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                                                                    EXHIBIT 10.3

                            ILX LIGHTWAVE CORPORATION
                            1998 LONG-TERM INCENTIVE
                                       AND
                                STOCK OPTION PLAN
                               AMENDED MAY 5, 2000

1. Purpose of Plan.

        This Plan shall be known as the "ILX LIGHTWAVE CORPORATION 1998
LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred to as the
"Plan". The purpose of the Plan is to aid in maintaining and developing
personnel capable of assuring the future success of ILX Lightwave Corporation, a
Minnesota corporation (the "Company"), to offer such personnel additional
incentives to put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in the Company
through stock options and other long-term incentive awards as provided herein.
Options granted under this Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), or options which do not qualify as Incentive
Stock Options. Awards granted under this Plan shall be SARs, restricted stock or
performance awards as hereinafter described.

2. Stock Subject to Plan.

        Subject to the provisions of Section 15 hereof, the stock to be subject
to options or other awards under the Plan shall be the Company's authorized
Common Shares, par value $.01 per share. Such shares may be either authorized
but unissued shares, or issued shares which have been reacquired by the Company.
Subject to adjustment as provided in Section 15 hereof, the maximum number of
shares on which options may be exercised or other awards issued under this Plan
shall be 463,000 shares; provided, however, that options or awards under this
Plan shall not exceed the number of shares

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permitted by Section 6.05(b) of the Stock Purchase Agreement dated February 26,
1991 among Newport Corporation, the Company and certain selling shareholders of
the Company (but only for so long as such Agreement shall remain in effect). If
an option or award under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options or awards thereafter granted during the term of the Plan.

3. Administration of Plan.

        (a) The Plan shall be administered by the Board of Directors of the
Company or a committee thereof. The members of any such committee shall be
appointed by and serve at the pleasure of the Board of Directors and shall
include only "non-employee directors" within the meaning of Rule 16b-3
promulgated under the Securities and Exchange Act of 1934. (The group
administering the Plan shall hereinafter be referred to as the "Committee".) If
no Committee is appointed, then the Committee as used elsewhere shall mean the
entire Board of Directors. In addition, to the extent required by Section 162(m)
of the Code (if Section 162(m) becomes applicable to the Company in the future),
all members of the Committee shall be "outside directors" within the meaning of
Section 162(m) of the Code.

        (b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock covered by each option or award, (ii) to determine the
employees to whom and the time or times at which such options and awards shall
be granted and the number of shares to be subject to each, (iii) to determine
the form of payment to be made upon the exercise of an SAR or in connection with
performance awards, either cash, Common Shares of the Company or a combination
thereof, (iv) to determine the terms of exercise of each option and award, (v)
to accelerate the time at which all or any part of an option or award may be

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exercised, (vi) to amend or modify the terms of any option or award with the
consent of the optionee, (vii) to interpret the Plan, (viii) to prescribe, amend
and rescind rules and regulations relating to the Plan, (ix) to determine the
terms and provisions of each option and award agreement under the Plan (which
agreements need not be identical), including the designation of those options
intended to be Incentive Stock Options, and (x) to make all other determinations
necessary or advisable for the administration of the Plan, subject to the
exclusive authority of the Board of Directors under Section 16 hereof to amend
or terminate the Plan. The Committee's determinations on the foregoing matters,
unless otherwise disapproved by the Board of Directors of the Company, shall be
final and conclusive.

        (c) The Committee shall select one of its members as its Chair and shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum. All determinations of the Committee shall
be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The grant of an option or award shall be
effective only if a written agreement shall have been duly executed and
delivered by and on behalf of the Company following such grant. The Committee
may appoint a Secretary and may make such rules and regulations for the conduct
of its business as it shall deem advisable.

4. Eligibility.

        Incentive Stock Options may only be granted under this Plan to any full
or part-time employee (which term as used herein includes, but is not limited
to, officers and directors who are also employees) of the Company and of its
present and future subsidiary corporations within the meaning of Section 424(f)
of the Code (herein called

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"subsidiaries"). Full or part-time employees of the Company, members of the
Board of Directors of the Company and consultants or independent contractors to
the Company or one of its subsidiaries shall be eligible to receive options
which do not qualify as Incentive Stock Options and awards. In determining the
persons to whom options and awards shall be granted and the number of shares
subject to each, the Committee may take into account the nature of services
rendered by the respective employees, board members, consultants or independent
contractors, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option or award under this Plan may
be granted additional options or awards under the Plan if the Committee shall so
determine; provided, however, that for Incentive Stock Options granted after
December 31, 1986, to the extent the aggregate fair market value (determined at
the time the Incentive Stock Option is granted) of the Common Shares with
respect to which all Incentive Stock Options are exercisable for the first time
by an employee during any calendar year (under all plans described in subsection
(d) of Section 422 of the Code of his or her employer corporation and its parent
and subsidiary corporations) exceeds $100,000, such options shall be treated as
options which do not qualify as Incentive Stock Options. Nothing in the Plan or
in any agreement thereunder shall confer on any employee any right to continue
in the employ of the Company or any of its subsidiaries or affect, in any way,
the right of the Company or any of its subsidiaries to terminate his or her
employment at any time.

