee, in recordable form and otherwise in conformity with local custom and
free and clear of the Mortgage and any Lessor Liens attributable to the Lessor;
provided that in the event a warranty deed is required, the Lessee shall defend,
--------
indemnify and hold harmless the Lessor from and against any and all Claims
relating to title to such Subdivided Parcel other than Lessor Liens.  The
Improvements and the Equipment located on such Subdivided Parcel shall be
conveyed to the Lessee "AS IS" and in their then present condition of title and
physical condition.

                                  ARTICLE XXI

     21.1  Renewal.  (a) Subject to the conditions set forth herein, the Lessee,
           -------
at any time after the first anniversary of the Effective Date, shall have the
option (the "Renewal Option") by written request (the "Renewal Request") to the
             --------------                            ---------------
Lessor, each Participant and the Agent given not later than ninety (90) days
prior to the then Expiration Date to renew the Term for a one-year period
commencing on the date following the Expiration Date then in effect.  No later
than the date (the "Renewal Response Date") which is thirty (30) days after such
                    ---------------------
request has been delivered to each of the Lessor, each Participant and the
Agent, the Lessor will notify the Lessee

                                      29
<PAGE>

in writing (with a copy to the Agent) whether or not it consents to such Renewal
Request (which consent may be granted or denied in its sole discretion and may
be conditioned on receipt of such financial information or other documentation
as may be specified by the Lessor including without limitation a satisfactory
appraisal of the Property), provided that if the Lessor shall fail to notify the
                            --------
Lessee on or prior to the Renewal Response Date, it shall be deemed to have
denied such Renewal Request. The renewal of the Term contemplated by any Renewal
Request shall become effective as of the Expiration Date then in effect on or
after the Renewal Response Date on which the Lessor shall have consented to such
Renewal Request; provided that such renewal shall be subject to and conditioned
                 --------
upon the following:

               (i)   on both the Expiration Date then in effect and the date of
     the Renewal Request, (x) no Lease Default or Lease Event of Default shall
     have occurred and be continuing, and (y) the Lessor and the Agent shall
     have received a Responsible Officer's Certificate of the Lessee as to the
     matters set forth in clause (x) above,
                          ----------

               (ii)  the Lessee shall not have exercised the Remarketing Option,

               (iii) the Participants shall have agreed to extend the Maturity
     Date contemporaneously therewith pursuant to Section 3.7(b) of the
                                                  ---------------------
     Participation Agreement such that the Renewal Term will expire on the same
     -----------------------
     date as the extended Maturity Date, and

               (iv)  the Expiration Date shall not be extended for more than two
     (2) one-year periods pursuant to this Section 21.1.
                                           ------------

           (b) The renewal of this Lease shall be on the same terms and
conditions as are set forth in this Lease for the original Term, with such
modifications thereto, if any, as the parties hereto and to the other Operative
Documents may negotiate based upon the current credit information regarding the
Lessee, interest rates and such other factors as the Lessor may consider
relevant.

                                 ARTICLE XXII

     22.1  Option to Remarket.  Subject to the fulfillment of each of the
           ------------------
conditions set forth in this Section 22.1, the Lessee shall have the option (the
                             ------------
"Remarketing Option") to market for the Lessor and complete the sale of all, but
 ------------------
not less than all, of the Lessor's interest in the Property on the Expiration
Date for the Lessor or in the event the conditions specified in Section 17.2(h)
                                                                ---------------
have occurred.

     The Lessee's effective exercise and consummation of the Remarketing Option
shall be subject to the due and timely fulfillment of each of the following
provisions as of the dates set forth below.

           (a) Not later than one hundred eighty (180) days prior to the
Expiration Date, the Lessee shall give to the Lessor written notice of the
Lessee's exercise of the Remarketing Option, which exercise shall be irrevocable
(except by delivery of a Purchase Notice and consummation of the exercise of the
Purchase Option prior to the earlier of (i) the Expiration

                                      30
<PAGE>

Date or (ii) the date on which the Lessor enters into a binding contract to sell
the Property pursuant to the exercise of the Remarketing Option).

          (b)  The Lessee shall deliver to the Lessor an Environmental Audit of
the Property together with its notice of exercise of the Remarketing Option.
Such Environmental Audit shall be prepared by an environmental consultant
selected by the Lessor in the Lessor's reasonable discretion and shall contain
conclusions reasonably satisfactory to the Lessor as to the environmental status
of the Property.  If such Environmental Audit indicates any material exceptions
reasonably requiring remedy or further investigation, the Lessee shall have also
delivered a Phase Two environmental assessment by such environmental consultant
prior to the Expiration Date showing the completion of the remedying of such
exceptions in compliance with Applicable Law.

          (c)  On the date of the Lessee's notice to the Lessor of the Lessee's
exercise of the Remarketing Option (other than pursuant to Section 17.2(h)), no
                                                           ---------------
Lease Event of Default or Lease Default shall exist, and thereafter, no uncured
Lease Event of Default or Lease Default shall exist.

          (d)  The Lessee shall have completed in all Material respects all
Modifications, restoration and rebuilding of the Property pursuant to Sections
                                                                      --------
11.1 and 15.1 (as the case may be) and shall have fulfilled in all Material
-------------
respects all of the conditions and requirements in connection therewith pursuant
to said Sections, in each case by the date on which the Lessor receives the
Lessee's notice of the Lessee's exercise of the Remarketing Option (time being
of the essence), regardless of whether the same shall be within the Lessee's
control.  The Lessee shall have also paid the cost of all Modifications
commenced prior to the Expiration Date.  The Lessee shall not have been excused
pursuant to Section 13.1 from complying with any Applicable Law that involved
            ------------
the extension of the ultimate imposition of such Applicable Law beyond the last
day of the Term.  Any Liens (other than Lessor Liens) on the Property that were
contested by the Lessee shall have been removed before the Expiration Date.

