Lam Research Corporation
LAM RESEARCH CORP (Form: 10-Q, Received: 05/14/2003 08:13:28)    
 
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


(Mark One)

     
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended March 30, 2003 or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-12933


 
 
LAM RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)
     
Delaware   94-2634797

 
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
 
4650 Cushing Parkway
Fremont, California 94538

(Address of principal executive offices including zip code)
 
(510) 572-0200
(Registrant’s telephone number, including area code)

 


     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.   YES  x    NO  o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   YES  x    NO  o

     As of May 2, 2003, there were 126,819,270 shares of Registrant’s Common Stock outstanding.
 
 


 


TABLE OF CONTENTS

 
 
 
 
 
 
 
 
PART I. Financial Information
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of March 30, 2003 and June 30, 2002
Condensed Consolidated Statements of Operations for the three and nine months ended March 30, 2003 and March 31, 2002
Condensed Consolidated Statements of Cash Flows for the nine months ended March 30, 2003 and March 31, 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
EXHIBIT 10.80
EXHIBIT 10.81
EXHIBIT 10.82
EXHIBIT 10.83
EXHIBIT 10.84
EXHIBIT 10.85
EXHIBIT 99.1
EXHIBIT 99.2


Table of Contents

LAM RESEARCH CORPORATION
TABLE OF CONTENTS

           
      Page No.  
     
 
PART I. Financial Information
       
 
       
Item 1. Financial Statements (unaudited):
    3  
 
       
 
Condensed Consolidated Balance Sheets as of March 30, 2003 and June 30, 2002
    3  
 
       
 
Condensed Consolidated Statements of Operations for the three and nine months ended March 30, 2003 and March 31, 2002
    4  
 
       
 
Condensed Consolidated Statements of Cash Flows for the nine months ended March 30, 2003 and March 31, 2002
    5  
 
       
 
Notes to Condensed Consolidated Financial Statements
    6  
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    24  
 
       
Item 3. Quantitative and Qualitative Disclosures about Market Risk
    51  
 
       
Item 4. Controls and Procedures
    51  
 
       
PART II. Other Information
    51  
 
       
Item 1. Legal Proceedings
    51  
 
       
 
       
Item 6. Exhibits and Reports on Form 8-K
    52  
 
       
Signatures
    53  
 
       
Certifications
    54  

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

                   
      March 30,     June 30,  
      2003     2002  
      (unaudited)     (1)  
     
   
 
Assets
               
Cash and cash equivalents
  $ 96,406     $ 172,431  
Short-term investments
    369,460       701,774  
Accounts receivable, net
    133,110       132,113  
Inventories
    126,690       180,799  
Deferred income taxes
    128,577       125,227  
Other current assets
    17,750       43,080  
 
 
   
 
 
Total current assets
    871,993       1,355,424  
Property and equipment, net
    53,242       67,496  
Restricted cash
    119,438       70,983  
Deferred income taxes
    88,307       86,231  
Other assets
    62,880       52,157  
 
 
   
 
 
Total assets
  $ 1,195,860     $ 1,632,291  
 
 
   
 
Liabilities and stockholders’ equity
               
Trade accounts payable
  $ 30,622     $ 59,806  
Accrued expenses and other current liabilities
    161,430       159,012  
Deferred profit
    47,315       63,435  
Current portion of long-term debt and other long-term liabilities
    5,160       315,291  
 
 
   
 
 
Total current liabilities
    244,527       597,544  
Long-term debt and other long-term liabilities less current portion
    321,718       359,691  
 
 
   
 
 
Total liabilities
    566,245       957,235  
Commitments and contingencies
               
Preferred stock, at par value of $0.001 per share; authorized — 5,000 shares, none outstanding
           
Common stock, at par value of $0.001 per share; authorized — 400,000 shares; issued and outstanding — 126,150 shares at March 30, 2003 and 127,978 shares at June 30, 2002
    126       128  
Additional paid-in capital
    551,752       542,228  
Deferred compensation
    (2,979 )      
Treasury stock, at cost
    (44,508 )     (9,100 )
Accumulated other comprehensive loss
    (16,681 )     (15,240 )
Retained earnings
    141,905       157,040  
 
 
   
 
 
Total stockholders’ equity
    629,615       675,056  
 
 
   
 
 
Total liabilities and stockholders’ equity
  $ 1,195,860     $ 1,632,291  
 
 
   
 

(1) Derived from June 30, 2002 audited financial statements.

See Notes to Condensed Consolidated Financial Statements.

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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)
(unaudited)

                                   
      Three Months Ended     Nine Months Ended  
     
   
 
      March 30,     March 31,     March 30,     March 31,  
      2003     2002     2003     2002  
     
   
   
   
 
Total revenue
  $ 187,059     $ 164,105     $ 569,148     $ 762,858  
 
Cost of goods sold
    111,838       109,118       342,744       516,732  
 
Cost of goods sold — restructuring charges (recoveries)
                (301 )     7,600  
 
Cost of goods sold — patent settlement
                      38,780  
 
 
   
   
   
 
Total cost of goods sold
    111,838       109,118       342,443       563,112  
 
 
   
   
   
 
Gross margin
    75,221       54,987       226,705       199,746  
 
 
   
   
   
 
 
Research and development
    38,981       40,552       120,102       137,516  
 
Selling, general and administrative
    33,245       36,849       98,319       127,538  
 
Restructuring charges, net
    4,043             6,096       47,221  
 
 
   
   
   
 
Total operating expenses
    76,269       77,401       224,517       312,275  
 
 
   
   
   
 
Operating income (loss)
    (1,048 )     (22,414 )     2,188       (112,529 )
Other income (expense), net
    2,110       17,443       (11,970 )     17,762  
 
 
   
   
   
 
Income (loss) before income taxes
    1,062       (4,971 )     (9,782 )     (94,767 )
Income tax expense (benefit)
    265       (6,540 )     1,656       (35,761 )
 
 
   
   
   
 
Net income (loss)
  $ 797     $ 1,569     $ (11,438 )   $ (59,006 )
 
 
   
   
   
 
Net income (loss) per share:
                               
 
Basic net income (loss) per share
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
 
Diluted net income (loss) per share
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
Number of shares used in per share calculations:
                               
 
Basic
    125,988       126,747       126,110       125,921  
 
 
   
   
   
 
 
Diluted
    129,550       134,420       126,110       125,921  
 
 
   
   
   
 

See Notes to Condensed Consolidated Financial Statements.

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LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

(unaudited)

                   
      Nine Months Ended  
     
 
      March 30,     March 31,  
      2003     2002  
     
   
 
Cash flows from operating activities:
               
 
Net loss
  $ (11,438 )   $ (59,006 )
 
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
               
 
Loss (gain) on equity derivative contracts in company stock
    16,407       (17,718 )
 
Depreciation and amortization
    30,504       46,332  
 
Amortization of premiums on securities
    4,641       5,424  
 
Deferred income taxes
    (5,426 )     (39,736 )
 
Restructuring charges, net
    5,795       54,821  
 
Patent settlement
          33,780  
 
Asset impairment charge
          11,500  
 
Amortization of deferred compensation
    383        
 
Other
    354       1,730  
 
Change in working capital accounts
    (3,676 )     (55,907 )
 
 
   
 
Net cash provided by/(used for) operating activities
    37,544       (18,780 )
 
 
   
 
Cash flows from investing activities:
               
 
Capital expenditures
    (9,528 )     (8,518 )
 
Purchases of available-for-sale securities
    (360,339 )     (2,097,734 )
 
Sales and maturities of available-for-sale securities
    688,012       2,034,838  
 
Purchase of investments for restricted cash, net
    (48,455 )      
 
Other, net
    1,333       (10,035 )
 
 
   
 
Net cash provided by/(used for) investing activities
    271,023       (81,449 )
 
 
   
 
Cash flows from financing activities:
               
 
Principal payments and redemptions on long-term debt and capital lease obligations
    (361,259 )     (6,909 )
 
Treasury stock purchases
    (39,122 )     (10,678 )
 
Reissuances of treasury stock
    8,448       12,324  
 
Proceeds from issuance of common stock
    6,160       14,270  
 
 
   
 
Net cash provided by/(used for) financing activities
    (385,773 )     9,007  
 
 
   
 
 
Effect of exchange rate changes on cash
    1,181       (352 )
 
 
   
 
Net decrease in cash and cash equivalents
    (76,025 )     (91,574 )
Cash and cash equivalents at beginning of period
    172,431       221,659  
 
 
   
 
Cash and cash equivalents at end of period
  $ 96,406     $ 130,085  
 
 
   
 

See Notes to Condensed Consolidated Financial Statements.

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LAM RESEARCH CORPORATION  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 30, 2003

(Unaudited)

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Lam Research Corporation (the “Company” or “Lam”) for the fiscal year ended June 30, 2002, which are included in the Annual Report on Form 10-K, File Number 0-12933. The Company’s Form 10-K, Forms 10-Q and Forms 8-K are available online at the Securities and Exchange Commission website on the Internet. The address of that site is http://www.sec.gov. The Company also posts the Form 10-K, Forms 10-Q and Forms 8-K on the corporate website at http://www.lamrc.com.

     The Company’s reporting period is a 52/53-week fiscal year. The Company’s current fiscal year will end June 29, 2003 and includes 52 weeks. The quarters ended March 30, 2003 and March 31, 2002 included 13 weeks.

      Reclassifications: Certain amounts presented in the comparative financial statements for prior years have been reclassified to conform to the 2003 presentation.

NOTE B — RECENT ACCOUNTING PRONOUNCEMENTS

      Impairment or Disposals of Long-Lived Assets: In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 144 (“FAS 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets”. FAS 144 supersedes FAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and applies to all long-lived assets (including discontinued operations). The Company adopted FAS 144 effective at the beginning of fiscal 2003. The adoption of FAS 144 did not have a material impact on the Company’s consolidated financial position or operating results.

      Costs associated with Exit or Disposal Activities: In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”). FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principal difference between FAS 146 and EITF 94-3 relates to FAS 146’s requirements for the timing of recognizing a liability for a cost associated with an exit or disposal activity. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when

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the liability is incurred. Under EITF 94-3 a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company early-adopted FAS 146 in the quarter ended December 29, 2002 and applied its accounting provisions to the restructuring activities initiated during the quarters ended December 29, 2002 and March 30, 2003 (see Note N). No restructuring activities were initiated during the quarter ended September 29, 2002.

      Accounting for Revenue Arrangements with Multiple Deliverables : In November 2002, the FASB’s Emerging Issues Task Force reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple deliverables (products, services and/or rights to use assets). The provisions of EITF 00-21 will be applicable for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is reviewing EITF 00-21 but has not yet determined the potential impact it will have on the Company’s financial position or results of operations, if any.

      Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a company that is a guarantor to make specific disclosures about its obligations under certain guarantees that it has issued. FIN 45 also requires the guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligations it has undertaken in issuing the guarantee. FIN 45 also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others” which is superseded by FIN 45. FIN 45’s disclosure requirements are effective for financial statements for periods ending after December 15, 2002. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued after December 31, 2002. The provisions of FIN 45 did not have a material impact on the Company’s financial position or results of operations upon adoption. (See Note L).

      Accounting for Stock-Based Compensation — Transition and Disclosure: In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“FAS 148”), which amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, (“FAS 123”). FAS 148 provides alternative methods of transition for a voluntary change to the “fair value” method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 and requires prominent disclosure in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on a company’s financial position and results of operations. The transition guidance and annual disclosure requirements of FAS 148 are effective for fiscal years ending after December 15, 2002. The Company adopted the interim disclosure requirements of FAS 148 for financial statements in its fiscal quarter ended March 30, 2003. The Company intends to continue to account for its stock option plans and stock purchase plan under the provisions of Accounting Principles Board Opinion No. 25 “Accounting For Stock Issued to Employees” (“APB 25”) and Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25” (“FIN 44”).

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Accordingly, the adoption of FAS 148 is not anticipated to have a material impact on the Company’s financial position or results of operations.

      Consolidation of Variable Interest Entities : In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. FIN 46 establishes accounting guidance for consolidation of a variable interest entity (“VIE”), sometimes formerly referred to as a special purpose entity. In general, a VIE is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity, the Primary Beneficiary, should consolidate another entity, a VIE, that functions to support the activities of the Primary Beneficiary. FIN 46 will require the consolidation of a VIE by a company if that company is subject to a majority of the risk of loss from the VIE’s activities or entitled to receive a majority of the VIE’s residual returns or both.

     The effective date of the new rules under FIN 46 on the Company’s existing operating leases is the first quarter of fiscal 2004, and immediately on any new leases entered into after January 31, 2003, which utilize VIEs or equivalent lease structures. The adoption of FIN 46 could potentially result in the Company having to consolidate the operating results of certain existing lessor entities which may be VIEs, as defined, and which are lessors under some of the Company’s operating lease agreements and recognize the assets and related liabilities of the VIEs on the Company’s balance sheet. However, FIN 46 is not anticipated to have a material impact on the Company’s financial position or results of operations because the Company anticipates the operating lease agreements will be transferred to a new lessor that would not qualify as a VIE.

NOTE C — STOCK-BASED COMPENSATION PLANS

     The Company has adopted stock option plans that provide for the grant to key employees of options to purchase shares of Lam common stock. In addition, the plans permit the grant of nonstatutory stock options to paid consultants and employees, and provide for the automatic grant of nonstatutory stock options to outside directors. The Company also has a stock purchase plan that allows employees to purchase its common stock. The Company accounts for its stock option plans and stock purchase plan under the provisions of APB 25 and FIN 44.

     For pro forma purposes, the estimated fair value of the Company’s stock-based awards is amortized over the options’ vesting period (for options) and the respective four, six, twelve, or fifteen-month purchase periods (for stock purchases under the employee stock purchase plan). The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had accounted for its stock option and stock purchase plans under the fair value method of accounting under FAS 123, as amended by FAS 148:

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    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
    (in thousands, except per share amounts)  
Net income (loss) — as reported
  $ 797     $ 1,569     $ (11,438 )   $ (59,006 )
Add: compensation expense recorded under APB 25, net of tax
    329             458       1,718  
Deduct: FAS 123 compensation expense, net of tax
    10,297       8,031       33,537       24,579  
 
 
   
   
   
 
Net loss — pro forma
  $ (9,171 )   $ (6,462 )   $ (44,517 )   $ (81,867 )
 
 
   
   
   
 
Basic net income (loss) per share — as reported
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
Basic loss per share — pro forma
  $ (0.07 )   $ (0.05 )   $ (0.35 )   $ (0.65 )
 
 
   
   
   
 
Diluted net income (loss) per share — as reported
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
Diluted loss per share — pro forma
  $ (0.07 )   $ (0.05 )   $ (0.35 )   $ (0.65 )
 
 
   
   
   
 

     Pro forma information regarding net income (loss) and net income (loss) per share is required by FAS 123 and FAS 148 for awards granted after June 30, 1995, as if the Company had accounted for its stock option and stock purchase plans under the fair value method of FAS 123 and FAS 148. The fair value of the Company’s stock options and stock purchase plans was estimated using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including expected stock price volatility. Because the Company’s stock-based awards have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not provide a reliable measure of the fair value of the Company’s stock-based awards. The fair value of the Company’s stock-based awards granted in the three- and nine-month periods of fiscal 2003 and fiscal 2002 was estimated assuming no expected dividends and the following weighted-average assumptions:

                                      
    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
    Stock Option Plans  
   
 
Expected life (years)
    3.0       3.8       2.4       3.9  
Expected stock price volatility
    74.0 %     71.0 %     74.0 %     71.0 %
Risk-free interest rate
    2.2 %     4.2 %     1.5 %     4.1 %
 
    Employee Stock Purchase Plan  
   
 
Expected life (years)
    0.66       0.42       0.66       0.42  
Expected stock price volatility
    74.0 %     71.0 %     74.0 %     71.0 %
Risk-free interest rate
    2.2 %     4.2 %     1.5 %     4.1 %

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NOTE D — INVENTORIES

     Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of the following:

                 
    March 30,     June 30,  
    2003     2002  
   
   
 
    (in thousands)  
Raw materials
  $ 74,815     $ 108,595  
Work-in-process
    32,632       45,309  
Finished goods
    19,243       26,895  
 
 
   
 
 
  $ 126,690     $ 180,799  
 
 
   
 

NOTE E — PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                 
    March 30,     June 30,  
    2003     2002  
   
   
 
    (in thousands)  
Manufacturing and office equipment
  $ 119,353     $ 123,117  
Leasehold improvements
    68,079       65,749  
Furniture and fixtures
    5,106       5,246  
Computer equipment and software
    69,028       73,769  
 
 
   
 
 
    261,566       267,881  
Less accumulated depreciation and amortization
    (208,324 )     (200,385 )
 
 
   
 
 
  $ 53,242     $ 67,496  
 
 
   
 

NOTE F — INTANGIBLE ASSETS

     Effective July 1, 2002, the beginning of fiscal 2003, the Company adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). FAS 142 requires that goodwill and certain other intangible assets be tested for impairment at least annually and written down only when determined to be impaired, replacing the previous accounting practice of ratably amortizing these items over their estimated useful lives. Intangible assets other than goodwill that have a finite life continue to be amortized over their useful lives. The Company has no goodwill or intangible assets with indefinite lives. The Company’s finite-lived intangible assets consist of purchased intellectual property rights and the licensed use of patents that are being amortized over their expected useful lives. Consequently, there was no impact on the Company’s financial position or results of operations upon the adoption of FAS 142.

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     The Company’s finite-lived intangible assets consist of the following:

                                 
    March 30, 2003     June 30, 2002  
   
   
 
    Gross             Gross          
    Carrying     Accumulated     Carrying     Accumulated  
    Amount     Amortization     Amount     Amortization  
   
   
   
   
 
    (in thousands)  
Intellectual property rights
  $ 3,500     $ 1,875     $ 3,500     $ 1,350  
Licenses
    2,700       1,350       2,700       540  
 
 
   
   
   
 
 
  $ 6,200     $ 3,225     $ 6,200     $ 1,890  
 
 
   
   
   
 

     Total amortization expense for the three- and nine-month periods ended March 30, 2003, was $445,000 and $1,335,000, respectively compared to $445,000 and $795,000, respectively, for three- and nine-month periods ended March 31, 2002. Intellectual property rights have an estimated useful life of 5 years and licenses have an estimated useful life of 2.5 years. The weighted-average amortization period of all intangible assets is approximately 4.0 years.

     Estimated future intangible asset amortization expense for the remainder of fiscal 2003, and for the five fiscal years thereafter, is as follows:

         
Period   Amount  

 
 
    (in thousands)  
Remainder of fiscal 2003
  $ 445  
Fiscal 2004
    1,780  
Fiscal 2005
    550  
Fiscal 2006
    200  
Thereafter
     
 
 
 
 
  $ 2,975  
 
 
 

NOTE G — DEFERRED COMPENSATION

     During the quarter ended December 29, 2002, the Company recorded $3.4 million of deferred compensation in stockholders’ equity, which was offset by a corresponding entry in additional paid-in capital in stockholders’ equity, in connection with the modification of terms of a fixed stock option award previously issued to an officer of the Company. The modification extended the contractual life of the stock option for a period of three years and added additional vesting requirements. However, no changes were made to either the number of shares of the Company’s stock subject to the option nor the option’s exercise price. Accordingly, the modification resulted in the remeasurement of compensation expense based on the option’s intrinsic value on the date of modification in accordance with the provisions of APB 25 and FIN 44 . The deferred compensation amount of $3.4 million recorded during the quarter ended December 29, 2002 is being amortized ratably over the vesting period of the modified options, or 16 quarters. When the Nasdaq National Market closing price of Lam’s common stock reaches or exceeds $20.00 per share, all unvested shares will immediately vest and become exercisable on that date and all remaining deferred compensation will be recognized as compensation expense. Total compensation expense recognized for the three- and nine-month periods ended March 30, 2003 was $210,000 and $383,000, respectively.

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NOTE H — OTHER INCOME (EXPENSE), NET

     The significant components of other income (expense), net are as follows:

                                 
    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
    (in thousands)  
Gain (loss) on equity derivative contracts in company stock
  $     $ 16,828     $ (16,407 )   $ 17,718  
Interest expense
    (718 )     (5,841 )     (5,322 )     (20,559 )
Interest income
    3,296       7,592       13,126       24,870  
Foreign exchange gain (loss)
    378       2,422       (503 )     1,557  
Debt issue cost amortization
    (785 )     (941 )     (2,111 )     (2,823 )
Other, net
    (61 )     (2,617 )     (753 )     (3,001 )
 
 
   
   
   
 
 
  $ 2,110     $ 17,443     $ (11,970 )   $ 17,762  
 
 
   
   
   
 

NOTE I — NET INCOME (LOSS) PER SHARE

     Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. The computation of basic net income (loss) per share for all periods presented is derived from the information on the face of the income statement, and there are no reconciling items in either the numerator or denominator.

     Diluted net income per share is computed as though all potential common shares that are dilutive were outstanding during the period. The following table provides a reconciliation of the denominators of the basic and diluted computations for net income (loss) per share.

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    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
    (in thousands, except per share data)  
Numerator:
                               
Net income (loss)
  $ 797     $ 1,569     $ (11,438 )   $ (59,006 )
 
 
   
   
   
 
Denominator:
                               
Basic average shares outstanding
    125,988       126,747       126,110       125,921  
Effect of potential dilutive securities:
                               
Employee stock plans and warrants
    3,562       7,673              
 
 
   
   
   
 
Diluted average shares outstanding
    129,550       134,420       126,110       125,921  
 
 
   
   
   
 
Net income (loss) per share — Basic
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
Net income (loss) per share — Diluted
  $ 0.01     $ 0.01     $ (0.09 )   $ (0.47 )
 
 
   
   
   
 
Antidilutive securities excluded from the calculation (1)
    20,139       4,457       19,953       3,096  
 
 
   
   
   
 

(1)  For purposes of computing diluted net income per share, weighted-average potential common shares do not include outstanding warrants or stock options whose exercise prices exceed the average market value of the Company’s common stock for the period.

     For the three-month period ended March 30, 2003, diluted net income per share included the assumed exercise of employee stock options, but excluded the assumed conversion of the convertible subordinated 4% notes because their effect would have been antidilutive. For the three-month period ended March 31, 2002, diluted net income per share included the assumed exercise of employee stock options and warrants, but excluded the assumed conversion of the convertible subordinated 4% and 5% notes because their effect would have been antidilutive. Outstanding options, warrants and convertible subordinated 4% notes for the nine-month period ended March 30, 2003, and outstanding options, warrants, and convertible subordinated 4% and 5% notes for the nine-month period ended March 31, 2002, were excluded from the computations of diluted net loss per share because their effects would have been antidilutive due to the net losses for the periods.

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NOTE J — COMPREHENSIVE INCOME (LOSS)

     The components of comprehensive income (loss), net of tax, are as follows:

                                      
    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
    (in thousands)  
Net income (loss)
  $ 797     $ 1,569     $ (11,438 )   $ (59,006 )
Foreign currency translation adjustment
    39       (778 )     (1,036 )     4,248  
Unrealized gain (loss) on fair value of derivative financial instruments, net
    158       (2,283 )     (1,230 )     (1,495 )
Unrealized gain on financial instruments, net
    242             825        
 
 
   
   
   
 
Comprehensive income (loss)
  $ 1,236     $ (1,492 )   $ (12,879 )   $ (56,253 )
 
 
   
   
   
 

     Accumulated other comprehensive loss, net of tax, is as follows:

                 
    March 30,     June 30,  
    2003     2002  
   
   
 
    (in thousands)  
Accumulated foreign currency translation adjustment
  $ (17,494 )   $ (16,458 )
Accumulated unrealized gain (loss) on derivative financial instruments
    (12 )     1,218  
Accumulated unrealized gain on financial instruments
    825        
 
 
   
 
Accumulated other comprehensive loss
  $ (16,681 )   $ (15,240 )
 
 
   
 

NOTE K — LEASE COMMITMENTS

     During the third quarter of fiscal 2003, a lease agreement (“the Agreement”) relating to two properties (land and buildings) at the Company's Fremont, California campus was transferred to a new lessor and amended and restated. The Agreement replaces the former lease that was due to expire in March 2003. As part of the Agreement, the Company has the option to purchase the buildings at any time for approximately $54.4 million. In addition, the Company is required to guarantee the lessor a residual value on the property of up to $48.4 million at the end of the lease term, (in the case that lease is not renewed, the Company does not exercise its purchase option, and the lessor sells the property and the sale price is less than the lessor’s cost). Additionally, as part of the lease agreement, the Company maintains cash collateral of $54.4 million as of March 30, 2003 in separate specified interest-bearing accounts. The lessor under the Agreement is a substantive independent leasing company that does not have the characteristics of a VIE as defined by FIN 46 and is therefore not consolidated by the Company.

     In addition, the Company has two lease agreements with lessors relating to certain other properties (land and buildings) at its Fremont, California campus which involve lessors which could be considered VIEs and could potentially result in the consolidation of the lessors’ activities.

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The Company currently accounts for these lease agreements as operating leases and therefore, neither the leased facilities nor the related debt is reported in the Company’s accompanying balance sheets. These lease agreements require the Company to provide guaranteed residual values totaling up to $52.7 million at the end of the respective lease terms ($25.2 million in fiscal 2005 and $27.5 million in fiscal 2006). In January 2003, the Company provided $59.0 million of additional cash collateral under these lease agreements. The Company has the option to purchase the facilities for approximately $27.1 million and $30.0 million, respectively. No material impact is anticipated on the Company’s financial position or results of operations because the Company anticipates these properties will be transferred to a new lessor that would not qualify as a VIE prior to the implementation date of FIN 46.

NOTE L — GUARANTEES

     In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires a company that is a guarantor to make specific disclosures about its obligations under certain guarantees that it has issued. FIN 45 also requires a company (“the Guarantor”) to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee.

     Lease agreements relating to certain facilities at the Company’s Fremont, California campus require the Company to guarantee residual values of the leased properties to the lessors at the end of the lease terms (in the case that the lease is not renewed, the Company does not exercise the purchase option, and the lessors sell the properties and the sale price is less than the lessors’ cost) of up to $101.1 million ($25.2 million in fiscal 2005, $27.5 million in fiscal 2006 and $48.4 million in fiscal 2008). The terms of the guarantees are equal to the remaining terms of the related lease agreements, which range from approximately two to five years.

     In March 2003, the Company transferred a lease agreement to a new lessor (Note K). Under the accounting provisions of FIN 45, the Company recognized a liability of $0.5 million for the related residual value guarantee of $48.4 million under the lease. The value of the guarantee was determined by computing the estimated present value of probability-weighted cash flows that might be expended under the guarantee over the lease term, discounted using the Company’s risk adjusted borrowing rate of approximately 2%. The value of the guarantee has been recorded as prepaid rent, with the offset recorded as a liability, and the amounts will be amortized to income (for the liability) and to expense (for the prepaid rent) on a ratable basis over the five-year period of the lease.

     The Company has issued certain indemnifications to its lessors under certain of its operating lease agreements, such as, indemnification for certain environmental matters. The Company has entered into certain insurance contracts to minimize its exposure related to such indemnifications. As of March 30, 2003, the Company has not recorded any liability on its financial statements in connection with these indemnifications, as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

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     The Company has agreements with two financial institutions that guarantee payment of its Japanese subsidiary’s overdraft protection obligation. The maximum potential amount of future payments the Company could be required to make under these agreements at March 30, 2003, is approximately $5.0 million, the amount available under the overdraft protection agreement. As of March 30, 2003, the Company’s Japanese subsidiary did not owe any amounts under this agreement. The Company has not recorded any liability on its financial statements in connection with these guarantees, as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     The Company has an agreement with a financial institution to sell to the institution certain U.S. Dollar-denominated receivables generated from the sale of its systems, subject to recourse provisions. The Company insures these sold receivables for approximately 90% of their value and guarantees payment of the remaining uninsured receivable value in the event that the payment obligation is not satisfied. Based on historical payment patterns, the Company has experienced negligible default on payment obligations and therefore, believes the risk of loss is minimal. The terms of these guarantees are from 90 days past the due date of the receivable, until collected. At March 30, 2003, the maximum potential amount of future payments the Company could be required to make under this agreement is approximately $2.0 million. As of March 30, 2003, the Company has not recorded any liability on its financial statements in connection with these guarantees as the Company does not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     Generally, the Company indemnifies under pre-determined conditions and limitations, its customers for infringement of third party intellectual property rights by its products or services. The Company seeks to limit its liability for such indemnity to an amount not to exceed the sales price of the products or services. The Company does not believe, based on information available, that it is probable that any material amounts will be paid under these guarantees.

     The Company provides standard warranties on its systems that run generally for a period of 12 months from system acceptance, not to exceed 14 months from the date of shipment of the system to the customer. The liability amount is based on actual historical warranty spending activity by type of system, customer, and geographic region, modified for any known differences such as the impact of system reliability improvements.

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     Changes in the Company’s product warranty reserves during the nine months ended March 30, 2003, were as follows:

         
    (in thousands)  
Balance at June 30, 2002
  $ 16,762  
Warranties issued during the period
    16,466  
Settlements made during the period
    (13,861 )
Change in liability for pre-existing warranties during the period, including expirations
    (223 )
 
 
 
Balance at March 30, 2003
  $ 19,144  
 
 
 

NOTE M — DERIVATIVE INSTRUMENTS AND HEDGING

     The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair value. The Company acquires and holds derivative financial instruments to hedge a variety of risks and exposures including interest rate fluctuation risks associated with our long-term debt, foreign currency exchange rate fluctuations on the value of expected cash flows from forecasted revenue transactions denominated in Japanese Yen and foreign currency denominated assets. Changes in the fair value of derivatives that are not designated or that do not qualify as hedges under Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) are recognized in earnings immediately. The Company does not use derivatives for trading purposes.

     The Company’s policy is to attempt to minimize short-term business exposure to foreign exchange risks using the most effective and efficient methods to eliminate or reduce such exposures. In Japan, the Company generally sells its systems, spare parts and services under contracts denominated in Japanese Yen. Therefore, in the normal course of business, the Company’s financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. To protect against the reduction in value of forecasted Yen-denominated cash flows resulting from sales in Japanese Yen, the Company has instituted a foreign currency cash flow hedging program. The Company has entered into foreign currency forward exchange contracts that generally expire within 12 months, and no later than 24 months. These foreign currency forward exchange contracts, designated as cash flow hedges, are carried on the Company’s balance sheet at fair value with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period the hedged revenue is recognized.

     For the three- and nine-month periods ended March 30, 2003, the Company recognized net losses of $148,000 and $122,000, respectively, for cash flow hedges that had been discontinued, because the original forecasted transactions did not or will not occur. The losses are recorded in other expense in the respective March 30, 2003 condensed consolidated statements of operations.

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     The following table summarizes activity in accumulated other comprehensive income (loss), net of tax, related to derivatives classified solely as cash flow hedges held by the Company during the nine months ended March 30, 2003:

         
    (in thousands)  
Deferred cash flow hedging gains at June 30, 2002
  $ 1,218  
Reclassified into earnings from other comprehensive income
    (149 )
Changes in fair value of derivative financial instruments, net
    (1,081 )
 
 
 
Deferred cash flow hedging losses at March 30, 2003
  $ (12 )
 
 
 

     At March 30, 2003, the Company expects to reclassify the balance of deferred hedging gains and losses, net, included in accumulated other comprehensive (loss) to earnings during the next 12 months due to the recognition in earnings of the hedged forecasted transactions.

     The Company also enters into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of Yen denominated intercompany receivables. Under FAS 133, these are not designated hedges. Therefore, the change in fair value of these derivatives is recorded into earnings as a component of other income (expense), net and offsets the change in fair value of the foreign currency denominated intercompany receivables.

     The Company also has a policy to minimize, where possible and practical, the impact of interest rate exposure associated with its interest rate sensitive investments and debt obligations. To limit the impact relating to interest rate exposure associated with its fixed rate 4% Convertible Subordinated Notes (“4% Notes”), the Company is a party to an interest rate swap agreement (“the swap”) with a notional amount of $300.0 million. Under the terms of the swap, the Company exchanges the fixed interest payments on its 4% Notes for variable interest payments based on the London Interbank Offered Rate (“LIBOR”). The swap is accounted for as a fair value hedge under the provisions of FAS 133. Fluctuations in the fair value of the 4% Notes, resulting from changes in the LIBOR interest rate sensitive component, are recorded in earnings, and offset by changes in the fair value of the swap, which are also recorded in earnings.

     As a result of designating the swap as a hedge of its 4% Notes, the carrying value of the 4% Notes is adjusted to reflect changes in fair value attributable to changes in the benchmark interest rate. For the three-month period ended March 30, 2003, the carrying value of the 4% Notes included in long-term debt and other long-term liabilities decreased by approximately $0.3 million. Over the same three-month period, the fair value of the swap, included in long-term assets, decreased by approximately $0.3 million with the corresponding gains and losses for the three-month period recorded in other income (expense), net. For the nine-month period ended March 30, 2003, the carrying value of the 4% Notes included in long-term debt and other long-term liabilities increased by $13.8 million, (to $317.3 million at March 30, 2003). Over the same nine-month period, the fair value of the swap, included in long-term assets, increased by $13.6 million (to $16.9 million at March 30, 2003) with the corresponding offsetting gains and losses for the nine-month period recorded in other income (expense), net.

     For the three- and nine-month periods ended March 30, 2003, the Company recognized net losses of $7,000 and $179,000, respectively, in other income (expense), net, resulting from hedge

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ineffectiveness related to differences in changes in the fair value of the swap and changes in the fair value of the 4% Notes.

NOTE N — RESTRUCTURING ACTIVITIES

Fiscal 2003 Restructuring Activities

     Restructuring charges have been incurred by the Company to respond to depressed levels of capital investment by the semiconductor industry and the Company’s strategic plans. The Company evaluated its employment levels, its outsourcing plans and the impact on manufacturing and administrative facilities in light of its revenue outlook, and its forecasts. Based on this evaluation, senior management of the Company committed to cost reduction and exit activities in the quarters ended March 30, 2003 (“the March 2003 Plan”) and December 29, 2002 (“the December 2002 Plan”). Prior to the end of the March 30, 2003 and December 29, 2002 quarters, management with the proper level of authority, approved specific actions under the respective Plans, and communicated the severance packages to potentially impacted employees in enough detail that the employees could determine their type and amount of benefit. The termination of the impacted employees occurred as soon as practical after the restructuring plans were announced. Lease payments on vacated facilities are based on management’s estimates using known prevailing real estate market conditions at that time. Leasehold improvements relating to the vacated buildings were written off as these items will have no future economic benefit to the Company and have been abandoned. The Company applied the accounting provisions of FAS 146 to the fiscal 2003 restructuring activities as the Company early-adopted FAS 146 during the December 2002 quarter. Under the provisions of FAS 146, the restructuring charges for the remaining contractual lease payments on vacated facilities were recognized in the quarter in which the Company no longer occupied the facility. As a result of all the fiscal 2003 restructuring activities, the Company expects annual reductions in costs of goods sold and operating expenses that will support the Company’s goal to achieve breakeven operating performance at $180 million in quarterly revenues.

March 2003 Plan

     The Company began carrying out the announced restructuring activities prior to March 30, 2003, by reducing its workforce in North America and Europe by approximately 50 people and by vacating selected facilities located in North America determined to be no longer critical to the Company’s operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with the majority of the reductions in North America. The Company recorded a restructuring charge during the quarter ended March 30, 2003, of approximately $4.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

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     Below is a table summarizing activity relating to the March 2003 Plan:

                                 
    Severance     Payments     Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
    (in thousands)  
March 2003 provision
  $ 1,658     $ 2,913     $ 171     $ 4,742  
Cash payments
    (198 )     (105 )           (303 )
Non-cash charges
    (228 )           (171 )     (399 )
 
 
   
   
   
 
Balance at March 30, 2003
  $ 1,232     $ 2,808     $     $ 4,040  
 
 
   
   
   
 

     The remainder of the Severance and Benefits reserve balance of $1.2 million as of March 30, 2003, is anticipated to be utilized by the end of the 2003 calendar year.

December 2002 Plan

     The Company began carrying out the announced restructuring activities prior to December 29, 2002 by reducing its workforce in North America, Europe, and Asia by approximately 120 employees and by vacating selected sales and office facilities located in North America, Europe and Asia determined to be no longer critical to the Company’s operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with approximately 65% from North America and approximately 35% from Asia and Europe locations. The Company recorded a restructuring charge of $5.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

     Below is a table summarizing activity relating to the December 2002 Plan:

                                 
    Severance     Payments     Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
            (in thousands)          
December 2002 provision
  $ 3,257     $ 1,945     $ 474     $ 5,676  
Cash payments
    (2,587 )     (340 )           (2,927 )
Non-cash charges
                (474 )     (474 )
 
 
   
   
   
 
Balance at March 30, 2003
  $ 670     $ 1,605     $     $ 2,275  
 
 
   
   
   
 

     The remainder of the Severance and Benefits reserve balance of $0.7 million as of March 30, 2003, is anticipated to be utilized by the end of the 2003 calendar year.

Fiscal 2002 Restructuring Activities

     In response to the deterioration in semiconductor sales in the first half of fiscal 2002 which resulted in a contraction in the wafer fabrication equipment market and therefore in the Company’s revenues, senior management of the Company committed to cost reduction and exit activities in the quarters ended December 30, 2001 (“the December 2001 Plan”) and September 23, 2001 (“the September 2001 Plan”). Prior to the end of the December 30, 2001 and September 23, 2001 quarters, management with the proper level of authority, approved specific actions of the respective Plans, and communicated the severance package to potentially

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impacted employees in enough detail that the employees could determine their type and amount of benefit. The termination of the impacted employees occurred as soon as practical after the plans of restructuring were announced. Lease payments on vacated facilities are based on management’s estimates using prevailing real estate market conditions. The Company initially estimated under the Plans that given prevailing real estate market conditions at that time, it would take approximately 24 months to sublease its vacated facilities. The Company revised the original estimates for lease payments on vacated facilities if prevailing real estate market conditions were different than the initial estimate. Leasehold improvements and certain fixed assets relating to the vacated buildings were written off as these items have no future economic benefit to the Company and have been abandoned.

December 2001 Plan

     During the second fiscal quarter of 2002, the Company began implementing restructuring activities which included reducing its workforce by approximately 470 employees in North America, Europe, and Asia, vacating selected office and warehouse facilities at the Company’s Fremont, California campus determined to be no longer critical to the Company’s operations, and the closure of certain offices in Asia. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with approximately 80% from North America and approximately 20% from Asia and Europe locations. The Company recorded a restructuring charge of $33.8 million relating to severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities and the write-off of related leasehold improvements and fixed assets.

     During the second quarter of fiscal 2003, the Company recovered approximately $2.1 million of restructuring charges originally accrued under the December 2001 Plan for benefits and services offered by the Company that were not utilized by the terminated employees. Additionally, during the second and third quarters of fiscal 2003, the Company recovered approximately $1.7 million related to a revision to the net amount of lease payments remaining to be paid on the vacated facilities. In addition, during the second quarter of fiscal 2003, the Company recorded approximately $0.4 million of additional restructuring charges due to a revision the Company made for the length of time required to sublease one of its vacated buildings in Fremont, California and approximately $0.1 million due to additional facility restoration costs incurred to fulfill the Company’s contractual obligations under the terms of a lease agreement.