5. Price.

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        The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of the Common Shares at the date of grant of such option. The
option price for options granted under the Plan which do not qualify as
Incentive Stock Options and, if applicable, the price for all awards shall also
be determined by the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market value of the Common
Shares shall be as reasonably determined by the Committee. If on the date of
grant of any option or award hereunder the Common Shares are not traded on an
established securities market, the Committee shall make a good faith attempt to
satisfy the requirements of this Section 5 and in connection therewith shall
take such action as it deems necessary or advisable.

6. Term.

        Each option and award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the option or
award agreement. The Committee shall be under no duty to provide terms of like
duration for options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such option and the term of options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such option.

7. Exercise of Option or Award.

        (a) The Committee shall have full and complete authority to determine
whether an option or award will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at

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such times during the term of the option as the Committee may determine and
specify in the option or award agreement.

        (b) The exercise of any option or award granted hereunder shall only be
effective at such time that the sale of Common Shares pursuant to such exercise
will not violate any state or federal securities or other laws.

        (c) An optionee or grantee electing to exercise an option or award shall
give written notice to the Company of such election and of the number of shares
subject to such exercise. The full purchase price of such shares shall be
tendered with such notice of exercise. Payment shall he made to the Company in
cash (including bank check, certified check, personal check, or money order),
or, at the discretion of the Committee and as specified by the Committee, (i) by
delivering certificates for the Company's Common Shares already owned by the
optionee or grantee having a fair market value as of the date of grant equal to
the full purchase price of the shares, or (ii) by delivering the optionee's or
grantee's promissory note, which shall provide for interest at a rate not less
than the minimum rate required to avoid the imputation of income, original issue
discount or a below-market-rate loan pursuant to Sections 483, 1274 or 7872 of
the Code or any successor provisions thereto, or (iii) a combination of cash,
the optionee's or grantee promissory note and such shares. The fair market value
of such tendered shares shall be determined as provided in Section 5 hereof. The
optionee's or grantee's promissory note shall be a full recourse liability of
the optionee and may, at the discretion of the Committee, be secured by a pledge
of the shares being purchased. Until such person has been issued the shares
subject to such exercise, he or she shall possess no rights as a shareholder
with respect to such shares.

        (d) Notwithstanding any other provision in this Plan, the Committee
shall have full and complete authority to assist any employee participating in
the Plan (including

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officers, whether or not they are directors) in the exercise of one or more
options granted to such employee under the Plan by (i) authorizing the extension
of a loan or loans to such employee from the Company or (ii) authorizing a
guarantee by the Company of a third-party loan or loans to such employee;
provided that any such loan or loans are used exclusively for (A) the cash
exercise of one or more options granted to such employee under the Plan or (B)
payment of any federal, state or local tax liability of such employee resulting
from exercise of one or more options which do not qualify as Incentive Stock
Options granted to such employee under the Plan. The terms of any loan or
guarantee (including the interest rate and terms of repayment) will be
established by the Committee in its sole discretion.

8. Stock Appreciation Rights.

        (a) Grant. At the time of grant of an option or award under the Plan (or
at any other time), the Committee, in its discretion, may grant a Stock
Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.

        (b) Exercise. An SAR shall be exercised by the delivery to the Company
of a written notice which shall state that the holder thereof elects to exercise
his or her SAR as to the number of shares specified in the notice and which
shall further state what portion, if any, of the SAR exercise amount
(hereinafter defined) the holder thereof requests be paid to in cash and what
portion, if any, is to be paid in Common Shares of the Company. The Committee
promptly shall cause to be paid to such holder the SAR exercise amount either in
cash, in Common Shares of the Company, or any combination of cash and shares as
the Committee may determine. Such determination may be either in accordance with
the

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request made by the holder of the SAR or in the sole and absolute discretion of
the Committee. The SAR exercise amount is the excess of the fair market value of
one share of the Company's Common Shares on the date of exercise over the per
share exercise price in respect of which the SAR was granted, multiplied by the
number of shares as to which the SAR is exercised. For the purposes hereof, the
fair market value of the Company's shares shall be determined as provided in
Section 5 hereof.