          (e)  During the Marketing Period, the Lessee shall, as nonexclusive
agent for the Lessor, use commercially reasonable efforts to sell the Lessor's
interest in the Property on or prior to the Expiration Date (without diminishing
the Lessee's obligation to consummate the sale on the Expiration Date) and will
attempt to obtain the highest purchase price therefor and for not less than the
Fair Market Sales Value.  The Lessee will be responsible for hiring and
compensating brokers and making the Property available for inspection by
prospective purchasers.  The Lessee shall promptly upon request permit
inspection of the Property and any maintenance records relating to the Property
by the Lessor, any Participant and any potential purchasers, and shall otherwise
do all things necessary to sell and deliver possession of the Property to any
purchaser.  All such marketing of the Property shall be at the Lessee's sole
expense.  The Lessee shall allow the Lessor and any potential qualified
purchaser reasonable access to the Property for the purpose of inspecting the
same.

          (f)  The Lessee shall submit all bids to the Lessor, the Agent and the
Participants, and the Lessor will have the right to review the same and the
right to submit any one or more bids.  All bids shall be on an all-cash basis
unless the Lessor, the Agent and the

                                      31
<PAGE>

Participants shall otherwise agree in their sole discretion. The Lessee shall
procure bids from one or more bona fide prospective purchasers and shall deliver
to the Lessor, the Agent and the Participants not less than ninety (90) days
prior to the Expiration Date a binding written unconditional (except as set
forth below), irrevocable offer by such purchaser or purchasers offering the
highest bid to purchase the Property. No such purchaser shall be the Lessee, or
any Subsidiary or Affiliate of the Lessee. The written offer must specify the
Expiration Date as the closing date unless the Lessor, the Agent and the
Participants shall otherwise agree in their sole discretion.

          (g)  In connection with any such sale of the Property, the Lessee will
provide to the purchaser all customary "seller's" indemnities, representations
and warranties regarding title, absence of Liens (except Lessor Liens) and the
condition of the Property, as well as such other terms and conditions as may be
negotiated between the Lessee and the purchaser.  The Lessee shall have
obtained, at its cost and expense, all required governmental and regulatory
consents and approvals and shall have made all filings as required by Applicable
Law in order to carry out and complete the transfer of the Property and the
Lessor shall reasonably cooperate, at the Lessees's expense, with the Lessee to
obtain said items.  As to the Lessor, any such sale shall be made on an "as is,
with all faults" basis without representation or warranty by the Lessor other
than the absence of Lessor Liens.  Any agreement as to such sale shall be made
subject to the Lessor's rights under this Section 22.1.
                                          ------------

          (h)  The Lessee shall pay directly, and not from the sale proceeds,
all prorations, credits, costs and expenses of the sale of the Property, whether
incurred by the Lessor or the Lessee, including without limitation, the cost of
all title insurance, surveys, environmental reports, appraisals, transfer taxes,
the Lessor's and the Agent's reasonable attorneys' fees, the Lessee's attorneys'
fees, commissions, escrow fees, recording fees, and all applicable documentary
and other transfer taxes.

          (i)  The Lessee shall pay to the Agent on or prior to the Expiration
Date (or to such other Person as the Agent shall notify the Lessee in writing,
or in the case of Supplemental Rent, to the Person entitled thereto) an amount
equal to the Residual Value Guarantee Amount, plus all Rent and all other
amounts under this Lease and the other Operative Documents which have accrued or
will accrue prior to or as of the Expiration Date, in the type of funds
specified in Section 3.4 hereof.
             -----------

          (j)  If the selling price of the Property is less than the difference
between (A) the Asset Termination Value minus (B) the Residual Value Guarantee
Amount, then the Lessee shall have caused to be delivered to the Lessor, the
Agent and each Participant the appraisal required by Section 13.2 of the
                                                     -------------------
Participation Agreement thirty (30) Business Days prior to the Expiration Date
-----------------------
and shall pay to the Agent on or prior to the Expiration Date (or to such other
person as the Agent shall notify the Lessee in writing) the amounts required to
be paid pursuant to Section 13.2 of the Participation Agreement.
                    -------------------------------------------

          (k)  The purchase of the Property shall be consummated on the
Expiration Date following the payment by the Lessee pursuant to paragraphs (i)
                                                                --------------
and (j) above and contemporaneously with the Lessee's surrender of the Property
-------
pursuant to Section 19.1(b) and
            ---------------

                                      32
<PAGE>

and the gross proceeds (the "Gross Proceeds") of the sale of the Property (i.e.,
                             --------------
without deduction for any marketing, closing or other costs, prorations or
commissions) shall be paid directly to the Agent; provided, however, that if the
                                                  --------  -------
sum of the Gross Proceeds from such sale plus the Residual Value Guarantee
Amount paid by the Lessee pursuant to paragraph (i) above and the proceeds of
                                      ------------
the collateral applied thereto under Section 20.4 exceeds the Asset Termination
                                     ------------
Value, then the excess shall be paid to the Lessee on the Expiration Date.

          (l)  The Lessee shall not be entitled to exercise or consummate the
Remarketing Option if a circumstance that would permit the Lessor to require the
Lessee to repurchase the Property under Section 16.3 exists and is continuing.
                                        ------------

          If one or more of the foregoing provisions shall not be fulfilled as
of the date set forth above, or the Property is not purchased as aforesaid, then
the Lessor shall declare by written notice to the Lessee the Remarketing Option
to be null and void as to the Property, in which event all of the Lessee's
rights under this Section 22.1 shall immediately terminate and the Lessee shall
                  ------------
be obligated to purchase all of the Lessor's interest in the Property pursuant
to Section 20.2 on the Expiration Date.  Notwithstanding the foregoing, the
   ------------
Lessee may at any time during the Marketing Period exercise its Purchase Option
in accordance with Section 20.2 hereof, provided, that the Lessee shall bear all
                   ------------         --------
costs arising out of or attributable to the cessation of remarketing efforts,
including any costs, expenses, damages or liability which may be alleged by any
prospective purchaser of the Property.