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     Below is a table summarizing activity relating to the December 2001 Plan:

                                 
    Severance     Lease
Payments
    Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
            (in thousands)          
December 2001 provision
  $ 14,208     $ 9,637     $ 9,928     $ 33,773  
Cash payments
    (9,122 )     (386 )           (9,508 )
Non-cash charges
    (1,529 )     (127 )     (9,928 )     (11,584 )
 
 
   
   
   
 
Balance at June 30, 2002
    3,557       9,124             12,681  
 
 
   
   
   
 
Recovery of assets
                18       18  
Cash payments
    (1,383 )     (2,197 )           (3,580 )
Reversal of restructuring charges
    (2,118 )     (1,669 )     (18 )     (3,805 )
Additional restructuring charges
          450             450  
 
 
   
   
   
 
Balance at March 30, 2003
  $ 56     $ 5,708     $     $ 5,764  
 
 
   
   
   
 

     The remainder of the Severance and Benefits reserve balance as of March 30, 2003, is anticipated to be utilized by the end of the 2003 fiscal year.

September 2001 Plan

     During the first quarter of fiscal 2002, the Company began implementing restructuring activities which included a reduction of approximately 550 employees in North America, Europe and Asia, vacating selected facilities at the Company’s headquarters in Fremont, California determined to be no longer critical to the Company’s operations and discontinuance of the manufacture of selected products of the Company’s older etch inventory. The employees were from a broad range of organizations and at multiple levels throughout the Company, with approximately 85% from North America and 15% from Asia and Europe locations. The Company recorded a restructuring charge of $21.0 million which included severance and benefits for involuntarily terminated employees, charges for remaining lease payments and write-offs of leasehold improvements on vacated facilities, and write-offs for inventories of older etch product inventories that were discontinued.

     During the fourth quarter of fiscal 2002, the Company recovered approximately $1.8 million of the September 2001 Plan charge due to sales of older etch inventory that were included in the September 2001 restructuring plan of $0.8 million, lower than estimated employee termination costs of $0.7 million, and lower than estimated expenses relating to a vacated facility lease of $0.3 million. During the second and third quarters of fiscal 2003, approximately $1.0 million was recovered due to $0.4 million of lower than previously estimated employee severance and termination costs, $0.3 million was recovered due to actual expenses being lower than estimated for vacated facility leases and $0.3 million as a result of sales of etch inventory that was written off as part of the September 2001 restructuring plan. The sales were not estimated nor expected to occur when the September 2001 Plan was developed as these were subsequent sales in support of the Company’s installed base of products. In addition, in the second quarter of fiscal 2003, the Company recorded additional charges for the September 2001 Plan based on a revision of its estimate of the length of time required to sublease one of its vacated buildings in Fremont, California. Based on prevailing market conditions, the Company extended the accrual for lease payments to the end of the lease in June 2004 and recorded an additional $0.6 million relating to these remaining lease payments.

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     Below is a table summarizing activity relating to the September 2001 Plan:

                                         
            Lease                          
    Severance     Payments     Abandoned                  
    and     on Vacated     Fixed     Discontinued          
    Benefits     Facilities     Assets     Inventory     Total  
   
   
   
   
   
 
    (in thousands)  
September 2001 provision
  $ 10,767     $ 1,746     $ 935     $ 7,600     $ 21,048  
Recovery of assets
                      785       785  
Cash payments
    (8,135 )     (762 )                 (8,897 )
Non-cash charges
    (1,035 )           (935 )     (7,600 )     (9,570 )
Reversal of restructuring charges
    (695 )     (317 )           (785 )     (1,797 )
 
 
   
   
   
   
 
Balance at June 30, 2002
    902       667                   1,569  
 
 
   
   
   
   
 
Recovery of assets
                      270       270  
Cash payments
    (153 )     (394 )                 (547 )
Reversal of restructuring charges
    (416 )     (286 )           (270 )     (972 )
Additional restructuring charges
          636                   636  
 
 
   
   
   
   
 
Balance at March 30, 2003
  $ 333     $ 623     $     $     $ 956  
 
 
   
   
   
   
 

     The remainder of the Severance and Benefits reserve balance of $0.3 million, as of March 30, 2003, is anticipated to be utilized by the end of the 2003 fiscal year.

Fiscal 2001 Restructuring Activities

     During the quarter ended December 29, 2002, the Company completed the restructuring activities associated with the June 2001 Plan.

NOTE O — REDEMPTION OF CONVERTIBLE SUBORDINATED NOTES

     The Company’s 5% Convertible Subordinated Notes matured on September 2, 2002 and were repaid in full. This resulted in a cash outlay of approximately $309.8 million.

NOTE P — REPAYMENT OF SUBSIDIARY NOTE

     On January 28, 2003, the Company’s Japanese subsidiary repaid its ¥6.0 billion ($51.1 million at January 28, 2003) Japanese long-term loan in full. The repayment of the loan reduced cash by $51.1 million and reduced long-term liabilities by the same amount.

NOTE Q — EQUITY DERIVATIVE CONTRACTS IN COMPANY STOCK

     The Company’s equity derivatives included certain put and call options indexed to its own stock that were acquired in June 1999. Application of EITF 00-19, “Determination of Whether Share Settlement is Within the Control of the Issuer”, for the purposes of applying EITF Issue No. 96-13, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, required these previously purchased instruments to be recorded at their fair value at the end of each reporting period, commencing in June 2001, with the change in fair value recorded as a gain or loss in the Company’s statement of operations. The Company’s equity derivatives were collateralized by restricted cash of $9.1 million and could not be settled

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in unregistered shares. They were classified as other short-term assets ($24.8 million), at the end of fiscal 2002.

     On August 23, 2002, the Company settled its outstanding equity derivative contracts by purchasing approximately 3.5 million shares of Lam common stock at an average price of $11.19 per share for a total cash payment of $39.1 million. By settling the equity derivative contracts, the Company was able to repurchase the shares recording a life to date gain of $8.4 million ($2.41 per share) from their then market value. As a result of this transaction, the Company recognized an increase in treasury stock of $47.6 million.

     Based on the $13.60 market price of the Company’s common stock at the contract settlement date (August 23, 2002), the fair value of the equity derivative contracts declined by $16.4 million to $8.4 million, from their June 30, 2002 fair value of $24.8 million. This $16.4 million reduction in the equity derivative contracts’ fair value was recorded as a non-taxable loss in other expense in the three months ended September 29, 2002 and nine months ended March 30, 2003.

NOTE R — LITIGATION

     See Part II, item 1 for discussion of litigation.  

NOTE S — SUBSEQUENT EVENTS

     Subsequent to the quarter-end, the Company received notification that the Internal Revenue Service had reached resolution on a number of issues including research and development tax credit adjustments related to an ongoing audit process. The Company is reviewing the resolution, which indicates a potential $25 million research and development tax credit for prior years. The Company has not yet determined if a net tax benefit will be reflected in the Company’s financial position or results of operations for the current fiscal year.

     
ITEM 2.   Management’s Discussion and Analysis of Financial Condition and
    Results of Operations

Forward Looking Statements

     With the exception of historical facts, the statements contained in this discussion are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are subject to the Safe Harbor provisions created by these statutes. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue and income, product development, demand, acceptance and market share, competitiveness, gross margins, levels of research and development, outsourcing plans and operating expenses, our management’s plans and objectives for our current and future operations, and the sufficiency of financial resources to support future operations and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading Risk Factors, and other documents we may file from time to time with the Securities and Exchange Commission, specifically our last filed Annual Report on Form 10-K for the fiscal year ended June 30, 2002. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ

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materially from those expressed herein and in ways not readily foreseeable. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known. We undertake no obligation to release any revisions to these forward-looking statements, which may be made to reflect events or circumstances, which occur after the date hereof.

Documents To Review In Connection With Management’s Analysis Of Financial Condition and Results Of Operations

     This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes presented in this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10-K for a full understanding of our financial position at March 30, 2003 and results of operations for the three- and nine-month periods ended March 30, 2003.

RESULTS OF OPERATIONS

     Lam Research Corporation is a leading supplier of technically complex thin film selective removal equipment used during the fabrication process of semiconductors. Our product offerings include single wafer plasma etch systems with a wide range of applications, Chemical Mechanical Planarization (“CMP”) systems, and post-CMP wafer cleaning systems. Demand for our equipment can fluctuate significantly from period to period as a result of various factors, including but not limited to, economic conditions, supply and demand for semiconductors, customer capacity requirements, and our ability to develop and market competitive, new products. For these and other reasons, our results of operations for the three- and nine-month periods ended March 30, 2003, may not necessarily be indicative of future operating results.

Total Revenue

     Our total revenues for the three- and nine-month periods ended March 30, 2003 were $187.1 million and $569.1 million respectively, an increase of 14.0% and a decrease of 25.4%, respectively, compared to the corresponding periods a year ago. The increase in revenues for the three-month period ended March 30, 2003, compared to the corresponding period of fiscal 2002 results from increased revenues primarily in our Europe and Asia Pacific regions, partially offset by decreased revenues in our Japan region. For the three-month period ended March 30, 2003, systems revenues increased primarily from our polysilicon and dielectric etch products. The decrease in our revenues for the nine-month period ended March 30, 2003, compared to the corresponding period a year ago, reflects reduced capital equipment purchases by our customers due to excess semiconductor inventory for telecommunication products, slower than expected personal computer sales and a slowing global economy. The slight increase in our revenues in the March 2003 quarter compared to the December 2002 quarter was due in part to increased revenues in our Europe region. For the nine-month period ended March 30, 2003, systems revenues decreased across nearly all product lines with the exception of revenues from our newer generation etch product lines. The geographic breakdown of revenue was as follows:

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    Three Months Ended     Nine Months Ended  
   
   
 
    March 30,     March 31,     March 30,     March 31,  
    2003     2002     2003     2002  
   
   
   
   
 
North America
    23 %     24 %     25 %     26 %
Europe
    25 %     20 %     20 %     23 %
Asia Pacific
    44 %     37 %     46 %     35 %
Japan
    8 %     19 %     9 %     16 %

     Our current estimate for the June 2003 quarter is for revenues of approximately $185 to $190 million.

Gross Margin

     Our gross margins as a percentage of revenues were 40.2% and 39.8% for the three- and nine-month periods ended March 30, 2003, compared to 33.5% and 26.2% for the corresponding periods a year ago. The improvement in gross margin as a percentage of revenue for the three-month period ended March 30, 2003, compared to the corresponding period of fiscal 2002, can be attributed to cost reductions including the effects of our outsourcing programs that were implemented during the period and improved manufacturing utilization rates. Factory output increased by 43% in March 2003 compared to March 2002. The improvement in gross margin as a percentage of revenues for the nine-month period ended March 30, 2003 compared to the corresponding period a year ago also reflected the absence of charges within cost of goods sold for the nine month-period ended March 31, 2002, which included: a patent litigation settlement charge of approximately $38.8 million, inventory write-downs of approximately $24.1 million and inventory-related restructuring charges of approximately $7.6 million.

     In the second fiscal quarter of 2002, we signed a final settlement agreement in connection with a patent infringement claim by Varian Semiconductor Equipment Associates, Inc. (“Varian”), and we agreed to pay Varian $20.0 million in cash and issued them a warrant to purchase 2,000,000 shares of our common stock with a fair value of $21.5 million. In connection with this settlement, we recorded a charge of $38.8 million, and the remaining amount of the settlement, $2.7 million, represented the value of future licensed use of patents we received. The $2.7 million relating to the license will be amortized ratably over 10 quarters as a charge to cost of goods sold. Amortization expense for these licenses for the three- and nine-month periods ended March 30, 2003 was $270,000 and $810,000, respectively.

     In the second fiscal quarter of 2002, we recorded a charge for additional excess and obsolete inventory of $24.1 million. We recorded the charge based on the results of our customary quarterly analysis of inventories and their net realizable value based on the current market conditions and forecasted customer demand for related products. This analysis highlighted limited anticipated consumption of our older generation equipment due to accelerated technological and product design changes.

     Gross margin as a percentage of revenue increased sequentially from the December 2002 quarter primarily due to improved manufacturing utilization rates resulting from higher production output and proactive cost management.

     Our current outlook for the June 2003 quarter is for essentially flat gross margin as a

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percentage of revenues compared to the March 2003 quarter.

Research and Development

     Research and Development (“R&D”) expenses for the three- and nine-month periods ended March 30, 2003, were $39.0 million and $120.1 million, 3.9% and 12.7% lower, respectively, than the comparable year-ago periods. As a percentage of revenue, R&D expenses for the three and nine-month periods ended March 30, 2003, were 20.8% and 21.1%, respectively, compared to 24.7% and 18.0%, respectively, for the corresponding periods a year ago. The decrease in absolute dollars for the three- and nine-month periods of fiscal 2003, compared to the corresponding periods a year ago, reflect our ongoing efforts to efficiently manage expenses while making substantial investments in the development of our next generation products. Accordingly, the majority of the decrease is primarily due to lower infrastructure and employee-related expenses for the nine-month period ended March 30, 2003, compared to the corresponding period in fiscal 2002. Additionally, R&D expenses for the nine-month period ended March 31, 2002 included a $5.3 million impairment charge of selected R&D laboratory equipment which was determined to be no longer useful due to technological changes. R&D expenditures in absolute dollars were essentially flat for the three-month period ended March 30, 2003, compared to the corresponding period a year ago.

Selling, General and Administrative

     Selling, General and Administrative (“SG&A”) expenses for the three- and nine-month periods ended March 30, 2003 were 9.8% and 22.9% lower, respectively, than SG&A expenses in the corresponding period ago. As a percentage of revenue, SG&A expenses for the three- and nine-month periods ended March 30, 2003, were 17.8% and 17.3%, respectively, compared to 22.5% and 16.7%, respectively, for the comparable periods in fiscal 2002. The reduction in SG&A expenses for the three- and nine-month periods ended March 30, 2003, compared to the corresponding periods in fiscal 2002 is primarily due to lower infrastructure expenses. Furthermore, SG&A expenses for the nine-month period ended March 31, 2002, included a $4.2 million impairment charge of the value of certain demonstration equipment, used in sales and marketing activities, which was determined to be no longer useful due to technological changes.

     As we disclosed in the December 2002 Form 10-Q, we modified the contractual life and added additional vesting requirements of an officer’s stock option award. As a result of the modification, we recorded deferred compensation of $3.4 million, which is being amortized ratably over the vesting period of the modified options, or 16 quarters. As of March 30, 2003, approximately $3.0 million is remaining in deferred compensation within stockholders’ equity. When the Nasdaq National Market closing price of our common stock reaches or exceeds $20.00 per share, all unvested shares will immediately vest and become exercisable on that date and all remaining deferred compensation will be recognized as compensation expense within SG&A.

Restructuring Activities

     We have developed and implemented restructuring plans in response to changes in business outlook with the intent to align our cost structure with anticipated revenue levels. Expenses have been incurred associated with cost reduction activities, downsizing, reorganizations and business exit activities related to discontinued product lines. Accounting for restructuring activities

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requires an evaluation of formally committed and approved plans. Restructuring charges have been incurred related to changes in our strategic plans and our responses to declines in our business marketplace. Although management makes every attempt to consolidate all known restructuring activities into one plan, the nature of our extreme cycles and rapidly changing forecasting environment places practical limitations on achieving this objective. The recognition of a restructuring event and related charges in our financial statements does not necessarily exclude similar but unrelated actions in future periods.

Fiscal 2003 Restructuring Activities

     We have incurred restructuring charges to respond to depressed levels of capital investment by the semiconductor industry and our strategic plans. We evaluated our employment levels, our outsourcing plans and the impact on manufacturing and administrative facilities in light of our revenue outlook, and our forecasts. Based on this evaluation, our senior management committed to cost reduction and exit activities in the quarters ended March 30, 2003 (“the March 2003 Plan”) and December 29, 2002 (“the December 2002 Plan”). Prior to the end of the March 30, 2003 and December 29, 2002 quarters, management with the proper level of authority, approved specific actions under the respective Plans, and communicated the severance packages to potentially impacted employees in enough detail that the employees could determine their type and amount of benefit. The termination of the impacted employees occurred as soon as practical after the restructuring plans were announced. Lease payments on vacated facilities are based on management’s estimates using known prevailing real estate market conditions at that time. Leasehold improvements relating to the vacated buildings were written off as these items will have no future economic benefit and have been abandoned. We applied the accounting provisions of FAS 146 to the fiscal 2003 restructuring activities as we early-adopted FAS 146 during the December 2002 quarter. Under the provisions of FAS 146, the restructuring charges for the remaining contractual lease payments on vacated facilities were recognized in the quarter in which we no longer occupied the facility. We anticipate incurring additional restructuring charges for calendar 2003 of up to $10 million.

     As a result of all the fiscal 2003 restructuring activities, we expect annual reductions in costs of goods sold and operating expenses that will support our goal to achieve breakeven operating performance at $180 million in quarterly revenues.

March 2003 Plan

     We began carrying out the announced restructuring activities prior to March 30, 2003, by reducing our workforce in North America and Europe by approximately 50 people and by vacating selected facilities located in North America determined to be no longer critical to our operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with the majority of the reductions in North America. We recorded a restructuring charge during the quarter ended March 30, 2003, of approximately $4.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

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     Below is a table summarizing activity relating to the March 2003 Plan:

                                 
    Severance     Payments     Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
            (in thousands)          
March 2003 provision
  $ 1,658     $ 2,913     $ 171     $ 4,742  
Cash payments
    (198 )     (105 )           (303 )
Non-cash charges
    (228 )           (171 )     (399 )
 
 
   
   
   
 
Balance at March 30, 2003
  $ 1,232     $ 2,808     $     $ 4,040  
 
 
   
   
   
 

     The remainder of the Severance and Benefits reserve balance of $1.2 million as of March 30, 2003, is anticipated to be utilized by the end of the 2003 calendar year.

December 2002 Plan

     We began carrying out the announced restructuring activities prior to December 29, 2002 by reducing our workforce in North America, Europe, and Asia by approximately 120 employees and by vacating selected sales and office facilities located in North America, Europe and Asia determined to be no longer critical to our operations. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with approximately 65% from North America and approximately 35% from Asia and Europe locations. We recorded a restructuring charge of $5.7 million, consisting of severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities, and the write-off of related leasehold improvements.

     Below is a table summarizing activity relating to the December 2002 Plan:

                                 
    Severance     Payments     Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
    (in thousands)  
December 2002 provision
  $ 3,257     $ 1,945     $ 474     $ 5,676  
Cash payments
    (2,587 )     (340 )           (2,927 )
Non-cash charges
                (474 )     (474 )
 
 
   
   
   
 
Balance at March 30, 2003
  $ 670     $ 1,605     $     $ 2,275  
 
 
   
   
   
 

     The remainder of the Severance and Benefits reserve balance of $0.7 million as of March 30, 2003, is anticipated to be utilized by the end of the 2003 calendar year.

Fiscal 2002 Restructuring Activities

     In response to the deterioration in semiconductor sales in the first half of fiscal 2002 which resulted in a contraction in the wafer fabrication equipment market and therefore in our revenues, our senior management committed to cost reduction and exit activities in the quarters ended December 30, 2001 (“the December 2001 Plan”) and September 23, 2001 (“the September 2001 Plan”). Prior to the end of the December 30, 2001 and September 23, 2001 quarters, management with the proper level of authority, approved specific actions of the respective Plans, and communicated the severance package to potentially impacted employees in enough detail that the employees could determine their type and amount of benefit. The termination of the

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impacted employees occurred as soon as practical after the plans of restructuring were announced. Lease payments on vacated facilities are based on management’s estimates using prevailing real estate market conditions. We initially estimated under the Plans that given prevailing real estate market conditions at that time, it would take approximately 24 months to sublease our vacated facilities. We revised the original estimates for lease payments on vacated facilities if prevailing real estate market conditions were different than the initial estimate. Leasehold improvements and certain fixed assets relating to the vacated buildings were written off as these items have no future economic benefit to us and have been abandoned.

December 2001 Plan

     During the second fiscal quarter of 2002, we began implementing restructuring activities which included reducing our workforce by approximately 470 employees in North America, Europe, and Asia, vacating selected office and warehouse facilities at our Fremont, California campus determined to be no longer critical to our operations, and the closure of certain offices in Asia. The employees included in the Plan were from a broad range of organizations and at multiple levels throughout the Company, with approximately 80% from North America and approximately 20% from Asia and Europe locations. We recorded a restructuring charge of $33.8 million relating to severance and benefits for involuntarily terminated employees, charges for remaining lease payments on vacated facilities and the write-off of related leasehold improvements and fixed assets.

     During the second quarter of fiscal 2003, we recovered approximately $2.1 million of restructuring charges originally accrued under the December 2001 Plan for benefits and services offered by us that were not utilized by the terminated employees. Additionally, during the second and third quarters of fiscal 2003 we recovered approximately $1.7 million related to a revision to the net amount of lease payments remaining to be paid on the vacated facilities. In addition, during the second quarter of fiscal 2003, we recorded approximately $0.4 million of additional restructuring charges due to a revision we made for the length of time required to sublease one of our vacated buildings in Fremont, California and approximately $0.1 million due to additional facility restoration costs incurred to fulfill our contractual obligations under the terms of a lease agreement.

     Below is a table summarizing activity relating to the December 2001 Plan:

                                 
            Lease                  
    Severance     Payments     Abandoned          
    and     on Vacated     Fixed          
    Benefits     Facilities     Assets     Total  
   
   
   
   
 
    (in thousands)  
December 2001 provision
  $ 14,208     $ 9,637     $ 9,928     $ 33,773  
Cash payments
    (9,122 )     (386 )           (9,508 )
Non-cash charges
    (1,529 )     (127 )     (9,928 )     (11,584 )
 
 
   
   
   
 
Balance at June 30, 2002
    3,557       9,124             12,681  
 
 
   
   
   
 
Recovery of assets
                18       18  
Cash payments
    (1,383 )     (2,197 )           (3,580 )
Reversal of restructuring charges
    (2,118 )     (1,669 )     (18 )     (3,805 )
Additional restructuring charges
          450             450  
 
 
   
   
   
 
Balance at March 30, 2003
  $ 56     $ 5,708     $     $ 5,764  
 
 
   
   
   
 

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     The remainder of the Severance and Benefits reserve balance as of March 30, 2003, is anticipated to be utilized by the end of the 2003 fiscal year.

September 2001 Plan

     During the first quarter of fiscal 2002, we began implementing restructuring activities which included a reduction of approximately 550 employees in North America, Europe and Asia, vacating selected facilities at our headquarters in Fremont, California determined to be no longer critical to our operations and discontinuance of the manufacture of selected products of our older etch inventory. The employees were from a broad range of organizations and at multiple levels throughout the Company, with approximately 85% from North America and 15% from Asia and Europe locations. We recorded a restructuring charge of $21.0 million which included severance and benefits for involuntarily terminated employees, charges for remaining lease payments and write-offs of leasehold improvements on vacated facilities, and write-offs for inventories of older etch product inventories that were discontinued.

     During the fourth quarter of fiscal 2002, we recovered approximately $1.8 million of the September 2001 Plan charge due to sales of older etch inventory that were included in the September 2001 restructuring plan of $0.8 million, lower than estimated employee termination costs of $0.7 million, and lower than estimated expenses relating to a vacated facility lease of $0.3 million. During the second and third quarters of fiscal 2003, approximately $1.0 million was recovered due to $0.4 million of lower than previously estimated employee severance and termination costs, $0.3 million was recovered due to actual expenses being lower than estimated for vacated facility leases and $0.3 million as a result of sales of etch inventory that was written off as part of the September 2001 restructuring plan. The sales were not estimated nor expected to occur when the September 2001 Plan was developed as these were subsequent sales in support of our installed base of products. In addition, in the second quarter of fiscal 2003, we recorded additional charges for the September 2001 Plan based on a revision of our estimate of the length of time required to sublease one of our vacated buildings in Fremont, California. Based on prevailing market conditions, we extended the accrual for lease payments to the end of the lease in June 2004 and recorded an additional $0.6 million relating to these remaining lease payments.

     Below is a table summarizing activity relating to the September 2001 Plan:

                                         
            Lease                          
    Severance     Payments     Abandoned                  
    and     on Vacated     Fixed     Discontinued          
    Benefits     Facilities     Assets     Inventory     Total  
   
   
   
   
   
 
    (in thousands)  
September 2001 provision
  $ 10,767     $ 1,746     $ 935     $ 7,600     $ 21,048  
Recovery of assets
                      785       785  
Cash payments
    (8,135 )     (762 )                 (8,897 )
Non-cash charges
    (1,035 )           (935 )     (7,600 )     (9,570 )
Reversal of restructuring charges
    (695 )     (317 )           (785 )     (1,797 )
 
 
   
   
   
   
 
Balance at June 30, 2002
    902       667                   1,569  
 
 
   
   
   
   
 
Recovery of assets
                      270       270  
Cash payments
    (153 )     (394 )                 (547 )
Reversal of restructuring charges
    (416 )     (286 )           (270 )     (972 )
Additional restructuring charges
          636                   636  
 
 
   
   
   
   
 
Balance at March 30, 2003
  $ 333     $ 623     $     $     $ 956  
 
 
   
   
   
   
 

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     The remainder of the Severance and Benefits reserve balance of $0.3 million, as of March 30, 2003, is anticipated to be utilized by the end of the 2003 fiscal year.

Fiscal 2001 Restructuring Activities

     During the quarter ended December 29, 2002 we completed the restructuring activities associated with the June 2001 Plan.

Income Taxes

     Income tax expense for the nine-month period ended March 30, 2003, was recorded using an estimated 25% effective tax rate. Income tax benefit for the nine-month period ended March 31, 2002 was recorded using an estimated 32% effective tax rate. The gain or loss from the change in fair value of our equity derivatives indexed to our stock was non-taxable. Our fiscal 2003 effective tax rate estimate is based on our current profitability outlook and our forecast for continued investments in research and development programs qualifying for R&D tax benefits.

     Subsequent to the quarter-end, we received notification that the Internal Revenue Service had reached resolution on a number of issues including research and development tax credit adjustments related to an ongoing audit process. We are reviewing the resolution, which indicates a potential $25 million research and development tax credit for prior years. We have not yet determined if a net tax benefit will be reflected in our financial position or results of operations for the current fiscal year.

Redemption of Convertible Subordinated Notes

     Our 5% Convertible Subordinated Notes matured on September 2, 2002 and were repaid in full. This resulted in a cash outlay of approximately $309.8 million.

Equity Derivative Contracts In Company Stock

     Our equity derivatives, which included certain put and call options indexed to our own stock were acquired in June 1999. Application of Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Determination of Whether Share Settlement is Within the Control of the Issuer”, for the purposes of applying EITF Issue No. 96-13, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, required these previously purchased instruments to be recorded at their fair value at the end of each reporting period, commencing in June 2001, with the change in fair value recorded as a gain or loss in our statement of operations. Our equity derivatives were collateralized by restricted cash of $9.1 million and could not be settled in unregistered shares. They were classified as other short-term assets ($24.8 million), at the end of fiscal 2002.

     On August 23, 2002, we settled our outstanding equity derivative contracts by purchasing approximately 3.5 million shares of Lam common stock at an average price of $11.19 per share for a total cash payment of $39.1 million. By settling the equity derivative contracts, we were able to repurchase the shares recording a life to date gain of $8.4 million ($2.41 per share) from their then market value. As a result of this transaction, we recognized an increase in treasury stock of $47.6 million.

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     Based on the $13.60 market price of our common stock at the contract settlement date (August 23, 2002), the fair value of the equity derivative contracts declined by $16.4 million to $8.4 million, from their June 30, 2002 fair value of $24.8 million. This $16.4 million reduction in the equity derivative contracts’ fair value was recorded as a non-taxable loss in other expense in the three months ended September 29, 2002 and nine months ended March 30, 2003.

Critical Accounting Policies and Estimates

      Use of Estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

      Revenue Recognition: We recognize all revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, collectibility is reasonably assured, and we have completed our system installation obligations, received customer acceptance, or are otherwise released from our installation or customer acceptance obligations. In the event terms of the sale provide for a lapsing customer acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or customer acceptance whichever occurs first. In circumstances where the practices of a customer do not provide for a written acceptance and in addition, the terms of sale do not include a lapsing acceptance provision, we will recognize revenue where it can be reliably demonstrated that the delivered system meets all of the customer specifications. Revenue related to spare parts sales, system upgrade kits and remanufactured systems is generally recognized upon shipment. Revenue related to services is generally recognized upon performance of the services requested by a customer order. Revenue for extended maintenance service contracts with a term more than one month is recognized on a straight-line basis over the term of the contract.

     We changed our revenue recognition policy in the fourth quarter of fiscal 2001, effective June 26, 2000, based on guidance provided in Securities and Exchange Commission (“SEC”), Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements.”

      Derivatives: We hold derivative financial instruments to hedge a variety of risk exposures including interest rate risks associated with our long-term debt, foreign currency exchange rate fluctuations on the value of our cash flows from forecasted revenue denominated in Japanese Yen and foreign currency denominated assets. Derivatives that qualify for hedge accounting is discussed in detail in Note M to our March 30, 2003, unaudited condensed consolidated financial statements. We do not purchase derivatives for speculative or for trading purposes. To qualify for hedge accounting, the hedge relationship must meet criteria relating both to the derivative instrument and the hedged item. These include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows will be measured.

     When derivative instruments are designated and qualify as effective hedges of identified fair value exposures, we are able to offset changes in the fair value of the identified exposures by

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changes in the fair value of the hedging instruments. When derivative instruments are designated and qualify as effective cash flow hedges, we are able to defer changes in the fair value of the hedging instrument within accumulated other comprehensive income (loss) until the hedged exposure is realized. Consequently, with the exception of hedge ineffectiveness recognized, our results of operations are not subject to fluctuation as a result of changes in the fair value of the derivative instruments. If hedges are not highly effective or if we did not believe that forecasted transactions would occur, we may not be able to account for our investments in derivative instruments as hedges. If this were to occur in a future period, changes in the fair values of our derivative instruments would be recognized in operations without the benefits of offsets or deferrals of changes in fair value arising from hedge accounting treatment.

     To hedge foreign currency risks, we use foreign currency exchange forward contracts. These forward contracts are valued using standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates and interest rates observed in the market.

     We consider our most current outlook in determining the level of foreign currency denominated intercompany revenues to hedge. We combine these forecasts with historical trends to establish the portion of our expected volume to be hedged. The revenues are hedged for exposures to fluctuations in foreign currency exchange rates. Should the level of revenues expected not occur, our investments in derivatives used to hedge changes in foreign currency exchange rates may not qualify for hedge accounting.

     To hedge interest rate risk, an interest rate swap is used in connection with our Convertible Subordinated Notes (“4% Notes”) in which we pay a variable interest rate and receive a fixed interest rate. This instrument is valued using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments arising under the swap. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate curves. We have not changed our methods of calculating fair values or developing the underlying assumptions. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change. In future periods, if changes in the fair value of the swap are no longer effective at hedging changes in the fair value of our fixed rate 4% Notes, the interest rate swap may no longer qualify for hedge accounting treatment. Information about the fair values, notional amounts, and contractual terms of these instruments can be found in Note E to our audited consolidated financial statements and the section titled “Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2002, and herein in Note M to the unaudited condensed consolidated financial statements as of and for the nine months ended March 30, 2003.

     We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate and foreign currency hedges, as counterparties are established and well-capitalized financial institutions. Our exposures are in liquid currencies (Japanese Yen), so there is minimal risk that appropriate derivatives to maintain our hedging program would not be available in the future.

      Inventory Valuation: Inventories are stated at the lower of cost (first-in, first-out method) or market using standard costs, which approximate actual cost. We maintain a perpetual inventory system and continuously record the quantity on-hand and standard cost for each product,

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including purchased components, subassemblies and finished goods. We maintain the integrity of perpetual inventory records through periodic physical counts of quantities on hand. Finished goods are reported as inventories until the point of title transfer to the customer. Generally, title transfer is documented in the terms of sale. When the terms of sale do not specify when title transfers, we assume title transfers when we complete physical delivery of the products.

     Standard costs are generally re-assessed at least annually and reflect achievable acquisition costs, generally the most recent vendor contract prices for purchased parts and currently obtainable assembly and test labor and overhead for manufactured products. Manufacturing labor and overhead costs are attributed to individual product standard costs at a level planned to absorb spending at average utilization volumes. All intercompany profits related to the sale and purchase of inventory between our legal entities are eliminated from our consolidated financial statements.

     Assembly outsourcing programs implemented in fiscal 2002 have altered and will continue to alter the composition of reported cost of sales. Over time, proportionately more costs will comprise purchased materials and less will represent manufacturing labor and overhead, reflecting the substitution of our assembly activities with the purchase of completed modules and integrated units from new outsource assembly vendors.

     Management evaluates the need to record adjustments for impairment of inventory at least quarterly. Our policy is to assess the valuation of all inventories, including manufacturing raw materials, work-in-process, finished goods and spare parts in each reporting period. Obsolete inventory or inventory in excess of management’s estimated usage requirements over the next 12 to 36 months based on estimated customer product orders is written-down to its estimated market value, if less than cost. Inherent in the estimates of market value are management’s forecasts related to our future manufacturing schedules, customer demand, technological and or market obsolescence, general semiconductor market conditions, possible alternative uses and ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required, and would be reflected in cost of sales in the period the revision is made.

      Installation and Warranty: Typically, part of marketing and selling semiconductor capital equipment includes installing and providing parts and service warranty to customers as part of the overall price of the system. We generally record actual labor and material expenses for installation activities to cost of sales upon revenue recognition. We also provide standard warranties on our systems that run generally for a period of 12 months from system acceptance, not to exceed 14 months from the date of shipment of the system to the customer. We record a provision for estimated warranty expenses to cost of sales for each system upon revenue recognition. The amount recorded is based on actual historical warranty spending activity by type of system, customer, and geographic region, modified for any known differences such as the impact of system reliability improvements. Where customer and system specific warranty reserves are established, all actual parts and labor costs incurred in subsequent periods are charged to those established reserves through the application of detailed project record keeping.

     Actual warranty expenses are incurred on a system-by-system basis, and overall, may differ from our original estimates. While we periodically monitor the performance and cost of warranty activities, if actual costs incurred are different than our estimates, we may recognize adjustments to provisions in the period in which those differences arise or are identified. Accordingly, actual

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costs that exceed the estimates are expensed as incurred, and at the same time, additional probable and estimable liabilities may be recorded.

     We do not maintain general or unspecified reserves; all warranty reserves are related to specific systems. Historically, including the most recent nine months ended March 30, 2003, all warranty obligations have been determined with reasonable estimates.

     In addition to the provision of standard warranties, we provide customer-paid extended warranty services. Revenues for extended maintenance and warranty services, with a term of more than one month, are recognized on a prorated straight-line basis over the term of the contract. Related costs are recorded either as incurred or when related liabilities are determined to be probable and estimable.

      Employee Stock Purchase Plan and Employee Stock Option Plans: We account for our stock purchase plan and stock option plans under the provisions of Accounting Principles Board Opinion No. 25 “Accounting For Stock Issued to Employees” (“APB 25”) and Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25” (“FIN 44”) and make pro forma footnote disclosures as required by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“FAS 148”), which amends Statement of Financial Accounting Standard No. 123, “Accounting For Stock-Based Compensation” (“FAS 123”). Our employee stock purchase plan is a non-compensatory plan and our stock option plans are accounted for using the intrinsic value method under the provisions of APB 25.

     Pro forma net income (loss) and pro forma net income (loss) per share disclosed in the footnotes to our annual and interim consolidated financial statements are estimated using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including expected stock price volatility and the estimated life of each option. Because our stock-based awards to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not provide a reliable measure of the fair value of our stock-based awards to employees.

      Deferred Income Taxes : We record a valuation allowance to reduce our deferred taxes to the amount that is more likely than not to be realized. We have considered future estimated taxable income and feasible tax planning strategies in determining the need for a valuation allowance. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, then the previously provided valuation allowance would be reversed. Our current valuation allowance covers the tax benefit from the exercise of employee stock options and foreign tax credits. When the stock option tax benefits are realized, the valuation allowance will be reversed and credited to capital in excess of par value. When the foreign tax credits are realized, the valuation allowance will be reversed through the tax provision (benefit) in the statement of operations.

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Recent Accounting Pronouncements

      Impairment or Disposals of Long-Lived Assets: In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”. FAS 144 supersedes FAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and applies to all long-lived assets (including discontinued operations). We adopted FAS 144 effective at the beginning of fiscal 2003. The adoption of FAS 144 did not have a material impact on our consolidated financial position or operating results.

      Costs associated with Exit or Disposal Activities: In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”). FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principal difference between FAS 146 and EITF 94-3 relates to FAS 146’s requirements for the timing of recognizing a liability for a cost associated with an exit or disposal activity. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3 a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. We early-adopted FAS 146 in the quarter ended December 29, 2002 and applied its accounting provisions to the restructuring activities initiated during the quarter ended December 29, 2002 and March 30, 2003. No restructuring activities were initiated during the quarter ended September 29, 2002.

      Accounting for Revenue Arrangements with Multiple Deliverables : In November 2002, the FASB’s Emerging Issues Task Force reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple deliverables (products, services and/or rights to use assets). The provisions of EITF 00-21 will be applicable for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are reviewing EITF 00-21 but have not yet determined the potential impact it will have on our financial position or results of operations, if any.

      Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a company that is a guarantor to make specific disclosures about its obligations under certain guarantees that it has issued. FIN 45 also requires the guarantor to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee. FIN 45 also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others” which is superseded by FIN 45. FIN 45’s disclosure requirements are effective for financial statements for periods ending after December 15, 2002. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued after December 31, 2002. The provisions of FIN 45 did not have a material impact on our financial position or results of operations upon adoption.

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      Accounting for Stock-Based Compensation — Transition and Disclosure: In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“FAS 148”), which amends FAS 123, “Accounting for Stock-Based Compensation”. FAS 148 provides alternative methods of transition for a voluntary change to the “fair value” method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 and requires prominent disclosure in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on a company’s financial position and results of operations. The transition guidance and annual disclosure requirements of FAS 148 are effective for fiscal years ending after December 15, 2002. We adopted the interim disclosure requirements of FAS 148 for financial statements in our fiscal quarter ended March 30, 2003. We intend to continue to account for our stock option plans and stock purchase plan under the provisions of Accounting Principles Board Opinion No. 25 “Accounting For Stock Issued to Employees” (“APB 25”) and Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25” (“FIN 44”). Accordingly, the adoption of FAS 148 is not anticipated to have a material impact on our financial position or results of operations.

      Consolidation of Variable Interest Entities : In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. FIN 46 establishes accounting guidance for consolidation of a variable interest entity (“VIE”), sometimes formerly referred to as a special purpose entity. In general, a VIE is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity, the Primary Beneficiary, should consolidate another entity, a VIE, that functions to support the activities of the Primary Beneficiary. FIN 46 will require the consolidation of a VIE by a company if that company is subject to a majority of the risk of loss from the VIE’s activities or entitled to receive a majority of the VIE’s residual returns or both.

     The effective date of the new rules under FIN 46 on our existing operating leases is the first quarter of fiscal 2004, and immediately on any new leases entered into after January 31, 2003, which utilize VIEs or equivalent lease structures. The adoption of FIN 46 could potentially result in our having to consolidate the operating results of certain existing lessor entities which may be VIEs, as defined, and which are lessors under some of our operating lease agreements and recognize the assets and related liabilities of the VIEs on our balance sheet. However, FIN 46 is not anticipated to have a material impact on our financial position or results of operations because we anticipate the operating lease agreements will be transferred to a new lessor that would not qualify as a VIE.