9. Restricted Stock Awards.

        Awards of Common Shares subject to forfeiture and transfer restrictions
may be granted by the Committee. Any restricted stock award shall be evidenced
by an agreement in such form as the Committee shall from time to time approve,
which agreement shall comply with and be subject to the following terms and
conditions and any additional terms and conditions established by the Committee
that are consistent with the terms of the Plan:

                    (a) Grant of Restricted Stock Awards. Each restricted stock
        award made under the Plan shall be for such number of Common Shares as
        shall be determined by the Committee and set forth in the agreement
        containing the terms of such restricted stock award. Such agreement
        shall set forth a period of time during which the grantee must remain in
        the continuous employment of the Company in order for the forfeiture and
        transfer restrictions to lapse. If the Committee so determines, the
        restrictions may lapse during such restricted period in installments
        with respect to specified portions of the shares covered by the
        restricted stock award. The agreement may also, in the discretion of the
        Committee, set forth performance or other conditions that will subject
        the Common Shares to forfeiture and transfer restrictions. The Committee
        may, at its discretion, waive all or any part of the restrictions
        applicable to any or all outstanding restricted stock awards.

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                    (b) Delivery of Common Shares and Restrictions. At the time
        of a restricted stock award, a certificate representing the number of
        Common Shares awarded thereunder shall be registered in the name of the
        grantee. Such certificate shall be held by the Company or any custodian
        appointed by the Company for the account of the grantee subject to the
        terms and conditions of the Plan, and shall bear such a legend setting
        forth the restrictions imposed thereon as the Committee, in its
        discretion, may determine. The grantee shall have all rights of a
        shareholder with respect to the Common Shares, including the right to
        receive dividends and the right to vote such shares, subject to the
        following restrictions: (i) the grantee shall not be entitled to
        delivery of the stock certificate until the expiration of the restricted
        period and the fulfillment of any other restrictive conditions set forth
        in the restricted stock agreement with respect to such Common Shares;
        (ii) none of the Common Shares may be sold, assigned, transferred,
        pledged, hypothecated or otherwise encumbered or disposed of during such
        restricted period or until after the fulfillment of any such other
        restrictive conditions; and (iii) except as otherwise determined by the
        Committee, all of the Common Shares shall be forfeited and all rights of
        the grantee to such Common Shares shall terminate, without further
        obligation on the part of the Company, unless the grantee remains in the
        continuous employment of the Company for the entire restricted period in
        relation to which such Common Shares were granted and unless any other
        restrictive conditions relating to the restricted stock award are met.
        Any Common Shares, any other securities of the Company and any other
        property (except for cash dividends) distributed with respect to the
        Common Shares subject to restricted stock awards shall be subject to the
        same restrictions, terms and conditions as such restricted Common
        Shares.

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                    (c) Termination of Restrictions. At the end of the
        restricted period and provided that any other restrictive conditions of
        the restricted stock award are met, or at such earlier time as otherwise
        determined by the Committee, all restrictions set forth in the agreement
        relating to the restricted stock award or in the Plan shall lapse as to
        the restricted Common Shares subject thereto, and a stock certificate
        for the appropriate number of Common Shares, free of the restrictions
        and the restricted stock legend, shall be delivered to the grantee or
        his beneficiary or estate, as the case may be.

10. Performance Awards.

        The Committee is further authorized to grant Performance awards. Subject
to the terms of this Plan and any applicable award agreement, Performance awards
granted under the Plan (i) may be denominated or payable in cash, Common Shares
(including, without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder thereof rights
valued as determined by the Committee, in its discretion, and payable to, or
exercisable by, the holder of the Performance awards, in whole or in part, upon
the achievement of such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the terms of this Plan
and any applicable award agreement, the performance goals to be achieved during
any performance period, the length of any performance period, the amount of any
Performance award granted, and the amount of any payment or transfer to be made
by the grantee and by the Company under any Performance award shall be
determined by the Committee.