          Except as expressly set forth herein, the Lessee shall have no right,
power or authority to bind the Lessor in connection with any proposed sale of
the Property.

    22.2  Certain Obligations Continue.  During the Marketing Period, the
          ----------------------------
obligation of the Lessee to pay Rent (including the installment of Basic Rent
due on the fifth anniversary of the Effective Date or at the end of a Renewal
Term, or on the Expiration Date, as the case may be) shall continue undiminished
until payment in full to the Agent of the Gross Proceeds, the Residual Value
Guarantee Amount, and all other amounts due to the Lessor with respect to the
Property under the Operative Documents.  The Lessor shall have the right, but
shall be under no duty, to solicit bids, to inquire into the efforts of the
Lessee to obtain bids or otherwise to take action in connection with any such
sale, other than as expressly provided in this Article XXII.
                                               ------------

    22.3  Support Obligations.  In the event that the Lessee does not elect to
          -------------------
purchase the Property on the Expiration Date or, pursuant to the Lessor's
exercise of remedies under Article XVII, this Lease is terminated, the Lessee
                           ------------
shall provide the Lessor, effective on the Expiration Date, with (i) all
permits, certificates of occupancy, governmental licenses and authorizations
necessary to use and operate the Property for its intended purposes (to the
extent such items are transferable or may be obtained by the Lessee on behalf of
another party), (ii) such easements, licenses, rights-of-way and other rights
and privileges in the nature of an easement as are reasonably necessary or
desirable in connection with the use, repair, access to or maintenance of the
Property as the Lessor shall request, and (iii) a services agreement covering
such services as the Lessor may request in order to use and operate the Property
for its intended purposes at such rates (not in excess of arm's length fair
market rates) as shall be acceptable to the Lessor and the Lessee.  All
assignments, licenses, easements, agreements and other deliveries required by

                                 33

<PAGE>

clauses (i) and (ii) of this Section 22.3 shall be in form satisfactory to the
-----------------------------------------
Lessor and shall be fully assignable (including both primary assignments and
assignments given in the nature of security) without payment of any fee, cost or
other charge.

                                 ARTICLE XXIII

     23.1  Holding Over.  If the Lessee shall for any reason remain in
           ------------
possession of the Property after the expiration or earlier termination of this
Lease (unless the Property is conveyed to the Lessee), such possession shall be
as a tenancy at sufferance during which time the Lessee shall continue to pay
Supplemental Rent that would be payable by the Lessee hereunder were the Lease
then in full force and effect and the Lessee shall continue to pay Basic Rent at
an annual rate equal to 110% of the average rate of Basic Rent payable hereunder
during the Term.  Such Basic Rent shall be payable from time to time upon demand
by the Lessor.  During any period of tenancy at sufferance, the Lessee shall,
subject to the second preceding sentence, be obligated to perform and observe
all of the terms, covenants and conditions of this Lease, but shall have no
rights hereunder other than the right, to the extent given by law to tenants at
sufferance, to continue its occupancy and use of the Property.  Nothing
contained in this Article XXIII shall constitute the consent, express or
                  -------------
implied, of the Lessor to the holding over of the Lessee after the expiration or
earlier termination of this Lease (unless the Property is conveyed to the
Lessee), and nothing contained herein shall be read or construed to relieve the
Lessee of its obligations to purchase or remarket the Property on the Expiration
Date pursuant to Article XX or Article XXII or as preventing the Lessor from
                 ----------    ------------
maintaining a suit for possession of the Property or exercising any other remedy
available to the Lessor at law or in equity or hereunder.

                                  ARTICLE XXIV

     24.1  Risk of Loss.  During the Term the risk of loss of or decrease in the
           ------------
enjoyment and beneficial use of the Property as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by the Lessee, and the Lessor shall in no event be
answerable or accountable therefor.

                                  ARTICLE XXV

     25.1  Subletting and Assignment.  (a) The Lessee may assign with recourse
           -------------------------
this Lease or any of its rights or obligations hereunder in whole or in part to
any Person, in which case the Lessee shall guarantee performance of the
obligations of such assignee under this Lease by a guaranty in form and
substance reasonably acceptable to the Lessor and the Required Participants.

           (b)   The Lessee may, without the consent of the Lessor, sublease the
Property or portion thereof to any Person, provided, that such sublease (i)
                                           --------
shall not materially and adversely affect any of the Lessor's interests, rights
or remedies under the Lease or the Lessor's title to the Property, (ii) shall be
made subject to and subordinated to this Lease and to the rights of the Lessor
hereunder, and shall expressly provide for the surrender of the Property (or
portion thereof) if, after a Lease Event of Default has occurred, the Lease is
terminated and shall expressly provide for termination at or prior to the
earlier of the applicable Expiration Date or

                                      34
<PAGE>

other date of termination of this Lease, (iii) shall be assigned to the Lessor
as collateral for the Lessee's obligations under this Lease and the other
Operative Documents, and (iv) shall not permit the Property, or portion thereof,
to be used for any purpose other than for administration, manufacturing, design
research and development and warehouse facilities which are not more burdensome
than the Lessee's use.