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents, short-term investments, and restricted cash totaled $585.3 million as of March 30, 2003 compared with $945.2 million at June 30, 2002. During the quarter ended September 29, 2002, we repaid our 5% convertible subordinated notes, principal amount of $309.8 million, and repurchased Lam common stock for $39.1 million in connection with the settlement of all outstanding equity derivative contracts.

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     Net cash provided from operations for the nine-month period ended March 30, 2003, was $37.5 million. A net loss of $11.4 million adjusted for non-cash charges of $52.6 million resulted in positive cash flow of $41.2 million, and was partially offset by uses of cash due to changes in working capital totaling $3.7 million. Non-cash charges included items such as depreciation and amortization, deferred income taxes, certain restructuring charges and the adjustment for the loss on equity derivative contracts indexed to our stock. Significant changes in working capital included net inventory reductions of $49.0 million offset by increases in accounts receivables of $2.2 million, decreases of $32.1 million in accounts payables and other accrued liabilities and additionally, $16.1 million of decreases in deferred profit.

     Net cash provided by investing activities for the nine-month period ended March 30, 2003, was $271.0 million. We sold $327.7 million, net, of short-term investments that were primarily used to repay our 5% convertible subordinated notes in September 2002. Net capital expenditures used $9.5 million and our restricted cash increased $48.5 million primarily due to increased cash collateralization under certain of our operating lease agreements.

     Net cash used by financing activities for the nine-month period ended March 30, 2003, was $385.8 million and consisted primarily of the repayment of our 5% convertible subordinated notes in the amount of $309.8 million and repayment of our Japanese subsidiary’s long-term loan for approximately $51.1 million. In connection with the settlement of our equity derivative contract, we repurchased Lam common stock for $39.1 million. We also reissued $8.4 million from treasury stock through our employee stock purchase program. Net proceeds from the issuance of our common stock from stock option exercises totaled $6.2 million.

     We have an agreement to sell certain U.S. Dollar-denominated receivables, subject to certain recourse provisions to a financial institution. During the three- and nine-month periods ended March 30, 2003, we sold $24.0 million and $70.8 million, respectively, of these receivables, the cash flows of which are included in operating activities. At March 30, 2003, $24.0 million of these receivables remained uncollected, of which $2.0 million were subject to recourse provisions.

     Our contractual cash obligations and commitments relating to our debt obligations, lease payments and outsourcing activities are as follows:

                           
      Debt and Other             Outsourcing  
      Long-Term     Operating     and Consignment  
      Liabilities     Leases     Contracts  
     
   
   
 
Fiscal year, (1)   (in thousands)  
Through June 29, 2003
  $ 1,410     $ 4,663     $ 17,803  
2004 through 2006
    325,361       87,984       15,006  
2007 through 2008
    107       55,555       1,761  
Thereafter
          1,433        
 
 
   
   
 
 
Total
  $ 326,878     $ 149,635     $ 34,570  
 
 
   
   
 

     (1)  The Company’s fiscal year end falls on the last Sunday of June each year.

     Debt financing primarily consists of our 4% Convertible Subordinated Notes (“4% Notes”).

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     Details of the 4% Notes are:

     
Offering Date   May 2001
     
Offering Amount   $300.0 million
     
Maturity Date   June 1, 2006
     
Offering Expenses   $8.5 million incurred at the time of offering, ratably amortized to other expense over the term of the 4% Notes. Remaining unamortized balance of $5.4 million and $6.7 million at March 30, 2003 and June 30, 2002, respectively.
     
Interest Rate terms   4% payable on June 1 and December 1 of each year, commencing December 1, 2001
     
Conversion Rights   Convertible into Lam Common Stock at any time prior to close of business on the maturity date, unless previously redeemed, at a conversion price of $44.93 per share subject to anti-dilution adjustments
     
Redemption terms   Redeemable at Lam’s option, beginning June 5, 2004 with at least 20 days and no more than 60 days notice, at redemption prices starting at 101.0% and at diminishing prices thereafter, plus accrued interest
     
Security   4% Notes are unsecured and subordinated in right of payment in full to all existing and future senior indebtedness of the company

     During the third quarter of fiscal 2002, we entered into an interest rate swap agreement with a notional amount of $300 million in order to hedge changes in the fair value of our 4% Notes, attributable to changes in the benchmark interest rate. The transaction exchanged 4% fixed interest payments for variable interest payments based on the LIBOR based interest rate, resulting in interest expense savings of approximately $2.7 million and $7.9 million for the three- and nine-month periods ended March 30, 2003. Should 6-month LIBOR interest rates rise above approximately 5% per annum in future periods, we may incur incremental interest expense. Under the terms of the transaction, we must provide collateral to match any mark-to-market exposure on the swap. The amount of collateral required totals a minimum of $6.0 million plus an amount equal to the mark-to-market exposure on the swap. Therefore, the amount of cash collateral we will have to post in the future will fluctuate from quarter-to-quarter commensurate with the mark-to-market exposure on the swap instrument. Generally the required collateral will rise as interest rates rise. At the end of the quarter ended March 30, 2003 we have approximately $6.0 million in restricted cash on our balance sheet (classified as a long-term asset) related to this transaction.

     During the second quarter of fiscal 2002 we signed a final settlement agreement with Varian Semiconductor Equipment Associates, Inc. (“Varian”) in connection with the patent infringement litigation filed by Varian in October 1993. Under the terms of the settlement agreement, Varian granted us a nonexclusive license to the patents involved in the litigation. We

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agreed to pay Varian $20.0 million in cash ($5.0 million in December 2001 and the remainder to be paid in equal quarterly installments of $1.25 million over a three-year period. The payments began in the third quarter of fiscal 2002 with a quarterly payment of $1.25 million. As of March 30, 2003, a total amount of $11.25 million was paid to Varian, which included the initial $5.0 million in December 2001 and five additional quarterly installment payments of $1.25 million each, totaling $6.25 million as of March 30, 2003. The total obligation remaining as of March 30, 2003 is $8.75 million, which will be paid $1.25 million per quarter through the second quarter of fiscal 2005 (December 2004). The contractual cash obligations and commitments table presented above contains our cash obligations related to the Varian settlement.

     We lease most of our administrative, R&D and manufacturing facilities, regional sales/service offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2021. All of our facility leases for buildings located at our Fremont, California headquarters and certain operating leases provide us with an option to extend the leases for additional periods. Certain of our other facility leases provide for periodic rent increases based on the general rate of inflation.

     During the third quarter of fiscal 2003, a lease agreement (“the Agreement”) relating to two properties (land and buildings) at our Fremont, California campus was transferred to a new lessor and amended and restated. The Agreement replaces the former lease that was due to expire in March 2003. As part of the Agreement, we have the option to purchase the buildings at any time for approximately $54.4 million. In addition, we are required to guarantee the lessor a residual value on the property of up to $48.4 million at the end of the lease term (in the case that the lease is not renewed, we do not exercise our purchase option, and the lessor sells the property and the sale price is less than the lessor’s cost). Additionally, as part of the lease agreement, we maintain cash collateral of $54.4 million as of March 30, 2003 in separate specified interest-bearing accounts. The lessor under the Agreement is a substantive independent leasing company that does not have the characteristics of a VIE as defined by FIN 46 and therefore is not consolidated by us.

     In addition, we have two lease agreements with lessors relating to certain other properties (land and buildings) at our Fremont, California campus which involve lessors which could be considered VIEs and could potentially result in the consolidation of the lessors' activities. We currently account for these lease agreements as operating leases and therefore, neither the leased facilities nor the related debt is reported in our accompanying balance sheets. These lease agreements require us to provide guaranteed residual values totaling up to $52.7 million at the end of the respective lease terms ($25.2 million in fiscal 2005 and $27.5 million in fiscal 2006) and in January 2003, we provided $59.0 million of additional cash collateral under these lease agreements. We have the option to purchase the facilities for approximately $27.1 million and $30.0 million, respectively. No material impact is anticipated on our financial position or results of operations because we anticipate the properties will be transferred to a new lessor that would not qualify as a VIE prior to the implementation date of FIN 46.

     During the nine months ended 2003, we continued to enter into agreements to outsource certain elements of our transactional general and administrative functions. During the second half of fiscal 2002, we entered into agreements with third parties to outsource certain elements of our manufacturing, warehousing, logistics, facilities maintenance and information technology functions. These outsourced services should provide us with more flexibility to scale our operations in a more timely manner to respond to the cyclical nature of our business. The

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contractual cash obligations and commitments table presented above contains our minimum outsourcing obligations at March 30, 2003 under these arrangements. Actual expenditures will vary based on the volume of transactions and length of contractual service provided. In addition to minimum spending commitments, these agreements provide for potential cancellation charges including the assumption of leases, assets and employees.

     Consignment inventories, which are owned by vendors but located in our discrete storage locations and warehouses, are not reported as inventory until title is transferred to us or our purchase obligation is determined. At March 30, 2003, vendor owned inventories held at Lam and not reported as inventory were approximately $7.8 million.

     Given the cyclical nature of the semiconductor equipment industry, we believe that maintenance of sufficient liquidity reserves is important to ensure our ability to sustain levels of investment in R&D and capital infrastructure through ensuing business cycles. Based upon our current business outlook, our levels of cash, cash equivalents, and short-term investments at March 30, 2003, combined with cash conservation activities, are expected to be sufficient to support our presently anticipated levels of operations, investments, and capital expenditures, through at least twelve months.

     In the longer-term, liquidity will depend to a great extent on our future revenues, and our ability to appropriately size our business based on demand for our products.

Risk Factors

Our Quarterly Revenues and Operating Results are Unpredictable

     Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues. If revenue levels in a particular quarter do not meet our expectations, our operating results may be adversely affected. Because our operating expenses are based on anticipated future revenues, and a high percentage of those expenses are relatively fixed, a change in the timing of recognition of revenue and the level of gross profit from a single transaction can unfavorably affect operating results in a particular quarter.

     Factors that may cause our financial results to fluctuate unpredictably include, but are not limited to:

    economic conditions in the electronics and semiconductor industry generally, and the equipment industry specifically;
 
    the extent that customers use our products and services in their business;
 
    customer acceptances of equipment;
 
    the size and timing of orders from customers;
 
    customer cancellations or delays in our shipments, installations and/or acceptances;
 
    our ability in a timely manner to develop, introduce and market new, enhanced and competitive products;

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    our competitors’ introduction of new products;
 
    legal or technical challenges to our products and technology;
 
    new or modified accounting regulations;
 
    changes in average selling prices and product mix;
 
    changes in import/export regulations;
 
    procurement shortages;
 
    the failure of our suppliers or outsource vendors to perform their obligations in a manner consistent with our expectations
 
    manufacturing difficulties;
 
    transportation, communication, demand or supply disruptions based on factors outside our control such as Acts of God, wars, terrorist activities and natural disasters;
 
    exchange rate fluctuations; and
 
    exposure on interest rate swap agreements.

     Further, because a significant amount of our manufacturing, R&D and administrative operations and capacity is located at our Fremont, California facility, natural, physical, logistical or other events or disruptions affecting this facility (including labor disruptions, earthquakes and power failures) could adversely impact our financial performance.

We Derive Our Revenues Primarily from the Shipment and Acceptance of a Relatively Small Number of High-Priced Systems

     System sales constitute a significant portion of our total revenue. Our systems can range in price from approximately $400,000 to $4 million per unit, and our revenues in any given quarter are dependent upon the shipment of a rather limited number of such systems. As a result, the inability to declare revenue on even a few systems can cause a significant adverse impact on our revenues for that quarter.

Variations in the Amount of Time it Takes for Our Customers to Accept Our Systems May Cause Fluctuation in Our Operating Results

     We generally recognize revenue for new equipment on the date of customer acceptance or the date the contractual customer acceptance provisions lapse. As a result, the fiscal period in which we are able to recognize new systems revenues is subject to the length of time that our customers require to evaluate the performance of our equipment after shipment and installation, which could cause our quarterly operating results to fluctuate.

The Semiconductor Equipment Industry is Volatile and Reduced Product Demand has a Negative Impact on Shipments

     Our business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated

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circuits and products using integrated circuits. The semiconductor industry is cyclical in nature and historically experiences periodic downturns. During calendar year 2001 and the first half of calendar year 2002, semiconductor manufacturers canceled or delayed delivery of orders as a result of overcapacity. The resulting demand contraction had a negative impact on the level of system shipments during fiscal 2002 compared to fiscal 2001. As of the third quarter of fiscal 2003, our customers continue to remain cautious about their levels of capital expenditures.

     Fluctuating levels of investment by the semiconductor manufacturers and pricing volatility could continue to materially affect our aggregate shipments, revenues and operating results. We will attempt to respond to these fluctuations with cost management programs aimed at alignment of our expenditures with anticipated revenue streams, which sometimes result in restructuring charges. Even during periods of reduced revenues, we must continue to invest in research and development and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our financial results.

We Depend on New Products and Processes for Our Success. Consequently, We are Subject to Risks Associated with Rapid Technological Change

     Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances enabling such processes. We believe that our future success depends in part upon our ability to develop, manufacture, and successfully introduce new products with improved capabilities and to continue to enhance our existing products. Due to the risks inherent in transitioning to new products, we strive to accurately forecast demand for new products while managing the transition from older products. If new products have reliability or quality problems our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. We may be unable to develop and manufacture new products successfully, or new products that we introduce may fail in the marketplace, which would materially and adversely affect our results from operations.

     We expect to continue to make significant investments in research and development and to pursue joint development relationships with customers or other members of the industry. We must manage product transitions and joint development relationships successfully, as introduction of new products could adversely affect our sales of existing products. Future technologies, processes or product developments may render our current product offerings obsolete, leaving us with non-competitive products, or obsolete inventory, or both. We may be unable in a timely manner to develop and introduce new products or enhancements to our existing products which satisfy customer needs or achieve market acceptance. In addition, in connection with the development of new products, we must invest in pilot production inventory. Our failure to complete commercialization of these new products in a timely manner could result in inventory obsolescence, which would adversely affect our financial results.

We are Subject to Risks Associated with our Competitors’ Introduction of New Products

     We expect to face significant competition from multiple current and future competitors. We believe that other companies are developing systems and products that are competitive to ours and are planning to introduce new products, which may affect our ability to sell our existing products.

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We are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification

     We derive a substantial percentage of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of our primary products is, therefore, critical to our future success. Our business, operating results, financial condition, and cash flows could therefore be adversely affected by:

    a decline in demand for our products;
 
    a failure to achieve continued market acceptance of our products;
 
    an improved version of products being offered by a competitor in the market we participate in;
 
    technological change that we are unable to address with our products; and
 
    a failure to release new enhanced versions of our products on a timely basis.

We Have a Limited Number of Key Customers

     Sales to a limited number of large customers constitute a significant portion of our overall revenue. As a result, the actions of even one customer may subject us to revenue swings that are difficult to predict or prepare for. Similarly, significant portions of our credit risk may, at any given time, be concentrated among a limited number of customers.

We are Dependent Upon a Limited Number of Key Suppliers

     We obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Generally, each of our key suppliers has a one-year blanket purchase contract or general purchase agreement under which we may issue purchase orders. We may renew these contracts periodically. In most cases, these component suppliers sold us products during at least the last four years, and we expect that we will continue to renew these contracts in the future or that we will otherwise replace them with competent alternative source suppliers. Several of our outsourced assembly suppliers are new providers to Lam. Where practical, our intent is to establish alternative sources. Nevertheless, a prolonged inability to obtain certain components could impair our ability to ship products, lower our revenues and thus adversely affect our operating results and result in damage to our customer relationships.

Our Outsource Providers May Fail to Perform as We Expect

     We are expanding the roles that outsource providers play in our business. We anticipate that these outsource providers will play keys roles in our manufacturing operations and in many of our transactional and administrative functions. Although we aim at selecting reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers will fail to perform as we expect and such failure could have an adverse impact on our business. In addition, the expanded role of outsource providers will require us to implement changes to our existing operations and to adopt new procedures to deal with and manage the performance of these outsource providers. Any delay or failure in the

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implementation of our operational changes and new procedures could adversely affect our customer relationships and/or have a negative effect on our operating results.

Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase that Competitor’s Equipment, Making it More Difficult for Us to Sell our Equipment to that Customer

     Semiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier’s processing equipment, the manufacturer generally relies upon that equipment for that specific production line application. Accordingly, we expect it to be more difficult to sell to a given customer if that customer initially selects a competitor’s equipment.

We May Lack the Financial Resources or Technological Capabilities of Certain of Our Competitors Needed to Capture Increased Market Share

     We believe that to remain competitive we will require significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process research and development. Certain of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer service and support resources than we do and therefore have the potential to increasingly dominate the semiconductor equipment industry. In addition, there are smaller, emerging semiconductor equipment companies that may provide innovative technology that may have performance advantages over systems we currently, or expect to, offer.

     We anticipate our competitors will continue to improve the design and performance of their current products and processes and to introduce new products and processes with enhanced performance characteristics. If our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, it could adversely affect our ability to sell products to those manufacturers. In addition, competitors with higher levels of financial resources than we have may deeply discount or give away products similar to those we sell. For these reasons, we may fail to continue to compete successfully worldwide.

     Our present or future competitors may be able to develop products comparable or superior to those we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are developing additional product enhancements that we believe will address future customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, we may be unable to continue to compete in our markets, competition may intensify or future competition may have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.

Our Future Success Depends on International Sales

     Non-U.S. sales accounted for approximately 71% of our total revenue in fiscal 2002, 70% in fiscal 2001 and 71% in fiscal 2000. We expect that international sales will continue to account

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for a significant portion of our total revenue in future years. International sales are subject to risks, including, but not limited to:

    foreign exchange risks;
 
    changing import/export requirements;
 
    foreign trade disputes; and
 
    economic, political, banking and currency problems in the relevant region.

     We currently enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on Yen-denominated sales and assets, and will continue to enter into hedging transactions for the purposes outlined in the foreseeable future.

A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results

     We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals. We believe that we are in general compliance with these regulations and that we have obtained (or will obtain or are otherwise addressing) all necessary environmental permits to conduct our business. These permits generally relate to the disposal of hazardous wastes. Nevertheless, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, cessation of our operations or reduction in our customers’ acceptance of our products. These regulations could require us to alter our current operations, to acquire significant equipment or to incur substantial other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or disposal of hazardous substances could subject us to future liabilities.

If We are Unable to Adjust the Scale of Our Business in Response to Rapid Changes in Demand in the Semiconductor Equipment Industry, Our Operating Results and Our Ability to Compete Successfully May Be Impaired

     The business cycle in the semiconductor equipment industry is characterized by frequent periods of rapid change in demand that challenge our management to adjust spending on operating activities. During periods of rapid growth or decline in demand for our products and services, we face significant challenges in maintaining adequate financial and business controls, management processes, information systems and procedures on a timely basis and training, managing and appropriately sizing our work force. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively. If we do not adequately meet these challenges, our gross margins and earnings may be impaired during periods of demand decline and we may lack the infrastructure and resources to scale up our business to meet customer expectations and compete successfully during periods of demand growth.

If We Choose to Acquire or Dispose of Product Lines and Technologies, We May Encounter Unforeseen Costs and Difficulties that Could Impair Our Financial Performance

     An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities. As a result, we may make acquisitions of

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complementary companies, products or technologies, or we may reduce or dispose of certain product lines or technologies, which no longer fit our long-term strategies. Managing an acquired business, disposing of product technologies or reducing personnel entail numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management’s attention away from other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired or disposed operations among others. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and cash flows.

     In addition, any acquisitions could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, and results of operations and/or the price of our Common Stock.

The Market for Our Common Stock is Extremely Volatile, which May Affect our Ability to Raise Capital or Make Acquisitions

     The market price for our Common Stock is extremely volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to factors, including but not limited to the following:

    general market, semiconductor, or semiconductor equipment industry conditions;
 
    global economic fluctuations;
 
    variations in our quarterly operating results;
 
    variations in our revenues or earnings from levels that securities analysts forecast;
 
    announcements of restructurings, technological innovations, reductions in force, departure of key employees, consolidations of operations or introduction of new products;
 
    government regulations;
 
    developments in, or claims relating to, patent or other proprietary rights;
 
    disruptions with key customers or suppliers; or
 
    political, economic or environmental events occurring globally or in any of our key sales regions.

     In addition, the stock market experiences significant price and volume fluctuations. Historically, we have witnessed significant volatility in the price of our Common Stock due in part to the actual or anticipated movement in interest rates and the price of and markets for

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semiconductors. These broad market and industry factors have and may again adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of stock, many companies become the object of securities class action litigation. If we are sued in a securities class action, we could incur substantial costs, and it could divert management’s attention and resources and have an unfavorable impact on the price for our Common Stock.

Risk Associated With Our Interest Rate Swap Agreement

     We aim to limit the impact of interest rate exposure associated with our interest rate sensitive investments and debt obligations. To minimize the effect of the interest rate exposure associated with our 4% Convertible Subordinated Notes, we have entered into an interest rate swap agreement with a notional amount of $300 million. We entered into the swap in order to hedge changes in the fair value of our 4% Notes, attributable to changes in the benchmark interest rate, by swapping 4% fixed interest payments for variable interest payments based on the LIBOR based interest rate.

     If 6-month LIBOR based interest rates remain at current levels or decrease we expect the swap will result in interest savings. However, a rise in 6-month LIBOR based interest rates above approximately 5% per annum in future periods could result in incremental levels of interest expense.

The Potential Anti-Takeover Effects of Our Bylaws Provisions and the Rights Plan We Have in Place May Affect Our Stock Price and Inhibit a Change of Control Desired by Some of Our Stockholders

     In 1997, we adopted a Rights Plan (the “Rights Plan”) in which rights were distributed as a dividend at the rate of one right for each share of our Common Stock, held by stockholders of record as of the close of business on January 31, 1997, and thereafter. In connection with the adoption of the Rights Plan, our Board of Directors also adopted a number of amendments to our Bylaws, including amendments requiring advance notice of stockholder nominations of directors and stockholder proposals.

     Our Rights Plan may have certain anti-takeover effects. Our Rights Plan will cause substantial dilution to a person or group that attempts to acquire Lam in certain circumstances. Accordingly, the existence of the Rights Plan and the issuance of the related rights may deter certain acquirers from making takeover proposals or tender offers. The Rights Plan, however, is not intended to prevent a takeover. Rather it is designed to enhance the ability of our Board of Directors to negotiate with a potential acquirer on behalf of all of our stockholders.

     In addition, our Certificate of Incorporation authorizes issuance of 5,000,000 shares of undesignated Preferred Stock. Our Board of Directors, without further stockholder approval, may issue this Preferred Stock on such terms as the Board of Directors may determine, which also could have the effect of delaying or preventing a change in control of Lam. The issuance of Preferred Stock could also adversely affect the voting power of the holders of our Common Stock, including causing the loss of voting control. Moreover, Section 203 of the Delaware General Corporation Law restricts certain business combinations with “interested stockholders”, as defined by that statute.

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Intellectual Property and Other Claims Against Us Can Be Costly and Could Result in the Loss of Significant Rights which are Necessary to Our Continued Business and Profitability

     Third parties may assert infringement, unfair competition or other claims against us. From time to time, other parties send us notices alleging that our products infringe their patent or other intellectual property rights. In addition, our Bylaws and indemnity agreements with certain officers, directors and key employees provide that we will indemnify officers and directors against losses that they may incur in legal proceedings resulting from their service to Lam. In such cases, it is our policy either to defend the claims or to negotiate licenses on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially adversely affect our business and financial results.

     In September 1999, Tegal Corporation sued us seeking monetary damages and injunctive relief based on our alleged infringement of certain patents Tegal holds. Specifically, Tegal identified our 4520XLE™ and Exelan® products as infringing the patents Tegal asserted. All Tegal’s claims regarding the 4520XLE were voluntarily dismissed by Tegal during August 2002. In January 2003, the United States District Court granted Lam’s motion for summary judgment of noninfringement on Tegal’s sole remaining claim. In granting Lam’s motion, the Court found that Lam’s Exelan products did not literally infringe Tegal’s claim, and further found that Tegal was precluded from asserting infringement against Exelan products under the doctrine of equivalents. Tegal has indicated that it intends to appeal the Court’s order and findings; however, there have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, could have a material adverse effect on our consolidated financial position, liquidity, operating results or our consolidated financial statements taken as a whole.

     Litigation is inherently uncertain, and we may fail to prevail in this litigation. However, certain elements of Tegal’s complaint have been dismissed since inception of the suit, and we believe that the Tegal lawsuit will not materially adversely affect our consolidated financial position, liquidity, operating results or our consolidated financial statements taken as a whole. See Part II Item 1 of this Form 10-Q for a discussion of the Tegal lawsuit.

We May Fail to Protect Our Proprietary Technology Rights, which Would Affect Our Business

     Our success depends in part on our proprietary technology. While we attempt to protect our proprietary technology through patents, copyrights and trade secret protection, we believe that our success also depends on increasing our technological expertise, continuing our development of new systems, increasing market penetration and growth of our installed base, and providing comprehensive support and service to our customers. However, we may be unable to protect our technology in all instances, or our competitors may develop similar or more competitive technology independently. We currently hold a number of United States and foreign patents and pending patent applications. However, other parties may challenge or attempt to invalidate or circumvent any patents the United States or foreign governments issue to us or these governments may fail to issue pending applications. In addition, the rights granted or anticipated under any of these patents or pending patent applications may be narrower than we expect or in fact provide no competitive advantages.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

     For financial market risks related to changes in interest rates and foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.

     During the third quarter of fiscal 2002, we entered into an interest rate swap agreement with a notional amount of $300 million in order to hedge changes in the fair value of our 4% Convertible Subordinated Notes, attributable to changes in the benchmark interest rate. The transaction exchanged 4% fixed interest payments for variable interest payments based on the LIBOR based interest rate, resulting in interest expense savings of approximately $2.7 million and $7.9 million for the three- and nine-month periods ended March 30, 2003. Should 6-month LIBOR interest rates rise above approximately 5% per annum in future periods, incremental interest expense may be incurred.

ITEM 4. Controls and Procedures

     (a). Within the 90 days prior to the date of filing of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 13a-15. Based upon that evaluation, our Chairman and Chief Executive Officer along with our Chief Financial Officer concluded that our disclosure controls and procedures are reasonably effective in timely alerting them to material information relating to the Company (including our consolidated subsidiaries) required to be included in our periodic SEC filings.

     We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our senior management has timely access to material information that could affect our business. While we believe the present design of our disclosure controls and procedures is reasonably effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of certain events, and there can be no assurance that any design can succeed in achieving its stated goals under all potential conditions, regardless of how remote.

     (b). There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

     In September 1999, Tegal Corporation (“Tegal”) brought suit against us seeking monetary damages and injunctive relief based on our alleged infringement of certain patents held by Tegal. Specifically, Tegal identified our 4520XLE™ and Exelan® products as infringing the patents Tegal is asserting. On our motion, this case was transferred to the United States District Court for the Northern District of California. In view of appellate rulings by the Court of Appeals for the Federal Circuit on issues appealed by Tegal in respect of prior litigation between Tegal and

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Tokyo Electron Ltd. and Tokyo Electron America, Tegal in June 2002 moved to dismiss its claims against Lam in connection with Lam’s 4520XLE products. In July 2002, a claims construction hearing was held in the United States District Court to construe a single term in Tegal’s sole remaining asserted claim. All Tegal’s claims regarding the 4520XLE were voluntarily dismissed by Tegal during August 2002. In January 2003, the United States District Court granted Lam’s motion for summary judgment of noninfringement on Tegal’s sole remaining claim. In granting Lam’s motion, the Court found that Lam’s Exelan products did not literally infringe Tegal’s claim, and further found that Tegal was precluded from asserting infringement against Exelan products under the doctrine of equivalents. Tegal has indicated that it intends to appeal the Court’s order and findings; however, there have been no findings in the action, which have caused us reasonably to believe that any infringement, if found, or any damages, if awarded, could have a material adverse effect on our operating results or our financial position.

     From time to time, we have received notices from third parties alleging infringement of such parties’ patent or other intellectual property rights by our products. In such cases it is our policy to defend the claims, or if considered appropriate, negotiate licenses on commercially reasonable terms. However, no assurance can be given that we will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on our consolidated financial position, liquidity, operating results or our consolidated financial statements taken as a whole.

ITEM 6. Exhibits and Reports on Form 8-K

      (a)  Exhibits:

     
10.80   Amended and Restated Master Lease and Deed of Trust between Lam Research Corporation and SELCO Service Corporation, dated March 25, 2003.
     
10.81   Lease Supplement No. 1 between Lam Research Corporation and SELCO Service Corporation, dated March 25, 2003.
     
10.82   Participation Agreement between Lam Research Corporation, SELCO Service Corporation, and Key Corporate Capital Inc., dated March 25, 2003.
     
10.83   Amendment to Participation Agreement between Lam Research Corporation, Scotiabanc Inc. and The Bank of Nova Scotia, dated December 27, 2002.
     
10.84   Amendment to Participation Agreement between Lam Research Corporation, the Cushing 2000 Trust, Scotiabanc Inc., The Bank of Nova Scotia and Fleet National Bank, dated December 27, 2002.
     
10.85   Employment Agreement for Stephen G. Newberry, dated January 1, 2003.
     
99.1   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
99.2   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      (b)  Reports on Form 8-K

     We did not file any reports on Form 8-K during the quarter ended March 30, 2003.

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LAM RESEARCH CORPORATION

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 13, 2003

     LAM RESEARCH CORPORATION
    (Registrant)

  By: /s/ Mercedes Johnson

     Mercedes Johnson

      Senior Vice President, Finance and

      Chief Financial Officer

      (Chief Accounting Officer)

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CERTIFICATION PURSUANT TO RULE 15d-14
OF THE SECURITIES EXCHANGE ACT 0F 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James W. Bagley, Chairman and Chief Executive Officer of Lam Research Corporation, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Lam Research Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

     c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or

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not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 13, 2003

  /s/ James W. Bagley              
James W. Bagley
Chairman and Chief Executive Officer

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CERTIFICATION PURSUANT TO RULE 15d-14
OF THE SECURITIES EXCHANGE ACT 0F 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mercedes Johnson, Senior Vice President, Finance, Chief Financial Officer and Chief Accounting Officer of Lam Research Corporation, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Lam Research Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

     c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether

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or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 13, 2003

  /s/ Mercedes Johnson              
Mercedes Johnson
Senior Vice President, Finance
Chief Financial Officer and
Chief Accounting Officer

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EXHIBIT INDEX

     
Exhibit Number   Description

 
10.80   Amended and Restated Master Lease and Deed of Trust between Lam Research Corporation and SELCO Service Corporation, dated March 25, 2003.
     
10.81   Lease Supplement No. 1 between Lam Research Corporation and SELCO Service Corporation, dated March 25, 2003.
     
10.82   Participation Agreement between Lam Research Corporation, SELCO Service Corporation, and Key Corporate Capital Inc., dated March 25, 2003.
     
10.83   Amendment to Participation Agreement between Lam Research Corporation, Scotiabanc Inc. and The Bank of Nova Scotia, dated December 27, 2002.
     
10.84   Amendment to Participation Agreement between Lam Research Corporation, the Cushing 2000 Trust, Scotiabanc Inc., The Bank of Nova Scotia and Fleet National Bank, dated December 27, 2002.
     
10.85   Employment Agreement for Stephen G. Newberry, dated January 1, 2003.
     
99.1   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
99.2   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 
Exhibit 10.80


AMENDED AND RESTATED
MASTER LEASE AND DEED OF TRUST
THIS DOCUMENT SECURES FUTURE ADVANCES

Dated as of March 25, 2003

between

SELCO SERVICE CORPORATION,
doing business in California as "Ohio SELCO Service Corporation", as Lessor

and

LAM RESEARCH CORPORATION,
as Lessee

To the extent, if any, that this Master Lease and Deed of Trust constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on this Master Lease and Deed of Trust may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by Key Corporate Capital Inc., as the Administrative Agent, on or following the signature page hereof. This counterpart is NOT the original counterpart.



TABLE OF CONTENTS

SECTION                                                HEADING                                                     PAGE
ARTICLE I DEFINITIONS...........................................................................................     1

ARTICLE II MASTER LEASE.........................................................................................     2

         Section 2.1. Acceptance and Lease of Property..........................................................     2

         Section 2.2. Acceptance Procedure......................................................................     2

         Section 2.3. Lease Term................................................................................     2

         Section 2.4. Title.....................................................................................     2

ARTICLE III PAYMENT OF RENT.....................................................................................     2

         Section 3.1. Rent......................................................................................     2

         Section 3.2. Payment of Rent...........................................................................     3

         Section 3.3. Supplemental Rent.........................................................................     3

         Section 3.4. Method of Payment.........................................................................     3

ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT....................................................................     3

         Section 4.1. Quiet Enjoyment...........................................................................     3

         Section 4.2. Right to Inspect..........................................................................     4

ARTICLE V NET LEASE, ETC........................................................................................     4

         Section 5.1. Net Lease.................................................................................     4

         Section 5.2. No Termination or Abatement...............................................................     5

ARTICLE VI SUBLEASES AND ASSIGNMENTS............................................................................     5

         Section 6.1. Subletting................................................................................     5

         Section 6.2 Assignment.................................................................................     6

ARTICLE VII LESSEE ACKNOWLEDGMENTS..............................................................................     6

         Section 7.1. Condition of the Property.................................................................     6

         Section 7.2. Risk of Loss..............................................................................     7

ARTICLE VIII POSSESSION AND USE OF THE PROPERTY, ETC............................................................     7

         Section 8.1. Utility Charges...........................................................................     7

         Section 8.2. Possession and Use of the Property........................................................     7

         Section 8.3. Compliance with Requirements of Law and Insurance Requirements............................     7

ARTICLE IX MAINTENANCE AND REPAIR; RETURN.......................................................................     7

         Section 9.1. Maintenance and Repair; Return............................................................     7

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ARTICLE X MODIFICATIONS, ETC....................................................................................     8

         Section 10.1. Modifications, Substitutions and Replacement.............................................     8

         Section 10.2. Notice to the Lessor and Administrative Agent............................................     9

ARTICLE XI DISCHARGE OF LIENS; EASEMENTS........................................................................     9

         Section 11.1. Discharge of Liens.......................................................................     9

         Section 11.2. Grants and Releases of Easements; Lessor Waivers.........................................    10

ARTICLE XII PERMITTED CONTESTS..................................................................................    11

         Section 12.1. Permitted Contest........................................................................    11

ARTICLE XIII INSURANCE..........................................................................................    11

         Section 13.1. Required Insurance.......................................................................    11

         Section 13.2. Insurance Coverage.......................................................................    12

ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS....................................................    13

         Section 14.1. Risk of Loss, Damage or Destruction......................................................    13

         Section 14.2. Casualty and Condemnation................................................................    13

         Section 14.3. Environmental Matters....................................................................    15

         Section 14.4. Notice of Environmental Matters..........................................................    16

ARTICLE XV TERMINATION OF LEASE.................................................................................    16

         Section 15.1. Partial Termination Upon Certain Events..................................................    16

         Section 15.2. Partial Termination Procedures...........................................................    16

ARTICLE XVI EVENTS OF DEFAULT...................................................................................    17

         Section 16.1. Lease Events of Default..................................................................    17

         Section 16.2. Remedies.................................................................................    19

         Section 16.3. Waiver of Certain Rights.................................................................    22

         Section 16.4. Deed of Trust Remedies...................................................................    23

         Section 16.5. Excess Proceeds; Return of Properties....................................................    23

ARTICLE XVII LESSOR'S RIGHT TO CURE.............................................................................    23

         Section 17.1. The Lessor's Right to Cure the Lessee's Lease Defaults...................................    23

ARTICLE XVIII PURCHASE PROVISIONS...............................................................................    24

         Section 18.1. Purchase of Properties...................................................................    24

         Section 18.2. Expiration Date Purchase Obligation......................................................    24

         Section 18.3. Acceleration of Purchase Obligation......................................................    25

         Section 18.4. Failure to Elect Options.................................................................    25

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ARTICLE XIX [INTENTIONALLY OMITTED].............................................................................    25

ARTICLE XX REMARKETING OPTION...................................................................................    25

         Section 20.1. Option to Remarket.......................................................................    25

         Section 20.2. Procedures During Remarketing............................................................    26

         Section 20.3. Remedies for Failed Remarketing..........................................................    28

         Section 20.4. No Sale of Property......................................................................    29

         Section 20.5. Return of Excess Amounts.................................................................    29

ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS..............................................    30

         Section 21.1. Provisions Relating to the Exercise of Purchase Option or
                 Obligation and Conveyance upon Remarketing; Conveyance upon Certain
                 Other Events...................................................................................    30

ARTICLE XXII ESTOPPEL CERTIFICATES..............................................................................    31

         Section 22.1. Estoppel Certificates....................................................................    31

ARTICLE XXIII ACCEPTANCE OF SURRENDER...........................................................................    31

         Section 23.1. Acceptance of Surrender..................................................................    31

ARTICLE XXIV NO MERGER OF TITLE.................................................................................    32

         Section 24.1. No Merger of Title.......................................................................    32

ARTICLE XXV INTENT OF THE PARTIES...............................................................................    32

         Section 25.1. Ownership of the Properties..............................................................    32

ARTICLE XXVI MISCELLANEOUS......................................................................................    33

         Section 26.1. Severability; Perpetuities; Etc..........................................................    33

         Section 26.2. Amendments and Modifications.............................................................    33

         Section 26.3. No Waiver................................................................................    33

         Section 26.4. Notices..................................................................................    33

         Section 26.6. Headings and Table of Contents...........................................................    33

         Section 26.7. Counterparts.............................................................................    34

         Section 26.8. Governing Law............................................................................    34

         Section 26.9. Original Lease...........................................................................    34

         Section 26.10. Time of Essence.........................................................................    34

         Section 26.11. Liability Limited.......................................................................    34

Exhibit A - Form of Lease Supplement

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AMENDED AND RESTATED
MASTER LEASE AND DEED OF TRUST
THIS DOCUMENT SECURES FUTURE ADVANCES

THIS AMENDED AND RESTATED MASTER LEASE AND DEED OF TRUST (this "Master Lease"), dated as of March 25, 2003 between LAM RESEARCH CORPORATION, a Delaware corporation, as Lessee and whose principal offices are located at 4650 Cushing Parkway, Fremont, California 94538 (the "Lessee") and SELCO SERVICE CORPORATION, an Ohio corporation, an Ohio corporation, doing business in California as "Ohio SELCO Service Corporation", whose principal offices are located at c/o KeyCorp Leasing, 66 South Pearl Street, Albany, New York 12207 (the "Lessor").