11. Income Tax Withholding and Tax Bonuses.

        (a) In order to comply with all applicable federal or state income tax
laws or regulations, the Company may take such action as it deems appropriate to
ensure that all

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applicable federal or state payroll, withholding, income or other taxes, which
are the sole and absolute responsibility of an optionee or grantee under the
Plan, are withheld or collected from such optionee or grantee. In order to
assist an optionee or grantee in paying all federal and state taxes to be
withheld or collected upon exercise of an option or award which does not qualify
as an Incentive Stock Option hereunder, the Committee, in its absolute
discretion and subject to such additional terms and conditions as it may adopt,
shall permit the optionee or grantee to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the shares otherwise to be
delivered upon exercise of such option or award with a fair market value,
determined in accordance with Section 5 hereof, equal to such taxes or (ii)
delivering to the Company Common Shares other than the shares issuable upon
exercise of such option or award with a fair market value, determined in
accordance with Section 5 hereof, equal to such taxes.

        (b) The Committee shall have the authority, at the time of grant of an
option under the Plan or at any time thereafter, to approve tax bonuses to
designated optionees or grantees to be paid upon their exercise of options or
awards granted hereunder. The amount of any such payments shall be determined by
the Committee. The Committee shall have full authority in its absolute
discretion to determine the amount of any such tax bonus and the terms and
conditions affecting the vesting and payment thereafter.

12. Additional Restrictions.

        The Committee shall have full and complete authority to determine
whether all or any part of the Common Shares of the Company acquired upon
exercise of any of the options or awards granted under the Plan shall be subject
to restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options or awards.

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13. Ten Percent Shareholder Rule.

        Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Shares of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the fair market value of the
Common Shares of the Company determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five (5) years from
the date such option is granted.

14. Non-Transferability.

        No option or award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option shall be exercisable
only by such optionee or grantee.

15. Dilution or Other Adjustments.

        If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options and awards shall be
made by the Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan, the number of shares and the price per

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share subject to outstanding options and awards and the amount payable upon
exercise of outstanding awards, in order to prevent dilution or enlargement of
option or award rights.

16. Amendment or Discontinuance of Plan.

        The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of Section 15 hereof, no amendment of the Plan,
however, shall without shareholder approval: (i) increase the maximum number of
shares under the Plan as provided in Section 2 hereof, (ii) decrease the minimum
price provided in Section 5 hereof, (iii) extend the maximum term under Section
6 hereof, or (iv) modify the eligibility requirements for participation in the
Plan. The Board of Directors shall not alter or impair any option or award
theretofore granted under the Plan without the consent of the holder of the
option.

17. Time of Granting.

        Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and no
action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option or award agreement), shall constitute the
granting of an option or award hereunder.

18. Effective Date and Termination of Plan.

        (a) The Plan was approved by the Board of Directors on May 5 , 2000, and
shall be approved by the shareholders of the Company within twelve (12) months
thereof.

        (b) Unless the Plan shall have been discontinued as provided in Section
16 hereof, the Plan shall terminate September 3 , 2008. No option or award may
be granted after such termination, but termination of the Plan shall not,
without the consent of the optionee or grantee, alter or impair any rights or
obligations under any option or award theretofore granted.

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                                                                    EXHIBIT 10.5

PORTIONS OF THIS AGREEMENT ARE SUBJECT TO ARBITRATION UNDER M.C.A. 27-5-101
ET.SEQ.

                                 LEASE AGREEMENT

1.   PARTIES. THIS LEASE AGREEMENT made this 29th day of June 2000 between
     ANTHONY WAYNE OIL CORPORATION, hereinafter referred to as LESSOR, and ILX
     LIGHTWAVE CORPORATION, hereinafter referred to as LESSEE.

2.   PREMISES. LESSOR hereby leases to LESSEE AND LESSEE leases from LESSOR for
     the term and upon the terms and conditions hereinafter set forth, the
     premises described as follows:

                  Tract B of Certificate of Survey No. 475B Two tracts of land
                  being tracts 1A and 2A of Certificate of Survey No. 475A,
                  located in the southeast one-quarter of section 8 and the
                  southwest one-quarter of section 9, township 2 south, range 6
                  east, M.P.M., Gallatin County, Montana.

     TOGETHER WITH the building and other improvements to be constructed thereon
     as hereinafter provided, and together with the right to use all adjoining
     parking areas, driveways, sidewalks, roads and alleys and means of ingress
     and egress, insofar as LESSOR has the power to lease or license and use
     thereon.