          (c)  Except as provided in Section 25.1(b), the Lessee shall not
                                     ---------------
sublease the Property or any portion thereof to any Person without the prior
written consent of the Lessor, which consent shall not be unreasonably withheld.
Within twenty (20) Business Days after the Lessee delivers to the Lessor notice
of the proposed sublease, including a copy of the proposed sublease agreement,
the Lessor shall either consent to such sublease on the terms specified in such
sublease agreement or give notice to the Lessee of the reasons for withholding
its consent.  If requested by the Lessee, the Lessor and the applicable
sublessee shall, at the Lessee's expense, execute and deliver a subordination,
nondisturbance and attornment agreement with respect to any such sublease
extending beyond the Expiration Date or other date of termination of this Lease
in form reasonably satisfactory to the Lessor, the Lessee and the sublessee.

          (d)  No assignment, sublease or other relinquishment of possession of
the Property shall in any way discharge or diminish any of the Lessee's
obligations to the Lessor hereunder and the Lessee shall remain directly and
primarily liable under this Lease as to the Property, or portion thereof, so
assigned or sublet.

                                  ARTICLE XXVI

    26.1  Estoppel Certificates.  At any time and from time to time upon not
          ---------------------
less than twenty (20) days' prior request by the Lessor or the Lessee (the
"Requesting Party"), the other party (whichever party shall have received such
-----------------
request, the "Certifying Party") shall furnish to the Requesting Party (but not
              ----------------
more than four times per year unless required to satisfy the requirements of any
sublessees and only to the extent that the required information has been
provided to the Certifying Party by the other party) a certificate signed by an
individual having the office of vice president or higher in the Certifying Party
certifying that this Lease is in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications); the
dates to which the Basic Rent and Supplemental Rent have been paid; to the best
knowledge of the signer of such certificate, whether or not the Requesting Party
is in default under any of its obligations hereunder (and, if so, the nature of
such alleged default); and such other matters under this Lease as the Requesting
Party may reasonably request.  Any such certificate furnished pursuant to this
Article XXVI may be relied upon by the Requesting Party, and any existing or
------------
prospective mortgagee, purchaser or lender, and any accountant or auditor, of,
from or to the Requesting Party (or any Affiliate thereof).

                                 ARTICLE XXVII

    27.1  Right to Inspect.  During the Term, the Lessee shall upon reasonable
          ----------------
notice from the Lessor (except that no notice shall be required if a Lease Event
of Default has occurred and is continuing), permit the Lessor, the Agent and
their respective authorized representatives to

                                      35
<PAGE>

inspect the Property during normal business hours, provided that such
                                                   --------
inspections shall not unreasonably interfere with the Lessee's business
operations at the Property.

     27.2  No Waiver.  No failure by the Lessor or the Lessee to insist upon the
           ---------
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term.  To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.

                                 ARTICLE XXVIII

     28.1  Acceptance of Surrender.  No surrender to the Lessor of this Lease or
           -----------------------
of all or any portion of any Property or of any part of any thereof or of any
interest therein shall be valid or effective unless agreed to and accepted in
writing by the Lessor and, prior to the payment or performance of all
obligations owed to the Participants under the Participation Agreement or the
other Operative Documents and termination of the Participants' Commitments, the
Agent, and no act by the Lessor or the Agent or any representative or agent of
the Lessor or the Agent, other than a written acceptance, shall constitute an
acceptance of any such surrender.

                                 ARTICLE XXIX

     29.1  No Merger of Title.  There shall be no merger of this Lease or of the
           ------------------
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, or (b) the fee estate in the Property, except as may
expressly be stated in a written instrument duly executed and delivered by the
appropriate Person.

                                  ARTICLE XXX

     30.1  Notices.  All notices, demands, requests, consents, approvals and
           -------
other communications hereunder shall be in writing and delivered (i) personally,
(ii) by a nationally recognized overnight courier service, (iii) by mail (by
registered or certified mail, return receipt requested, postage prepaid) or (iv)
by facsimile, addressed to the respective parties, as follows:

     If to the Lessee:

               Quantum Corporation
               500 McCarthy Boulevard
               Milpitas, California  95305
               Attention:  Lauren Halden
               Telephone:  (408) 894-4906
               Facsimile:  (408) 894-4562

                                      36
<PAGE>

     If to the Lessor:

               SELCO Service Corporation
               54 State Street
               Albany, New York  12207
               Attention:    Donald Davis
               Telephone:    (518) 486-8984
               Facsimile:    (518) 487-4635

     If to the Agent:

               The Bank of Nova Scotia
               580 California Street, Suite 2100
               San Francisco, California 94104
               Attention:    Chris Osborn
               Telephone:    (415) 986-1100
               Facsimile:    (415) 397-0791;

or such additional parties and/or other address as such party may hereafter
designate (provided, however, in no event shall either party be obligated to
           --------  -------
notify, in the aggregate, more than five (5) designees of the other party), and
shall be effective upon receipt or refusal thereof.

                                  ARTICLE XXXI

     31.1  Miscellaneous.  Anything contained in this Lease to the contrary
           -------------
notwithstanding, all claims against and liabilities of the Lessee or the Lessor
arising from events commencing prior to the expiration or earlier termination of
this Lease shall survive such expiration or earlier termination.  If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby.  If any right or option of the
Lessee provided in this Lease, including any right or option described in
Articles XV, XVI, XX, XXI or XXII, would, in the absence of the limitation
---------------------------------
imposed by this sentence, be invalid or unenforceable as being in violation of
the rule against perpetuities or any other rule of law relating to the vesting
of an interest in or the suspension of the power of alienation of property, then
such right or option shall be exercisable only during the period which shall end
twenty-one (21) years after the date of death of the last survivor of the
descendants of Franklin D. Roosevelt, the former president of the United States,
Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the
founder of the Standard Oil Company, known to be alive on the date of the
execution, acknowledgment and delivery of this Lease.