W I T N E S S E T H:

WHEREAS, pursuant to a Participation Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the "Participation Agreement"), among the Lessee, the Lessor, Key Corporate Capital Inc., and each other holder from time to time of the Notes, as Lenders (herein, the "Lenders"), and Key Corporate Capital Inc., as Administrative Agent (in such capacity, and together with its successors and assigns, the "Administrative Agent") the Lenders and the Lessor have agreed to finance the acquisition of the Properties;

WHEREAS, on the initial Acquisition Date Lessor shall acquire from IBJTC Leasing Corporation-BSC, a New York corporation ("IBJTC") the real property commonly known as 4300-4400 Cushing Parkway, Fremont, California and more particularly described in the Lease Supplement attached hereto as Exhibit A, subject to that certain Master Lease and Mortgage dated as of March 27, 1996 between IBJTC, as owner, and Lessee, as lessee (as previously amended, the "IBJTC Lease");

WHEREAS, as contemplated by Section 19 of the IBJTC Lease, Lessee has elected to renew the term thereof and Lessee and IBJTC have agreed upon the terms of such renewal;

WHEREAS, this Master Lease shall fully amend, replace and restate the IBJTC Lease;

WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, the Property specified in each Lease Supplement; and

WHEREAS, the Properties will be subject to the terms of this Master Lease and the Lease Supplements;

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 IBJTC Lease is hereby amended and restated in its entirety as follows:


Lam Research Corporation Amended and Restated Master Lease

ARTICLE I

DEFINITIONS

Section 1.1. Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Master Lease have the respective meanings specified in Appendix A to the Participation Agreement; and the rules of interpretation set forth in Appendix A to the Participation Agreement shall apply to this Master Lease.

ARTICLE II

MASTER LEASE

Section 2.1. Acceptance and Lease of Property. Subject to the terms and conditions set forth herein and in the Participation Agreement, including without limitation the satisfaction or waiver of the conditions set forth in Article VI thereof, the Lessor hereby agrees to accept, pursuant to the terms of the Participation Agreement, delivery on each Acquisition Date of a Property from one or more third parties designated by the Lessee and simultaneously to demise and lease to the Lessee hereunder and under the relevant Lease Supplement for the Lease Term, the Lessor's interest in such Property and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for the Lease Term the interest of the Lessor in such Property identified in the applicable Lease Supplement.

Section 2.2. Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by it of a Lease Supplement on or as of each Acquisition Date shall, without further act, constitute the irrevocable acceptance by the Lessee of the Property set forth in such Lease Supplement for all purposes of this Master Lease and the other Operative Documents on the terms set forth therein and herein, and that such Property shall be deemed to be included in the leasehold estate of this Master Lease and shall be subject to the terms and conditions of this Master Lease as of the Acquisition Date thereof.

Section 2.3. Lease Term. The Lease Term of this Master Lease for each Property shall commence on (and include) the Acquisition Date of such Property and end on (but exclude) the Expiration Date.

Section 2.4. Title. Each Property is leased to the Lessee without any representation or warranty, express or implied, by Lessor and subject to the rights of parties in possession, the existing state of title (including, without limitation, all Liens) and all applicable Requirements of Law. The Lessee shall not in any event have any recourse against the Lessor for any defect in or exception to title to any Property or leasehold interest therein other than resulting from Lessor Liens attributable to the Lessor.

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Lam Research Corporation Amended and Restated Master Lease

ARTICLE III

PAYMENT OF RENT

Section 3.1. Rent. (a) During the Lease Term, the Lessee shall pay Basic Rent to the Lessor on each Scheduled Payment Date, on the date required under Section 20.2(h) in connection with the Lessee's exercise of the Remarketing Option and, with respect to any Property, on any date on which this Master Lease shall terminate with respect to such Property.

(b) Neither the Lessee's inability or failure to take possession of all or any portion of any Property when delivered by the Lessor, nor the inability or failure of the Lessor to deliver all or any portion of any Property to the Lessee on the Acquisition Date therefor, 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 such Lessee's obligation to pay Rent for such Property in accordance with the terms of this Master Lease.

Section 3.2. Payment of Rent. Rent shall be paid absolutely net to each Person entitled thereto, so that this Master Lease shall yield to such Person the full amount thereof, without setoff, deduction or reduction.

Section 3.3. Supplemental Rent. The Lessee shall pay to the Lessor or any other 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 and such other Persons 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 Requirements of 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 for the period from the due date 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 Master Lease or in the Participation Agreement, 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, to the extent incurred as a result of such failure on the part of the Lessee, any fine, penalty, interest or cost which may be assessed or added against any Participant by a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent.

Section 3.4. Method of Payment. Each payment of Rent payable by the Lessee to the Lessor under this Master Lease or any other Operative Document shall be made by the Lessee to the Administrative Agent as assignee of the Lessor under the Assignment of Lease and Rent (or, if all Loans and all other amounts owing to the Lenders under the Loan Agreement and the other Operative Documents have been paid in full and all Commitments of the Lenders have been permanently terminated, to the Lessor) prior to 2:00 p.m., New York City time to the Account in immediately available funds consisting of lawful currency of the United States of America on the date when such payment shall be due.

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Lam Research Corporation Amended and Restated Master Lease

ARTICLE IV

QUIET ENJOYMENT; RIGHT TO INSPECT

Section 4.1. Quiet Enjoyment. Subject to the terms of each of the Operative Documents, the Lessee shall peaceably and quietly have, hold and enjoy each Property for the Lease Term, free of any claim or other action by the Lessor or anyone claiming by, through or under the Lessor with respect to any matters arising from and after the Acquisition Date. Such right of quiet enjoyment is independent of, and shall not affect the rights of the Lessor or any assignee thereof otherwise to initiate legal action to enforce, the obligations of the Lessee under this Master Lease.

Section 4.2. Right to Inspect. During the Lease Term, the Lessee shall upon reasonable notice (except that no notice shall be required if a Lease Event of Default has occurred and is continuing), and from time to time, permit the Administrative Agent, any Participant, and their respective authorized representatives to inspect any Property subject to this Master Lease during normal business hours, and the Lessee will, upon the request of the Administrative Agent or any Participant, make available to such Person the books and records of the Lessee relating to such Property; provided that all such inspections shall be at the sole expense of the Administrative Agent or such Participant, as the case may be, unless a Lease Event of Default shall have occurred and is continuing, in which case such inspection shall be at the sole expense of the Lessee.

ARTICLE V

NET LEASE, ETC.

Section 5.1. Net Lease. This Master Lease shall constitute a net lease. Any present or future law to the contrary notwithstanding, this Master 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 any Property or any part thereof, or the failure of any Property to comply with all Requirements of Law, including any inability to occupy or use any 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 any Property or any part thereof; (iii) any restriction, prevention or curtailment of or interference with the construction on or any use of any Property or any part thereof including eviction; (iv) any defect in title of or rights to any Property or any Lien on such title or rights or on any Property; (v) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Administrative Agent or any Participant; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee, the Administrative Agent, any Participant or any other Person, or any action taken with respect to this Master Lease by any

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Lam Research Corporation Amended and Restated Master Lease

trustee or receiver of the Lessee, the Administrative 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 Administrative Agent, any Participant, or any vendor, manufacturer, contractor of or for any Property; (viii) any failure on the part of the Lessor to perform or comply with any of the terms of this Master Lease, of any other Operative Document or of any other agreement; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Master Lease 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 Administrative Agent, any Participant or all of them; (xi) any action by any court, administrative agency or other Governmental Authority; or (xii) 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 Lessee's agreement in this Section 5.1 shall not affect any claim, action or right the Lessee may have against the Lessor or any other Participants. 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 Master Lease.

Section 5.2. No Termination or Abatement. The Lessee shall remain obligated under this Master Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Master Lease (except as provided herein), notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting any Participant, or any action with respect to this Master Lease which may be taken by any trustee, receiver or liquidator of any Participant or by any court with respect to any Participant. The Lessee hereby waives, to the extent permitted by law, all right (i) to terminate or surrender this Master Lease (except as provided herein) or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Master Lease in accordance with its terms and the Lessee hereby waives, to the extent permitted by law, any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Master Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions contained in this Master Lease and the Lease Supplements.

ARTICLE VI

SUBLEASES AND ASSIGNMENTS

Section 6.1. Subletting. The Lessee may sublease a Property or any portion thereof to any Person; provided, however, that: (a) no sublease or other relinquishment of possession of any 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 Master Lease and each Lease Supplement; (b) each sublease of such Property shall expressly be made subject to and subordinate to this Master Lease and the related Lease Supplement and to the rights of the Lessor hereunder and thereunder; (c) each sublease shall expressly provide for the surrender of

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Lam Research Corporation Amended and Restated Master Lease

the Property or portion thereof by the applicable sublessee at the election of the Administrative Agent or the Lessor (as applicable) after the occurrence of a Lease Event of Default; (d) each sublease shall expressly provide for termination prior to the Expiration Date unless the Lessee elects to purchase all of the Properties pursuant to Section 18.1; and (e) the use or uses under any sublease shall be such that they shall not impair the value or utility of such Property, as certified by a Responsible Officer of the Lessee; provided that such certification shall not be binding on the Lessor in the event the Lessee elects the Remarketing Option.

Section 6.2 Assignment. During the Lease Term, the Lessee may assign to any Subsidiary or Affiliate of the Lessee at any time, in whole or in part, any of its right, title or interest in, to or under the Lease or any portion of any Property; provided that no such assignment 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 Master Lease and each Lease Supplement. No such assignment shall be effective unless
(a) made pursuant to assignment and assumption documents in form and substance satisfactory to the Lessor and the Lenders, (b) an opinion of counsel to the assignee is delivered to the Lessor and the Lenders as to the due authorization, execution and delivery, and the enforceability of such assignment and such other matters as the Lessor and the Lenders may request, (c) the use or uses of any such assignee shall be such that they do not impair the value or utility of such Property, as certified by a Responsible Officer of the Lessee; provided that such certification shall not be binding on the Lessor in the event the Lessee elects the Remarketing Option, and (d) the Lessee or such assignee shall have made all filings and taken all other actions necessary or desirable to preserve and protect the rights and interests of the Lessor, the Administrative Agent and the Lenders under the Operative Documents, all at the Lessee's sole cost and expense. The Lessee shall notify the Lessor promptly, and in any event not less than thirty (30) days prior to, the date of such assignment, and provide the Lessor and the Lenders with the terms of such proposed assignment.

ARTICLE VII

LESSEE ACKNOWLEDGMENTS

Section 7.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE LESSOR WILL OWN AND HOLD TITLE TO EACH PROPERTY, THE LESSEE IS SOLELY RESPONSIBLE FOR SUCH PROPERTY AND ANY ALTERATIONS OR MODIFICATIONS. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY "AS-IS, WHERE IS, AND WITH ALL FAULTS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE ADMINISTRATIVE AGENT, THE LESSOR OR ANY LENDER 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 OR ON THE APPLICABLE ACQUISITION DATE. NEITHER THE ADMINISTRATIVE AGENT, NOR THE LESSOR NOR ANY LENDER 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 (OTHER THAN FOR LESSOR LIENS ATTRIBUTABLE TO SUCH PERSON),

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Lam Research Corporation Amended and Restated Master Lease

VALUE, SUITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY

PART THEREOF) AND NEITHER THE ADMINISTRATIVE AGENT, NOR THE LESSOR NOR ANY
LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS ATTRIBUTABLE TO SUCH PERSON) OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW.

Section 7.2. Risk of Loss. During the Lease Term the risk of loss of or decrease in the enjoyment and beneficial use of each 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 not in any event be answerable or accountable therefor.

ARTICLE VIII

POSSESSION AND USE OF EACH PROPERTY, ETC.

Section 8.1. 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 each Property during the Lease Term. Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by Lessee and the amount of any credit or refund received by the Lessor on account of any utility charges paid by Lessee, net of the costs and expenses reasonably incurred by the Lessor in obtaining such credit or refund, shall be promptly paid over to Lessee.

Section 8.2. Possession and Use of each Property. The Lessee covenants that each Property shall be used as an office facility or an assembly and research and development facility, as applicable, and applying standards of use no lower than the standards applied by the Lessee or its Affiliates for other comparable properties owned or leased by the Lessee or its Affiliates. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of each Property as contemplated by this Master Lease and each Lease Supplement. The Lessee shall not commit or permit any waste of any Property or any part thereof.

Section 8.3. Compliance with Requirements of Law and Insurance Requirements. Subject to the terms of Article XII relating to permitted contests, the Lessee, at its sole cost and expense, shall (a) comply in all respects with all Requirements of Law (including all Environmental Laws) and Insurance Requirements relating to each Property, including the use, construction, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XX, whether or not compliance therewith shall require structural or extraordinary changes in the Improvements or interfere with the use and enjoyment of each 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 each Property and for the use, operation, maintenance, repair and restoration of the Improvements.

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Lam Research Corporation Amended and Restated Master Lease

ARTICLE IX

MAINTENANCE AND REPAIR; RETURN

Section 9.1. Maintenance and Repair; Return. (a) The Lessee, at its sole cost and expense, shall maintain each Property in as good condition as when delivered to the Lessee hereunder (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether ordinary or extraordinary or foreseen or unforeseen, in each case as required by all Requirements of Law and Insurance Requirements and in no event applying standards of maintenance lower than the standards applied by the Lessee in the operation and maintenance of other comparable properties owned or leased by the Lessee or its Affiliates.

(b) The Lessor shall not under any circumstances be required to build any improvements on any Property, make any repairs, replacements, alterations or renewals of any nature or description to any Property, make any expenditure whatsoever in connection with this Master Lease or the applicable Lease Supplement or maintain any Property in any way. The Lessee waives any right to (i) require the Lessor to maintain, repair, or rebuild all or any part of any 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 Lease Term.

(c) The Lessee shall, upon the expiration or earlier termination of this Master Lease with respect to each Property (other than as a result of the Lessee's purchase of the Property from the Lessor as provided herein), vacate and surrender such Property to the Lessor in the condition required by this Master Lease.

(d) The Lessee hereby waives any and all rights it may have (i) under Section 1941 of the California Civil Code, (ii) to make repairs at Lessor's expense or to vacate the Property as set forth in Section 1942 of the California Civil Code or (ii) any similar rights under any other Applicable Law.

ARTICLE X

MODIFICATIONS, ETC.

Section 10.1. Modifications, Substitutions and Replacement. During the Lease Term, the Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to such Property or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that:

(a) except for any Modification required to be made pursuant to a Requirement of Law (a "Required Modification"), no Modification shall be made if it would adversely affect the marketability, value, utility or useful life of such Property or any part thereof from that which existed immediately prior to such Modification;

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Lam Research Corporation Amended and Restated Master Lease

(b) the Modification shall be done in a good and workmanlike manner;

(c) the Modification shall comply with all Insurance Requirements and all Requirements of Law (including all Environmental Laws) applicable to such Modification, including the obtaining of any necessary permits;

(d) subject to the terms of Article XII relating to permitted contests, Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within thirty (30) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification;

(e) such Modifications shall comply with Sections 8.3 and
9.1(a); and

(f) the Lessee shall be required to obtain the prior written approval (which approval shall not be unreasonably withheld) of the Lessor and the Administrative Agent with respect to any structural alterations (other than Required Modifications) that shall cost in excess of 20% of the Property Cost of such Property.

All Modifications shall remain part of the realty and shall be subject to this Master Lease and the applicable Lease Supplement(s) and title thereto shall immediately vest in the Lessor. So long as no Lease Event of Default has occurred and is continuing, the Lessee may place upon any Property any trade fixtures, machinery, equipment, inventory or other property belonging to the Lessee or third parties and may remove the same at any time during the Lease Term, subject, however, to the terms of Section 9.1(a); provided, however, that any trade fixtures placed on a Property do not impair the marketability, value, utility or useful life of such Property; provided, further, however, that the Lessee shall keep and maintain at each Property and shall not remove from any Property any Equipment (except for removal in connection with the maintenance, repair or replacement of such Equipment).

Section 10.2. Notice to the Lessor and Administrative Agent. If the Lessee reasonably expects the cost of any Modification to exceed 20% of the Property Cost of the relevant Property, the Lessee shall deliver to the Lessor and the Administrative Agent a brief written narrative of the work to be performed in connection with such Modification prior to making such Modification and an Officer's Certificate stating that such work when completed will not impair the marketability, value, utility or useful life of the Property.

ARTICLE XI

DISCHARGE OF LIENS; EASEMENTS

Section 11.1. Discharge of Liens. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XII relating to permitted contests, Lessee shall not directly or indirectly create or allow to remain, and shall promptly (and in any event within sixty (60) days after notice thereof is received by the Lessee from any Person) discharge (or cause the same to be insured or otherwise bonded over) at its sole cost and expense, any Lien,

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defect, attachment, levy, title retention agreement or claim upon any Property or any Lien, attachment, levy or claim with respect to any amounts held by the Lessor or the Administrative Agent pursuant to this Master Lease as collateral security for the Lessee's obligations or pending performance by the Lessee, other than (i) Permitted Property Liens, and (ii) Liens on machinery, equipment, inventory, general intangibles and other personal property not financed by the proceeds of the Loans or Lessor Amounts.

(b) Nothing contained in this Master Lease shall be construed as constituting the consent or request of the Lessor, the Administrative Agent or any Lender, 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 any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR NOR THE ADMINISTRATIVE AGENT NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF 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, THE ADMINISTRATIVE AGENT OR ANY LENDER IN AND TO ANY PROPERTY.

Section 11.2. Grants and Releases of Easements; Lessor Waivers. So long as no Lease Event of Default shall have occurred and be continuing and subject to the provisions of Articles VII, IX and X and Section 8.3 hereof, 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 use, repair, or maintenance of any Property or burdening any Property as herein provided; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of any Property; (c) if required by applicable Governmental Authority, the dedication or transfer of unimproved portions of any Property for road, highway or other public purposes; (d) the execution of amendments to any covenants and restrictions affecting any Property; and (e) the execution or release of any similar agreement; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not impair the value, utility or remaining useful life of any Property, (ii) such grant, release, dedication, transfer or amendment is, in the Lessee's judgment, reasonably necessary in connection with the use, maintenance, alteration or improvement of any Property, (iii) such grant, release, dedication, transfer or amendment will not cause any Property or any portion thereof to fail to comply with the provisions of this Master Lease or any other Operative Document or fail to comply in any respect with all Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements), (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer, annexation or amendment have been obtained, and all filings required prior to such action have been made, (v) the Lessee shall remain obligated under this Master Lease and each of the Lease Supplements in accordance with their respective terms, as though such grant, release, dedication, transfer or amendment had not been effected, and (vi) the Lessee shall pay and perform any obligations of the Lessor under such grant, release, dedication, transfer or amendment. Without limiting the effectiveness of the foregoing, provided that no Lease Event

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of Default shall have occurred and be continuing, the Lessor shall, upon the request of 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, transfer, annexation or amendment to any Person permitted under this Section 11.2, including landlord waivers with respect to any of the foregoing.

ARTICLE XII

PERMITTED CONTESTS

Section 12.1. Permitted Contests. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law or any Lien, encumbrance, levy, attachment or encroachment relating to any Property shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee, or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law or remove or discharge any Lien, encumbrance, levy, attachment or encroachment but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not (in the reasonable opinion of the Lessor, the Administrative Agent and the Lenders) involve (A) any risk of criminal liability being imposed on the Lessor, the Administrative Agent or any Lender for failure to comply therewith or (B) any risk of (1) foreclosure, forfeiture or loss of any Property, or any part thereof, or (2) the nonpayment of Rent or (C) any substantial risk of (1) the creation of any Lien (other than a Permitted Property Lien) on any part of any Property, (2) civil liability being imposed on the Lessor, the Administrative Agent, any Lender or any Property unless the Lessee shall have otherwise bonded or secured such amounts in a manner satisfactory to the Lessor, the Administrative Agent and the Lenders, as the case may be, or (3) enjoinment of, or interference with, the use, possession or disposition of any Property in any respect.

Neither the Lessor, the Administrative Agent nor any Lender shall be required to join in any proceedings pursuant to this Section 12.1 unless a provision of any Applicable Law requires that such proceedings be brought by or in the name of such party; and in that event such party will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) the Lessee has not elected the Remarketing Option, and (ii) the Lessee pays all related expenses and indemnifies such party (in a manner satisfactory to such party) with respect to such proceedings.

ARTICLE XIII

INSURANCE

Section 13.1. Required Insurance. (a) Liability Insurance. During the Lease Term for each Property, the Lessee shall procure and carry commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on such Property and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates

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who own or operate similar properties, but in any case shall provide liability coverage of at least $50,000,000 per occurrence. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by the Lessee or such Affiliates with respect to similar properties that they own or lease. 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 Administrative Agent and any Lender may have in force.

(b) Worker's Compensation Laws. The Lessee shall, in connection with any Modifications and the operation of the Properties, comply with the applicable workers' compensation laws.

(c) Hazard and Other Insurance. During the Lease Term for each Property, Lessee shall keep, or cause to be kept, each Property insured against loss or damage by fire, windstorm, environmental risks and other risks (and during any Modification, builders' all-risk insurance) on terms and in amounts that are no less favorable than insurance covering other similar properties owned or leased by the Lessee or its Affiliates; provided that the Lessee shall also obtain (i) with respect to any Property located at a site that shall have been assigned a seismic zone factor of 4 under the Uniform Building Code published from time to time by the International Conference of Building Officials, coverage for earthquake (provided such coverage is maintained by owners of similar properties and in accordance with normal industry practice), and (ii) with respect to any Property located within an area identified as a special flood hazard area by the Federal Emergency Management Agency, coverage for flood. Lessor acknowledges that Lessee does not currently maintain earthquake insurance. Subject to the last sentence of this Section 13.1(c) and the terms of Section 14.2, all insurance proceeds in respect of any loss or occurrence for which the proceeds related thereto are (i) less than or equal to $3,000,000, in the absence of the occurrence and continuance of a Lease Event of Default, shall be adjusted by and paid to the Lessee for application toward the reconstruction, repair or refurbishment of such Property, and (ii) greater than $3,000,000 shall be adjusted by the Lessee and the Lessor working together to jointly resolve such insurance claim (unless a Lease Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by the Lessor) and held by the Lessor for application in accordance with Article XIV.

(d) Deductibles. During the Lease Term, the insurance required to be obtained by the Lessee under this Section 13.1 may be subject to such deductible amounts and self-insured retentions as is consistent with the Lessee's or its Affiliates' practice for other properties similar to the Properties owned or leased by the Lessee or its Affiliates; provided that such deductible amounts and self-insured retentions shall not exceed $1,000,000 with respect to the insurance required by Section 13.1(a) and $1,000,000 with respect to the insurance required by Section 13.1(c). Such insurance may be carried under blanket policies maintained by or on behalf of the Lessee so long as such policies otherwise comply with the provisions of this Section 13.1.

Section 13.2. Insurance Coverage. During the Lease Term for each Property the Lessee shall cause the insurance required to be maintained by the Lessee under Section 13.1(a) or 13.1(c), to comply with the provisions of this
Section 13.2. All insurance required under Section 13.1 shall be at the sole cost and expense of the Lessee.

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(a) On each Acquisition Date the Lessee shall furnish the Lessor and the Administrative Agent with certificates showing the insurance required under Section 13.1 to be in effect. Such certificates shall include a provision for no less than thirty (30) days' advance written notice by the insurer to the Lessor and the Administrative Agent in the event of cancellation or reduction of such insurance.

(b) The Lessee agrees that the insurance policy or policies required by Section 13.1(a) shall (i) name the Administrative Agent, the Lessor and each Lender as additional insureds (including any maintained in connection with the construction of any Modifications), and (ii) include an appropriate clause 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 Administrative Agent and the Lenders and their respective rights under and interests in such policies shall not be invalidated or reduced by any act or omission (including breach of warranty) or negligence of the Lessee or any other Person having any interest in the Property. The Lessee hereby waives any and all such rights against the Lessor, the Administrative Agent and the Lenders to the extent of payments made under such policies. All insurance policies required by Section 13.1(c) shall name the Administrative Agent as loss payee pursuant to a standard mortgagee loss payee endorsement.

(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 and which shall have a rating by A.M. Best's Key Rating Guide of not less than "A" and a "Financial Performance Rating" of at least "VIII" and shall be otherwise reasonably acceptable to the Lenders and the Lessor.

(d) The Lessee shall pay at its sole cost and expense as they become due all premiums for the insurance required by this Article XIII, and shall renew or replace each policy prior to the expiration date thereof. During the Lease Term the Lessee shall, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), deliver to the Lessor and the Administrative Agent certificates of insurance evidencing that all insurance required by this Article XIII is being maintained by the Lessee and is in effect. Such certificates shall include a provision for no less than thirty (30) days' advance written notice by the insurer to the Administrative Agent and the Lessor in the event of cancellation or any material reduction of such insurance.

ARTICLE XIV

CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS

Section 14.1. Risk of Loss, Damage or Destruction. At all times during the Lease Term for each Property, the Lessee bears all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to such Property or any part thereof, however caused or occasioned, such risk to be borne by the Lessee from the Acquisition Date for such Property and continuing until such Property has been returned to the Lessor in accordance with the provisions of this Master Lease or has been purchased by the

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Lessee or another Person in accordance with the provisions of this Master Lease. The Lessee agrees that no occurrence specified in the preceding sentence shall impair, in whole or in part, any obligation of the Lessee under this Master Lease, including the obligation to pay Rent.

Section 14.2. Casualty and Condemnation. (a) Insurance Proceeds and Condemnation Awards. Subject to the provisions of Section 13.1 hereof and this Article XIV, (x) if all or a portion of any Property is damaged or destroyed in whole or in part by a Casualty during the Lease Term for such Property, any insurance proceeds payable with respect to such Casualty shall be adjusted by and paid directly to the Lessee, or if received by the Administrative Agent or any Participant, shall be paid over to the Lessee for the reconstruction, refurbishment and repair of the affected Property, and (y) if the use, access, occupancy, easement rights or title to any Property or any part thereof is the subject of a Condemnation during the Lease Term for such Property, then any award or compensation relating thereto shall be adjusted by and paid to the Lessee; provided, however, that, in each case, if (A) any Lease Default shall have occurred and be continuing, or (B) such Casualty or Condemnation is an Event of Loss or (c) the amount of such proceeds, award or compensation equals or exceeds $2,000,000, then such award, compensation or insurance proceeds shall be adjusted jointly by the Lessee and the Lessor and paid directly to the Administrative Agent (as assignee of the Lessor) or, if received by the Lessee, shall be held in trust for the Participants and shall be paid over by the Lessee to the Administrative Agent, to be distributed by the Administrative Agent as follows: (x) in the case of a Lease Default, such amounts shall be distributed in accordance with Section 7.6(b) of the Participation Agreement or held as additional security for the Lessee's obligations, and (y) in the case of an Event of Loss, such amounts shall, in the Lessor's and the Administrative Agent's reasonable discretion, either (1) be paid to the Lessee for the repair and restoration of such Property in accordance with Section 14.2(d) or (2) be applied toward the payment of the applicable Property Cost of the affected Property and related amounts on the applicable Partial Termination Date in accordance with Section 15.1, and (z) in the case of proceeds, awards or compensation equal to or in excess of $2,000,000, such amounts shall be paid to and held by the Administrative Agent and, so long as no Lease Default shall have occurred and be continuing, paid to the Lessee upon completion of the repair and restoration of such Property.

(b) Participation in Proceedings. The Lessee may appear at its own cost and expense in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any Casualty or Condemnation with respect to any Property 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 Administrative Agent shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Lessor and the Lessee agree that this Master Lease shall control the rights of the Lessor and the Lessee in and to any such award, compensation or insurance payment.

(c) Notices of Casualty or Condemnation. In the event of any Casualty with respect to any Property for which the reasonable anticipated cost of restoration equals or exceeds 5% of the Property Cost of such Property or of an actual, pending or threatened Condemnation of any material interest in the Property, the Lessor or the Lessee, as the case may be, shall give notice thereof to the other and to the Lenders and the Administrative Agent promptly after the receipt of such notice.

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(d) Repair. If this Master Lease shall continue in full force and effect with respect to any Property following a Casualty or Condemnation affecting such Property which occurs at any time during the Lease Term thereof, then the Lessee shall, so long as such repair may reasonably be expected to be completed with due diligence prior to Expiration Date, at its sole cost and expense (utilizing insurance proceeds and condemnation awards as contemplated hereby; provided, however, that, if any award, compensation or insurance payment is not sufficient to restore such Property in accordance with this clause (d), the Lessee shall pay the shortfall), promptly and diligently repair any damage to such Property caused by such Casualty or Condemnation in conformity with the requirements of Article XIII and Sections 8.3, 9.1 and 10.1 using the Plans and Specifications for such Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting such Property and all Applicable Law) so as to restore such Property to at least the same or similar condition, operation, function and value as existed immediately prior to such Casualty or Condemnation with such Modifications as the Lessee may elect in accordance with
Section 10.1. In such event, title to such Property shall remain with the Lessor subject to the terms of this Master Lease. Upon completion of such restoration, the Lessee shall furnish to the Lessor and the Administrative Agent a Responsible Officer's Certificate confirming that such restoration has been completed pursuant to this Master Lease.

(e) Obligations Continue. In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 3.1 hereof or to perform its obligations and pay any amounts due on the Expiration Date or pursuant to Articles XVIII and XX hereof.

(f) Excess Casualty/Condemnation Proceeds. Upon the earlier of (x) the date on which all damage to a Property caused by a Casualty or Condemnation shall have been repaired in accordance with Section 14.2(d) and (y) the date on which the Property Cost of the applicable Property and all other amounts due and payable under Section 15.1 shall have been paid to the Administrative Agent in connection with an Event of Loss Purchase, any Net Proceeds received by the Lessor, the Administrative Agent or any Lender in respect of such Casualty or Condemnation, to the extent remaining after any application of such Net Proceeds to the repair or restoration of the applicable Property or to the payment of the Property Cost for such Property and such other amounts, as the case may be (any such Net Proceeds remaining after such application, "Excess Casualty/Condemnation Proceeds"), shall be promptly turned over to the Lessee.

Section 14.3. Environmental Matters. Promptly upon the Lessee's obtaining knowledge of the existence of an Environmental Violation with respect to any Property the cost of remediation of which the Lessee determines in its reasonable good faith judgment would reasonably be expected to exceed $1,000,000, the Lessee shall notify the Lessor and the Administrative Agent in writing of such Environmental Violation. If the Lessor elects not to terminate this Master Lease with respect to such Property pursuant to Section 15.1, at the Lessee's sole cost and expense, the Lessee shall promptly and diligently commence any response, clean up, remedial or other action necessary to remove, clean up or remediate any such Environmental Violation in accordance with the terms of Section 8.3. The Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessor a report describing the Environmental Violation

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and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in compliance in all respects with applicable Environmental Laws. Each such Environmental Violation shall be remedied prior to the Expiration Date unless the relevant Property has been purchased by the Lessee in accordance with Section 15.1, 18.1 or 18.2. Nothing in this Article XIV shall reduce or limit the Lessee's obligations under Section 13.1, 13.2 or 13.3 of the Participation Agreement.

Section 14.4. Notice of Environmental Matters. Promptly, but in any event within thirty (30) days from the date the Lessee has actual knowledge thereof, the Lessee shall provide to the Lessor and the Administrative Agent written notice of any notice of any pending or threatened claim, action or proceeding involving any Environmental Laws or any Release on or in connection with any 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 and the Administrative Agent, within thirty (30) days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Violation in connection with any Property. The Lessee shall also promptly provide such detailed reports of any such environmental claims as may reasonably be requested by any Participant. In the event that the Lessor receives written notice of any pending or threatened claim, action or proceeding involving any Environmental Laws or any Release on or in connection with any Property, the Lessor shall promptly give notice thereof to the Lessee.

ARTICLE XV

TERMINATION OF LEASE

Section 15.1. Partial Termination Upon Certain Events. If, with respect to any Property (any such Property, an "Affected Property"): (a) an Event of Loss occurs or (b) an Environmental Violation occurs or is discovered and the cost of remediation of which the Lessee determines in its reasonable good faith judgment would reasonably be expected to exceed $5,000,000 and in either case the Lessor (at the direction of the Required Participants) shall have given fifteen (15) Business Days' prior written notice (a "Partial Termination Notice") to the Lessee that, as a consequence of such event, (x) the Lease Supplement relating to such Property is to be terminated, and (y) this Master Lease is to be terminated with respect to such Property, then the Lessee shall on the next occurring Scheduled Payment Date (but in any event not later than the Expiration Date), purchase the interest of the Lessor in the Affected Property by paying to the Administrative Agent (as assignee of the Lessor) an amount equal to the sum of (x) the Property Cost of the Affected Property on such date plus (y) all accrued and unpaid Basic Rent due and owing on such date plus (z) all Supplemental Rent due and owing on such date, and the Lessor shall transfer to the Lessee on such date of payment all of the interest of the Lessor in the Affected Property pursuant to the procedures set forth in Section 15.2 hereof.

Section 15.2. Partial Termination Procedures. On the date of the payment by the Lessee of all amounts required to be paid under Section 15.1, in accordance with the procedures set forth in Section 15.1 (such date, the "Partial Termination Date"), this Master Lease shall terminate with respect to such Affected Property. The Lessor shall take the following actions in respect of

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the applicable Affected Property upon the Administrative Agent's receipt of all amounts due with respect to such Affected Property and all other amounts then due in accordance with Section 15.1:

(a) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense (which expenses include, without limitation, the payment of any transfer taxes): (i) a deed with respect to the Affected Property containing representations and warranties regarding the absence of Lessor Liens attributable to the Lessor (but no other representations or warranties), (ii) a bill of sale with respect to the interest of the Lessor in any items of personalty or Equipment on such Affected Property, containing representations and warranties regarding the absence of Lessor Liens attributable to the Lessor (but no other representations or warranties), and (iii) an assignment of any and all other interests of the Lessor in such Affected Property not otherwise conveyed in such deed or bill of sale (which shall include an assignment of all of the right, title and interest of the Lessor in and to any Excess Casualty/Condemnation Proceeds), in each case in recordable form and otherwise in conformity with local custom to the extent consistent with the foregoing scope of the Lessor's representations and warranties;

(b) such Affected Property shall be conveyed to the Lessee (or to the Lessee's designee) "AS IS" and in its then present physical condition; and

(c) at the request of the Lessee, Net Proceeds with respect to such Affected Property shall be applied against amounts due hereunder, and the Lessor shall convey to the Lessee any Excess Casualty/Condemnation Proceeds with respect to the Affected Property.

ARTICLE XVI

EVENTS OF DEFAULT

Section 16.1. 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) (i) the Lessee shall fail to make payment of any Basic Rent upon the same becoming due and payable and such failure shall continue unremedied for a period of three (3) days or (ii) the Lessee shall fail to make payment upon the same becoming due and payable of the Lease Balance, Purchase Option Price, Property Balance, Property Cost or Maximum Recourse Amount or any amounts payable in conjunction with the payment of any of the foregoing including, without limitation, amounts due pursuant to Sections 15.1, 15.2, 18.1, 18.2, 18.3 or 20.2 hereof; or

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(b) the Lessee shall fail to make payment of any Supplemental Rent (other than as specified in clause (a) above) when due and payable within five (5) days after receipt of notice thereof from the party to whom Lessee is obligated to pay such Supplemental Rent; or

(c) any insurance required to be maintained by the Lessee pursuant to Article XIII of this Master Lease shall fail to be in effect or the Lessee defaults in the compliance with Sections 10.1(i),
(j), (k) or (l) of the Participation Agreement; or

(d) the Lessee shall fail to observe or perform any term, covenant or condition applicable to it under any Operative Document to which it is a party (other than those described in Section 16.1(a),
(b), or (c) hereof) and such failure shall not be remedied within thirty (30) days after notice thereof has been given to the Lessee; provided, that, in the event that such remedy cannot reasonably be completed within such thirty (30) day period, then Lessee shall have such additional time as shall be reasonably necessary, so long as Lessee commences such remedy within such thirty (30) day period and diligently thereafter prosecutes the same to completion, provided, further, in no event shall such period exceed ninety (90) days after such notice; or

(e) the Lessee shall fail to observe or perform any term, covenant or condition applicable it under Article XX of this Master Lease after giving written notice to the Lessor and the Administrative Agent of the Lessee's exercise of the Remarketing Option; or

(f) any representation or warranty made or expressly deemed made by the Lessee in any Operative Document to which it is a party or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with any Operative Document shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or expressly deemed made; or

(g) a "Default" or failure of the Lessee or any Subsidiary of the Lessee to pay when due Indebtedness or Off-Balance Sheet Obligations in an aggregate amount greater than $15,000,000 (or the Dollar Amount of Indebtedness or Off-Balance Sheet Obligations denominated in a currency other than Dollars); or the default by the Lessee or any Subsidiary of the Lessee in the performance of any term, provision or condition contained in any agreement under which any Indebtedness or Off-Balance Sheet Obligations in an aggregate amount greater than $15,000,000 (or the Dollar Amount of Indebtedness or Off-Balance Sheet Obligations denominated in a currency other than Dollars) was created or is governed, the effect of which is to cause, or to permit the holder or holders of any Indebtedness or Off-Balance Sheet Obligations to cause, Indebtedness or Off-Balance Sheet Obligations in an aggregate amount greater than $15,000,000 (or the Dollar Amount of Indebtedness or Off-Balance Sheet Obligations denominated in a currency other than Dollars) to become due prior to its stated maturity; or Indebtedness or Off-Balance Sheet Obligations in an aggregate amount greater than $15,000,000 (or the Dollar Amount of Indebtedness or Off-Balance Sheet Obligations

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denominated in a currency other than Dollars) shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof; or

(h) the Lessee or any Material Subsidiary shall (i) have an order for relief entered with respect to it under the Bankruptcy Code or any other bankruptcy, insolvency or other similar law as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) fail to pay, or admit in writing its inability to pay, its debts generally as they become due, (iv) apply for, seek, consent to, or acquiesce in the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial portion of its Property, (v) institute any proceeding seeking an order for relief under the Bankruptcy Code or any other bankruptcy, insolvency or other similar law as now or hereafter in effect or seeking to adjudicate it as bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under the Bankruptcy Code or any other law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate action to authorize or effect any of the foregoing actions or (vii) fail to contest in good faith any appointment or proceeding described in Section 16.1(i) below; or

(i) without the application, approval or consent of the Lessee or any Material Subsidiary, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Lessee or any Material Subsidiary or any substantial portion of the Property of any such Person, or a proceeding described in Section 16.1(h)(v) shall be instituted against the Lessee or any Material Subsidiary and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) consecutive days; or

(j) the Lessee or any Subsidiary of the Lessee shall fail within sixty (60) days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $15,000,000 which is not stayed on appeal or otherwise being appropriately contested in good faith; or

(k) the Lessee or any other member of the Controlled Group shall fail to pay when due any amount or amounts which it shall have become liable to pay to the PBGC or to any Plan, or any notice of intent to terminate a Plan having aggregate Unfunded Vested Liabilities in excess of $5,000,000 shall be filed by a member of the Controlled Group and/or any Plan administrator, or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any such Plan, or a condition shall exist which would entitle the PBGC to obtain a decree adjudicating that any such Plan must be terminated; or

(l) any Operative Document to which the Lessee is a party or any Lien granted by the Lessee under any Operative Document shall, in whole or in part,

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terminate, cease to be effective against, or (other than as expressly provided therein) cease to be the legal, valid, binding and enforceable obligation of the Lessee other than as permitted under, or pursuant to the terms of, or in connection with a transaction permitted by, any Operative Document; or

(m) the Lessee shall directly or indirectly contest the effectiveness, validity, binding nature or enforceability of any Operative Document or any Lien granted under any Operative Document; or any Operative Document shall cease to be a legal, valid and binding obligation of the Lessee or cease to be in full force and effect.