3.   CONSTRUCTION. LESSOR will construct for LESSEE, upon the agreed leased
     premises, a building with the mechanicals and landscaping pertinent
     thereto, in accordance with certain plans and specifications (Exhibit "A"
     attached) therefore prepared by Nick Fullerton Architects PC & Schmit
     Construction, Contractor, which bears the written approval of both LESSEE
     and LESSOR (hereinafter referred to as the PHASE 2). LESSOR agrees to
     complete the PHASE 2 by March, 1st 2001, strictly in accordance with the
     aforesaid plans and specifications, unless LESSOR and LESSEE agree to
     changes in such plans and specifications as they may occur during
     construction. The LESSOR agrees to assume the cost incurred for the PHASE 2
     including the cost of the land, construction of the building and required
     landscaping. LESSOR further agrees

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     to guarantee the quality of workmanship and other materials as provided in
     the Construction Contract (see Exhibit "A") for a period of one (1) year
     after completion, with the exception of those items covered by a specific
     manufacturer's warranty may differ from above.

4.   TERM. The primary term of this lease shall commence on March, 1st 2001,
     provided that LESSOR has completed the PHASE 2 and LESSEE has accepted the
     PHASE 2 and shall continue for a period of 10 (Ten) years thereafter,
     unless sooner terminated or extended as hereinafter provided. LESSEE shall
     have and is hereby granted a total of one (1) five (5) year option and a
     one (1) four (4) year option to extend the term of this lease beyond the
     initial term, upon the same covenants and conditions as herein provided,
     except as hereinafter specifically set forth. If LESSEE shall elect to
     exercise one or more of such options, it shall do so by giving LESSOR
     written notice at least ninety (90) days prior to the expiration of the
     primary term or the then current extension, and in such notice LESSEE shall
     state the date which it elects to extend the term.

5.   RENT. LESSEE agrees to pay to LESSOR or its designee a monthly rent of
     $15,600.00, payable in monthly installments for 10 (ten) years during the
     term of this lease.

     (a)  In the event the LESSEE shall exercise its options to extend the
          primary term of this lease, the monthly rental during the first option
          period shall be $17,160.00; the monthly rental during the second
          option period shall be $18,020.00.

     (b)  All rentals provided for herein shall be paid in advance on or before
          the fifth (5th) day of each month (unless such rental shall be abated
          or diminished as provided hereinafter).

     (c)  See (addendum (1) one), attached, for PHASE 1 (one) and PHASE 2 (two)
          combined rental payment.

6.   UTILITIES. LESSEE agrees to pay, before delinquency, all utility charges
     used by it, including but not limited to gas, electricity, and water.

7.   TAXES. LESSEE agrees to be responsible for all taxes levied upon personal
     property, including trade fixtures and inventory, not owned by LESSOR and

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     kept on leased premises. LESSEE agrees to pay all taxes and assessments,
     including RID's OR SID's, levied against the land and building and
     improvements, and, upon request, agrees to furnish LESSOR with receipts
     showing payment thereof. LESSEE shall have the right to direct LESSOR'S
     vote for or against any new SID's or RID's.

8.   MAINTENANCE. LESSEE agrees to maintain in good repair the outside walls,
     roof and floor of the building and the surface of the parking area,
     sidewalks and driveways, as well as the structural soundness of the
     building, and all underground gas, water and sewer pipes. LESSEE agrees to
     keep the inside of the building in good repair including plumbing,
     electrical, wiring, air conditioning and heating equipment and those parts
     of underground gas, water and sewer pipes as are contained in or are
     directly beneath the floor of the building, and paint the exterior walls
     and be responsible for all glass, casualty damage, reasonable wear and tear
     expected.

9.   HAZARDOUS SUBSTANCE. Except those as currently in use as listed in Exhibit
     "B" Hazardous Chemical List, and those considered as common cleaning
     products commercially available, LESSEE shall not use any hazardous or
     toxic substances without prior written notice to LESSOR. Said notice shall
     identify the substance to be used, the area in which the substance is to be
     used, the manner in which the substance is to be stored and applied, and
     the plans to dispose of any excess. LESSOR has the option of refusing to
     consent to such use, storage or disposal of toxic substances, and LESSEE's
     failure to comply with such decision shall constitute a default by LESSEE.
     All hazardous or toxic materials shall be used strictly in accordance with
     all applicable laws, rules and ordinances, and LESSEE shall not allow any
     hazardous or toxic waste into the air, ground or water that is not in
     compliance with said laws or regulations. LESSEE shall indemnify and hold
     LESSOR harmless from any claims, liability, loss, cost or expense
     (including but without limitation, attorney fees) resulting from hazardous
     or toxic wastes placed on the property by LESSEE.

10.  ALTERATIONS. LESSEE shall not make any alterations involving structural
     changes after the initial construction of the improvements on the property,

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     without securing LESSOR'S written consent, which shall not be unreasonably
     withheld. Other alterations or additions, such as to signage and
     non-weightbearing partitions, may be made by LESSEE in good workmanlike
     manner without cost to LESSOR and without LESSOR'S permission. LESSEE shall
     permit no liens to attach to the premises by virtue of alterations or
     additions by LESSEE.