     31.2  Amendments and Modifications.  Subject to the requirements,
           ----------------------------
restrictions and conditions set forth in the Participation Agreement, neither
this Lease, any Lease Supplement nor any provision hereof may be amended,
waived, discharged or terminated except by an instrument in writing in
recordable form signed by the Lessor and the Lessee.  In the event of any
conflict or inconsistency between the terms hereof and the terms of the
Participation Agreement, the Participation Agreement shall control.

                                      37
<PAGE>

     31.3  Successors and Assigns.  All the terms and provisions of this Lease
           ----------------------
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.

     31.4  Headings and Table of Contents.  The headings and table of contents
           ------------------------------
in this Lease are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.

     31.5  Counterparts.  This Lease may be executed in any number of
           ------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.

     31.6  GOVERNING LAW.  THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND
           -------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO THE
CREATION OF THE LEASEHOLD ESTATE HEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS LOCATED.  WITHOUT
LIMITING THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED TO CONSTITUTE A
FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE
CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE
LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS
LOCATED.

     31.7  Limitations on Recourse.  The parties hereto agree that the Lessor
           -----------------------
shall have no personal liability whatsoever to the Lessee or its respective
successors and assigns for any claim based on or in respect of this Lease or any
of the other Operative Documents or arising in any way from the transactions
contemplated hereby or thereby; provided, however, that the Lessor shall be
                                --------  -------
liable in its individual capacity (a) for its own willful misconduct or gross
negligence (or negligence in the handling of funds), (b) for liabilities that
may result from the incorrectness of any representation or warranty expressly
made by it in Section 8.1 of the Participation Agreement or (c) for any Taxes
              ------------------------------------------
based on or measured by any fees, commission or compensation received by it for
acting as the Lessor as contemplated by the Operative Documents.  It is
understood and agreed that, except as provided in the preceding proviso:  (i)
the Lessor shall have no personal liability under any of the Operative Documents
as a result of acting pursuant to and consistent with any of the Operative
Documents; (ii) all obligations of the Lessor to the Lessee are solely
nonrecourse obligations except to the extent that it has received payment from
others and are enforceable solely against the Lessor's interest in the Property;
and (iii) all such personal liability of the Lessor is expressly waived and
released as a condition of, and as consideration for, the execution and delivery
of the Operative Documents by the Lessor.  Notwithstanding anything contained
herein, the restriction stated in the preceding provisions of this Section 31.7
                                                                   ------------
shall not apply to liability of the Lessor arising because of a breach of the
Lessor's obligation to remove Lessor Liens or because of its receiving Advances
and failing to disburse Advances to Lessee in accordance with the Operative
Documents, or failure to disburse proceeds from sale of the Property in
accordance with this Lease.

                                      38
<PAGE>

     31.8  Original Executed Counterpart.  The single executed original of this
           -----------------------------
Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the
signature page thereof and containing the receipt of the Agent therefor on or
following the signature page thereof shall be the Original Executed Counterpart
of this Lease (the "Original Executed Counterpart").  To the extent that this
                    -----------------------------
Lease constitutes chattel paper, as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the Original Executed Counterpart.

     31.9  Usury Savings Clause.  Nothing continued in this Lease or the other
           --------------------
Operative Documents shall be deemed to require the payment of interest or other
charges by the Lessee or any other Person in excess of the amount which may
lawfully be charged under any applicable usury laws.  In the event that the
Lessor or any other Person shall collect moneys under this Lease or any other
Operative Document which are deemed to constitute interest (including, without
limitation, the Basic Rent or Supplemental Rent) which would increase the
effective interest rate to a rate in excess of that permitted to be charged by
applicable law, all such sums deemed to constitute interest in excess of the
legal rate shall, upon such determination, at the option of the Person to whom
such payment was made, be returned to the Person making such payment or credited
against other amounts owed by the person making such payment.

     31.10 Effect on Original Lease.  The Lessee and the Lessor agree that this
           ------------------------
Lease and Exhibit A and Appendix I attached hereto shall amend, restate in their
          ---------     ----------
entirety and replace, without notation, the Original Lease and Exhibit A and
                                                               ---------
Appendix I attached thereto; provided, however, that with respect to the period
----------                   --------  -------
prior to the Restructuring Date nothing contained herein shall (i) operate as a
waiver of any right, power or remedy of the Lessor, the Agent or any Participant
under the Original Lease or any other Operative Document or (ii) extinguish or
impair any obligations of the Lessee under the Original Lease or any other
Operative Document except to the extent any such obligation is actually
satisfied by Lessee.

                            [signature page follows]

                                      39
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and
delivered as of the date first above written.

                                 SELCO SERVICE CORPORATION, an Ohio corporation,
                                 as Lessor

                                 By: ___________________________________________
                                     Name:
                                     Title:

                                 QUANTUM CORPORATION, a Delaware corporation, as
                                 Lessee

                                 By: ___________________________________________
                                     Name:
                                     Title:

                       [ATTACH NOTARIAL ACKNOWLEDGMENTS]

                                      S-1
<PAGE>

             THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART

     Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of July 12, 2000

                                     THE BANK OF NOVA SCOTIA, as Agent

                                     By: _______________________________________
                                         Name:
                                         Title:
<PAGE>

                                   SCHEDULE 1
                                  TO THE LEASE

                   Amortization of Property Improvements Cost

                                      None
<PAGE>

Prepared by and upon recording return to:

Thomas Y. Coleman, Esq.
Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, CA  94111

                                  EXHIBIT A TO
                                   THE LEASE

                              AMENDED AND RESTATED
                             LEASE SUPPLEMENT NO. 1
                           (And Memorandum of Lease)