Section 16.2. 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 (and in such order) 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 all of the Properties as set forth in Section 18.3):

(a) The Lessor may (i) declare the entire outstanding Lease Balance to be due and payable together with accrued unpaid Rent and any other amounts payable under the Operative Documents, (ii) declare the Commitments to be terminated, whereupon the same shall be of no further force or effect; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Lessee or any of its Subsidiaries under the Bankruptcy Code, (A) the obligation of each Participant to make Advances shall automatically be terminated and (B) the Advances, all interest and Yield thereon and all other amounts payable under the Operative Documents shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Lessee or (iii) make demand upon the Lessee;

(b) The Lessor may, by notice to the Lessee, rescind or terminate this Master Lease as of the date specified in such notice; however, (i) no reletting, reentry or taking of possession of any Property (or any portion thereof) by the Lessor (or its agents) will be construed as an election on the Lessor's part to terminate this Master 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 Master Lease for a continuing Lease Event of Default, and (iii) no act or thing done by the Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of any Property shall be valid unless the same be made in writing and executed by the Lessor;

(c) The Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor, return all of the Properties promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Articles VII and IX and Section 8.3 hereof as if the Properties were being returned at the end of the Lease 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

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(ii) without prejudice to any other remedy which the Lessor may have for possession of the Properties, 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 Properties or any part thereof and expel or remove the Lessee and any other Person who may be occupying any Property, by summary proceedings or otherwise, all without liability to the Lessor 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 other damages of the Lessor, the Lessee shall be responsible for all costs and expenses incurred by the Lessor, the Administrative Agent and/or the Lenders in connection with any reletting, including, without limitation, reasonable brokers' fees and all costs of any alterations or repairs required to be made by the Lessor so that the Properties achieve the standard of condition required by this Master Lease;

(d) As more fully set forth in Section 16.4 hereof and in each Lease Supplement (and consistent with the intent of the parties as detailed in Article XXV hereof), the Lessor may exercise all remedies available to a mortgagee, secured party, beneficiary or trustee under law or equity, including, to the extent permitted by law, the right to sell all or any part of the Properties at public or private sale, as the Lessor may determine;

(e) The Lessor may, at its option, elect not to terminate this Master Lease and continue to collect all Basic Rent, Supplemental Rent, and all other amounts due to the Lessor (together with all costs of collection) and enforce the Lessee's obligations under this Master Lease as and when the same become due, or are to be performed, and at the option of the Lessor, upon any abandonment of any 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 Master Lease and may make the necessary repairs in order to relet any Property, and relet such Property or any part thereof for such term or terms (which may be for a term extending beyond the Lease Term of this Master 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 under the other Operative Documents in the manner provided in
Section 7.6(a) or (c), as applicable, of the Participation Agreement. If such rentals received from such reletting during any period are less than the Rent to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor, to the Administrative Agent on the next Scheduled Payment Date;

(f) Unless all of the Properties have been sold in their entirety, the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under clause (c), (d) or (e) of this Section 16.2 with respect to any or all of the Properties or any portions thereof, demand, by written notice to the Lessee specifying a date not earlier than twenty (20) days after the date of such notice, that the Lessee purchase, on the date specified in such notice, all of the unsold Properties in accordance with the provisions of Article XXI and Section 18.2;

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(g) The Lessor may exercise any other right or remedy that may be available to it 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 rights to collect any such damages for any subsequent period(s), or the Lessor may defer any such suit until after the expiration of the Lease Term, in which event such suit shall be deemed not to have accrued until the expiration of the Lease Term;

(h) The Lessor may retain and apply against the Lease Balance 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 Master Lease; or

(i) The Lessor, to the extent permitted by Applicable Law, as a matter of right and with notice to the Lessee, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of any part of each Property, and the Lessee hereby irrevocably consents to any such appointment. Any such receivers shall have all of the usual powers and duties of receivers in like or similar cases and all of the powers and duties of the Lessor in case of entry, and shall continue as such and exercise such powers until the date of confirmation of the sale of the applicable Property unless such receivership is sooner terminated.

The Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement shall prejudice or in any manner affect the Lessor's right to realize upon or enforce any other security now or hereafter held by the Lessor, it being agreed that the Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Lessor in such order and manner as the Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Lessor. In no event shall the Lessor, in the exercise of the remedies provided in this instrument (including, without limitation, in connection with the assignment of rents to the Lessor, or the appointment of a receiver and the entry of such receiver onto all or any part of the Properties), be deemed a "mortgagee in possession," and the Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies.

If requested by the Lessor in connection with the exercise of its remedies pursuant to this Section 16.2, the Lessee hereby agrees to enter into an operating agreement with respect to the

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Properties in connection therewith to serve as the operator of the Properties on market terms established in good faith and reasonably acceptable to the Lessor.

Section 16.3. Waiver of Certain Rights. (a) To the maximum extent permitted by law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of any Property or any interest therein, (b) if this Master Lease shall be terminated pursuant to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (i) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (ii) any right of redemption, re-entry or repossession;
(iii) 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 (iv) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this Article XVI.

Section 16.4. Deed of Trust Remedies. Without limiting any other remedies set forth in this Master Lease, and also, without limiting the generality of Article XXV hereof, the Lessor may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder or under the Lease Supplements, or (to the extent permitted by law) for the sale of each Property, pursuant to a power of sale, or against the Lessee on a recourse basis for the Lease Balance, or for the specific performance of any covenant or agreement contained herein or in aid of the execution of any power granted herein, or for the appointment of a receiver pending any foreclosure hereunder (or under the Lease Supplements) or the sale of any Property, or for the enforcement of any other appropriate legal or equitable remedy. The Lessor shall have all rights available to a beneficiary under a deed of trust or a secured party under the laws of the state where the relevant Property is located, including, without limitation, all rights granted under the specific statutes referenced in each Lease Supplement, if any (each such statute, as amended, is hereinafter referred to as a "Mortgage Foreclosure Act"). In the event that any provisions of this Master Lease shall be inconsistent with any Mortgage Foreclosure Act, the provisions of such Mortgage Foreclosure Act shall take precedence over such provision of this Master Lease, but shall not invalidate or render unenforceable any other provision of this Master Lease that can be construed in a manner consistent with such Mortgage Foreclosure Act. If any provision of this Master Lease shall grant the Lessor any rights or remedies upon default of the Lessee which are more limited than the rights that would otherwise be vested in the Lessor under such Mortgage Foreclosure Act in the absence of such provision, the Lessor shall be vested with the rights granted in such Mortgage Foreclosure Act to the full extent permitted by law. The Lessee agrees that the agreements of the Lessee herein contained shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purpose of any suit brought under this subparagraph, the Lessee hereby waives, to the fullest extent permitted by law, the defense of laches and any applicable statute of limitations. In the event of foreclosure, the Lessee authorizes and empowers the Lessor to effect insurance upon the Properties in amounts aforesaid for a period covering the time of redemption from foreclosure sale provided by law, and if necessary therefor, to cancel any or all existing insurance policies required to be maintained under this Master Lease.

Section 16.5. Excess Proceeds; Return of Properties. If, pursuant to the exercise by the Lessor of its remedies pursuant to Section 16.2 or 16.4, the Lessor shall have received an amount

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Lam Research Corporation Amended and Restated Master Lease

equal to the Lease Balance, then the Lessor shall promptly remit to the Lessee any excess amounts received by the Lessor and, at the sole cost and expense of the Lessee, transfer to the Lessee (or its designee) all of the Lessor's remaining right, title and interest (if any) in the Properties in accordance with Section 21.1.

ARTICLE XVII

LESSOR'S RIGHT TO CURE

Section 17.1. 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 Event of Default 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 XIII, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon any 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 reasonable 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 as Supplemental Rent.

ARTICLE XVIII

PURCHASE PROVISIONS

Section 18.1. Purchase of Properties. Subject to the conditions contained herein, and without limitation of the Lessee's purchase obligation pursuant to Section 18.2 or 18.3, the Lessee shall have the irrevocable option on any Scheduled Payment Date during the Lease Term to purchase all, but not less than all, of the Properties subject to this Master Lease (the "Purchase Option") at a price equal to the aggregate Lease Balance on the date of such purchase (the "Purchase Option Price"). The Lessee's exercise of its option pursuant to this Section 18.1 shall be subject to the following conditions:

(i) the Lessee shall have delivered a Purchase Notice to the Lessor and the Administrative Agent not less than thirty (30) days prior to such purchase, specifying the date of such purchase; and

(ii) the Lessee shall not have delivered (or, if delivered, shall not have failed to rescind) a written notice of the Lessee's exercise of the Remarketing Option pursuant to Section 20.1(a).

If the Lessee exercises its option pursuant to this Section 18.1 then, upon the Administrative Agent's receipt of all amounts due in connection therewith, the Lessor shall transfer to the Lessee or its designees all of the Lessor's right, title and interest in and to the Properties in accordance with the procedures set forth in Section 21.1(a), such transfer to be

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Lam Research Corporation Amended and Restated Master Lease

effective as of the date specified in the Purchase Notice. The Lessee may designate, in a notice given to the Lessor and the Administrative Agent 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 Master Lease, including, without limitation, the obligation to pay to the Lessor the Lease Balance on the date specified in the Purchase Notice.

Section 18.2. Expiration Date Purchase Obligation. Unless (a) the Lessee shall have properly exercised its option pursuant to Section 18.1 and purchased all of the Properties pursuant thereto, or (b) the Lessee shall have properly exercised the Remarketing Option and shall have fulfilled all of the requirements of Article XX, then, subject to the terms, conditions and provisions set forth in this Article, and in accordance with the terms of
Section 21.1(a), the Lessee (or its designee) shall purchase from the Lessor, and the Lessor shall convey to the Lessee (or its designee), on the Expiration Date all of the interest of the Lessor in all of the Properties for an amount equal to the Lease Balance. The Lessee may designate, in a notice given to the Lessor and the Administrative Agent 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 Master Lease, including, without limitation, the obligation to pay the Lessor the Lease Balance on such Expiration Date.

Section 18.3. Acceleration of Purchase Obligation. The Lessee shall be obligated to purchase for an amount equal to the Lease Balance all of the interest of the Lessor in all of the Properties (notwithstanding any prior election to exercise its Purchase Option pursuant to Section 18.1) automatically and without notice upon the occurrence of any Lease Event of Default described in clause (i) of Section 16.1. Any purchase under this Section 18.3 shall be in accordance with the procedures set forth in Section 21.1(a).

Section 18.4. Failure to Elect Options. IN THE EVENT THE LESSEE FAILS TO ELECT AN OPTION WITH RESPECT TO A PROPERTY UNDER SECTION 18.1 OR 20.1 AT LEAST 180 DAYS PRIOR TO THE END OF THE LEASE TERM THEN IN EFFECT, THE LESSEE WILL BE DEEMED TO HAVE ELECTED TO PURCHASE SUCH PROPERTY PURSUANT TO SECTION 18.2.

ARTICLE XIX

[INTENTIONALLY OMITTED]

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Lam Research Corporation Amended and Restated Master Lease

ARTICLE XX

REMARKETING OPTION

Section 20.1. Option to Remarket. Subject to the fulfillment of each of the conditions set forth in this Section 20.1 and Section 20.2 (collectively, the "Return Conditions"), the Lessee shall have the option (the "Remarketing Option") to remarket and complete the sale of all, but not less than all, of the Properties for the Lessor.

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 and the provisions of Section 20.2 as of the dates set forth below:

(a) On the date not later than one hundred eighty (180) days prior to the Expiration Date, the Lessee shall give to the Lessor and the Administrative Agent written notice of the Lessee's exercise of the Remarketing Option.

(b) Not later than one hundred and twenty (120) days prior to the Expiration Date, the Lessee shall deliver to the Lessor an Environmental Audit for each Property. Each Environmental Audit shall be prepared by an environmental consultant selected by the Lessor in the Lessor's discretion and shall contain conclusions satisfactory to the Lessor as to the environmental status of such Property. If any such Environmental Audit indicates any exceptions calling for a Phase Two environmental assessment, the Lessee shall have also delivered prior to the Expiration Date a Phase Two environmental assessment by such environmental consultant and a written statement by such environmental consultant indicating that all such exceptions have been remedied 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, no Lease Event of Default or Lease Default shall exist, and, thereafter, no Lease Event of Default or Lease Default shall occur.

(d) The Lessee shall have completed all Modifications, restoration and rebuilding of each Property pursuant to Sections 10.1 and 14.2 (as the case may be) and shall have fulfilled all of the conditions and requirements in connection therewith pursuant to such Sections, in each case prior to the date on which the Lessor receives the Lessee's notice of the Lessee's intention to exercise the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. Lessee shall have also paid the cost of all Modifications commenced prior to the Expiration Date. Lessee shall not have been excused pursuant to Section 12.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the Expiration Date. Any Permitted Property Liens (other than Lessor Liens) on each Property that were contested by Lessee shall have been removed and the Lessor shall have received evidence satisfactory to it that all Liens (other than Lessor Liens and uncontested Permitted Property Liens of the type described in clauses (i), (vii), (ix) and (x) of the definition thereof) have been removed.

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Section 20.2. Procedures During Remarketing. (a) During the Marketing Period, the Lessee shall, as nonexclusive agent for the Lessor, use its best efforts to sell the interest of the Lessor in each Property for which the Remarketing Option has been exercised 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 brokers (if the Lessee so elects) and making each Property available for inspection by prospective purchasers. Lessee shall promptly upon request permit inspection of each Property and any maintenance records relating to each Property by the Lessor, any Participant and any potential purchasers, and the Lessee shall otherwise do all things necessary to sell and deliver possession of each Property to any purchaser. All such marketing of the Properties shall be at the Lessee's sole expense.

(b) The Lessee shall use best efforts to procure written bids from one or more bona fide prospective purchasers. No such purchaser shall be the Lessee or any Affiliate thereof. Each written offer must specify the Expiration Date as the closing date. 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.

(c) The Lessee shall submit all bids to the Lessor promptly upon receipt, and the Lessor will have the right to submit any one or more bids. Any sale by the Lessee shall be for the highest cash bid submitted to the Lessor. The Lessor shall determine the highest bid prior to the end of the Marketing Period, but in any event, the Lessor shall have no obligation to approve any bid for any Property unless the highest bid for such Property equals or exceeds the Property Cost for such Property plus all Permitted Sales Costs therefor. All bids shall be on an all-cash basis.

(d) In connection with any such sale of any Property, the Lessee will provide to the purchaser all customary "seller's" indemnities (including, without limitation, an environmental indemnity to the extent the same are required by the purchaser) and representations and warranties regarding title, absence of Liens (other than Permitted Property Liens of the type described in clause (i), (vii), (viii) or (x) of the definition thereof) and the condition of such Property. 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 such Property. 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 attributable to the Lessor.

(e) Subject to the reimbursement obligations set forth in clause
(h) below, the Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of each 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 attorneys' fees of the Lessor, the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes.

(f) The Lessee shall pay to the Administrative Agent on or prior to the Expiration Date (or in the case of Supplemental Rent, to the Person entitled thereto) an amount equal to the Maximum Recourse Amount for each Property plus all accrued and unpaid Rent (including Supplemental Rent, if any) for each Property and all other amounts hereunder which have

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Lam Research Corporation Amended and Restated Master Lease

accrued or will accrue prior to or as of the Expiration Date with respect to each Property, in the type of funds specified in Section 3.4 hereof.

(g) The Lessee shall pay to the Administrative Agent on or prior to the Expiration Date the amounts, if any, required to be paid pursuant to
Section 13.2 of the Participation Agreement.

(h) The sale of each Property shall be consummated on the Expiration Date and the gross proceeds (the "Gross Remarketing Proceeds") of the sale of each Property (less any marketing, closing or other costs, prorations or commissions incurred by the Lessor) shall be paid directly to the Administrative Agent. If the sale of any Property is consummated during the Marketing Period, then, upon the Administrative Agent's timely receipt of the Gross Remarketing Proceeds thereof and all other amounts due to the Administrative Agent, the Lessor and the Participants under this Master Lease and the other Operative Documents (including all amounts due pursuant to clause (f) above and Article XIII of the Participation Agreement), the Administrative Agent shall apply such Gross Remarketing Proceeds, first, to the payment of Permitted Sales Costs, and second, as set forth in Section 7.4 of the Participation Agreement. If the Gross Remarketing Proceeds from such sale (if any) of a Property exceeds the sum of
(i) the aggregate Property Balance for such Property being sold as of such date minus the Maximum Recourse Amount, and other amounts paid to Administrative Agent pursuant to clause (f) above for such Property plus (ii) all Permitted Sales Costs with respect to such Property, then the excess shall be paid to the Lessee on the Expiration Date.

(i) Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Lessor or any Participant in connection with any proposed sale of any Property.

(j) During the Marketing Period, the obligation of the Lessee to pay Rent (including the installment of Rent due on the Expiration Date) shall continue undiminished until payment in full of the Lease Balance and all other amounts due to the Participants under the Operative Documents to which the Lessee is a party.

Section 20.3. Remedies for Failed Remarketing. If the Lessee effectively elects the Remarketing Option with respect to any Property and each of the conditions and requirements in Sections 20.1 and 20.2 shall have been satisfied, but nevertheless the Lessee is unable to obtain bids satisfactory to the Lessor, and the sale of a Property is not consummated prior to the end of the Marketing Period, the Lessor shall by written notice to the Lessee choose one or both of the following remedies (which election may be changed at any time):

(a) Continue Remarketing Efforts. At the request of the Lessor, the Lessee shall continue to market such Property on behalf of the Lessor for up to an additional six (6) months and at the sole cost and expense of the Lessee (subject to Section 20.2(h) above), and during such extended marketing period continue to comply with the requirements of Articles IX, X, XI, XIII, XIV and XX at the Lessee's sole cost and expense. The Lessor shall by written notice to the Lessee indicate the duration of such extended marketing period (the last day of such period, the "Extended Expiration Date"), and the Lessor shall have the option to accelerate or shorten such Extended Expiration

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Lam Research Corporation Amended and Restated Master Lease

Date at any time. If such Property shall not have been sold prior to the Extended Expiration Date, the Lessor can then elect the remedies available under Section 20.3(b) hereof with respect to such unsold Property.

(b) Return. Demand that such unsold Property be returned to the Lessor, whereupon the Lessee shall do each of the following at its own cost and expense:

(i) pay the Maximum Recourse Amount, execute and deliver to the Lessor and the Lessor's title insurance company an affidavit as to the absence of any Liens (other than Permitted Property Liens of the type described in clause (i),
(vii), (viii) or (x) of the definition thereof), and execute and deliver to the Lessor a statement of termination of this Master Lease to the extent relating to such Property;

(ii) transfer possession of such Property to the Lessor or any Person designated by the Lessor, by surrendering the same into the possession of the Lessor or such Person, as the case may be, in the condition required by this Master Lease and in compliance with Applicable Law; and

(iii) cooperate fully with the Lessor and/or any Person designated by the Lessor to receive such Property, which cooperation shall include: if requested by the Lessor, subject to the good faith mutual agreement of the Lessor and the Lessee, the entering into a property management agreement with respect to such Property and in connection therewith serving as the property manager of the such Property on market terms established in good faith and reasonably acceptable to the Lessor, providing copies of all books and records regarding the maintenance and ownership of such Property and all non-proprietary data and technical information relating thereto, providing a current copy of the applicable Plans and Specifications, to the extent permitted by Requirements of Law, granting or assigning all assignable licenses necessary for the operation and maintenance of such Property and the seeking and obtaining of all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease.

Section 20.4. No Sale of Property. If the Lessee effectively elects the Remarketing Option with respect to the Properties and each of the conditions and requirements in Sections 20.1 and 20.2 shall have been satisfied, but nevertheless the Lessee is unable to obtain a bid at least equal to the Property Balance during the Remarketing Period or any extension thereof pursuant to
Section 20.3(a) and the Properties are not sold (due either to the Lessor's rejection of any bids or the failure to obtain any bids), there shall not be deemed to be a Lease Event of Default by virtue of such failure to sell the Properties and the Lessee shall only be obligated to make the payments referred to in Sections 20.2(e), (f) and (g) hereof.

Section 20.5. Return of Excess Amounts. If, in connection with an effective election of the Remarketing, the Lessee pays the Maximum Recourse Amount and relinquishes its interest in the Properties, in accordance with the provisions hereof and of the other Operative Documents,

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Lam Research Corporation Amended and Restated Master Lease

as applicable, and, at any time thereafter, the Administrative Agent shall have received as of any date of determination (whether through the Lessee's payment of such Maximum Recourse Amount, as the case may be, or through the sale or reletting of the Properties to a third party) an amount exceeding the sum of the following: (i) the Property Balance of each Property on the date of such determination, (ii) if such date of determination occurs after the Expiration Date, an Imputed Return on each Participant's outstanding Loans or Lessor Amounts made with respect to each Property, during the period from the Expiration Date to such date of determination, (iii) all costs and expenses (including, without limitation, legal costs and attorneys' fees) of each of the Participants and the Administrative Agent incurred in connection with each Property (including, without limitation, all costs and expenses incurred in connection with any reletting or sale of each Property or any portion thereof) and (iv) all other amounts owing to each of the Participants and the Administrative Agent under the Operative Documents, to the extent relating to each Property or allocable to each Property, then the Administrative Agent (or, as the case may be, the Lessor) shall pay such excess over to the Lessee.

ARTICLE XXI

PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS

Section 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance upon Remarketing; Conveyance upon Certain Other Events. (a) In connection with any termination of this Master Lease with respect to any Property pursuant to the terms of Article XV, in connection with the Lessee's purchase of each Property in accordance with Section 18.1 or 18.2 hereof, in connection with the Lessee's Expiration Date Purchase Obligation or obligations under Section 16.2(f) or 18.3 or in connection with the Lessor's receipt of an aggregate amount equal to all amounts set forth in Section 16.5 as set forth in such Section or in connection with any sale pursuant to the Remarketing Option in accordance with Article XX, then, upon the date on which this Master Lease is to terminate and upon tender by the Lessee of the amounts set forth in Article XV, Sections 16.2(f), 16.5, 18.1, 18.2 or 18.3 hereof, as applicable:

(i) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense: (x) a quitclaim deed with respect to the relevant Property containing representations and warranties of grantor regarding the absence of Lessor Liens attributable to the Lessor (but no other representations or warranties), (y) a bill of sale with respect to the interest of the Lessor in any items of personalty or Equipment on such Property, containing representations and warranties of grantor regarding the absence of Lessor Liens attributable to the Lessor (but no other representations or warranties), and (z) an assignment of the entire interest of the Lessor in such Property (which shall include an assignment of all of the right, title and interest of the Lessor in and to any Excess Casualty/Condemnation Proceeds), in each case in recordable form and otherwise in conformity with local custom to the extent consistent with the foregoing scope of the Lessor's representations and warranties and free and clear of the Lien of the Lessor Mortgage, the Mortgage and any Lessor Liens attributable to the Lessor;

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Lam Research Corporation Amended and Restated Master Lease

(ii) such Property shall be conveyed to the Lessee (or to the Lessee's designee) "AS IS" and in its then present physical condition;

(iii) Lessor shall convey to the Lessee any Excess Casualty/Condemnation Proceeds with respect to such Property; and

(iv) the Lessor shall execute and deliver to the Lessee (or its designee) and the Lessee's title insurance company an affidavit as to the Lessor's title and Lessor Liens attributable to the Lessor and shall execute and deliver to the Lessee a statement of termination of this Master Lease with respect to such Property and termination of the Lease Supplement (if applicable) covering such Property.

(b) If the Lessee properly exercises the Remarketing Option with respect to a Property pursuant to Article XX and a satisfactory purchaser is located, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of such Property to the independent purchaser thereof (unless otherwise agreed to by such purchaser and Lessee), by surrendering the same into the possession of such purchaser, free and clear of all Liens other than Permitted Property Liens of the type described in clause (i), (vii), (viii) or (x) of the definition thereof, in good condition (as modified by Modifications permitted by this Master Lease), ordinary wear and tear excepted, and in compliance with Applicable Law. The Lessee shall cooperate with the Lessor and the independent purchaser(s) of such Property in order to facilitate the purchase by such purchaser of such Property, which cooperation shall include, among other things, the following, all of which the Lessee shall do (or cause to be done) on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing copies of all books and records regarding the maintenance and ownership of such Property and all non-proprietary data and technical information relating thereto; providing a current copy of the Plans and Specifications for such Property; to the extent permitted by any Requirement of Law, granting or assigning all assignable licenses necessary for the operation and maintenance of such Property; and seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease. The Lessor agrees to cooperate and execute such documents as are necessary to facilitate the foregoing.

ARTICLE XXII

ESTOPPEL CERTIFICATES

Section 22.1. Estoppel Certificates. At any time and from time to time upon not less than twenty (20) Business 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 a certificate signed by an individual having the office of vice president, director or higher certifying that this Master Lease is in full force and effect (or that this Master 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

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Lam Research Corporation Amended and Restated Master Lease

obligations hereunder and, if so, the nature of such alleged default; and such other matters under this Master Lease as the Requesting Party may reasonably request.

Any such certificate furnished pursuant to this Article XXII 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 XXIII

ACCEPTANCE OF SURRENDER

Section 23.1. Acceptance of Surrender. No surrender to the Lessor of this Master Lease or of all or any of the Properties 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 under the Loan Agreement and termination of the Commitments, the Administrative Agent, and no act by the Lessor or any Lender or any representative or agent of the Lessor or any Lender other than a written acceptance, shall constitute an acceptance of any such surrender.

ARTICLE XXIV

NO MERGER OF TITLE

Section 24.1. No Merger of Title. There shall be no merger of this Master 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 Master Lease or the leasehold estate created hereby or any interest in this Master Lease or such leasehold estate, (b) the fee estate in any Property, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in the Lessor.

ARTICLE XXV

INTENT OF THE PARTIES

Section 25.1. Ownership of the Properties. (a) The parties hereto intend that (i) for Lessee's United States' financial accounting purposes, the Lessor will be treated as the owner and lessor of an undivided interest in each Property and the Lessee will be treated as the lessee of each Property leased by it hereunder and (ii) for federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which loans are secured by the Properties and (C) the Lessee will be treated as the owner of each Property and will be entitled to all tax benefits ordinarily available to an owner of properties similar to the Properties for such tax purposes.

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Lam Research Corporation Amended and Restated Master Lease

Nevertheless, the Lessee acknowledges and agrees that none of the Administrative Agent, the Lessor, the Arranger or any Lender has made any representations or warranties to the Lessee concerning the tax, Lessee's 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. The parties hereto shall not take any position inconsistent with the intentions expressed herein.

(b) It is the intent of the parties hereto that this Master Lease grants a security interest and mortgage or deed of trust, as the case may be, on each Property to the Lessor or for the benefit of the Lessor and the other Participants to secure the performance of the Lessee under and payment of all amounts under the Lease and the other Operative Documents all as more specifically set forth in Section 5 of each Lease Supplement.

ARTICLE XXVI

MISCELLANEOUS

Section 26.1. Severability; Perpetuities; Etc. If any term or provision of this Master Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Master Lease (or any Lease Supplement) 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 Master Lease, including any right or option described in Article XIV, XV, XVIII or XX, 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 Master Lease.

Section 26.2. Amendments and Modifications. Subject to the requirements, restrictions and conditions set forth in the Participation Agreement, neither this Master Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing in recordable form signed by the parties hereto.

Section 26.3. No Waiver. No failure by the Lessor, the Administrative Agent, any Participant, 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 Master Lease, and this Master Lease shall continue in full force and effect with respect to any other then existing or subsequent default.

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Lam Research Corporation Amended and Restated Master Lease

Section 26.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 15.3 of the Participation Agreement.

Section 26.5. Successors and Assigns. All the terms and provisions of this Master Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

Section 26.6. Headings and Table of Contents. The headings and table of contents in this Master Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

Section 26.7. Counterparts. This Master 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.

SECTION 26.8. GOVERNING LAW. THIS MASTER LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TITLE 14 OF ARTICLE 5 OF THE NEW YORK GENERAL OBLIGATIONS LAW (EXCEPT AS OTHERWISE SET FORTH IN THE LEASE SUPPLEMENT WITH RESPECT TO THE CREATION AND PERFECTION OF THE LIENS AND SECURITY INTERESTS IN EACH PROPERTY AND THE RIGHTS AND REMEDIES OF THE LESSOR AND THE PARTICIPANTS WITH RESPECT TO EACH PROPERTY).

Section 26.9. Original Lease. The single executed original of this Master Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt thereof of KEY CORPORATE CAPITAL INC., as Administrative Agent for the Lenders therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Master Lease (the "Original Executed Counterpart"). To the extent that this Master 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 Master Lease may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart.

Section 26.10. Time of Essence. With respect to each of the Lessee's obligations and the Lessor's obligations hereunder, time is of the essence, and each such party hereby acknowledges and confirms the foregoing.

Section 26.11. Liability Limited. The obligations of the Lessor hereunder are subject to the limitations set forth in Section 15.10 of the Participation Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this Master Lease to be duly executed and delivered as of the date first above written.

LAM RESEARCH CORPORATION, as Lessee


By /s/ Craig Garber
   --------------------------------------------
   Name Craig Garber
   Its Treasurer and Vice President


SELCO SERVICE CORPORATION, an Ohio
corporation, doing business in California as
"Ohio SELCO Service Corporation", as
Lessor


By /s/ Donald C. Davis
   --------------------------------------------
   Donald C. Davis
   Its Vice President


S-1


EXHIBIT A
TO MASTER LEASE
(CALIFORNIA LEASE SUPPLEMENT)

THIS INSTRUMENT PREPARED BY,
RECORDING REQUESTED BY AND
AFTER RECORDING RETURN TO:

Sean T. Maloney
SCHIFF HARDIN & WAITE
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606

SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE ONLY

NOTICE: THIS INSTRUMENT SECURES FUTURE ADVANCES UNDER A CREDIT FACILITY IN THE AGGREGATE AMOUNT OF $______, THE PRIORITY OF WHICH DATE TO THE RECORDING DATE HEREOF.

NOTICE: THE OBLIGATION THE PERFORMANCE OF WHICH IS SECURED BY THIS DEED OF

TRUST PROVIDES FOR A VARIABLE INTEREST RATE.

LEASE SUPPLEMENT NO. ____
(Memorandum of Lease Supplement,
Memorandum of Amended and Restated Master Lease and Deed of Trust Fixture Filing and Memorandum of Option to Purchase)

THIS LEASE SUPPLEMENT NO. _______ (Memorandum of Lease Supplement, Memorandum of Master Lease and Mortgage, Fixture Filing and Memorandum of Option to Purchase) (this "Lease Supplement") dated March 25, 2003, between LAM RESEARCH CORPORATION, a Delaware corporation, having its principal office at 4300 Cushing Parkway, Fremont, California 94538 Attention: Craig Garber, as the Lessee, and SELCO SERVICE CORPORATION, an Ohio corporation, doing business in California as "OHIO SELCO SERVICE CORPORATION", as Lessor (the "Lessor"), and whose principal offices are located at c/o KeyCorp Leasing, 66 South Pearl Street, Albany, New York, 12207 and CHICAGO TITLE COMPANY, a California corporation, as trustee (`Trustee"), having its principal office at 110 West Taylor Street, San Jose, California 95110, for the benefit of Lessor and the Lenders ("Beneficiary").

The Amended and Restated Master Lease and Deed of Trust which this Lease Supplement supplements and of which this Lease Supplement is a memorandum, amends, restates, supercedes and replaces the unrecorded lease with a lease balance of $______________, disclosed by the following recorded documents: (1) Lease Supplement No. 1 (and Memorandum of Lease) between IBJTC Leasing Corporation - BSC, a New York corporation ("IBJTC") and Lessee and recorded in the Official Records of Alameda County, California ("Official Records") on March 29, 1996 as Series No. 96078943, as amended by that certain Amendment to Lease Supplement No. 1 (and Memorandum of Lease), recorded in


the Official Records on March 30, 1998 as Series No. 98105908 and (2) Lease Supplement No. 2 (and Memorandum of Lease) between IBJTC and Lessee and recorded in the Official Records on March 29, 1996 as Series No. 96078944.

ATTENTION OF RECORDING OFFICERS: Certain of the Property is or will become "fixtures" (as that term is defined in the California Uniform Commercial Code) on the real estate described in Schedule I attached hereto and this instrument, upon being filed for record in the real estate records, shall operate also as a financing statement upon such of the Property which is or may become fixtures. The Lessee has an interest of record in the Property. This instrument is to be recorded in, among other places, the real estate records of the county in which such property is located.

W I T N E S S E T H:

WHEREAS, the Lessor is the record owner of the land described on Schedule I attached hereto (the "Subject Land") together with all Improvements which hereafter may be constructed on the Subject Land (the "Subject Improvements" and, together with the Subject Land, the "Subject Property");

WHEREAS, the Lessor desires to lease the Subject Property to the Lessee and the Lessee wishes to lease the Subject Property from the Lessor;

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to enter into this Lease Supplement, as follows:

1. Certain Terms. Capitalized terms used but not otherwise defined in this Lease Supplement have the meanings specified in Appendix A to the Participation Agreement dated as of March 25, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Participation Agreement"), and the rules of interpretation specified in Appendix A to the Participation Agreement shall apply to this Lease Supplement.

2. Nature of Transaction. (a) The parties intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the owner and lessor of the respective Properties and the Lessee will be treated as the lessee of such Properties and (ii) for federal, state and local income tax purposes, state real estate and commercial law purposes and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which loans are secured by such Properties and
(C) the Lessee will be treated as the owner of such Properties and will be entitled to all tax benefits ordinarily available to an owner of properties like such Properties for such tax purposes.

(b) It is the intent of the parties hereto that this Lease Supplement grants a security interest and deed of trust, as the case may be, on the Subject Property to the Trustee for the

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benefit of the Lessor and the Lenders to secure the Lessee's performance under and payment of all amounts under the Lease and the other Operative Documents (the "Subject Obligations").

3. Subject Property; Memorandum of Lease. Attached hereto as Schedule I is the description of the Subject Land. Effective upon the execution and delivery of this Lease Supplement by the Lessor and the Lessee, the Subject Property shall be subject to the terms and provisions of the Master Lease. The Master Lease is incorporated by reference herein as if set forth herein in its entirety. Subject to the terms and conditions of the Master Lease, the Lessor hereby leases the Subject Property to the Lessee for the Lease Term (as defined below) of this Lease Supplement, and the Lessee hereby agrees with the Lessor to lease the Subject Property from the Lessor for the Lease Term. The Master Lease is dated as of March 25, 2003 and is by and between the Lessor and the Lessee.

4. Lease Term; Option to Purchase. The term of this Lease Supplement (the "Lease Term") shall begin on the date hereof and shall end on March 24, 2008 (the "Expiration Date"). For and in consideration of good and valuable consideration paid by the Lessee to the Lessor as described in the Master Lease, the Lessor hereby grants to the Lessee the right to purchase the Subject Property during the Lease Term of this Lease Supplement on the terms and subject to the conditions (including, without limitation, payment of the Property Balance thereof) set forth in Section 18.1 of the Master Lease.

5. Liens and Security Interests. (a) Specifically, without limiting the generality of Section 2, the Lessor and the Lessee intend and agree that in the event 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, any Participant or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lenders and the Lessor as unrelated third party lenders to the Lessee secured by respective Properties (it being understood that the Lessee hereby deeds, warrants and grants a security interest in the Subject Property (consisting of a fee deed of trust with respect to the Subject Property) WITH POWER OF SALE to the Trustee for the benefit of the Lessor and the Lenders to secure all Lessor Amounts and Loans advanced by the Participants for the acquisition of the respective Properties together with Yield or interest, as applicable, thereon, and all other amounts payable under the Operative Documents in connection therewith, effective on the date hereof).

(b) Specifically, but without limiting the generality of Section 2, the Lessor and the Lessee further intend and agree that, for the purpose of securing the obligation of the Lessee for the repayment of the above-described loans from the Lessor and the Lenders to the Lessee, (i) the Master Lease and Lease Supplements shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the California Uniform Commercial Code and a real property deed of trust; (ii) the conveyance provided for hereby and in Article II of the Master Lease shall be deemed to be a grant by the Lessee to the Beneficiary of a deed of trust lien and security interest in all of the right, title and interest of the Lessee in and to the Subject Property and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property (it being understood that the Lessee hereby

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deeds and warrants and grants a security interest in the Subject Property and all proceeds thereof to the Lessor to secure all Loans and Lessor Amounts advanced by the Participants for the acquisition of such Properties (the principal amount of which shall not exceed in the aggregate $_____ outstanding at any given time), together with Yield or interest thereon, and all other amounts payable under the Operative Documents in connection therewith) and (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, goods or tangible chattel paper shall be deemed to be "perfection by possession" for purposes of perfecting the security interest pursuant to Section 9-313 of the California Uniform Commercial Code and the Lessor hereby acknowledges that it holds possession of such instruments, money, negotiable documents, goods or tangible chattel paper for the benefit of the Lessor and the Lenders pursuant to 9-313(c) of the California 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 all Applicable Laws. The Lessor and the Lessee shall, to the extent consistent with the Master Lease and Lease Supplements, take such actions and execute, deliver, file and record such other documents, financing statements and deeds of trust as may be necessary to ensure that, if the Lease was deemed to create a security interest in the Subject Property in accordance with this Section, such security interest would be deemed to be a perfected security interest (subject only to Permitted Property Liens) and will be maintained as such throughout the Lease Term.

(c) Specifically, but without limiting the foregoing or the generality of Section 2, the Lessee hereby grants to the Trustee, IN TRUST, WITH POWER OF SALE, for the benefit of Beneficiary, all of Lessee's right, title, and interest in and to the following (collectively, the "Mortgaged Property"): (i) the Subject Property and Appurtenant Rights relating thereto and all proceeds, both cash and noncash, thereof; (ii) all easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights, including without limitation the stock in any water company providing water for irrigation of the Subject Property, minerals, flowers, shrubs, crops, trees, timber and other emblements now or hereafter located on the Subject Land or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, tenements, hereditaments and appurtenances, reversions and remainders whatsoever, in any way belonging, relating or appertaining to the Subject Property or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by the Lessee from any source; (iii) if and to the extent acquired by the Lessee with the proceeds of Advances (and transferred to Lessor by IBJTC), all right, title and interest of the Lessee in all furnishings, furniture, fixtures, machinery, apparatus, Equipment, fittings, appliances, building supplies and materials, vehicles (excluding the Lessee's personal automobiles), chattels, goods, consumer goods, farm products, warranties, chattel paper, documents, accounts, general intangibles, and goodwill related thereto, and all other articles of personal property of every kind and nature whatsoever, tangible or intangible, now heretofore or hereafter acquired and now, heretofore or hereafter (A) arising out of or related to the ownership of the Subject Property, or (B) located in, on or about the Subject Property, or (C) used or intended to be used with or in connection with the construction, use, operation or enjoyment of the Subject Property; (iv) all right, title and interest of the Lessee in any and all leases, rental agreements and arrangements of any sort

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now or hereafter affecting the Subject Property or any portion thereof and providing for or resulting in the payment of money to the Lessee for the use of the Subject Property or any portion thereof, whether the user enjoys the Subject Property or any portion thereof as tenant for years, licensee, tenant at sufferance or otherwise, and irrespective of whether such leases, rental agreements and arrangements be oral or written, and including any and all extensions, renewals and modifications thereof (the "Subject Leases") and guaranties of the performance or obligations of any tenants or lessees thereunder, together with all income, rents, issues, profits and revenues from the Subject Leases (including all tenant security deposits and all other tenant deposits, whether held by the Lessee or in a trust account, and all other deposits and escrow funds relating to any Subject Leases), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of the Lessee of, in and to the same; provided, however, that the Lessee shall have a revocable license to collect and apply such rental payments and revenues as provided in the Master Lease and the other Operative Documents; (v) to the extent transferable under any Requirement of Law, all right, title and interest of the Lessee in, to and under all management contracts, service contracts, utility contracts, leases of equipment, documents and agreements relating to the construction of any Improvements (including any and all construction contracts, architectural contracts, engineering contracts, designs, plans, specifications, drawings, surveys, tests, reports, bonds and governmental approvals) and all other contracts, licenses and permits now or hereafter affecting the Subject Property or any part thereof and all guaranties and warranties with respect to any of the foregoing (the "Subject Contracts");
(vi) all right, title and interest of the Lessee in any insurance policies or binders required to be maintained by the Lessee pursuant to the terms of the Master Lease or now or hereafter relating to the Subject Property, including any unearned premiums thereon, as further provided in the Master Lease; (vii) all right, title and interest of the Lessee in any and all awards, payments, proceeds and the right to receive the same, either before or after any foreclosure hereunder, as a result of any temporary or permanent injury or damage to, taking of or decrease in the value of the Subject Property by reason of casualty, condemnation or otherwise as further provided in the Master Lease;
(viii) all claims and causes of action arising from or otherwise related to any of the foregoing, and all rights and judgments related to any legal actions in connection with such claims or causes of action; and (ix) all Modifications, extensions, additions, improvements, betterments, renewals and replacements, substitutions, or proceeds of any of the foregoing; all of which foregoing items are hereby declared and shall be deemed to be a portion of the security for the indebtedness and Subject Obligations herein described, a portion of the above described collateral being located upon the Subject Land; provided however that, without limiting the foregoing, the Mortgaged Property shall not include any inventory of the Lessee.