11.  TRADE OR OTHER FIXTURES. LESSEE may install or cause to be installed such
     equipment as reasonably necessary for the operation of its business. Such
     equipment may be installed prior to acceptance of the improvements and
     shall remain personal property, and title hereto shall continue in the
     owner thereof, regardless of the manner in which same may be attached or
     affixed to the premises. In the event such equipment is subject to a lien
     or title retention instrument, the holder of such liens or title retention
     instrument, shall have the right and be able to enforce the same as stated
     therein.

12.  BUILDING EXPANSION. The entire acreage described in paragraph 2 is reserved
     for the present or future use of the LESSEE. Without the written consent of
     the LESSEE the LESSOR shall not subdivide the property during the term of
     this lease or any extension thereof. Should the LESSOR be unable or
     unwilling to construct additional facilities as requested by the LESSEE
     during the initial term of this lease or any extension thereof, LESSEE may
     exercise an option to purchase the property as provided in paragraph 21.

13.  CASUALTY DAMAGE AND INSURANCE. With respect to the building to be erected
     on the leased premises, the LESSEE shall procure and maintain in force, at
     LESSEE'S expense, a standard fire and extended coverage insurance policy of
     the type then commonly purchased by the owners of commercial buildings in
     the same area in which the leased premises are situated, in an amount not
     less than $3,500,000 for Phase 1 (one) and Phase 2 (two) buildings
     combined. In the event of loss by reason of the perils covered under such
     insurance, proceeds of any insurance allowance of settlement shall be made
     available to the LESSEE for the use for the purpose of repairing, restoring
     and/or replacing such damaged building to the extent of such insurance
     proceeds. If the building cannot be used during such repairing, restoring
     or

<PAGE>   5

     replacing, the rentals reserved to the LESSOR shall be temporarily abated
     and the LESSEE shall cause the required repairing, restoring or replacing
     to be completed as expeditiously as possible. In the event of loss by
     reason of perils covered by said insurance in excess of the face amount of
     said insurance policy or of a loss from perils not covered by said
     insurance, LESSOR shall have the option of receiving any insurance proceeds
     and, at LESSOR'S expense, repairing and restoring said premises to its
     original condition, or leaving the premises unrepaired. If the LESSOR
     elects not to so repair and restore said premises, then the LESSEE shall
     have the option to receive the insurance proceeds, if any, and so repair
     and restore the premises at the LESSEE'S expense. In the event that neither
     the LESSOR nor the LESSEE elect to repair and report the premises as
     aforesaid, then the insurance proceeds shall be payable to the LESSOR and
     this lease shall thereupon terminate. The LESSEE agrees to have such
     insurance as is required to be procured and maintained by the LESSEE issued
     in the name of the LESSOR with LESSEE as an additional insured, with a loss
     payable to any mortgages designated by the LESSOR, and to deliver to the
     LESSOR and the LESSOR'S mortgagor, if any, appropriate evidence of the
     existence of such insurance, together with the said premium receipts
     therefore, and to keep the same in effect and in full force and effect
     throughout the entire term of this lease or extension or renewal thereof.

14.  LIABILITY INSURANCE. LESSEE agrees at LESSEE'S expense to maintain in force
     continuously throughout the term of this lease and any extension thereof
     public liability insurance covering the leased premises, with limits of ONE
     MILLION DOLLARS ($1,000,000.00) for death or injury to one person; FIVE
     HUNDRED THOUSAND DOLLARS ($500,000.00) for death or injury to more than one
     person; and FIFTY THOUSAND DOLLARS ($50,000.00) for property damage with a
     $2,000,000.00 COMBINED SINGLE LIMIT, and shall upon written request of
     LESSOR, furnish LESSOR a certificate by the insurer that such insurance is
     in force. The LESSOR shall be named as an additional insured in such
     policies of insurance.

<PAGE>   6

15.  COMPLIANCE'S WITH LAWS. LESSEE will promptly comply with all applicable and
     valid laws, ordinances, and regulations of Federal, State, County,
     Municipal or other lawful authority pertaining to the use and occupancy of
     the leased premises.

16.  BANKRUPTCY. Should LESSEE make an assignment for the benefit of creditors,
     or be adjudicated bankrupt, such action shall constitute a breach of this
     lease for which LESSOR, at its option, may terminate all rights of LESSEE
     or its successors in interest under this lease.