     THIS AMENDED AND RESTATED LEASE SUPPLEMENT NO. 1 (And Memorandum of Lease)
(this "Lease Supplement") dated as of July 12, 2000, between SELCO Service
       ----------------
Corporation, an Ohio corporation, as successor in interest to Lease Plan North
America, Inc., solely in its capacity as lessor (the "Lessor"), and Quantum
                                                      ------
Corporation, a Delaware corporation, as lessee (the "Lessee").
                                                     ------

     WHEREAS, the Lessor is the fee owner of the Land Interest described on
Schedule 1 hereto and wishes to lease the Land Interest and all Improvements
----------
thereon or which may thereafter be constructed thereon pursuant to the
Construction Agency Agreement or the Lease to the Lessee (the Land Interest and
such Improvements being collectively called the "Property");
                                                 --------

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     SECTION 1.  Definitions; Interpretation.  For purposes of this Lease
                 ---------------------------
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix 1 to the Amended and Restated
Master Lease, dated as of July 12, 2000 (the "Lease"), between the Lessee and
                                              -----
the Lessor; and the rules of interpretation set forth in Appendix 1 to the Lease
shall apply to this Lease Supplement.

     SECTION 2.  The Property.  Attached hereto as Schedule I is the description
                 ------------                      ----------
of a certain Land Interest.  Effective upon the execution and delivery of this
Lease Supplement by the Lessor and the Lessee, the Property shall be subject to
the terms and provisions of the Lease.  Subject to the terms and conditions of
the Lease, the Lessor hereby leases to the Lessee for the Term (as defined
below) of the Lease, the Lessor's interest in the Property, and the Lessee
hereby agrees, expressly for the direct benefit of the Lessor, to lease from the
Lessor for the Term, the Lessor's interest in the Property.

     SECTION 3.  Parties and Addresses.  The Lease is between the Lessor, whose
                 ---------------------
principal office is at 54 State Street, Albany, New York  12207, and the Lessee,
whose principal office is 500 McCarthy Boulevard, Milpitas, California  95305.

                                      A-1
<PAGE>

     SECTION 4.  Lease Term.  The term of this Lease (the "Term") shall begin on
                 ----------                                ----
August 22, 1997, and shall end on April 19, 2003, unless the Term is renewed or
earlier terminated in accordance with the provisions of the Lease.  The Lease
contains two option periods of one year each, which give Lessee the right,
subject to the terms thereof, to extend the term of the Lease.

     SECTION 5.  Ownership of the Property.  (a) It is the intent of the parties
                 -------------------------
hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of Federal and state income
tax, the transaction contemplated hereby and by the Lease is a financing
arrangement and preserves ownership in the Property in the Lessee.
Nevertheless, the Lessee acknowledges and agrees that neither the Agent, the
Lessor nor any Participant has made any representations or warranties to the
Lessee concerning the tax, accounting or legal characteristics of the Operative
Documents and that the Lessee has obtained and relied upon such tax, accounting
and legal advice concerning the Operative Documents as it deems appropriate.
Accordingly, and notwithstanding any provision of this Lease to the contrary,
the Lessor and the Lessee agree and declare that: (i) the transactions
contemplated hereby are intended to have a dual, rather than a single, form; and
(ii) all references in this Lease to the "lease" of the Property which fail to
reference such dual form do so as a matter of convenience only and do not
reflect the intent of the Lessor and the Lessee as to the true form of such
arrangements.

          (b)    Anything to the contrary in the Operative Documents
notwithstanding, the Lessor and the Lessee intend and agree that with respect to
the nature of the transactions evidenced by the Lease in the context of the
exercise of remedies under the Operative Documents, including, without
limitation, in the case of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, the Lessor or any Participant or any
enforcement or collection actions, (i) the transactions evidenced by the Lease
are loans made by the Lessor and the Participants as unrelated third party
lenders to the Lessee secured by the Property, (ii) the obligations of the
Lessee under the Lease to pay Basic Rent and Supplemental Rent or Asset
Termination Value in connection with any purchase of the Property pursuant to
the Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor and the Participants to the Lessee, and
(iii) the Lease grants a security interest and mortgage or deed of trust or
lien, as the case may be, in the Property and the collateral described in the
Mortgage to the Lessor, the Agent and the Participants to secure the Lessee's
performance under and payment of all amounts under the Lease and the other
Operative Documents.

          (c)    Specifically, but without limiting the generality of subsection
                                                                      ----------
(b) of this Section 5, the Lessor and the Lessee further intend and agree that,
---------------------
for the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Certificate Purchaser and the Lenders to the
Lessee, (i) the Lease shall also be deemed to be a security agreement and
financing statement within the meaning of Article 9 of the Uniform Commercial
Code and a real property mortgage or deed of trust; (ii) the conveyance provided
for hereby and in Article II of the Lease shall be deemed to be a grant by the
                  -----------------------
Lessee to the Lessor, the Agent and the Participants of a mortgage lien and
security interest in all of the Lessee's right, title and

                                      A-2
<PAGE>

interest in and to the Property and the collateral described in the Mortgage and
all proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, investments, securities or other property, whether in the form of cash,
investments, securities or other property (it being understood that the Lessee
hereby mortgages and warrants and grants a security interest in the Property and
the collateral described in the Mortgage to the Lessor, the Agent and the
Participants to secure the loans); (iii) the possession by the Lessor or any of
its agents of notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to
Persons holding such property, and acknowledgments, receipts or confirmations
from financial intermediaries, bankers or agents (as applicable) of the Lessee
shall be deemed to have been given for the purpose of perfecting such security
interest under Applicable Law. The Lessor and the Lessee shall, to the extent
consistent with the Lease, take such actions and execute, deliver, file and
record such other documents, financing statements, mortgages and deeds of trust
as may be necessary to ensure that, if the Lease and this Lease Supplement were
deemed to create a security interest in the Property in accordance with this
Section, such security interest would be deemed to be a perfected security
interest of first priority under Applicable Law and will be maintained as such
throughout the Term.