6. Remedies. Without limiting any other remedies set forth herein, in the event that a court of competent jurisdiction rules that each of the Master Lease and this Lease Supplement constitutes a deed of trust or other secured financing with respect to the Subject Property as is the intent of the parties pursuant to Article XXV of the Master Lease, then the Lessor and the Lessee agree that upon a Lessee Event of Default, Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for the sale and of written notice of default and of election to cause to be sold the Subject Property which notice Trustee shall cause to be filed for record to the extent required

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by law. Beneficiary also shall deposit with Trustee the Lease Supplement and all documents evidencing the Lease Balance and expenditures secured hereby.

After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Lessee, shall sell the Mortgaged Property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Lessee, Trustee, or Beneficiary as hereinafter defined, may purchase at such sale. Lessee shall have all rights available to a Trustor under the laws of the jurisdiction in which the Mortgaged Property is located except to the extent waived in the Operative Documents. Lessee agrees that the agreements of Lessee herein contained shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purpose of any suit brought under this subparagraph, Lessee hereby waives the defense of laches and any applicable statute of limitations.

After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply to proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. In the event of foreclosure, Lessee authorizes and empowers Trustee or Beneficiary to effect insurance upon the Subject Property in amounts aforesaid for a period covering the time of redemption from foreclosure sale provided by law, and if necessary therefor, to cancel any or all existing insurance policies. In connection with any sale or sales hereunder, Beneficiary may elect to treat to the fullest extent permitted by law any of the Mortgaged Property which consists of a right in action or which is property that can be severed from the real property covered hereby or any improvements thereon without causing structural damage thereto as if the same were personal property, and dispose of the same in accordance with applicable law, separate and apart from the sale of real property. Any sale of any personal property hereunder shall be conducted in any manner permitted by
Section 9604 or any other applicable section of the California Commercial Code. Where the Mortgaged Property consists of real and personal property or fixtures whether or not such personal property is located on or within the real property, Beneficiary may elect in its discretion to exercise its rights and remedies against any or all of the real property, personal property, and fixtures in such order and manner as is now or hereafter permitted by applicable law. Without limiting the generality of the foregoing, Beneficiary may, in its sole and absolute discretion and without regard to the adequacy of its security, elect to proceed against any or all of the real property, personal property and fixtures in any manner permitted under Section 9604(a)(1) of the California Commercial Code; and if Beneficiary elects to proceed in the manner permitted under Section 9604(a)(1)(B) of the

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California Commercial Code, the power of sale herein granted shall be exercisable with respect to all or any of the real property, personal property and fixtures covered hereby, as designated by Beneficiary, and the Trustee is hereby authorized and empowered to conduct any such sale of any real property, personal property and fixtures in accordance with the procedures applicable to real property. Where the Mortgaged Property consists of real property and personal property, any reinstatement of the obligation secured hereby, following default and an election by Beneficiary to accelerate the maturity of said obligation, which is made by Beneficiary or any other person or entity permitted to exercise the right of reinstatement under Section 2924c of the California Civil Code or any successor statute, shall not, in accordance with the terms of California Commercial Code Section 9604(a)(3)(C), prohibit Beneficiary from conducting a sale or other disposition of any personal property or fixtures or from otherwise proceeding against or continuing to proceed against any personal property or fixtures in any manner permitted by the California Commercial Code; nor shall any such reinstatement invalidate, rescind or otherwise affect any sale, disposition or other proceedings held, conducted or instituted with respect to any personal property or fixtures prior to such reinstatement or pending at the time of such reinstatement. Any sums paid to Beneficiary in effecting any reinstatement pursuant to Section 2924c of the California Civil Code shall be applied to the secured obligation and to Beneficiary's and Trustee's reasonable costs and expenses in the manner required by Section 2924c. Should Beneficiary elect to sell any portion of the Mortgaged Property which is real property or which is personal property or fixtures that Beneficiary has elected under Section 9604(a)(1)(b) of the California Commercial Code to sell together with real property in accordance with the laws governing a sale of real property, Beneficiary or Trustee shall give such notice of default and election to sell as may then be required by law. Any requirement of the California Commercial Code for reasonable notification shall be met by mailing written notice to Lessee at its address above set forth at least ten (10) days prior to the sale or other event for which such notice is required. Notwithstanding anything to the contrary in this Lease Supplement, Lessee, in accordance with the applicable laws of the State of California and applicable provisions of the California Rules of Procedure, or of any other general or local law or rules or regulations of the State of California relating to deeds of trust does hereby declare and assent to the passage of a decree to sell the Mortgaged Property by the equity court having jurisdiction for the sale thereof and the Trustee appointed by such decree of court shall have, subject to the terms of the decree of court, the same authority and power to sell on the terms and conditions herein set forth. This assent to decree shall not be exhausted in the event the proceeding is dismissed before the indebtedness secured hereby is paid in full.

7. Non-Responsibility. Nothing contained in this Lease Supplement shall be construed as constituting the consent or request of the Lessor, the Administrative Agent, or any other Participant, 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 Subject Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR NOR THE ADMINISTRATIVE AGENT NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE SUBJECT PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO

-7-


OR AFFECT THE INTEREST OF THE LESSOR, THE ADMINISTRATIVE AGENT OR ANY LENDER IN AND TO THE SUBJECT PROPERTY.

8. Ratification. The terms and provisions of the Master Lease are hereby ratified and confirmed and remain in full force and effect. In the event of any conflict between the terms of the Master Lease and the terms of this Lease Supplement, the terms of the Master Lease shall control.

9. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

10. 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.

11. Maximum Recourse Amount. The percentage applicable to the calculation of the Maximum Recourse Amount for the Subject Property is set forth on Schedule II hereto.

-8-


IN WITNESS WHEREOF, the parties hereto have executed and delivered this Lease Supplement as of the date first above written.

LESSEE:

LAM RESEARCH CORPORATION, as Lessee

By ____________________________________________
Name________________________________________
Title_______________________________________

LESSOR:

SELCO SERVICE CORPORATION, an Ohio
corporation, doing business in California as
"Ohio SELCO Service Corporation", as
Lessor

By ____________________________________________
Donald C. Davis
Its Vice President

-9-


Lam Research Corporation                                 Lease Supplement No. __

STATE OF CALIFORNIA                         )
                                            ) SS.:
COUNTY OF [ALAMEDA]                         )

I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ___________________, the _______________ of LAM RESEARCH CORPORATION, a Delaware corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such ____________________, appeared before me this day in person and acknowledged that she/he signed and delivered the said instrument as her/his own free and voluntary act and as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth.

Given under my hand and notarial seal, this _____ day of March, 2003.

[NOTARIAL SEAL]

Notary Public


(TYPE OR PRINT NAME)

(SEAL)

Commission Expires:


A-1


Lam Research Corporation                                 Lease Supplement No. __

STATE OF COLORADO                           )
                                            ) SS.:
COUNTY OF ____________                      )

I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Donald C. Davis, the Vice President of SELCO SERVICE CORPORATION, an Ohio corporation (doing business in California as "Ohio SELCO Service Corporation"), who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Vice President, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth.

Given under my hand and notarial seal, this _____ day of March, 2003.

[NOTARIAL SEAL]

Notary Public


(TYPE OR PRINT NAME)

(SEAL)

Commission Expires:


A-2


Lam Research Corporation Lease Supplement No. __

SCHEDULE I
TO LEASE SUPPLEMENT NO. ___

LEGAL DESCRIPTION OF SUBJECT LAND

A-3


Lam Research Corporation                                 Lease Supplement No. __

                                                                     SCHEDULE II
                                                     TO LEASE SUPPLEMENT NO. ___

MAXIMUM RECOURSE AMOUNT(1)

The Maximum Recourse Amount with respect to the Subject Property is ____% of the Property Cost of the Subject Property.



(1) Intentionally omit in recorded documents.

A-4

 


 
Exhibit 10.81

THIS INSTRUMENT PREPARED BY,
RECORDING REQUESTED BY AND
AFTER RECORDING RETURN TO:

Sean T. Maloney
SCHIFF HARDIN & WAITE
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606

SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE ONLY

NOTICE: THIS INSTRUMENT SECURES FUTURE ADVANCES UNDER A CREDIT FACILITY IN THE AGGREGATE AMOUNT OF $54,434,812.68, THE PRIORITY OF WHICH DATE TO THE RECORDING DATE HEREOF.

NOTICE: THE OBLIGATION THE PERFORMANCE OF WHICH IS SECURED BY THIS DEED OF

TRUST PROVIDES FOR A VARIABLE INTEREST RATE.

LEASE SUPPLEMENT NO. 1
(Memorandum of Lease Supplement,
Memorandum of Amended and Restated Master Lease and Deed of Trust Fixture Filing and Memorandum of Option to Purchase)

THIS LEASE SUPPLEMENT NO. 1 (Memorandum of Lease Supplement, Memorandum of Master Lease and Mortgage, Fixture Filing and Memorandum of Option to Purchase) (this "Lease Supplement") dated March 25, 2003, between LAM RESEARCH CORPORATION, a Delaware corporation, having its principal office at 4300 Cushing Parkway, Fremont, California 94538 Attention: Craig Garber, as the Lessee, and SELCO SERVICE CORPORATION, an Ohio corporation, doing business in California as "OHIO SELCO SERVICE CORPORATION", as Lessor (the "Lessor"), and whose principal offices are located at c/o KeyCorp Leasing, 66 South Pearl Street, Albany, New York, 12207 and CHICAGO TITLE COMPANY, a California corporation, as trustee (`Trustee"), having its principal office at 110 West Taylor Street, San Jose, California 95110, for the benefit of Lessor and the Lenders ("Beneficiary").

The Amended and Restated Master Lease and Deed of Trust which this Lease Supplement supplements and of which this Lease Supplement is a memorandum, amends, restates, supercedes and replaces the unrecorded lease with a lease balance of $53,496,593.44, disclosed by the following recorded documents: (1) Lease Supplement No. 1 (and Memorandum of Lease) between IBJTC Leasing Corporation - BSC, a New York corporation ("IBJTC") and Lessee and recorded in the Official Records of Alameda County, California ("Official Records") on March 29, 1996 as Series No. 96078943, as amended by that certain


Amendment to Lease Supplement No. 1 (and Memorandum of Lease), recorded in the Official Records on March 30, 1998 as Series No. 98105908 and (2) Lease Supplement No. 2 (and Memorandum of Lease) between IBJTC and Lessee and recorded in the Official Records on March 29, 1996 as Series No. 96078944.

ATTENTION OF RECORDING OFFICERS: Certain of the Property is or will become "fixtures" (as that term is defined in the California Uniform Commercial Code) on the real estate described in Schedule I attached hereto and this instrument, upon being filed for record in the real estate records, shall operate also as a financing statement upon such of the Property which is or may become fixtures. The Lessee has an interest of record in the Property. This instrument is to be recorded in, among other places, the real estate records of the county in which such property is located.

W I T N E S S E T H:

WHEREAS, the Lessor is the record owner of the land described on Schedule I attached hereto (the "Subject Land") together with all Improvements which hereafter may be constructed on the Subject Land (the "Subject Improvements" and, together with the Subject Land, the "Subject Property");

WHEREAS, the Lessor desires to lease the Subject Property to the Lessee and the Lessee wishes to lease the Subject Property from the Lessor;

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to enter into this Lease Supplement, as follows:

1. Certain Terms. Capitalized terms used but not otherwise defined in this Lease Supplement have the meanings specified in Appendix A to the Participation Agreement dated as of March 25, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Participation Agreement"), and the rules of interpretation specified in Appendix A to the Participation Agreement shall apply to this Lease Supplement.

2. Nature of Transaction. (a) The parties intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the owner and lessor of the respective Properties and the Lessee will be treated as the lessee of such Properties and (ii) for federal, state and local income tax purposes, state real estate and commercial law purposes and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which loans are secured by such Properties and
(C) the Lessee will be treated as the owner of such Properties and will be entitled to all tax benefits ordinarily available to an owner of properties like such Properties for such tax purposes.

(b) It is the intent of the parties hereto that this Lease Supplement grants a security interest and deed of trust, as the case may be, on the Subject Property to the Trustee for the

-2-


benefit of the Lessor and the Lenders to secure the Lessee's performance under and payment of all amounts under the Lease and the other Operative Documents (the "Subject Obligations").

3. Subject Property; Memorandum of Lease. Attached hereto as Schedule I is the description of the Subject Land. Effective upon the execution and delivery of this Lease Supplement by the Lessor and the Lessee, the Subject Property shall be subject to the terms and provisions of the Master Lease. The Master Lease is incorporated by reference herein as if set forth herein in its entirety. Subject to the terms and conditions of the Master Lease, the Lessor hereby leases the Subject Property to the Lessee for the Lease Term (as defined below) of this Lease Supplement, and the Lessee hereby agrees with the Lessor to lease the Subject Property from the Lessor for the Lease Term. The Master Lease is dated as of March 24, 2003 and is by and between the Lessor and the Lessee.

4. Lease Term; Option to Purchase. The term of this Lease Supplement (the "Lease Term") shall begin on the date hereof and shall end on March 24, 2008 (the "Expiration Date"). For and in consideration of good and valuable consideration paid by the Lessee to the Lessor as described in the Master Lease, the Lessor hereby grants to the Lessee the right to purchase the Subject Property during the Lease Term of this Lease Supplement on the terms and subject to the conditions (including, without limitation, payment of the Property Balance thereof) set forth in Section 18.1 of the Master Lease.

5. Liens and Security Interests. (a) Specifically, without limiting the generality of Section 2, the Lessor and the Lessee intend and agree that in the event 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, any Participant or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lenders and the Lessor as unrelated third party lenders to the Lessee secured by respective Properties (it being understood that the Lessee hereby deeds, warrants and grants a security interest in the Subject Property (consisting of a fee deed of trust with respect to the Subject Property) WITH POWER OF SALE to the Trustee for the benefit of the Lessor and the Lenders to secure all Lessor Amounts and Loans advanced by the Participants for the acquisition of the respective Properties together with Yield or interest, as applicable, thereon, and all other amounts payable under the Operative Documents in connection therewith, effective on the date hereof).

(b) Specifically, but without limiting the generality of Section 2, the Lessor and the Lessee further intend and agree that, for the purpose of securing the obligation of the Lessee for the repayment of the above-described loans from the Lessor and the Lenders to the Lessee, (i) the Master Lease and Lease Supplements shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the California Uniform Commercial Code and a real property deed of trust; (ii) the conveyance provided for hereby and in Article II of the Master Lease shall be deemed to be a grant by the Lessee to the Beneficiary of a deed of trust lien and security interest in all of the right, title and interest of the Lessee in and to the Subject Property and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property (it being understood that the Lessee hereby

-3-


deeds and warrants and grants a security interest in the Subject Property and all proceeds thereof to the Lessor to secure all Loans and Lessor Amounts advanced by the Participants for the acquisition of such Properties (the principal amount of which shall not exceed in the aggregate $54,434,812.68 outstanding at any given time), together with Yield or interest thereon, and all other amounts payable under the Operative Documents in connection therewith) and
(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, goods or tangible chattel paper shall be deemed to be "perfection by possession" for purposes of perfecting the security interest pursuant to Section 9-313 of the California Uniform Commercial Code and the Lessor hereby acknowledges that it holds possession of such instruments, money, negotiable documents, goods or tangible chattel paper for the benefit of the Lessor and the Lenders pursuant to 9-313(c) of the California 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 all Applicable Laws. The Lessor and the Lessee shall, to the extent consistent with the Master Lease and Lease Supplements, take such actions and execute, deliver, file and record such other documents, financing statements and deeds of trust as may be necessary to ensure that, if the Lease was deemed to create a security interest in the Subject Property in accordance with this Section, such security interest would be deemed to be a perfected security interest (subject only to Permitted Property Liens) and will be maintained as such throughout the Lease Term.

(c) Specifically, but without limiting the foregoing or the generality of Section 2, the Lessee hereby grants to the Trustee, IN TRUST, WITH POWER OF SALE, for the benefit of Beneficiary, all of Lessee's right, title, and interest in and to the following (collectively, the "Mortgaged Property"): (i) the Subject Property and Appurtenant Rights relating thereto and all proceeds, both cash and noncash, thereof; (ii) all easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights, including without limitation the stock in any water company providing water for irrigation of the Subject Property, minerals, flowers, shrubs, crops, trees, timber and other emblements now or hereafter located on the Subject Land or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, tenements, hereditaments and appurtenances, reversions and remainders whatsoever, in any way belonging, relating or appertaining to the Subject Property or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by the Lessee from any source; (iii) if and to the extent acquired by the Lessee with the proceeds of Advances (and transferred to Lessor by IBJTC), all right, title and interest of the Lessee in all furnishings, furniture, fixtures, machinery, apparatus, Equipment, fittings, appliances, building supplies and materials, vehicles (excluding the Lessee's personal automobiles), chattels, goods, consumer goods, farm products, warranties, chattel paper, documents, accounts, general intangibles, and goodwill related thereto, and all other articles of personal property of every kind and nature whatsoever, tangible or intangible, now heretofore or hereafter acquired and now, heretofore or hereafter (A) arising out of or related to the ownership of the Subject Property, or (B) located in, on or about the Subject Property, or (C) used or intended to be used with or in connection with the construction, use, operation or enjoyment of the Subject Property; (iv) all right, title and interest of the Lessee in any and all leases, rental agreements and arrangements of any sort

-4-


now or hereafter affecting the Subject Property or any portion thereof and providing for or resulting in the payment of money to the Lessee for the use of the Subject Property or any portion thereof, whether the user enjoys the Subject Property or any portion thereof as tenant for years, licensee, tenant at sufferance or otherwise, and irrespective of whether such leases, rental agreements and arrangements be oral or written, and including any and all extensions, renewals and modifications thereof (the "Subject Leases") and guaranties of the performance or obligations of any tenants or lessees thereunder, together with all income, rents, issues, profits and revenues from the Subject Leases (including all tenant security deposits and all other tenant deposits, whether held by the Lessee or in a trust account, and all other deposits and escrow funds relating to any Subject Leases), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of the Lessee of, in and to the same; provided, however, that the Lessee shall have a revocable license to collect and apply such rental payments and revenues as provided in the Master Lease and the other Operative Documents; (v) to the extent transferable under any Requirement of Law, all right, title and interest of the Lessee in, to and under all management contracts, service contracts, utility contracts, leases of equipment, documents and agreements relating to the construction of any Improvements (including any and all construction contracts, architectural contracts, engineering contracts, designs, plans, specifications, drawings, surveys, tests, reports, bonds and governmental approvals) and all other contracts, licenses and permits now or hereafter affecting the Subject Property or any part thereof and all guaranties and warranties with respect to any of the foregoing (the "Subject Contracts");
(vi) all right, title and interest of the Lessee in any insurance policies or binders required to be maintained by the Lessee pursuant to the terms of the Master Lease or now or hereafter relating to the Subject Property, including any unearned premiums thereon, as further provided in the Master Lease; (vii) all right, title and interest of the Lessee in any and all awards, payments, proceeds and the right to receive the same, either before or after any foreclosure hereunder, as a result of any temporary or permanent injury or damage to, taking of or decrease in the value of the Subject Property by reason of casualty, condemnation or otherwise as further provided in the Master Lease;
(viii) all claims and causes of action arising from or otherwise related to any of the foregoing, and all rights and judgments related to any legal actions in connection with such claims or causes of action; and (ix) all Modifications, extensions, additions, improvements, betterments, renewals and replacements, substitutions, or proceeds of any of the foregoing; all of which foregoing items are hereby declared and shall be deemed to be a portion of the security for the indebtedness and Subject Obligations herein described, a portion of the above described collateral being located upon the Subject Land; provided however that, without limiting the foregoing, the Mortgaged Property shall not include any inventory of the Lessee.

6. Remedies. Without limiting any other remedies set forth herein, in the event that a court of competent jurisdiction rules that each of the Master Lease and this Lease Supplement constitutes a deed of trust or other secured financing with respect to the Subject Property as is the intent of the parties pursuant to Article XXV of the Master Lease, then the Lessor and the Lessee agree that upon a Lessee Event of Default, Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for the sale and of written notice of default and of election to cause to be sold the Subject Property which notice Trustee shall cause to be filed for record to the extent required

-5-


by law. Beneficiary also shall deposit with Trustee the Lease Supplement and all documents evidencing the Lease Balance and expenditures secured hereby.

After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Lessee, shall sell the Mortgaged Property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Lessee, Trustee, or Beneficiary as hereinafter defined, may purchase at such sale. Lessee shall have all rights available to a Trustor under the laws of the jurisdiction in which the Mortgaged Property is located except to the extent waived in the Operative Documents. Lessee agrees that the agreements of Lessee herein contained shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purpose of any suit brought under this subparagraph, Lessee hereby waives the defense of laches and any applicable statute of limitations.

After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply to proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. In the event of foreclosure, Lessee authorizes and empowers Trustee or Beneficiary to effect insurance upon the Subject Property in amounts aforesaid for a period covering the time of redemption from foreclosure sale provided by law, and if necessary therefor, to cancel any or all existing insurance policies. In connection with any sale or sales hereunder, Beneficiary may elect to treat to the fullest extent permitted by law any of the Mortgaged Property which consists of a right in action or which is property that can be severed from the real property covered hereby or any improvements thereon without causing structural damage thereto as if the same were personal property, and dispose of the same in accordance with applicable law, separate and apart from the sale of real property. Any sale of any personal property hereunder shall be conducted in any manner permitted by
Section 9604 or any other applicable section of the California Commercial Code. Where the Mortgaged Property consists of real and personal property or fixtures whether or not such personal property is located on or within the real property, Beneficiary may elect in its discretion to exercise its rights and remedies against any or all of the real property, personal property, and fixtures in such order and manner as is now or hereafter permitted by applicable law. Without limiting the generality of the foregoing, Beneficiary may, in its sole and absolute discretion and without regard to the adequacy of its security, elect to proceed against any or all of the real property, personal property and fixtures in any manner permitted under Section 9604(a)(1) of the California Commercial Code; and if Beneficiary elects to proceed in the manner permitted under Section 9604(a)(1)(B) of the

-6-


California Commercial Code, the power of sale herein granted shall be exercisable with respect to all or any of the real property, personal property and fixtures covered hereby, as designated by Beneficiary, and the Trustee is hereby authorized and empowered to conduct any such sale of any real property, personal property and fixtures in accordance with the procedures applicable to real property. Where the Mortgaged Property consists of real property and personal property, any reinstatement of the obligation secured hereby, following default and an election by Beneficiary to accelerate the maturity of said obligation, which is made by Beneficiary or any other person or entity permitted to exercise the right of reinstatement under Section 2924c of the California Civil Code or any successor statute, shall not, in accordance with the terms of California Commercial Code Section 9604(a)(3)(C), prohibit Beneficiary from conducting a sale or other disposition of any personal property or fixtures or from otherwise proceeding against or continuing to proceed against any personal property or fixtures in any manner permitted by the California Commercial Code; nor shall any such reinstatement invalidate, rescind or otherwise affect any sale, disposition or other proceedings held, conducted or instituted with respect to any personal property or fixtures prior to such reinstatement or pending at the time of such reinstatement. Any sums paid to Beneficiary in effecting any reinstatement pursuant to Section 2924c of the California Civil Code shall be applied to the secured obligation and to Beneficiary's and Trustee's reasonable costs and expenses in the manner required by Section 2924c. Should Beneficiary elect to sell any portion of the Mortgaged Property which is real property or which is personal property or fixtures that Beneficiary has elected under Section 9604(a)(1)(b) of the California Commercial Code to sell together with real property in accordance with the laws governing a sale of real property, Beneficiary or Trustee shall give such notice of default and election to sell as may then be required by law. Any requirement of the California Commercial Code for reasonable notification shall be met by mailing written notice to Lessee at its address above set forth at least ten (10) days prior to the sale or other event for which such notice is required. Notwithstanding anything to the contrary in this Lease Supplement, Lessee, in accordance with the applicable laws of the State of California and applicable provisions of the California Rules of Procedure, or of any other general or local law or rules or regulations of the State of California relating to deeds of trust does hereby declare and assent to the passage of a decree to sell the Mortgaged Property by the equity court having jurisdiction for the sale thereof and the Trustee appointed by such decree of court shall have, subject to the terms of the decree of court, the same authority and power to sell on the terms and conditions herein set forth. This assent to decree shall not be exhausted in the event the proceeding is dismissed before the indebtedness secured hereby is paid in full.

7. Non-Responsibility. Nothing contained in this Lease Supplement shall be construed as constituting the consent or request of the Lessor, the Administrative Agent, or any other Participant, 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 Subject Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR NOR THE ADMINISTRATIVE AGENT NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE SUBJECT PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO

-7-


OR AFFECT THE INTEREST OF THE LESSOR, THE ADMINISTRATIVE AGENT OR ANY LENDER IN AND TO THE SUBJECT PROPERTY.

8. Ratification. The terms and provisions of the Master Lease are hereby ratified and confirmed and remain in full force and effect. In the event of any conflict between the terms of the Master Lease and the terms of this Lease Supplement, the terms of the Master Lease shall control.

9. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

10. 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.

11. Maximum Recourse Amount. The percentage applicable to the calculation of the Maximum Recourse Amount for the Subject Property is set forth on Schedule II hereto.

-8-


IN WITNESS WHEREOF, the parties hereto have executed and delivered this Lease Supplement as of the date first above written.

LESSEE:

LAM RESEARCH CORPORATION, as Lessee


By /s/ Craig Garber
   --------------------------------------------
   Name Craig Garber
   Title Treasurer and Vice President


LESSOR:

SELCO SERVICE CORPORATION, an Ohio
corporation, doing business in California as
"Ohio SELCO Service Corporation", as
Lessor


By /s/ Donald C. Davis
   --------------------------------------------
   Donald C. Davis
   Its Vice President


-9-


STATE OF CALIFORNIA                         )
                                            ) SS.:
COUNTY OF ALAMEDA                           )

I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that ___________________, the _______________ of LAM RESEARCH CORPORATION, a Delaware corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such ____________________, appeared before me this day in person and acknowledged that she/he signed and delivered the said instrument as her/his own free and voluntary act and as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth.

Given under my hand and notarial seal, this _____ day of March, 2003.

[NOTARIAL SEAL]

Notary Public


(TYPE OR PRINT NAME)

(SEAL)

Commission Expires:


A-1


STATE OF COLORADO                           )
                                            ) SS.:
COUNTY OF ____________                      )

I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Donald C. Davis, the Vice President of SELCO SERVICE CORPORATION, an Ohio corporation (doing business in California as "Ohio SELCO Service Corporation"), who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Vice President, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth.

Given under my hand and notarial seal, this _____ day of March, 2003.

[NOTARIAL SEAL]

Notary Public


(TYPE OR PRINT NAME)

(SEAL)

Commission Expires:


A-2


SCHEDULE I
TO LEASE SUPPLEMENT NO. 1

LEGAL DESCRIPTION OF SUBJECT LAND

A-3


SCHEDULE II
TO LEASE SUPPLEMENT NO. 1

MAXIMUM RECOURSE AMOUNT(1)

The Maximum Recourse Amount with respect to the Subject Property is 88.9485% of the Property Cost of the Subject Property.



(1) Intentionally omit in recorded documents.

A-4

 


 
Exhibit 10.82

CONFIDENTIAL TREATMENT REQUESTED


PARTICIPATION AGREEMENT

Dated as of March 25, 2003

among

LAM RESEARCH CORPORATION,
as Lessee,

SELCO SERVICE CORPORATION,
as Lessor,

KEY CORPORATE CAPITAL INC.,
as Lender,

and

KEY CORPORATE CAPITAL INC.,
as Administrative Agent


LEASE ADVISORY SERVICES,
Arranger


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


TABLE OF CONTENTS

SECTION HEADING                                                                                                     PAGE
Parties.........................................................................................................      1
Recitals........................................................................................................      1
ARTICLE I DEFINITIONS; INTERPRETATION...........................................................................      1

ARTICLE II  DOCUMENTATION DATE..................................................................................      2

          Section 2.1. Documentation Date.......................................................................      2

ARTICLE III FUNDING OF ADVANCES.................................................................................      4

          Section 3.1. Advances.................................................................................      4

          Section 3.2. Lessor Commitment........................................................................      4

          Section 3.3. Lenders' Commitments.....................................................................      5

          Section 3.4. Procedures for Advances..................................................................      5

          Section 3.5. Interest Rate; Yield Rate................................................................      5

ARTICLE IV YIELD; INTEREST; FEES................................................................................      6

          Section 4.1. Yield....................................................................................      6

          Section 4.2. Interest on Loans........................................................................      6

          Section 4.3. Payments of Rent; Payments and Prepayments of Loans and Lessor Amounts...................      6

          Section 4.4. Fees.....................................................................................      6

          Section 4.5. Place and Manner of Payments.............................................................      7

          Section 4.6. Pro Rata Treatment.......................................................................      7

          Section 4.7. Sharing of Payments......................................................................      7

ARTICLE V CERTAIN INTENTIONS OF THE PARTIES.....................................................................      8

          Section 5.1. Nature of Transaction....................................................................      8

          Section 5.2. Amounts Due Under the Lease..............................................................      9

ARTICLE VI CONDITIONS PRECEDENT: ACQUISITION DATES..............................................................      9

          Section 6.1. Acquisition Dates........................................................................      9

          Section 6.2. Delivery of Documents....................................................................     13

ARTICLE VII DISTRIBUTIONS.......................................................................................     13

          Section 7.1. Basic Rent...............................................................................     13

          Section 7.2. Purchase Payments by the Lessee..........................................................     13

          Section 7.3. Payment of Maximum Recourse Amounts......................................................     14

          Section 7.4. Sales Proceeds of Remarketing of the Properties..........................................     14

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          Section 7.5. Supplemental Rent........................................................................     14

          Section 7.6. Distribution of Payments after Lease Event of Default....................................     14

          Section 7.7. Casualty and Condemnation Amounts........................................................     16

          Section 7.8. Other Payments...........................................................................     16

          Section 7.9. Order of Application.....................................................................     17

          Section 7.10. Payments to Account.....................................................................     17

ARTICLE VIII REPRESENTATIONS....................................................................................     17

          Section 8.1. Representations of the Lenders...........................................................     17

          Section 8.2. Representations of the Lessee............................................................     17

          Section 8.3. Representations of the Lessor............................................................     21

ARTICLE IX PAYMENT OF CERTAIN EXPENSES..........................................................................     22

          Section 9.1. Transaction Expenses.....................................................................     22

          Section 9.2. Brokers' Fees and Stamp Taxes............................................................     22

          Section 9.3. Loan Agreement and Related Obligations...................................................     22

ARTICLE X OTHER COVENANTS AND AGREEMENTS........................................................................     23

          Section 10.1. Covenants of the Lessee.................................................................     23

          Section 10.2. SELCO Status............................................................................     28

          Section 10.3. Covenants of Each Participant...........................................................     28

          Section 10.4. Release of Properties...................................................................     29

ARTICLE XI [INTENTIONALLY OMITTED]..............................................................................     29

ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS................................................................     29

          Section 12.1. Assignments.............................................................................     29

          Section 12.2. Participations..........................................................................     30

          Section 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A.................     31

ARTICLE XIII INDEMNIFICATION....................................................................................     32

          Section 13.1. General Indemnification.................................................................     32

          Section 13.2. End of Term Indemnity...................................................................     33

          Section 13.3. Environmental Indemnity.................................................................     34

          Section 13.4. Proceedings in Respect of Claims........................................................     36

          Section 13.5. General Tax Indemnity...................................................................     37

          Section 13.6. Indemnity Payments in Addition to Lease Obligations.....................................     40

          Section 13.7. Eurodollar Rate Lending Unlawful........................................................     41

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          Section 13.8. Deposits Unavailable....................................................................     41

          Section 13.9. Increased Costs, etc....................................................................     41

          Section 13.10. Funding Losses; Break Costs............................................................     43

          Section 13.11. Capital Adequacy.......................................................................     43

ARTICLE XIV [INTENTIONALLY RESERVED]............................................................................     44

ARTICLE XV MISCELLANEOUS........................................................................................     44

          Section 15.1. Survival of Agreements..................................................................     44

          Section 15.2. No Broker, Etc..........................................................................     44

          Section 15.3. Notices.................................................................................     45

          Section 15.4. Counterparts............................................................................     45

          Section 15.5. Amendments, Etc.........................................................................     45

          Section 15.6. Headings, Etc...........................................................................     46

          Section 15.7. Parties in Interest.....................................................................     46

          Section 15.8. Governing Law...........................................................................     46

          Section 15.9. Severability............................................................................     47

          Section 15.10. Liability Limited......................................................................     47

          Section 15.11. Submission to Jurisdiction.............................................................     47

          Section 15.12. Setoff.................................................................................     47

          Section 15.13. No Participant Responsible for Other Participants......................................     47

          Section 15.14. Execution of Documents for Widening Project............................................     48

Appendix A          --       Definitions
Schedule I          --       Commitments
Schedule II         --       Notice Information, Wire Instructions and Funding
                             Offices
Exhibit A-1         --       Form of Legal Opinion of In-House Counsel to Lessee
Exhibit A-2         --       Form of Legal Opinion of Heller Ehrman White &
                             McAuliffe LLP
Exhibit B           --       Form of Funding Request
Exhibit C           --       Form of Master Lease
Exhibit D           --       Form of Loan Agreement
Exhibit E           --       Form of Compliance Certificate
Exhibit F           --       Form of Assignment Agreement
Exhibit G           --       [Intentionally Reserved]
Exhibit H           --       Form of Assignment of Lease and Rent
Exhibit I           --       Form of Mortgage

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PARTICIPATION AGREEMENT

THIS PARTICIPATION AGREEMENT (this "Participation Agreement"), dated as of March 25, 2003, is entered into by and among LAM RESEARCH CORPORATION, a Delaware corporation, as Lessee, (the "Lessee"); SELCO SERVICE CORPORATION, an Ohio corporation, as Lessor (the "Lessor"); KEY CORPORATE CAPITAL INC., a Michigan corporation, as Lender, (together with any other holder of a Note the "Lenders"); and KEY CORPORATE CAPITAL INC., as Administrative Agent (the "Administrative Agent").

W I T N E S S E T H:

WHEREAS, on the Acquisition Date, the Lessor will purchase the Properties from one or more third parties designated by the Lessee;

WHEREAS, the Lessor desires to lease the Properties to the Lessee, and the Lessee desires to lease the Properties from the Lessor;

WHEREAS, the Lessor is willing to provide a portion of the funding of the costs of the acquisition of the Properties;

WHEREAS, the Lenders are willing to provide the remaining portion of the funding of the costs of the acquisition of the Properties; and

WHEREAS, to secure such financing (a) the Lessor will have the benefit of a first priority Lien on the Properties and the Cash Collateral, and (b) the Lenders will have the benefit of (i) a Lien on the Lessor's right, title and interest in the Properties and the Cash Collateral, and (ii) an assignment of certain of the Lessor's rights against the Lessee under the Lease;

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

ARTICLE I
DEFINITIONS; INTERPRETATION

Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof (as such Appendix A may be amended, supplemented, amended and restated or otherwise modified from time to time, "Appendix A to this Participation Agreement"); and the rules of interpretation set forth in Appendix A to this Participation Agreement shall apply to this Participation Agreement.


Lam Research Corporation Participation Agreement

ARTICLE II
DOCUMENTATION DATE

Section 2.1. Documentation Date. The Documentation Date (the "Documentation Date") shall be deemed to have occurred and all rights and obligations of the parties to the Operative Documents (each subject to any conditions specified therein) shall be in effect, upon satisfaction or waiver of each of the following conditions precedent:

(a) Participation Agreement. This Participation Agreement shall have been duly authorized, executed and delivered by the parties hereto.

(b) Master Lease. The Master Lease shall have been duly authorized, executed and delivered by the parties thereto.

(c) Loan Agreement and Notes. The Loan Agreement and each Lender's Note shall have been duly authorized, executed and delivered by the parties thereto.

(d) Assignment of Lease and Rent. The Assignment of Lease and Rent shall have been duly authorized, executed and delivered by the Lessor, as assignor, to the Administrative Agent, as assignee, and the Assignment of Lease and Rent shall have been consented to and acknowledged by the Lessee.

(e) Transaction Expenses and Fees. The applicable Person shall have received all Fees payable on the Documentation Date and all Transaction Expenses, to the extent then invoiced, shall have been paid.

(f) Corporate Documents; Certificates. The Lessee shall have delivered, or shall have caused to be delivered, to the Administrative Agent and each Participant the following:

(i) Certificate of Incorporation. Copies of its certificate of incorporation, certified to be true and complete as of a recent date by the appropriate governmental authority of the jurisdiction of its incorporation.

(ii) Resolutions. Copies of resolutions or other authority documentation of its Board of Directors approving and adopting the Operative Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary as of the Documentation Date to be true and correct and in full force and effect as of such date and evidence of corporate authority of the Lessee with respect to the Operative Documents and the transactions contemplated therein.

(iii) Bylaws. A copy of Lessee's bylaws certified by its secretary or assistant secretary as of the Documentation Date to be true and correct and in full force and effect as of such date.

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Lam Research Corporation Participation Agreement

(iv) Good Standing. Copies of certificates of good standing, existence or its equivalent for the Lessee, certified as of a recent date by the appropriate governmental authority of the jurisdiction of its incorporation.

(v) Opinions of Counsel. Opinions of counsel for Lessee addressed to the Administrative Agent and each of the Participants in forms acceptable to the Administrative Agent and each of the Participants.

(g) Lessor Corporate Documents; Certificates. The Lessor shall have delivered, or shall have caused to be delivered to each of the other parties hereto the following:

(i) Articles of Incorporation. Copies of its articles of incorporation, certified to be true and complete as of a recent date by the appropriate governmental authority of the state of its incorporation.