17.  EMINENT DOMAIN. If all of the leased premises is taken under the power of
     eminent domain or conveyed under threat of condemnation proceedings, or if
     only a part of such premises is so taken or conveyed and LESSEE shall
     determine that the remainder is inadequate or unsatisfactory for its
     purposes, which determination shall not be arbitrarily or capriciously
     made, then in either event, this lease shall terminate effective as of the
     date LESSEE is required to give up the right to occupy or use any part of
     the leased premises. The termination of this lease as above provided shall
     not operate to deprive LESSEE of the right to make claim against the
     condemning authority for any damage suffered by LESSEE, but LESSEE shall
     have no right to make any claim against LESSOR because of any such
     termination. If this lease is not terminated as above provided, LESSOR and
     LESSEE shall agree upon an equitable reduction of the rental.

17a. ARBITRATION. If the parties fail to agree upon such reduction within sixty
     (60) days from the date of the final award or payment for the part of the
     leased premises so taken or conveyed, LESSOR and LESSEE shall each choose
     one arbitrator and the two arbitrators so chosen shall choose a third
     arbitrator. The decision of any two of the arbitrators as to the rental
     reduction, if any, shall be binding on LESSEE and LESSOR and any expense of
     the arbitration shall be divided equally between LESSEE and LESSOR.

18.  ATTORNEY'S FEES. If suit is brought to enforce any covenant herein
     contained, the parties hereto agree that the losing party shall pay the
     prevailing party a reasonable attorney's fee, which shall be fixed by the
     court, and court costs.

<PAGE>   7

19.  DEFAULT. In the event LESSEE shall default in the payment of the monthly
     rent as provided herein, LESSOR shall promptly so notify LESSEE in writing,
     and failure of LESSEE to cure such default within twenty (20) days after
     receipt of such notice shall, at the option of the LESSOR, work as a
     forfeiture of this lease, or LESSOR may enforce performance in any manner
     provided by law, and LESSOR'S agent or attorney shall have the right
     without further notice or demand to re-enter and remove all persons from
     LESSOR'S property without being deemed guilty of any manner of trespass and
     without prejudice to any remedies for arrears of rent or breach of
     covenant, or LESSOR'S agent or attorney may resume possession of the
     property and relet the same for the remainder of the term at the best
     rental such agent or attorney can obtain for the account of LESSEE, who
     shall pay any deficiency, and LESSOR shall have a lien as security for such
     rental upon the fixtures and equipment belonging to LESSEE which are on the
     demised premises. In the event LESSEE shall default in the performance of
     any of the terms or provisions of this lease other than the payment of
     monthly rent, LESSOR shall promptly so notify LESSEE in writing. If LESSEE
     shall fail to cure default within twenty (20) days after receipt of such
     notice, or if the default is one of such character as to require more than
     twenty (20) days to cure and LESSEE shall fail to commence to do so within
     twenty (20) days after receipt of such notice and thereafter diligently
     proceed to cure such default, then in either such event, LESSOR may cure
     such default and such expense shall be added to the rent otherwise due, but
     any such default shall not work as a forfeiture of this lease.

     In the event LESSOR shall default in the performance of any of the terms or
     provisions of this lease, LESSEE shall so promptly notify LESSOR in
     writing. If LESSOR shall fail to cure such default within twenty (20) days
     after receipt of such notice, or if the default is of such character as to
     require more than twenty (20) days to cure and LESSOR shall fail to
     commence to do so within twenty (20) days after receipt of such notice and
     thereafter diligently proceed to cure such default, then, in either such
     event LESSEE may cure such default

<PAGE>   8

     and such expense shall be deducted from the rent otherwise due or cancel
     and terminate this lease.

20.  RIGHT OF FIRST REFUSAL. If during the term of this lease, or any extension
     thereof, LESSOR shall receive a bona fide offer to purchase the demised
     premises, which offer is acceptable to LESSOR, LESSOR agrees that LESSEE
     shall have and is hereby granted an option to purchase the demised property
     upon the same terms and provisions. LESSOR agrees immediately after receipt
     of such an offer to give LESSEE notice in writing of the terms and
     provisions thereof, and that LESSEE may exercise its option to purchase
     said property at any time within twenty (20) days after such notice is
     received by LESSEE. If LESSEE shall elect to exercise such option it shall
     do so by giving written notice to LESSOR within such twenty (20) day period
     and a contract of sale shall be executed by the parties and title closed
     within a reasonable time thereafter. The failure of LESSEE to exercise the
     option provided in this article shall in no way relieve or release LESSOR
     or its assigns from the terms and effect of the option granted in paragraph
     21.