          (d)    Specifically, without limiting the generality of anything
contained in this Section 5, the Lessor and the Lessee further intend and agree
                  ---------
that, for purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor the
Participants shall take a position on their respective federal, state and local
returns, reports and other statements relating to income or franchise taxes that
is inconsistent with the Lessee's status as owner of the Property, provided that
                                                                   --------
the Lessor and any Participant may take a position that is inconsistent with the
Lessee's status as owner of the Property if: (x) there has been a change in law
or regulation so requiring as supported by an opinion of counsel reasonably
acceptable to the Lessee that there is not substantial authority for such a
consistent reporting position; or (y) (A) there has been an administrative or
judicial holding that the Lessee is not the owner of the Property for such tax
purposes, (B) the Lessee has no right to contest such holding pursuant to
Section 13.5 of the Participation Agreement, and (C) the Lessee's lack of right
-------------------------------------------
to contest is not the result of an Indemnitee's waiver of its right to
indemnification pursuant to Section 13.5(f)(iii) of the Participation Agreement
                            ---------------------------------------------------
or failure of the amount at issue to exceed the minimum amount set forth in
Section 13.5(f)(iv)(B) of the Participation Agreement.
-----------------------------------------------------

     SECTION 6.  Remedies.  Without limiting any other remedies set forth in the
                 --------
Lease, in the event that a court of competent jurisdiction rules that the Lease
constitutes a mortgage, deed or trust or other secured financing as is the
intent of the parties, then the Lessor and the Lessee agree that (i) the Lessee
hereby grants a Lien against the Property WITH POWER OF SALE, and that upon the
occurrence of a Lease Event of Default, the Lessor shall have the power and
authority, to the extent provided by law, after proper notice and lapse of such
time as may be required by law, to sell the Property at the time and place of
sale fixed by the Lessor in said notice of sale, either as a whole, or in
separate lots or parcels or items and in such order as the

                                      A-3
<PAGE>

Lessor may elect, at auction to the highest bidder for cash in lawful money of
the United States payable at the time of sale; accordingly, it is acknowledged
that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY
ALLOW THE LESSOR TO TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY THE LESSEE UNDER THIS INSTRUMENT, and (ii)
upon the occurrence of a Lease Event of Default, the Lessor, in lieu of or in
addition to exercising any power of sale hereinabove given, may proceed by a
suit or suits in equity or at law, whether for a foreclosure hereunder, or for
the sale of the Property, or against the Lessee on a recourse basis for the
Asset Termination Value, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for the appointment of a receiver pending any foreclosure hereunder
or the sale of the Property, or for the enforcement of any other appropriate
legal or equitable remedy. The parties hereto intend that, in addition to any
other debt or obligation secured by the Lien granted pursuant to this Section 6,
                                                                      ---------
such Lien shall secure unpaid balances of Rent and Supplemental Rent and other
extensions of credit made by the Lessor to the Lessee after this Lease is
delivered to the appropriate recording offices of Colorado, whether made
pursuant to an obligation of the Lessee or otherwise, and such Rent and
Supplemental Rent shall be secured to the same extent as if such future payment
obligations of Rent and Supplemental Rent were on account of obligatory advances
to be made under a construction loan; provided such obligations secured hereby
                                      --------
at any one time shall not exceed the lesser of : (i) the maximum principal sum
permitted by the laws of Colorado; or (ii) one hundred thirty-two million
dollars ($132,000,000) together with interest or Yield thereon calculated at the
rates provided in the Participation Agreement.

     SECTION 7.  Purchase Option.  Sections 17.2(h) and Articles XIX and XX of
                 ---------------   -------------------------------------------
the Lease contain various purchase options which may be exercised by Lessee
---------
during the term of the Lease subject to the terms and conditions of said
Articles XIX and XX of the Lease.
--------------------------------

     SECTION 8.  Liens.  (a) THIS LEASE IS SUPERIOR TO A DEED OF TRUST DATED AS
                 -----
OF AUGUST 22, 1997, IN FAVOR OF ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL
BRANCH, AS AGENT (THE "ORIGINAL AGENT"), UNDER THE PARTICIPATION AGREEMENT,
                       --------------
DATED AS OF AUGUST 22, 1997 (THE "ORIGINAL PARTICIPATION AGREEMENT"), AMONG THE
                                  --------------------------------
LESSEE, LEASE PLAN NORTH AMERICA, INC., AS LESSOR (THE "ORIGINAL LESSOR"), THE
                                                        ---------------
ORIGINAL AGENT AND THE PARTICIPANTS.  THE LESSOR IS THE SUCCESSOR IN INTEREST TO
THE ORIGINAL LESSOR AND THE ORIGINAL PARTICIPATION AGREEMENT HAS BEEN AMENDED
AND RESTATED BY THE AMENDED AND RESTATED PARTICIPATION AGREEMENT, DATED AS OF
JULY 12, 2000 (THE "PARTICIPATION AGREEMENT"), AMONG THE LESSEE, THE LESSOR, THE
                    -----------------------
PARTICIPANTS AND THE BANK OF NOVA SCOTIA, THE SUCCESSOR IN INTEREST TO THE
ORIGINAL AGENT (THE "AGENT").
                     -----

     (b)  NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, ANY PARTICIPANT NOR
THE AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY PART
THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANICS'S OR OTHER LIENS FOR
ANY

                                      A-4
<PAGE>

SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE
LESSOR IN AND TO THE PROPERTY.

     SECTION 9.  Ratification.  Except as specifically modified hereby, the
                 ------------
terms and provisions of the Lease are hereby ratified and confirmed and remain
in full force and effect.