(ii) Resolutions. Copies of resolutions of its Board of Directors approving and adopting the Operative Documents to which it is or is to be a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by its secretary or assistant secretary as of the Documentation Date to be true and correct and in full force and effect as of such date.

(iii) Regulations. A copy of its regulations certified by its secretary or assistant secretary as of the Documentation Date to be true and correct and in full force and effect as of such date.

(iv) Good Standing. A copy of a certificate of good standing, existence or its equivalent, certified as of a recent date by the appropriate governmental authority of the State of Ohio.

(h) Representations and Warranties. On the Documentation Date, the representations and warranties of each of the parties hereto contained in Sections 8.1, 8.2 and 8.3 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 in all material respects on and as of such earlier date and each of the Lessee and the Lessor shall have delivered a certificate to such effect with respect to its representations and warranties.

(i) No Default. No Default or Event of Default shall have occurred and be continuing on the Documentation Date unless such Default or Event of Default shall have been waived in accordance with the Operative Documents.

(j) Governmental Approvals. All Governmental Actions required by any Requirement of Law for the purpose of authorizing the Lessee, the Administrative Agent

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Lam Research Corporation Participation Agreement

or any Participant to enter into the Operative Documents shall have been obtained or made and be in full force and effect.

(k) Litigation. No action or proceeding shall have been instituted or threatened, nor shall any governmental action be instituted or threatened before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority, to set aside, restrain, enjoin or prevent the performance of this Participation Agreement or any transaction contemplated hereby or by any other Operative Document or which is reasonably likely, in the sole opinion of each Participant, to have a Material Adverse Effect.

(l) Requirements of Law. In the opinion of each Participant, no change shall have occurred or been proposed in Applicable Law that would make it uneconomic or illegal for any party to any Operative Document to participate in any of the transactions contemplated by the Operative Documents or otherwise would prohibit the consummation of any transaction contemplated by the Operative Documents or expand the duties, obligations and risks of any Participant.

All documents and instruments required to be delivered pursuant to this
Section 2.1 shall be delivered at the offices of Schiff Hardin & Waite, 6600 Sears Tower, Chicago, Illinois 60606 or at such other location as may be determined by the Lessee, the Lessor and the Administrative Agent and in such numbers as shall be reasonably requested. Unless otherwise agreed among the Lessee, the Lessor and the Administrative Agent, the Documentation Date shall coincide with the first Acquisition Date.

ARTICLE III
FUNDING OF ADVANCES

Section 3.1. Advances. Subject to the conditions and terms hereof, the Lessor shall take the following actions at the written request of Lessee:

(a) the Lessor shall make Advances (out of funds provided by itself and the Lenders) for the purpose of financing the acquisition by the Lessor of the Properties and the payment of Transaction Expenses and Fees relating thereto; and

(b) the Lessor shall lease the Properties to the Lessee under the Master Lease and the respective Lease Supplements.

Notwithstanding any other provision hereof, (i) no Advance shall be made with respect to any Property after the Acquisition Date therefor, and (ii) the Participants shall not be obligated to make any Advance with respect to any Property if, after giving effect thereto, (x) the aggregate outstanding amounts of the Loans and the Lessor Amounts would exceed the Aggregate Commitment Amount, or (y) the Property Cost thereof would exceed the Fair Market Sales Value of such Property as set forth in the Appraisal thereof delivered pursuant to Section 6.1(d) hereof.

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Lam Research Corporation Participation Agreement

Section 3.2. Lessor Commitment. Subject to the conditions and terms hereof, on each Acquisition Date during the Commitment Period, the Lessor shall make available at the written request of the Lessee during the Commitment Period on each Acquisition Date, an amount (a "Lessor Amount") in immediately available funds equal to the Lessor's Commitment Percentage of the amount of the Advance being funded on such Acquisition Date. Notwithstanding any other provision hereof, the Lessor shall not be obligated to make available any Lessor Amount if, after giving effect to the proposed Lessor Amount, the outstanding aggregate amount of the Lessor Amounts would exceed the Lessor Commitment.

Section 3.3. Lenders' Commitments. Subject to the conditions and terms hereof, on each Acquisition Date during the Commitment Period, each Lender shall make a Loan to the Lessor at the written request of the Lessee in an aggregate amount in immediately available funds equal to such Lender's Commitment Percentage of the amount of the Advance being funded on such Acquisition Date. Notwithstanding any other provision hereof, no Lender shall be obligated to make any Loan if, after giving effect to the proposed Loan, the outstanding amount of such Lender's Loans would exceed such Lender's Commitment.

Section 3.4. Procedures for Advances. (a) With respect to each Acquisition Date, the Lessee shall give the Lessor, the Administrative Agent and each Lender prior written notice pursuant to a Funding Request substantially in the form of Exhibit B (a "Funding Request"), which Funding Request shall be delivered not later than 11:00 a.m. (New York time), two (2) Business Days prior to the proposed Acquisition Date. Such Funding Request shall set forth (i) the proposed Acquisition Date, (ii) the amount of the Advance requested, (iii) a description of the Property to which such Funding Request relates, (iv) the seller of the Property being acquired, and (v) wire transfer instructions for the disbursement of the proceeds of such Advance. Subject to timely delivery of a Funding Request and the other terms and conditions of the Operative Documents,
(x) each Lender shall make its Commitment Percentage available to the Administrative Agent at the Account by 2:00 p.m., (New York time), on the requested Acquisition Date and (y) the Lessor shall make its Commitment Percentage of the requested Advance available to the Administrative Agent at the Account by 2:00 p.m. (New York time) on the requested Acquisition Date. Promptly upon the Administrative Agent's receipt of such funds from the Participants, the Administrative Agent shall wire such funds on the applicable Acquisition Date to the Persons entitled thereto and to such accounts as the Lessee shall have indicated in the Funding Request. Each Advance shall consist of (i) a Lessor Amount equal to 3.5% of such Advance and (ii) Loans in an aggregate amount equal to 96.5% of such Advance, such Loans to be allocated between Series A Notes and Series B Notes in accordance with Schedule I hereto.

(b) Except as the Participants may otherwise agree in writing, Advances shall be made solely to pay the Property Cost of each Property and related Fees and Transaction Expenses.

Section 3.5. Interest Rate; Yield Rate. Each Loan shall accrue interest as set forth in Section 2.5 of the Loan Agreement, and each Lessor Amount shall accrue Yield by reference to the Adjusted Eurodollar Rate, in each case subject to the provisions of Sections 13.7, 13.8 and 13.9 (to the extent applicable).

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Lam Research Corporation Participation Agreement

ARTICLE IV
YIELD; INTEREST; FEES

Section 4.1. Yield. (a) The amount of the Lessor Amounts outstanding from time to time shall accrue yield ("Yield") at the Yield Rate. If all or any portion of the Lessor Amounts, any Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration thereof or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate. The Lessor shall, as soon as practicable, but in no event later than 11:00 a.m., New York time, two (2) Business Days before the effectiveness of each recomputation of the Adjusted Eurodollar Rate applicable to Lessor Amounts, cause to be determined such Adjusted Eurodollar Rate.

(b) The Administrative Agent shall distribute, in accordance with Article VII, the Lessor Basic Rent and all other amounts due with respect to the Lessor Amounts paid to the Administrative Agent by the Lessee under the Lease from time to time.

(c) If not repaid sooner, the outstanding aggregate Lessor Amounts shall be repaid in full on the Maturity Date, subject to the provisions of Article XX of the Master Lease.

Section 4.2. Interest on Loans. (a) Each Loan shall accrue interest computed and payable in accordance with the terms of the Loan Agreement. Each Loan shall become due and payable at the dates and times provided under the Loan Agreement.

(b) The Administrative Agent shall distribute, in accordance with Article VII, the Lender Basic Rent and all other amounts due with respect to the Loans paid to the Administrative Agent by the Lessee under the Lease from time to time.

Section 4.3. Payments of Rent; Payments and Prepayments of Loans and Lessor Amounts. (a) The Lessor hereby directs the Lessee to pay to the Administrative Agent the Rent from time to time (other than Excepted Payments, which the Lessor hereby directs the Lessee to make directly to the applicable Person entitled thereto).

(b) All amounts payable by the Lessee pursuant to Article XIV, XV, XVI, XVIII or XX of the Master Lease shall be applied to the Loans and the Lessor Amounts in the manner set forth in Article VII hereof. Each of the Participants hereby acknowledges that its Loans or Lessor Amounts, as the case may be, may be so prepaid without any prepayment premium (other than Break Costs, if any).

(c) Notice. The Lessee will provide notice to the Administrative Agent, the Lessor and the Lenders of any voluntary prepayment by 9:00 A.M. (New York time) at least three (3) Business Days prior to the date of such voluntary prepayment.

Section 4.4. Fees. The Lessee agrees to pay the fees set forth in this Section 4.4 (collectively, the "Fees"), which as to the Structuring Fee and the Commitment Fee may be paid out of Advances.

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Lam Research Corporation Participation Agreement

(a) Structuring Fee. The Lessee agrees to pay to the Arranger on the Documentation Date the fee (the "Structuring Fee") in the amount specified in the Summary of Terms.

(b) Commitment Fee. The Lessee agrees to pay to each Participant a fee (the "Commitment Fee") on the Documentation Date equal to [***]% of the amount of such Participant's Commitment.

(c) Administrative Agent Fees. The Lessee agrees to pay to the Administrative Agent an annual fee of $[***] for acting as such on the Documentation Date and each anniversary thereof during the Lease Term.

Section 4.5. Place and Manner of Payments. Except as otherwise specifically provided herein, all payments by the Lessee hereunder, under the Master Lease or under any other Operative Document shall be made to the Administrative Agent in Dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, to the Account in Cleveland, Ohio not later than 2:00 p.m. (New York time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Lessee shall, at the time it makes any payment under any Operative Document, specify to the Administrative Agent the Basic Rent, Property Cost, Fees, Supplemental Rent or other amounts payable by the Lessee hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Participants in such manner as the Administrative Agent may determine to be appropriate in respect of obligations owing by Lessee subject to the terms of Article VII). The Administrative Agent will distribute such payments to such Participants in accordance with Article VII, if any such payment is received prior to 3:00 p.m. (New York time) on a Business Day in like funds as received prior to such time, and otherwise the Administrative Agent shall distribute such payment to such Participants on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next Business Day (subject to accrual of interest and fees for the period of such extension), except that in the case of Eurodollar Loans/Lessor Amounts, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day.

Section 4.6. Pro Rata Treatment. Except to the extent otherwise provided herein, each payment or repayment of principal on the outstanding Loans and each payment of interest shall be allocated pro rata among the relevant Lenders in accordance with their respective Loan Balances.

Section 4.7. Sharing of Payments. The Participants agree among themselves that, in the event that any Participant shall obtain payment in respect of any Loan or Lessor Amount or any other obligation owing to such Participant under the Operative Documents through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such

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THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


Lam Research Corporation Participation Agreement

secured claim, received by such Participant under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Participation Agreement, such Participant shall promptly pay such excess to the Administrative Agent to pay to the other Participants such that all Participants shall share such payment in accordance with their respective ratable shares as provided for in this Participation Agreement. The Participants further agree among themselves that if payment to a Participant obtained by such Participant through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Participant which shall have shared the benefit of such payment shall, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Participant whose payment shall have been rescinded or otherwise restored. Except as otherwise expressly provided herein, if any Participant or the Administrative Agent shall fail to remit to the Administrative Agent or any other Participant an amount payable by such party to the Administrative Agent or such other Participant pursuant to the Operative Documents on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Participant at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Participant receives a secured claim in lieu of a setoff to which this Section 4.7 applies, such Participant shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Participants under this Section 4.7 to share in the benefits of any recovery on such secured claim.

ARTICLE V
CERTAIN INTENTIONS OF THE PARTIES

Section 5.1. Nature of Transaction. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the owner and the lessor of the Properties and the Lessee will be treated as the lessee of the Properties pursuant to an operating lease under GAAP and (ii) for federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes,

(A) the Lease will be treated as a financing arrangement,

(B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which amounts are secured by the Properties, and

(C) the Lessee will be treated as the owner of the Properties described in the Lease Supplements and will be entitled to all tax benefits ordinarily available to an owner of properties like the Properties for such tax purposes. Nevertheless, the Lessee acknowledges and agrees that neither the Lessor, the Administrative Agent, the Arranger nor any of the Lenders has made any representations or warranties to the Lessee concerning the tax, Lessee's accounting or legal characteristics of the Operative

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Lam Research Corporation Participation Agreement

Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate.

(b) Specifically, without limiting the generality of clause (a) of this Section 5.1, the parties hereto intend and agree that in the event 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 the Lenders or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lessor and the Lenders as unrelated third party lenders of the Lessee.

Section 5.2. Amounts Due Under the Lease. Anything herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee, the Lessor and the Lenders 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 and payable as interest on the Loans and Yield on the Lessor Amounts on each Scheduled Payment Date; (ii) if the Lessee elects the Purchase Option with respect to all of the Properties or the Lessee becomes obligated to purchase all of the Properties under the Lease, the Loans, the Lessor Amounts, and all interest, Yield, Commitment Fees and all other obligations of the Lessee owing to the Administrative Agent, the Lessor and the Lenders shall be due and payable in full by the Lessee on the date set forth in the Lease; (iii) if the Lessee properly elects the Remarketing Option, the Lessee shall only be required to pay to the Administrative Agent the proceeds of the sale of each Property, the Maximum Recourse Amount for such Property and any amounts due pursuant to Article XIII hereof and Section 20.2 of the Master Lease (which aggregate amounts may be less than the Property Cost of such Properties), together with all other due and payable Supplemental Rent;
(iv) upon a Lease Event of Default resulting in an acceleration of the Lessee's obligation to purchase each 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 aggregate Property Costs of all of the Properties, plus all other amounts then due from the Lessee under the Operative Documents; and (v) if the Lessee elects to purchase or is required to purchase any Property pursuant to
Section 14.1, Article XV or XVIII of the Master Lease, the amounts then due and payable by the Lessee shall include all amounts necessary to pay the Property Balance of such Property.

ARTICLE VI
CONDITIONS PRECEDENT: ACQUISITION DATES

Section 6.1. Acquisition Dates. The closing date with respect to the acquisition of any Property (each such date, an "Acquisition Date") shall occur on a Business Day on or after the Documentation Date (but not later than March 27, 2003) on which all the conditions precedent thereto set forth in this
Section 6.1 shall have been satisfied or waived by the applicable parties as set forth herein. The obligation of the Lessor to acquire such Property (for purposes of this Article VI, the "Subject Property") on the respective Acquisition Date, the obligation of the Lessor to make available any related Lessor Amount on the respective Acquisition Date and the obligation of each Lender to make any related Loan on the respective Acquisition Date, are subject to satisfaction or waiver of the following conditions precedent (provided that a failure on

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Lam Research Corporation Participation Agreement

the part of any Participant to perform or otherwise satisfy any condition applicable to it shall not be a condition precedent to the performance of its obligations under the Operative Documents):

(a) Funding Request. Each of the Administrative Agent and each Participant shall have received a fully executed counterpart of the applicable Funding Request in accordance with Section 3.4.

(b) Transaction Expenses. All Fees and Transaction Expenses due and payable by Lessee to the Participants and the Arranger shall have been paid or will be paid through Advances on such Acquisition Date.

(c) Representations and Warranties. On such Acquisition Date, the representations and warranties of the Lessee set forth in
Section 8.2 shall be true and correct.

(d) Appraisal. On or prior to such Acquisition Date, the Administrative Agent and each Participant shall have received an Appraisal of the Subject Property, in form and substance reasonably satisfactory to such persons, which Appraisal shall show, as of such Acquisition Date, the Fair Market Sales Value of the Subject Property.

(e) Governmental Approvals. All necessary Governmental Actions (including pursuant to any Environmental Laws) required by any Requirement of Law as of such Acquisition Date for the purpose of authorizing the Lessor to acquire the Subject Property shall have been obtained or made and be in full force and effect.

(f) Responsible Officer's Certificate. Each Participant and the Administrative Agent shall have received a Responsible Officer's Certificate of the Lessee, addressed to the Administrative Agent and each Participant and dated such Acquisition Date, stating that (w) the representations and warranties of the Lessee contained in
Section 8.2 hereof, are true and correct on and as of such Acquisition Date; (x) no Lease Default or Lease Event of Default has occurred and is continuing under any Operative Document; (y) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (z) the Lessee has duly performed and complied with all conditions contained herein or in any other Operative Document required to be performed and complied with by it on or prior to such Acquisition Date.

(g) Evidence of Insurance. Within ninety (90) days following the Acquisition Date, each Participant and the Administrative Agent shall have received evidence that the insurance maintained by the Lessee with respect to the Subject Property satisfies the requirements set forth in Article XIII of the Master Lease setting forth the respective coverage, limits of liability, carrier, policy number and period of coverage, and shall have received a letter and/or certificate signed by the Lessee's insurance broker confirming that the coverage with respect to the Subject Property complies with the requirements of Article XIII of the Master Lease.

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Lam Research Corporation Participation Agreement

(h) Environmental Audit. At least five (5) Business Days prior to such Acquisition Date, each Participant and the Administrative Agent shall have received an Environmental Audit performed by an environmental consultant reasonably acceptable to each Participant and the Administrative Agent and either addressed to such Persons or accompanied by a letter allowing such Persons to rely thereon with respect to the Subject Property and in form and substance reasonably satisfactory to each Participant and the Administrative Agent and stating that the applicable assessment has revealed no evidence of recognized environmental conditions in connection with the site except for specified matters, which matters each Participant, the Administrative Agent and the Lessee reasonably agree are not material. If such Environmental Audit reveals the need for additional review or testing, the Lessee shall have provided such additional assessments as are recommended by such consultant.

(i) Deed. The Lessor shall have received at least five
(5) Business Days prior to the Acquisition Date a copy of the proposed Deed with respect to the Subject Property, and on or prior to such Acquisition Date, such Deed duly executed conveying fee simple title to such Property to the Lessor and containing customary seller's warranties in the applicable jurisdiction and subject only to Permitted Property Liens. The legal description, tax lot designation and zoning of the related Land shall be reasonably acceptable to the Administrative Agent and each Participant.

(j) Bill of Sale. If the Subject Property includes any Equipment, then on or prior to such Acquisition Date, the Lessor shall have received a bill of sale (a "Bill of Sale"), conveying title to the Lessor in any Equipment comprising part of the Subject Property.

(k) [Intentionally Reserved].

(l) Lease Supplement; Mortgage. On or prior to such Acquisition Date, the Lessee and the Lessor shall have executed and delivered a Lease Supplement with respect to the Subject Property and shall have delivered the original counterpart of such Lease Supplement to the Administrative Agent, and the Lessor shall have delivered a Mortgage to the Administrative Agent with respect to the Subject Property.

(m) Financing Statements. On or prior to such Acquisition Date, the Lessee and the Lessor shall have delivered all UCC financing statements relating to the Subject Property as the Lessor or the Administrative Agent may reasonably request in order to protect the interests of the Lessor under the Lease relating to the Subject Property to the extent the Master Lease constitutes a security agreement and to protect and perfect the interests of the Administrative Agent in the Subject Property.

(n) Recordation of Lessor Mortgage; Lessor Financing Statements; Search Results. The Lessor and the Administrative Agent shall have received (x) evidence reasonably satisfactory to it that each of (i) the applicable Lease Supplement and any other instrument constituting a Lessor Mortgage, (ii) the financing statements relating to

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the Subject Property and (iii) the Mortgage relating to the Subject Property has been, or is being, recorded or filed in a manner sufficient to properly perfect each of their interests therein and (y) copies of file search reports from the Uniform Commercial Code filing officer in the jurisdiction (i) in which the Subject Property is located and (ii) in which is located the jurisdiction of incorporation of the Lessee, setting forth the results of such Uniform Commercial Code file searches.

(o) Property Survey. On or prior to such Acquisition Date, the Lessee shall have delivered to each Participant and the Administrative Agent a 1999 ALTA/ACSM Survey of the Subject Property certified to each Participant and the Administrative Agent and the title company and otherwise in form and substance acceptable to such Persons.

(p) Title Insurance. On or prior to such Acquisition Date, the Lessee shall have delivered to the Administrative Agent and the Lessor an ALTA (or, as the case may be, CLTA) owners and ALTA (or, as the case may be, CLTA) lenders title insurance policy covering the Subject Property in favor of the Lessor and the Administrative Agent, respectively, such policies to be in an amount not less than the Property Cost of the Subject Property, and to be reasonably satisfactory to the Lessor and the Administrative Agent with alternative estates endorsements and such other customary endorsements and affirmative assurances issued by the title company as a routine matter (including, without limitation ALTA Form 3.1 (with Parking), ALTA Form 6.2, ALTA Form 9, a survey endorsement, an endorsement deleting the standard exceptions, and an endorsement regarding recharacterization), to the extent reasonably available in the state where the Subject Property is located.

(q) 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 Subject Property.

(r) Opinion of Counsel and of Local Counsel to the Lessee. Each Participant and the Administrative Agent shall have received an opinion of counsel qualified with respect to the laws of the jurisdiction in which the Subject Property is situated, addressed to such Persons and in form and substance satisfactory to the Administrative Agent and each Participant.

(s) Plans and Specifications. Within ninety (90) days following the Acquisition Date, the Lessor and the Administrative Agent shall have received copies of the Plans and Specifications for the Subject Property, certified by the Lessee to be a true, correct and complete copy thereof as in effect on such Acquisition Date.

(t) Good Standing Certificates. The Lessee and the Lessor shall have delivered to each Participant and the Administrative Agent a certificate of good standing (or its equivalent) to the effect that Lessee and the Lessor are qualified to do business in the jurisdiction where the Subject Property is located.

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(u) Cash Collateral. On or prior to such Acquisition Date, there shall have been delivered to the Administrative Agent the Cash Collateral and the Cash Collateral Documents in form and substance satisfactory to the Administrative Agent and the Participants, together with a completed Form FR U-1 and any other documents which the Administrative Agent may reasonably require in connection with the Cash Collateral.

(v) Additional Matters. On such Acquisition Date each Participant and the Administrative Agent shall have received such additional documents and instruments related to the acquisition and financing of the Subject Property as any of them shall reasonably request in order to establish the rights and interests of the Administrative Agent and each Participant intended to be created under the Operative Documents in respect of the Subject Property and the Cash Collateral.

Section 6.2. Delivery of Documents. All documents and instruments required to be delivered pursuant to this Article VI shall be delivered at the offices of Schiff Hardin & Waite, 6600 Sears Tower, Chicago, Illinois 60606, or at such other location as may be determined by the Lessor, the Administrative Agent and the Lessee.

ARTICLE VII
DISTRIBUTIONS

Section 7.1. Basic Rent. Each payment of Basic Rent (and any payment of interest on overdue installments of Basic Rent) received by the Administrative Agent shall be distributed by the Administrative Agent, first, to the Lessor and the Lenders pro rata without priority of one over the other for application to, the Lender Basic Rent and Lessor Basic Rent respectively, then due, and, second, to Lenders and Lessor pro rata without priority of one over the other for application to any overdue interest or Yield (to the extent permitted by Applicable Law).

Section 7.2. Purchase Payments by the Lessee. Any payment received by the Administrative Agent as a result of:

(a) the purchase of all of the Properties in connection with the exercise of the Purchase Option under Section 18.1 of the Master Lease, or compliance with the obligation to purchase (or cause its designee to purchase) all of the Properties in accordance with
Section 18.2 or 18.3 of the Master Lease, or

(b) compliance with the obligation to purchase all of the Properties in accordance with Section 16.2(f) of the Master Lease, or

(c) failure to fulfill one or more of the conditions to the exercise of the Remarketing Option with respect to any Property pursuant to Section 20.1 of the Master Lease and the receipt by the Lessor of the Lease Balance pursuant to the last paragraph of Section 20.2 of the Master Lease, or

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(d) the payment of the Property Balance with respect to any Property in accordance with Article XV or XVIII of the Master Lease.

shall be distributed by the Administrative Agent to the Participants pro rata without priority of one over the other, in the proportion that the Participant Balance of each bears to the aggregate of all of the Participant Balances provided that if there is a shortfall in payment of any such amount, the Lenders shall be paid in full prior to any payment to the Lessor.

Section 7.3. Payment of Maximum Recourse Amounts. The payment of the Maximum Recourse Amount to the Administrative Agent pursuant to Section 20.2(f) of the Master Lease upon the exercise of the Remarketing Option shall be distributed to the Lenders holding Series A Notes for application to the outstanding principal amount of the Series A Notes.

Section 7.4. Sales Proceeds of Remarketing of the Properties. Any payments received by the Administrative Agent as proceeds from the sale of each Property sold pursuant to the exercise of the Remarketing Option pursuant to Article XX of the Master Lease, together with any payment made as a result of an End of Term Report pursuant to Section 13.2 and any amounts in excess of the Maximum Recourse Amount (other than amounts in respect of accrued and unpaid Rent) received by the Administrative Agent pursuant to Section 20.2(f) of the Master Lease, shall be distributed by the Administrative Agent in the funds so received in the following order of priority:

first, to the Lenders holding Series B Notes, an amount equal to the aggregate principal amount of the Series B Notes then outstanding with respect to such Property for application to the outstanding principal amount of Series B Notes of each such Lender, pro rata among such Lenders without priority of one over the other in the proportion that the outstanding principal amount of Series B Notes of each such Lender bears to the aggregate outstanding principal amount of Series B Notes and, in the case where the amounts so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Lenders without priority of one over the other in the proportion that the outstanding principal amount of Series B Notes of each such Lender bears to the aggregate outstanding principal amount of Series B Notes;

second, to the extent not previously paid as required by
Section 7.3 hereof, an amount equal to the Maximum Recourse Amount shall be distributed to the Lenders holding Series A Notes as set forth in Section 7.3;

third, an amount equal to the aggregate Lessor Balance shall be distributed to the Lessor for application to pay in full the Lessor Balance; and

fourth, the balance, if any, shall be promptly paid to the Lessee as provided in Section 20.5 of the Master Lease.

Section 7.5. Supplemental Rent. All payments of Supplemental Rent received by the Administrative Agent (excluding any amounts payable pursuant to the preceding provisions of

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this Article VII) shall be distributed promptly by the Administrative Agent upon receipt thereof to the Persons entitled thereto pursuant to the Operative Documents.

Section 7.6. Distribution of Payments after Lease Event of Default. (a) During the continuance of a Lease Event of Default and subject to clause (b) below, all proceeds from the sale of the Properties shall be distributed by the Administrative Agent in the following order of priority:

first, so much of such payment or amount as shall be required to pay or reimburse the Administrative Agent for any tax, fees, expense, indemnification or other loss incurred by the Administrative Agent (to the extent incurred in connection with any duties as the Administrative Agent), shall be distributed to the Administrative Agent;

second, so much of such payments or amounts as shall be required to pay the 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, to the Lenders for application to pay in full the Loan Balance, pro rata among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders and, in the case where the amounts so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders;

fourth, an amount equal to the Lessor Balance shall be distributed to the Lessor for application to pay in full the Lessor Balance;

fifth, to the Participants and the Administrative Agent for any other amounts payable to them under the Operative Documents, pro rata based on the amounts payable; and

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

(b) All payments received and amounts realized by the Administrative Agent in connection with any Casualty or Condemnation during the continuance of a Lease Event of Default shall be distributed by the Administrative Agent as follows:

(i) in the event that the Lessor and the Administrative Agent elect to pay all or a portion of such amounts to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with Section 14.2 of the Master Lease, then such amounts shall be distributed to the Lessee, and

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(ii) in the event that the Lessor and the Administrative Agent elect to apply all or a portion of such amounts to the purchase price of the related Property in accordance with Section 14.2 and Article XV of the Master Lease, then such amounts shall be distributed in accordance with clause (a).

(c) All amounts (other than amounts described in clause (a) or (b) above) received by the Administrative Agent during the continuance of a Lease Event of Default, including, without limitation, the Cash Collateral, shall be distributed by the Administrative Agent as follows:

first, so much of such payment or amount as shall be required to pay or reimburse the Administrative Agent for any tax, fees, expense, indemnification or other loss incurred by the Administrative Agent (to the extent incurred in connection with any duties as the Administrative Agent), shall be distributed to the Administrative Agent;

second, so much of such payments or amounts as shall be required to pay the Participants the amounts payable to them pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to each such Lender and the Lessor without priority of one over the other in accordance with the amount of such payment or payments payable to each such Person;

third, to the Lenders for application to pay in full the Loan Balance, pro rata among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders and, in the case where the amounts so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lenders bears to the aggregate Participant Balances of all Lenders;

fourth, to the Lessor in an amount equal to the Lessor Balance shall be distributed to the Lessor for application to the Lessor Balance;

fifth, to the Participants and the Administrative Agent for any other amounts payable to them under the Operative Documents, pro rata based on the amounts payable; and

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

Section 7.7. Casualty and Condemnation Amounts. Subject to Section
7.6(b), any amounts payable to the Administrative Agent as a result of a Casualty or Condemnation pursuant to Section 14.2 of the Master Lease and the Assignment of Lease and Rent shall be distributed as follows:

(a) all amounts payable to the Lessee in accordance with
Section 14.2(a) of the Master Lease shall be distributed to the Lessee, and

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Lam Research Corporation Participation Agreement

(b) all amounts that are to be applied to the purchase price of the related Property in accordance with Section 14.2(a) and Article XV of the Master Lease shall be distributed by the Administrative Agent to the Lenders and the Lessor pro rata 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.

Section 7.8. Other Payments. (a) Except as otherwise provided in Sections 7.1, 7.2, 7.6 and clause (b) below, any payment received by the Administrative Agent for which no provision as to the application thereof is made in the Operative Documents or elsewhere in this Article VII (including any balance remaining after the application in full of amounts to satisfy any expressed provision) shall be distributed 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 the Participant Balances.

(b) Except as otherwise provided in Sections 7.1, 7.2 and 7.6, all payments received and amounts realized by the Administrative Agent or the Lessor under the Master Lease or otherwise with respect to the Properties to the extent received or realized at any time after the indefeasible payment in full of the Participant Balances of all of the Participants and any other amounts due and owing to the Participants, shall be distributed forthwith by the Administrative Agent or the Lessor, as the case may be, in the order of priority set forth in
Section 7.6(a).

(c) Except as otherwise provided in Sections 7.1 and 7.2, any payment received by the Administrative Agent or the Lessor for which provisions as to the application thereof is made in an Operative Document but not elsewhere in this Article VII shall be distributed forthwith by the Lessor or the Administrative Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Document.

Section 7.9. Order of Application. To the extent any payment made to any Participant pursuant to Sections 7.2, 7.3, 7.4, 7.6, 7.7, 7.8 or 7.9 is insufficient to pay in full the Participant Balance of such Participant, then each such payment shall first be applied to accrued interest or Yield and then to principal of the Loans or the Lessor Amounts, as applicable.

Section 7.10. Payments to Account. All payments made to the Administrative Agent pursuant to the Operative Documents shall be made to the Account.

ARTICLE VIII
REPRESENTATIONS

Section 8.1. Representations of the Lenders. Each Lender represents and warrants to the other parties hereto that:

(a) Source of Funds. Such Lender is not and will not be making its Loans 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) or "plan" (as defined in Section 4975(e)(1) of the Code).

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Lam Research Corporation Participation Agreement

(b) Acquisition for Investment. Each Lender is participating in the Transactions for its own account and not with a view toward redistribution; provided that disposition of its rights hereunder shall remain in its control and the foregoing shall not affect the ability of any Lender to assign or sell participations in its rights in accordance with the Operative Documents.

Section 8.2. Representations of the Lessee. The Lessee hereby represents and warrants to the other parties hereto that:

(a) Corporate Existence and Power. The Lessee is duly incorporated and validly existing in good standing under the laws of the jurisdiction of its incorporation, is duly qualified and in good standing as a foreign corporation in the state where the Properties are located and each other jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it is such that failure to maintain such qualification has resulted or could result in a Material Adverse Effect, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

(b) Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Lessee of this Participation Agreement and the other Operative Documents to which it is a party (i) are within the Lessee's corporate powers and have been duly authorized by all necessary corporate action, (ii) require no action by or in respect of, or filing with, any Governmental Authority and (iii) do not contravene any Requirement of Law or any contractual restriction, order, decree or other instrument binding upon the Lessee or any of its Subsidiaries, except, in the case of clauses (ii) and
(iii) above, any such action, filing or contravention which has not resulted in or could not result in a Material Adverse Effect.

(c) Binding Effect. This Participation Agreement and each other Operative Document to which the Lessee is a party has been duly executed and delivered by the Lessee and constitutes a legal, valid and binding agreement of the Lessee enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

(d) Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Lessee threatened against or affecting the Lessee before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could have a Material Adverse Effect and Lessee does not have any material contingent obligations not provided for or disclosed in the financial statements referred to in
Section 8.2(q) hereof.

(e) Margin Stock. The Lessee is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of

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Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

(f) Use of Proceeds. The proceeds of each Advance will be used only for the purpose of financing the acquisition of the applicable Property and the payment of Transaction Expenses incurred in connection therewith.

(g) Compliance with Law. The Lessee is in compliance in all material respects with all Applicable Laws, including, without limitation, environmental protection laws, ERISA and the Occupational Health and Safety Act, except where the failure to so comply would not have a Material Adverse Effect.

(h) Information. All information relating to the Lessee and the Properties heretofore furnished by the Lessee to the Participants and any Appraiser for purposes of or in connection with this Participation Agreement and the other Operative Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by the Lessee to the Participants and any such Appraiser will be, true and accurate in all material respects and does not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading.

(i) Investment Company. The Lessee is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.

(j) Liens. The Lessor Mortgage with respect to each Property creates, or upon its execution will create, a valid security interest in and mortgage lien on such Property purported to be covered thereby, and upon recordation of such Lessor Mortgage and the filing of the Lessor Financing Statements relating to such Property, such security interest and mortgage lien will constitute perfected security interests and mortgage liens, prior to all Liens other than Permitted Property Liens.

(k) Offer of Securities, etc. Neither the Lessee, nor any Person authorized to act on its behalf has, directly or indirectly, (i) offered any interest in the Properties (or, if such sale or offer would be integrated with the sale or offer of such interest in the Properties, any other interest similar thereto) for sale to any Person or (ii) solicited from any Person any offer to acquire any interest in the Properties (or any such other interest), in either case in violation of the Securities Act.

(l) Properties. Each Property and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, sublessees, licensees, tenants and subtenants shall be in material compliance with all Requirements of Law (including, without limitation, all zoning and land use laws and Environmental Laws) and Insurance Requirements, except for such Requirements of Law as it shall be contesting in good faith by appropriate proceedings. There is no action, suit or proceeding (including any

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Lam Research Corporation Participation Agreement

proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to Lessee's knowledge, threatened with respect to it, or any Property that materially adversely affects the title to, or the use, operation or value of, such Property.

(m) Deed. With respect to the acquisition of a Property on the applicable Acquisition Date, the Deed for such Property will be sufficient to convey good and marketable title to such Property (subject to the Permitted Property Liens) to the Lessor.

(n) Insurance. The Lessee has, on or before the applicable Acquisition Date, obtained insurance coverage covering each Property that meets the requirements set forth in Article XIII of the Master Lease and such coverage is in full force and effect.

(o) Flood Hazard Areas. Except as otherwise identified on the applicable survey, plat or map with respect to a Property delivered pursuant to Section 6.1(o), no portion of any Property will be located within an area identified as a special flood hazardous area by the Federal Emergency Management Agency.

(p) Solvency. The Lessee is Solvent.

(q) Financial Statements. The June 30, 2002 annual financial statements of Lessee and its Consolidated Subsidiaries and the December 29, 2002 quarterly financial statements of the Lessee and its Consolidated Subsidiaries were prepared in accordance with GAAP and fairly present the financial condition of Lessee and its Consolidated Subsidiaries at such date and the results of their operations for the period then ended.

(r) Material Adverse Change. Since December 29, 2002, there has been no change in the business, properties, condition (financial or otherwise) or results of operations of Lessee and its Consolidated Subsidiaries which could reasonably be expected to have a Material Adverse Effect.

(s) Taxes. Lessee has filed all United States federal income tax returns and all other material tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by Lessee, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. No material tax liens have been filed and no material claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of Lessee in respect of any taxes or other governmental charges are adequate.

(t) ERISA. No member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans in excess of $15,000,000 in the aggregate. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, no member of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan.

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Lam Research Corporation Participation Agreement

(u) Material Agreements. Lessee is not a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Lessee is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing any Indebtedness or Off-Balance Sheet Obligations with an outstanding principal amount (or implied or attributed principal amount) in excess of $15,000,000.

(v) Environmental Matters. In the ordinary course of its business, Lessee conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of Lessee, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, Lessee has concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, would not reasonably be expected to have a Material Adverse Effect.

Section 8.3. Representations of the Lessor. The Lessor warrants and represents to the other parties hereto that:

(a) The Lessor is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and has all requisite corporate power and authority to execute, deliver and perform its obligations under the Operative Documents to which it is a party.

(b) The Operative Documents to which it is, or will be, a party have been duly authorized by all requisite corporate action, have been duly executed and delivered by the Lessor, and constitute, and each other Operative Document to which the Lessor is a party when executed and delivered by the Lessor will constitute, the valid and binding obligations of the Lessor enforceable against the Lessor in accordance with the respective terms thereof, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

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(c) Neither the execution and delivery of the Operative Documents, the consummation of the transactions contemplated thereby nor the fulfillment of or compliance with the provisions thereof will require consent, approval, authorization, filing, registration or qualification under or conflict with or violate any Applicable Law applicable to the Lessor or any of its property, except as contemplated by the Operative Documents.

(d) There are no Lessor Liens attributable to the Lessor on the Collateral, the Properties or any part thereof.

(e) The Lessor is not and will not be funding its Lessor Amounts hereunder with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section 4975(e)(1) of the Code).

(f) The Lessor is participating in the Transactions for its own account and not with a view toward redistribution; provided that disposition of its rights hereunder shall remain in its control and the foregoing shall not affect the ability of the Lessor to assign, transfer or sell participations in its rights in accordance with the Operative Documents.

(g) There are no actions or proceedings pending, or to the knowledge of the Lessor, threatened, against or affecting the Lessor in or before any Governmental Authority which, if adversely determined, would materially and adversely affect the ability of the Lessor to enter into or perform the Operative Documents to which it is a party.

ARTICLE IX
PAYMENT OF CERTAIN EXPENSES

The Lessee agrees, for the benefit of the Arranger, the Lessor, the Administrative Agent and the Lenders, 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 on the Documentation Date and each Acquisition Date. The Lessor shall deliver or cause to be delivered to the Lessee written invoices therefore at least one (1) Business Day prior to the Documentation Date or such Acquisition Date, as applicable.

(b) The Lessee shall pay or cause to be paid (i) all Transaction Expenses incurred by the Lessor, the Administrative Agent or the Lenders 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, (ii) all Transaction Expenses incurred by the Lessor, the Administrative Agent or the Lenders in connection with the purchase of any Property by Lessee or other Person pursuant to Articles XV, XVIII and XXI of the Master Lease, (iii) all Transaction Expenses incurred by any of the Lenders, the Lessor or the Administrative Agent in respect of enforcement

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of any of their rights or remedies in respect of the Operative Documents and
(iv) all Transaction Expenses incurred by the Lessor, the Administrative Agent and the Lenders in connection with the negotiation and documentation of any restructuring or "workout", whether or not consummated, of any Operative Document.