21.  OPTION TO PURCHASE. Any time after the tenth (10th) lease year, or earlier
     as provided in paragraph 12, by notification to LESSOR of LESSEE'S
     intentions, LESSEE may exercise an option to purchase the property at a
     price to be determined by the average of two MAI appraisals, but in no
     event may the purchase price be less than eleven (11) times the annual
     rental at the time the option is exercised; provided, however, that written
     notice of the exercise of said option, accompanied by an earnest money
     deposit of 10% must be given to LESSOR within sixty (60) days of exercise
     of the option. Upon receipt of said notice and earnest money by LESSOR, the
     parties shall execute an agreement to consummate said sale and the sale
     shall be closed within a reasonable time thereafter, but, in all events,
     not later than one hundred twenty (120) days of the notice of exercise of
     the option. Rent is to be apportioned to date of closing.

22.  LESSOR'S COVENANTS. LESSOR covenants that it has good and marketable title
     to the demised premises in fee simple absolute. In the event LESSEE
     exercises its option to purchase as described above, LESSOR shall convey
     the

<PAGE>   9

     premises free and clear of all encumbrances except right-of-way, federal
     patents and mineral reservations, easements, and building and use
     restrictions of record.

23.  QUIET ENJOYMENT. That LESSEE upon paying the rent and performing the
     covenants and agreements of this lease shall quietly have, hold and enjoy
     the demised premises and all rights granted LESSEE in this lease during the
     term thereof and extensions thereto, if any.

24.  SUBORDINATION. LESSEE hereby agrees that its lease-hold interest hereunder
     is subordinate to any mortgages now on, or hereafter to be placed on the
     premises leased hereunder; provided, as a condition precedent to such
     subordination, each such mortgage shall expressly covenant or each mortgage
     shall expressly provide that so long as the LESSEE is not in default under
     said LEASE AGREEMENT, the LESSEE'S quiet possession of the portion of the
     premises leased hereunder shall remain undisturbed, on the terms and
     conditions stated herein, whether or not the mortgage is in default and
     notwithstanding and foreclosure or other action brought by the holder of
     the mortgage in connection therewith.

25.  ASSIGNMENT AND SUBLETTING. LESSEE shall have the right to assign or
     sublease the whole or any part of the demised premises, provided that any
     assignment or sublease shall be subject to all of the terms and conditions
     of this lease and that LESSEE shall remain primarily liable for the payment
     of the rent and the performance of the terms and conditions of this lease,
     unless LESSOR shall agree otherwise.

26.  NOTICES. Any notices required or permitted hereunder shall be in writing
     and delivered either in person to the other party or under other party's
     authorized agent, or by the United States Certified Mail, Return Receipt
     Requested, postage fully prepaid or by fax follow-up by regular mail, to
     the addresses set forth hereinafter, or to such other addresses as either
     party may designate in writing and deliver as herein provided.

<PAGE>   10

     LESSOR:    ANTHONY WAYNE OIL CORPORATION
                         127 West Berry Street
                         Suite 702
                         Fort Wayne, Indiana 46802

     LESSEE:             ILX LIGHTWAVE CORPORATION / Attn: Randall T. Dugger
                         P.O. Box 6310
                         Bozeman, Montana 59771

27.  RECORDATION. This lease agreement shall not be filed for public record by
     any party hereto, but when the construction of the building and other
     improvements is completed as herein provided LESSOR and LESSEE shall
     execute and acknowledge a memorandum or short form lease setting forth the
     parties, description of the leases premises, term of the lease, options for
     extension of the term, if any and other provision hereof, the inclusion of
     which shall be mutually agreed upon by LESSOR and LESSEE, which memorandum
     of short form lease may be filed for public record by any party hereto.
     However, at the option of either party a short form memorandum of lease may
     be filed by either party at any time after the execution of this lease
     agreement.

28.  COMPLETE AGREEMENT. This lease contains a complete expression of the
     agreement between the parties and there are no promises, representation or
     inducements except such as are herein provided.

     This lease agreement shall inure to be benefit of and be binding upon the
     parties hereto and their respective heirs, legal representatives,
     successors and assigns.

     EXECUTED BY LESSOR this 12th day of July, 2000

                                       ANTHONY WAYNE OIL CORPORATION, by

                                       -----------------------------------------
                                       Thomas W. Silva, President

<PAGE>   11

     EXECUTED BY LESSEE this 11th day of August, 2000

                                       ILX LIGHTWAVE CORPORATION, by

                                       -----------------------------------------
                                       Lawrence A. Johnson, President/CEO

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