     SECTION 10. Original Executed Counterpart.  The single executed original
                 -----------------------------
of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the Original
Executed Counterpart of this Lease Supplement (the "Original Executed
                                                    -----------------
Counterpart").  To the extent that this Lease Supplement constitutes chattel
-----------
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.

     SECTION 11. GOVERNING LAW.  THE LEASE SHALL BE GOVERNED BY, AND CONSTRUED
                 -------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO THE
CREATION OF THE LEASEHOLD ESTATE THEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE ESTATE IS LOCATED.  WITHOUT
LIMITING THE FOREGOING, IN THE EVENT THAT THE LEASE IS DEEMED TO CONSTITUTE A
FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE
CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE
LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH THE ESTATE IS
LOCATED.

     SECTION 12. Counterpart Execution.  This Lease Supplement may be executed
                 ---------------------
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.

     SECTION 13. Effect on Original Lease Supplement.  The Lessee and the Lessor
                 -----------------------------------
agree that this Lease Supplement shall amend, restate in its entirety and
replace, without notation, the Lease Supplement No. 1 (and Memorandum of Lease),
dated as of August 22, 1997 (the "Original Lease Supplement"), between the
                                  -------------------------
Original Lessor and the Lessee; provided, however, that with respect to the
                                --------  -------
period prior to the Restructuring Date nothing contained herein shall (i)
operate as a waiver of any right, power or remedy of the Lessor, the Agent or
any Participant under the Original Lease Supplement or any other Operative
Document or (ii) extinguish or impair any obligations of the Lessee under the
Original Lease Supplement or any other Operative Document except to the extent
any such obligation is actually satisfied by Lessee.

                            [signature page follows]

                                      A-5
<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.

                                 SELCO SERVICE CORPORATION, an Ohio corporation,
                                 as Lessor

                                 By: ___________________________________________
                                     Name:
                                     Title:

                                 QUANTUM CORPORATION, a Delaware corporation, as
                                 Lessee

                                 By: ___________________________________________
                                     Name:
                                     Title:

                       [ATTACH NOTARIAL ACKNOWLEDGMENTS]

                                      S-1
<PAGE>

             THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART

     Receipt of this original counterpart of the foregoing Lease Supplement is
hereby acknowledged as of July 12, 2000.

                                        THE BANK OF NOVA SCOTIA, as Agent

                                        By: ____________________________________
                                            Name:
                                            Title:
<PAGE>

                               SCHEDULE I TO THE
                  AMENDED AND RESTATED LEASE SUPPLEMENT NO. 1

                              Property Description

Lot 1, Fairlane Technology Park Filing No. 4, City of Colorado Springs, El Paso
County, Colorado, recorded August 22, 1997, under Reception Number 97098095.

                                      A-1
<PAGE>

                             EXHIBIT B TO THE LEASE

                          [FORM OF EQUIPMENT SCHEDULE]
                             EQUIPMENT SCHEDULE NO.

Forming a part of Master Lease dated as of August 22, 1997 (the "Lease"),
                                                                 -----
between Lease Plan North America, Inc., as Lessor (the "Lessor"), and Quantum
                                                        ------
Corporation, a Delaware corporation, as Lessee (the "Lessee").
                                                     ------

     1.  EQUIPMENT.  The Equipment leased hereunder shall be as set forth in the
schedule attached hereto as Annex A.

                TOTAL PROPERTY IMPROVEMENTS COST: $____________

     2.  TERM.  Upon and after the date of execution hereof, the Equipment shall
be subject to the terms and conditions provided herein and in the Lease (which
is incorporated herein by reference).

     3.  RENT.  From and after the date hereof, the Basic Rent for said
Equipment during the Basic Lease Term shall be payable on the dates and in the
amounts set forth in Article III of the Lease which is incorporated herein by
                     ------------------------
reference.

     4.  LESSEE CONFIRMATION.  Lessee hereby confirms and warrants to Lessor
that the Equipment: (a) was duly delivered to Lessee on or prior to the date
hereof at the locations specified in Section 5 hereof; (b) has been received,
                                     ---------
inspected and determined to be in compliance with all applicable specifications
and that the Equipment is hereby accepted for all purposes of the Lease; and (c)
is a part of the "Equipment" referred to in the Lease and is taken subject to
all terms and conditions therein and herein provided.

     5.  LOCATION OF EQUIPMENT.  The locations of the Equipment are specified on
the Schedule of Equipment attached hereto as Annex A.

     6.  FINANCING STATEMENTS.  Annex B attached hereto specifies the location
of all UCC financing statements or other similar documents under applicable law
covering the Equipment.

     Date of Execution: ____________, ____

LEASE PLAN NORTH AMERICA, INC., an            QUANTUM CORPORATION, a Delaware
Illinois corporation                          corporation

By: ____________________________________      By: ______________________________
Name: __________________________________      Name: ____________________________
Title: _________________________________      Title: ___________________________

                                      B-1
<PAGE>

                                   ANNEX A TO
                               EQUIPMENT SCHEDULE

                                   EQUIPMENT

Approved by _____________________________ (Lessee to initial each page).

Page No. ___ of ___ total pages

Attached Bill of Sale dated __________________ and Equipment Schedule No. ____.

Equipment located at:
_________________________
Street No.

___________________   _________________________   __________________  __________
City                  County                      State               Zip

This location is ____ owned,  x  leased,  x  mortgaged.
                             ---         ---

Manufacturer and/or Vendor              Description            Equipment Cost
 Name & Invoice No.

                            See Schedule 1 Attached

                                      B-2
<PAGE>

                                   ANNEX B TO
                               EQUIPMENT SCHEDULE

                         FINANCING STATEMENTS COVERING
                                   EQUIPMENT

Secured Party         Statement No.         Filing Date        Filing Location
-------------         ------------          -----------        ---------------

                                      B-3

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