Section 9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees for which the Lessee is responsible pursuant to Section 15.2 below and any and all stamp, transfer and other similar taxes, fees and excise, 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. Loan Agreement and Related Obligations. If a Lease Event of Default has occurred and is continuing, the Lessee shall pay, without duplication of any other obligation of the Lessee to pay any such amount under the Operative Documents, before the due date thereof, all costs, expenses and other amounts (other than principal and interest on the Loans which are payable to the extent otherwise required by the Operative Documents) required to be paid by the Lessor, the Administrative Agent or any of the Lenders under the Loan Agreement and the Assignment of Lease and Rent.

ARTICLE X
OTHER COVENANTS AND AGREEMENTS

Section 10.1. Covenants of the Lessee. The Lessee hereby covenants and agrees with the Lessor, the Lenders and the Administrative Agent that it shall comply with the following provisions of this Section 10.1, it being understood that the following covenants are in addition to, and not by way of limitation of, any covenant set forth in the Lease or any other Operative Document.

(a) Financial Reporting. The Lessee will maintain, for Lessee and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish to the Lessor, the Administrative Agent and each Lender:

(i) Within ninety (90) days after the close of each of Lessee's fiscal years, an unqualified audit report certified by independent certified public accountants of recognized national standing selected by Lessee, prepared in accordance with generally accepted accounting principles on a consolidated basis for Lessee and its Consolidated Subsidiaries, including a consolidated balance sheet as of the end of such period and related consolidated statements of earnings and cash flows;

(ii) Within forty-five (45) days after the close of each of the first three quarterly periods of each of Lessee's fiscal years, for Lessee and the Consolidated Subsidiaries, an unaudited consolidated balance sheet as at the close of such period and a consolidated statement of earnings and cash flows for the period

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Lam Research Corporation Participation Agreement

from the beginning of such fiscal year to the end of such quarter, all certified, subject to year-end audit adjustments, by an Authorized Officer;

(iii) Together with the financial statements required pursuant to clauses (i) and (ii) above, a compliance certificate in substantially the form of Exhibit E hereto signed by an Authorized Officer showing the calculations necessary to determine compliance with Sections 10.1(j) and
(k) of this Participation Agreement and stating that no Lease Default or Lease Event of Default exists, or if any Lease Default or Lease Event of Default exists, stating the nature and status thereof;

(iv) Promptly upon the furnishing thereof to the shareholders of Lessee, copies of all financial statements, reports and proxy statements so furnished;

(v) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly or other regular reports which Lessee or any of its Subsidiaries files with the Securities and Exchange Commission;

(vi) If and when Lessee or any member of the Controlled Group (A) gives or is required to give notice to the PBGC of any Reportable Event with respect to any Plan which would constitute grounds for a termination of such Plan under ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any Reportable Event, (B) receives notice of complete or partial withdrawal liability under Title IV of ERISA, (C) receives notice that any Multiemployer Plan is in reorganization under Section 4242 of ERISA or may become insolvent under Section 4245 of ERISA, or (D) receives notice from the PBGC that it will institute proceedings asserting liability under Title IV of ERISA or to terminate a Plan under Section 4042 of ERISA or will apply to the appropriate United States District Court to seek the appointment of a trustee to administer any Plan, then, in each such event, copies of such notice given, required to be given or received, as the case may be; and

(vii) Promptly after receipt of a request therefor, such other information (including non-financial information) as the Lessor, the Administrative Agent or any Lender may from time to time reasonably request.

The Lessee shall be deemed to be in compliance if the information required by Sections 10.1(a)(i), (ii) and (v) is available on "EDGAR" within the time period specified, and such delivery shall satisfy the Lessee's obligations under such Sections.

(b) Use of Proceeds. The proceeds of the Advances made under this Agreement will be used to acquire the Properties and to pay Fees and Transaction Expenses. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U.

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Lam Research Corporation Participation Agreement

(c) Notice of Default. Promptly after any Authorized Officer of the Lessee becomes aware of the occurrence of any Lease Default or Lease Event of Default, Lessee will give notice in writing to the Lessor and the Administrative Agent of the occurrence of such Lease Default or Lease Event of Default.

(d) Existence. Lessee will, and will cause each of its Subsidiaries to, do all things necessary to remain duly incorporated or otherwise organized, validly existing and (to the extent applicable) in good standing in its jurisdiction of incorporation or organization and maintain all requisite authority to conduct its business in each jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business is such that failure to maintain such authority has resulted or could result in a Material Adverse Effect; provided, however, that the existence of any Subsidiary may be terminated and any right, franchise or license of any Subsidiary may be terminated or abandoned if in the good faith judgment of the appropriate officer or officers of Lessee, such termination or abandonment is in its best interest and is not materially disadvantageous to the Lessor or the Lenders.

(e) Taxes. Lessee will, and will cause each of its Subsidiaries to, pay when due all material taxes, assessments and governmental charges and levies upon it or its income, profits or property, except those which are being contested in good faith by appropriate proceedings diligently conducted (or, in the case of any such tax, those the payment of which can be delayed without penalty) and with respect to which adequate reserves have been set aside.

(f) Insurance. Without limiting the provisions of Article XIII of the Master Lease, Lessee will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on its property in such amounts and covering such risks of loss of a character usually insured by corporations of comparable size and financial strength and with comparable risks.

(g) Compliance with Laws. Lessee will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject (including, without limitation, all laws, rules or regulations under ERISA and all environmental laws and regulations) which, if violated, could reasonably be expected to have a Material Adverse Effect.

(h) Inspection. Lessee will, and will cause each of its Subsidiaries to, permit the Lessor and the Lenders, by their respective representatives and agents, to inspect at all reasonable times, and at the risk and expense of the inspecting party (so long as no Lease Event of Default shall have occurred and be continuing and thereafter at the Lessee's risk and expense), any of the corporate books and financial records of Lessee and each of its Subsidiaries, to examine and make copies of the books of accounts and other financial records of Lessee and each of its Subsidiaries, and to discuss the affairs, finances and accounts of Lessee and each of its Subsidiaries with, and to be advised as to the same by,

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Lam Research Corporation Participation Agreement

their respective officers at such reasonable times and intervals as the Lessor and the Lenders may designate.

(i) Consolidations, Mergers, Dissolution and Sale of Assets. Lessee will not sell, lease, transfer or otherwise dispose of all or substantially all of its assets (whether by a single transaction or a number of related transactions and whether at one time or over a period of time) or to dissolve or to consolidate with or merge into any Person or permit any Person to merge into it, except that Lessee may consolidate with or merge into, any other Person, or permit another Person to merge into it so long as (i) Lessee shall be the continuing or surviving Person, (ii) immediately after such merger or consolidation or sale, there shall not exist any Lease Default or Lease Event of Default, and (iii) Lessee shall deliver a certificate or other evidence showing that it is in pro forma compliance with the covenants set forth in Sections 10.1(j), (k) and (l) as of the effective date of such merger or consolidation or sale after giving effect thereto.

(j) Liens. Lessee will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien in or on (x) any Property, except Permitted Property Liens, and (y) any of its other properties or assets, except:

(i) Liens existing on the Documentation Date;

(ii) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty or which are being contested in good faith by appropriate proceedings which will prevent the sale or forfeiture of any property of the Lessee or such Subsidiary or any material interference with the use thereof by the Lessee or such Subsidiary and as to which the Lessee or such Subsidiary has set aside on its books reserves deemed by it to be adequate with respect thereto;

(iii) Carrier's, warehousemen's, mechanics', landlords', materialmen's, repairmen's, or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith by appropriate proceedings which will prevent the sale or forfeiture of any property of the Lessee or such Subsidiary or any material interference with the use thereof by the Lessee or such Subsidiary and as to which the Lessee or such Subsidiary has set aside on its books reserves deemed by it to be adequate with respect thereto;

(iv) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation;

(v) Liens on the property of the Lessee securing
(a) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases,

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Lam Research Corporation Participation Agreement

statutory obligations, (b) contingent obligations on surety and appeal bonds, and (c) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business;

(vi) Liens on the property or assets of any Person which becomes a Subsidiary of Lessee or which is merged into Lessee in a manner consistent with Section 10.1(i) above, after the Documentation Date; provided that (a) such Liens exist at the time such Person is acquired by or merged into Lessee and (b) such Liens were not created in contemplation of such acquisition by or merger into Lessee;

(vii) Judgment Liens, provided that such Liens do not have a value in excess of $15,000,000 or such Liens are released, stayed, vacated or otherwise dismissed within sixty
(60) days after issue or levy and, if so stayed, such stay is not thereafter removed;

(viii) Rights of vendors or lessors under conditional sale agreements, Capitalized Leases or other title retention agreements (including synthetic leases) entered into after the Documentation Date, provided that, in such case, (a) such rights secure or otherwise relate to Lessee's obligations arising therefrom, (b) such rights do not extend to any property other than property acquired or leased with the proceeds of such obligations (other than cash pledged to secure obligations under synthetic leases), and (c) both immediately before and after giving effect to any such Lien, Lessee shall be in compliance with Section 10.1(k) below;

(ix) Liens on the property or assets of any Subsidiary of Lessee in favor of Lessee or any other Subsidiary of Lessee;

(x) Liens to secure Indebtedness of the type described in clauses (vi) and (vii) of the definition of "Indebtedness", entered into by Lessee with respect to obligations otherwise permitted under Section 10.1(k) below;

(xi) Liens created after the Documentation Date on Japanese Assets to secure a Yen-Denominated Facility;

(xii) Liens on accounts receivable created in connection with a transaction permitted by Section 10.1(l) not to exceed $100,000,000 at any one time; and

(xiii) Liens in addition to the Liens permitted by clauses (i) through (xii) above securing additional obligations of Lessee permitted under Section 10.1(k) below of up to $20,000,000 annually and $50,000,000 in the aggregate.

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Lam Research Corporation Participation Agreement

(k) Minimum Cash. The Lessee shall at all times during the Lease Term maintain unrestricted cash balances plus Short Term Investments in an amount equal to the sum of $50,000,000, plus the outstanding non-cash collateralized (i) notional amount of senior Indebtedness, (ii) notional amount of subordinated Indebtedness, (iii) recourse portions of Off-Balance Sheet Obligations, (iv) Guaranties (to the extent not included in clauses (i), (ii) and (iii) above and excluding from this clause (iv) any Guaranties constituting standby letters of credit (which are covered by clause (v) below)), and (v) standby letters of credit of the Lessee and its Subsidiaries to the extent of amounts in excess of $5,000,000, but excluding from this clause (v) any standby letters of credit securing obligations of the types described in Sections 10.1(j)(iv) and (v) (other than leases) arising in the ordinary course of business of the Lessee and its Subsidiaries.

(l) Sale of Receivables. Lessee will not, and will not permit any of its Subsidiaries to, sell or otherwise transfer any of its accounts receivable; provided that the Lessee and its Subsidiaries may sell accounts receivable on a limited-recourse basis under any receivables purchase agreement in an amount not to exceed $100,000,000 at any one time. For purposes of this Section 10.1(l), "limited-recourse" means that, on an aggregate basis, recourse is limited to less than 20% of the notional amount of the aggregate accounts receivable so sold.

(m) Transactions with Affiliates. Lessee will not, and will not permit any Subsidiary to, directly or indirectly, pay any amount of funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate except on an arms-length basis on terms at least as favorable to Lessee or such Subsidiary as would have been obtained from a third party who was not an Affiliate.

(n) Further Assurances. The Lessee, at its cost and expense, will cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as Lessor, Administrative Agent or any Lender reasonably may request from time to time in order to carry our more effectively the intent and purposes of this Agreement and the other Operative Documents and the Transactions. The Lessee, at its cost and expense, will cause all financing statements, fixture filings, mortgages and other documents, to be recorded or filed at such places and times in such manner, and will take all such other actions or cause such actions to be taken, as may be necessary or as may be reasonably requested by Administrative Agent, any Lender or Lessor in order to establish, preserve, protect and perfect the title and Lien of Lessor and/or Administrative Agent in the Properties and the Collateral and Lessor's, Administrative Agent's and/or any Lender's rights under this Agreement and the other Operative Documents.

Section 10.2. [***]

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THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


Lam Research Corporation Participation Agreement

Section 10.3. Covenants of Each Participant. Subject at all times to the terms and provisions of Section 15.10, each Participant hereby severally agrees that, until payment in full of the Lease Balance or such other time as the Master Lease shall have terminated with respect to all of the Properties:

(a) it will not create, incur, assume or suffer to exist any Lessor Lien attributable to it upon any Property; and

(b) it 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 Properties attributable to it; provided that such Participant may contest any such Lessor Lien in good faith and by appropriate proceedings.

Section 10.4. Release of Properties. (a) If the Lessee shall at any time (i) purchase any Affected Property pursuant to Section 15.1 of the Lease,
(ii) exercise its Purchase Option with respect to the Properties, or if any or all of the Properties shall be purchased by the Lessee (or its designees) in accordance with the Master Lease, and in each case, the Lessee satisfies each of the obligations and conditions set forth in the Master Lease for the release of a Property therefrom, then, upon application of the proceeds of any such sale pursuant to Article VII and all accrued interest, Yield and any other payments due and owing from the Lessee to the Administrative Agent, the Lenders and the Lessor on such date pursuant to the Operative Documents, including without limitation all amounts due and owing pursuant to Article XIII of this Participation Agreement with respect to such Property or Properties purchased by the Lessee or its designee, each such Property shall be released from the Liens created by the Operative Documents (including any Liens created by the Lease Supplement covering such Property, the Mortgage with respect to such Property and the Assignment of Lease and Rent) and the Administrative Agent and the Lessor shall, at the expense of the Lessee, execute and deliver such instruments as the Lessee may reasonably request to effectuate and evidence such releases.

(b) In addition, upon the termination of the Commitments of the Lenders and the payment in full of all other amounts owing to the Lenders by the Lessee hereunder or under any other Operative Document, the Properties shall be released from the Liens created by the Mortgages and the Assignment of Lease and Rent. Upon request of either the Lessee or the Lessor following any such release, the Administrative Agent shall, at the sole cost and expense of the Lessee, execute and deliver to the Lessor or the Lessee, as applicable, such documents as the Lessee or the Lessor shall reasonably request to effectuate and evidence such release.

ARTICLE XI
[INTENTIONALLY OMITTED]

ARTICLE XII
TRANSFERS OF PARTICIPANTS' INTERESTS

Section 12.1. Assignments. (a) Each Lender may, with the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld), assign all or a portion

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Lam Research Corporation Participation Agreement

of its rights and obligations hereunder pursuant to an assignment agreement substantially in the form of Exhibit F to one or more Eligible Lender Assignees (or, if a Lease Event of Default has occurred and is continuing, to any Person). Each such assignment shall be of a constant, not varying, percentage of all of the assigning Lender's rights and obligations under the Operative Documents relating to its Series A Notes and/or Series B Notes. Any such assignment shall be in a minimum aggregate amount of $5,000,000 (or the balance of such Loan Commitment applicable to its Series A Notes and/or Series B Notes, if less). Any assignment hereunder shall be effective upon delivery to the Administrative Agent and the Lessor of written notice of the assignment together with a transfer fee of $3,500.00 payable by the assignor Lender or the assignee Lender to the Administrative Agent for its own account. The assigning Lender will give prompt notice to the Administrative Agent and the Lessee of any such assignment. Upon the effectiveness of any such assignment, the assignee shall become a "Lender" for all purposes of the Operative Documents (including all representations, warranties and covenants which will all be deemed made and agreed to by such assignee) and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Loans and Commitment components being assigned. The Administrative Agent agrees that upon notice of any such assignment and surrender of the appropriate Note or Notes, it will promptly provide to the assigning Lender and to the assignee Lender separate promissory notes of the series and in the amount of their respective interests substantially in the form of the original Note (but with notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof). So long as no Lease Event of Default has occurred and is continuing, Key Corporate Capital Inc. agrees that it will not transfer or assign its Notes if after giving affect to such transfer or assignment, the principal amount of Notes held by Key Corporate Capital Inc. plus the Lessor Amounts held by SELCO Service Corporation would be less than $10,000,000.

(b) The Lessor may, with the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld), assign all of its rights and obligations hereunder pursuant to an assignment agreement in form and substance reasonably satisfactory to the Lessee and the Administrative Agent (provided that Lessee's approval shall not be required during the continuance of a Lease Event of Default) to an Eligible Lessor Assignee (or, if a Lease Event of Default has occurred and is continuing, to any Person). Any assignment hereunder shall be effective upon the later of (x) delivery to the Administrative Agent and the Lessee of written notice of the assignment and (y) the date on which all required consents thereto shall have been given (or, if applicable, deemed given). The Lessor will deliver written notice to the Administrative Agent and the Lessee of any such proposed assignment at least ten (10) Business Days prior to the proposed date of such assignment, which notice shall contain the name of the proposed assignee and financial information with respect thereto sufficient to determine whether such transferee is an Eligible Lessor Assignee (any such notice, a "Notice of Proposed Assignment"). To the extent any consents to an assignment are required hereunder, such consents shall be deemed to have been given if the party entitled to consent thereto does not object to the proposed transferee within five (5) Business Days of its receipt of the applicable Notice of Proposed Assignment. The Lessor shall make such filings and give such notices as shall be necessary to evidence such assignment in all public offices where filings have been made under the Operative Documents, and the Lessee and the Administrative Agent shall

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Lam Research Corporation Participation Agreement

cooperate with the Lessor in effecting such filings and notices. Upon the effectiveness of any such assignment, the assignee shall become the "Lessor" for all purposes of the Operative Documents and the assignor shall be relieved of its obligations hereunder. In connection with any assignment pursuant to this
Section 12.1(b), the Lessee and the Administrative Agent will, promptly upon the request of the Lessor and at Lessor's cost and expense, execute and deliver an acknowledgment of such assignment and the succession of the transferee to all rights and obligations of the transferor Lessor under the Operative Documents in such form as the transferee may reasonably request.

Section 12.2. Participations. Each Participant may sell, transfer, grant or assign participations in all or any part of such Participant's interests and obligations hereunder; provided that (i) such selling Participant shall remain a "Lender" or the "Lessor", as the case may be, for all purposes under the Operative Documents (such selling Participant's obligations under the Operative Documents remaining unchanged) and the sub-participant shall not constitute a Participant hereunder, (ii) no such sub-participant shall have, or be granted, rights to approve any amendment or waiver relating to the Operative Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or fees in respect of any Loans or Lessor Amounts in which the sub-participant is participating, (B) postpone the date fixed for any payment of principal (including extension of the Expiration Date or the date of any mandatory prepayment), interest or fees in which the sub-participant is participating, or (C) release all or substantially all of the collateral or guarantees (except as expressly provided in the Operative Documents) supporting any of the Loans or Lessor Amounts or Commitments in which the sub-participant is participating, (iii) sub-sub-participations by the sub-participant (except to an Affiliate, parent company or Affiliate of a parent company of the sub-participant) shall be prohibited and (iv) written notice of each such participation is given to the Lessee. In the case of any such participation, the sub-participant shall not have any rights under the Operative Documents (the sub-participant's rights against the selling Participant in respect of such participation to be those set forth in the participation agreement with such Participant creating such participation) and all amounts payable by the Lessee hereunder shall be determined as if such Participant had not sold such participation; provided, however, that such sub-participant shall be entitled to receive additional amounts under Sections 13.5, 13.10 and 13.11 on the same basis as if it were a Participant (but only to the extent that the Participant would have been entitled to receive such additional amounts with respect to the interest participated had it not sold such participation).

Section 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A. (a) If the assignee of any Participant pursuant to Section 12.1 or the subparticipant of any Participant pursuant to Section 12.2 is (i) not a citizen or resident of the United States of America, (ii) not a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or (iii) not an estate or trust that is subject to federal income taxation regardless of the source of its income (each, a "Non-U.S. Transferee"), then such Non-U.S. Transferee shall deliver (or cause to be delivered) upon the request of the Lessee to each of the Administrative Agent and the Lessee one of the following properly completed and signed U.S. tax forms: (i) a form W-8ECI or (ii) a form

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Lam Research Corporation Participation Agreement

W-8BEN claiming a valid exemption under an applicable U.S. tax treaty for all income payable to such Non-U.S. Transferee under the Operative Documents.

(b) If the assignee of any Participant pursuant to Section 12.1 or the subparticipant of any Participant pursuant to Section 12.2 is not a Non-U.S. Transferee (each, a "U.S. Transferee"), then such U.S. Transferee shall deliver (or cause to be delivered) to each of the Administrative Agent and the Lessee a properly completed and signed U.S. tax Form W-9.

(c) Any Participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Article XII, disclose to such assignee or participant or proposed assignee or participant, any information relating to Lessee or the Transactions, subject to appropriate confidentiality requirements relating to such information.

(d) Anything in this Article XII to the contrary notwithstanding, any Lender may without the consent of Lessee, the Administrative Agent or the Lessor, assign and pledge all or any portion of the Notes held by it to any Federal Reserve Bank, the United States Treasury or to any other financial institution as collateral security pursuant to Regulation A of the F.R.S. Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise; provided, any payment by Lessee for the benefit of the assigning or pledging Participant shall be deemed to satisfy the Lessee's obligations with respect thereto.

ARTICLE XIII
INDEMNIFICATION

Section 13.1. General Indemnification. (a) 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 Documentation Date or after the Maturity Date, in any way relating to or arising out of the transactions contemplated by this Participation Agreement and the other Operative Documents, including, without limitation:

(i) any of the Operative Documents and any amendment, modification or waiver in respect thereof;

(ii) the Properties or any part thereof or interest therein;

(iii) the purchase, design, construction, preparation, installation, inspection, delivery, nondelivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, assignment, 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
Section 16.2(d) or 16.2(f) of the Master Lease or any sale

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Lam Research Corporation Participation Agreement

pursuant to Article XV, XVIII or XX of the Master Lease), return or other disposition of all or any part or any interest in the Properties or the imposition of any Lien thereon, including, without limitation:
(1) Claims or penalties arising from any violation of law or in tort (on the basis of 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 any 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 Master Lease which are in effect at any time with respect to any Property or any part thereof, (5) any Claim for patent, trademark or copyright infringement with respect to any Property, and (6) Claims arising from any public improvements with respect to any Property resulting in any change or special assessments being levied against any Property or any plans to widen, modify or realign any street or highway adjacent to any Property, or any Claim for utility "tap-in" fees;

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

(v) 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 any other Operative Document; and

(vi) the existence of any Lien on or with respect to any Property, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Property or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personality or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee.

(b) Notwithstanding the terms of clause (a) of this Section 13.1, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.1 for any Claim to the extent arising or resulting from (1) the willful misconduct or gross negligence of such Indemnitee, (2) Lessor Liens attributable to such Indemnitee, (3) a breach by such Indemnitee of any Operative Document,
(4) a breach by such Indemnitee of any agreement entered into in connection with the assignment or participation of any Loan or Lessor Amount, any interest therein or any other interest of such Indemnitee under the Operative Documents, and (5) acts or events occurring in respect of any Property in the period after the Lessee ceases to lease such Property from the Lessor under the Lease to the extent not resulting from any act or event otherwise covered by this indemnity that occurred during the period the Lessee leased such Property. 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

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Lam Research Corporation Participation Agreement

residual value of any Property or as a guaranty of the Notes or the repayment of the Lease Balance.

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 transaction, be a Shortfall Amount, then as a condition to the Lessee's right to complete the remarketing of the Properties pursuant to Article XX of the Master Lease, the Lessee shall cause to be delivered to the Administrative Agent and the Lessor at least one hundred twenty (120) days prior to the Expiration Date, at the Lessee's sole cost and expense, a report from the Appraiser in form and substance satisfactory to the Lessor, the Administrative Agent and the Lenders (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 any Property from the Property Cost thereof.

(b) On or prior to the Expiration Date the Lessee shall pay to the Administrative Agent for the account of each of the Participants an amount (not to exceed the Shortfall Amount) equal to the portion of any Shortfall Amount that the End of the Term Report demonstrates was the result of a decline in the Fair Market Sales Value of any Property due to:

(i) extraordinary use; failure to maintain, repair, restore, rebuild or replace; failure to comply with any applicable law; failure to use; workmanship; method of installation or removal or maintenance, repair, rebuilding or replacement (excepting in each case ordinary wear and tear and except as otherwise provided in the Lease); or

(ii) any Modification made to, or any rebuilding of, such Property or any part thereof by the Lessee, or any sublessee, whether or not permitted pursuant to the Operative Documents; or

(iii) contamination at such Property resulting from any Hazardous Activity, Hazardous Materials or Environmental Violations whether or not such condition existed on the Acquisition Date therefor; or

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

(v) any condemnation of any portion of such Property pursuant to Article XIV of the Master Lease; or

(vi) any use of such Property or any part thereof by the Lessee other than for its intended purposes as contemplated by the applicable Appraisal; or

(vii) any grant, release, dedication, transfer, annexation or amendment made pursuant to Section 11.2 of the Master Lease; or

(viii) the failure of the Lessor to have good and marketable title to such Property free and clear of all Liens (other than Permitted Property Liens described in clauses (i), (viii) and (x) of the definition thereof); or

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Lam Research Corporation Participation Agreement

(ix) the existence of any sublease relating to such Property that shall survive the Expiration Date.

Section 13.3. Environmental Indemnity. To the fullest extent permitted by Applicable Law, and without limitation of the other provisions of this Article XIII, 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, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings, judgments, remedial actions, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to reasonable attorneys' and/or paralegals' fees and expenses and costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work with respect to any Property undertaken or required by any federal, state or local Governmental Authority), arising or asserted under any Environmental Laws, and arising in whole or in part, out of:

(a) the presence on or under such Property of any Hazardous Materials, or any Releases of any Hazardous Materials on, under, from or at such Property;

(b) any activity, including, without limitation, construction, carried on or undertaken on or off such Property, whether by the Lessee (or any predecessor in title) or any employees, agents, contractors or subcontractors of the Lessee (or any predecessor in title), or in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials 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 off such Property;

(c) with respect to any Hazardous Materials at such Property, loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, costs 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; or

(d) any noncompliance with Environmental Laws, or any act or omission causing an environmental condition at such Property that requires remediation or causing any Governmental Authority to record a Lien pursuant to Environmental Laws on the land record of such Property; or

(e) any residual contamination on or under such Property, including any contamination affecting any natural resources, and any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any Hazardous Material associated with such Property, and

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Lam Research Corporation Participation Agreement

irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances;

provided, however, that the Lessee shall not be required to indemnify any Indemnitee under this Section 13.3 for (1) any claim to the extent resulting from such Indemnitee's gross negligence or willful misconduct, or (2) any claim arising in respect to such Property to the extent attributable to acts or events occurring in the period after the Lessee ceases to lease the Property from the Lessor; provided that the facts supporting such claim occur after such period. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of the Lease Term with respect to any claim based on facts or circumstances arising prior to or during the Lease Term, and shall be separate and independent from any remedy under the Lease or any other Operative Document.

Without limiting the generality of the foregoing, the Lessee waives all rights and defenses that the Lessee may have because the Lessee's obligations are secured by real property. This means, among other things:

(1) The Indemnitees may collect from the Lessee without first foreclosing on any real or, if applicable, personal property collateral pledged by Lessee;

(2) If the Indemnitees foreclose on any real property collateral pledged by the Lessee:

(A) the amount of the Lessee's obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale (even if the collateral is worth more than the sale price thereof);

(B) the Indemnitees may collect from Lessee even if the Indemnitees, by foreclosing on the real property collateral, have destroyed any right Lessee may have to collect from third parties.

This is an unconditional and irrevocable waiver of any rights and defenses Lessee may have because Lessee's obligations are secured by real property.

Section 13.4. Proceedings in Respect of Claims. In case any action, suit or proceeding shall be brought against any Indemnitee in respect of Claims indemnifiable under Sections 13.1 or 13.3, such Indemnitee shall promptly notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at the Lessee's expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that if the Lessee shall have exercised its rights to control the defense of such Claim to the exclusion of the applicable Indemnitee, 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

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Lam Research Corporation Participation Agreement

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's counsel, (x) such action, suit or proceeding involves any risk of imposition of criminal liability on any Indemnitee or will involve a material risk of imposition of civil liability on any Indemnitee or the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Property Lien) on the Properties or any part thereof or any interference with the payment of Rent unless, in the case of civil liability only, the Lessee shall have posted a bond or other security reasonably satisfactory to the relevant Indemnitees in respect of 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 that the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) a Lease Default or Lease Event of Default has occurred and is continuing. The Indemnitee will join in the Lessee's efforts to sever such action. In the event that an Indemnitee has assumed control of any such proceeding, it shall keep the Lessee fully apprised of the status of such action, suit or proceeding and shall provide the Lessee with all information with respect to such action, suit or proceeding as the Lessee may reasonably request. The Indemnitee may participate 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 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.

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 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.

Section 13.5. General Tax Indemnity.

(a) Indemnification. Without limitation of the rights of any Tax Indemnitee under any other indemnification provision of this Article XIII, the Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the applicable Property and all Tax Indemnitees, and hold them harmless, on an After Tax Basis, against all Impositions.

(b) Contests. If any claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such

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Lam Research Corporation Participation Agreement

proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 13.5, or if any Tax Indemnitee shall determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 13.5 may be payable, such Tax Indemnitee shall promptly (and in any event, within thirty (30) days) notify the Lessee in writing (provided that failure to so notify the Lessee within thirty (30) days shall not alter such Tax Indemnitee's rights under this Section 13.5 except to the extent such failure precludes or materially adversely affects the ability to conduct a contest of any Impositions) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) 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 such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such thirty (30) day period, such Tax Indemnitee shall, in such notice to the Lessee, so inform the Lessee and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for ten (10) days after the receipt of such notice by the Lessee unless such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such ten (10) day period.

The Lessee shall be entitled for a period of thirty (30) days from receipt of such notice from such Tax Indemnitee (or such shorter period as such Tax Indemnitee has notified the Lessee is required by law or regulation for such Tax Indemnitee to commence such contest), to request in writing that such Tax Indemnitee contest the Imposition, at the Lessee's sole expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving an Imposition of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee, (y) such contest must be pursued in the name of such Tax Indemnitee, but can be pursued independently from any other proceeding involving an Imposition on such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) such Tax Indemnitee so requests, then the Lessee shall be permitted to control the contest of such claim, provided that in the case of any such contest, if such Tax Indemnitee determines reasonably and in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of such Tax Indemnitee and provides a written explanation to the Lessee of such determination, such Tax Indemnitee may elect to control or reassert control of the contest, and provided that by taking control of the contest, the Lessee acknowledges that it is solely responsible for the Imposition ultimately determined to be due by reason of such contest, and provided, further, that in determining the application of clauses (x) and (y) above, each Tax Indemnitee shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims relating to Impositions requested to be contested by the Lessee, such Tax Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee.
Notwithstanding anything to the contrary contained herein, in no event shall the Lessee be permitted to pursue or continue any contest (or such Tax Indemnitee be required to pursue or continue any contest) of any Imposition or claim thereof through any action, suit or proceeding (A) if such Tax Indemnitee provides the Lessee with a legal opinion of independent counsel reasonably acceptable to the Lessee that such action, suit or proceeding involves a risk of

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Lam Research Corporation Participation Agreement

imposition of criminal liability on any Tax Indemnitee or will involve a material risk of imposition of civil liability on any Tax Indemnitee or the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Property Lien) on the Properties or any part thereof or any interference with the payment of Rent unless, with respect to civil liability only, the Lessee shall have posted a bond or other security reasonably satisfactory to the relevant Tax Indemnitees in respect of such risk, (B) if a Lease Default or Lease Event of Default has occurred and is continuing, (C) unless the Lessee shall have agreed to pay and shall pay to such Tax Indemnitee on demand and on an After Tax Basis all reasonable out-of-pocket costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Imposition or claim thereof, including all reasonable legal, accounting and investigatory fees and disbursements as well as the Impositions which are the subject of such contest to the extent the contest is unsuccessful, or (D) if such contest shall involve the payment of the Imposition prior to the contest, unless the Lessee shall provide to such Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Tax Indemnitee is so required to pay on an After Tax Basis and prior to commencing any contest the Lessee shall have acknowledged its liability for the Imposition (if and to the extent that the Tax Indemnitee or Lessee, as the case may be, shall not prevail in the contest in respect of the Imposition). In addition, no contest of any Imposition shall be required: (A) unless the amount of the potential indemnities (taking into account all similar or logically related claims that have been or are likely to be raised in any audit involving any or all of such Tax Indemnitees for which the Lessee may be liable to pay an indemnity under this Section 13.5(b)) exceeds $75,000 and (B) unless, if requested by such Tax Indemnitee, the Lessee shall have provided to such Tax Indemnitee at the Lessee's sole expense, an opinion of independent counsel selected by the Lessee and reasonably acceptable to the Tax Indemnitee that a reasonable basis exists to contest such Imposition (or, in the case of an appeal from an adverse judicial determination, that there is substantial authority for a reversal or favorable modification of such decision of such appeal). In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court.

The party conducting and controlling the contest of an Imposition shall consult in good faith with the other party and its counsel with respect to such contest (or claim for refund) but the decisions regarding what actions are to be taken with respect to such contest shall be made by the controlling party in its sole judgment. In addition, the party controlling the contest shall keep the non-controlling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant Governmental Authority to the controlling party thereof, relating to such contest.

Each Tax Indemnitee shall, at the Lessee's sole expense, 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 this Section 13.5(b) so long as such information or documents are not, in the reasonable judgment of the Tax Indemnitee, confidential information or documents. Notwithstanding anything in this Section 13.5(b) to the contrary, so long as no Lease Event of Default shall have occurred and be continuing, no Tax Indemnitee shall enter into any settlement or other compromise or fail to appeal an adverse determination with respect to any claim for an Imposition for which it is entitled to be indemnified under this Section 13.5 (and with respect to which contest is required

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Lam Research Corporation Participation Agreement

under this Section 13.5(b)) without the prior written consent of the Lessee (which shall not be unreasonably withheld or delayed), unless such Tax Indemnitee waives its right to be indemnified under this Section 13.5 with respect to such claim pursuant to the next paragraph.

Notwithstanding anything contained herein to the contrary, a Tax Indemnitee will not be required to contest or continue to contest (and the Lessee shall not be permitted to contest or continue to contest) a claim with respect to any Imposition and shall be permitted to settle or commence any such claim without the consent of Lessee if (i) such Tax Indemnitee shall waive its right to indemnification under this Section 13.5 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver) and the Tax Indemnitee returns to the Lessee all amounts previously advanced to the Indemnitee with respect to the contest of such claim or (ii) such Imposition is the sole result of a claim of a continuing and consistent nature, which claim has previously been resolved against the relevant Tax Indemnitee (unless a change in law or facts has occurred since such prior adverse resolution and the Lessee provides an opinion of independent tax counsel reasonably satisfactory to the Tax Indemnitee to the effect that it is more likely than not that such change in law or facts will result in a favorable resolution of the claim at issue).

(c) [Intentionally omitted]

(d) Payments. Any Imposition indemnifiable under this Section 13.5 shall be paid when due directly to the applicable taxing authority if such direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to this Section 13.5 shall be paid to the Tax Indemnitee within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee, which demand shall be, accompanied by a written statement describing in reasonable detail the amount so payable, but not before ten (10) Business Days prior to the date that the relevant Imposition is due. Any payments made pursuant to this Section 13.5 shall be made directly to such Tax Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in Schedule II hereto. Upon the request of any Tax Indemnitee with respect to Impositions that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Imposition or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee.

(e) Reports. In the case of any report, return or statement required to be filed with respect to any Impositions that are subject to indemnification under this Section 13.5, the Lessee shall promptly notify such Tax Indemnitee of such requirement and, at the Lessee's sole expense (i) if the Lessee is permitted by Applicable Law, timely file such report, return or statement in its own name and send a copy of such report, return or statement to the Tax Indemnitee, or (ii) if such report, return or statement is required to be in the name of or filed by such Tax Indemnitee, or the Tax Indemnitee otherwise requests that such report, return or statement be filed in the name of or by such Tax Indemnitee, the Lessee shall prepare and furnish such report, return or

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Lam Research Corporation Participation Agreement

statement in such manner as shall be satisfactory to such Tax Indemnitee and shall send the same to such Tax Indemnitee for filing no later than fifteen (15) days prior to the due date therefor. In any case in which such Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow such Tax Indemnitee to file such report, return or statement.

(f) Tax Ownership. Each Tax Indemnitee represents and warrants that it will not, prior to the termination of the Lease with respect to a Property, claim ownership of (or any tax benefits, including depreciation, with respect to) such Property for any income tax purposes (unless required to do so by a Governmental Authority), it being understood that the Lessee is and will remain the owner of such Property for such income tax purposes until the termination of the Lease with respect thereto.

(g) Disclosure. The parties agree that any party to this Participation Agreement (and each employee, representative, or other agent of such party) may disclose the tax aspects of the transactions contemplated by the Participation Agreement and the structural aspects of these transactions as they relate to such tax aspects without limitation of any kind on such disclosure.

Section 13.6. Indemnity Payments in Addition to Lease Obligations. The Lessee acknowledges and agrees that the Lessee's obligations to make indemnity payments under this Article XIII are separate from, in addition to, and do not reduce, the Lessee's obligations to pay any amounts owing from time to time under the Lease.

Section 13.7. Eurodollar Rate Lending Unlawful. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Documentation Date shall make it unlawful for any Participant to make, continue or maintain Eurodollar Loans/Lessor Amounts as contemplated by the Operative Documents, (i) such Participant shall promptly give written notice of such circumstances to the Lessee, the Lessor and the Administrative Agent (which notice shall be withdrawn whenever such circumstances no longer exist), (ii) the commitment of such Participant hereunder to make, continue or maintain Eurodollar Loans/Lessor Amounts shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Participant to make, continue or maintain Eurodollar Loans/Lessor Amounts, such Participant shall then have a commitment only to make or maintain Base Rate Loans/Lessor Amounts when Eurodollar Loans/Lessor Amounts are requested and (iii) such Participant's Loans and Lessor Amounts then outstanding as Eurodollar Loans/Lessor Amounts, if any, shall be converted automatically to Base Rate Loans/Lessor Amounts on the respective last days of the then current Interest Periods with respect to such Loans and Lessor Amounts or within such earlier period as required by law. If any such conversion of Eurodollar Loans/Lessor Amounts occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Lessee shall pay to such Participant such amounts, if any, as may be required pursuant to Section 13.10. In any such case, interest and principal (if any) shall be payable contemporaneously with the related Eurodollar Loans/Lessor Amounts of the other Participants so affected.

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Lam Research Corporation                                 Participation Agreement

         Section 13.8.     Deposits Unavailable. If any of the Participants
shall have determined that:

                  (i)      Dollar deposits in the relevant amount and for the

relevant Interest Period are not available to such Participant in its relevant market; or

(ii) by reason of circumstances affecting such Participant's relevant market adequate means do not exist for ascertaining the interest rate or Yield, as the case may be, applicable to such Participant's Eurodollar Loans/Lessor Amounts;

then, upon notice from such Participant to the Lessee, the Administrative Agent and the other Participants, (x) the obligations of such Participant to make or continue any Loans or Lessor Amounts as, or to convert any Loans or Lessor Amounts into Eurodollar Loans/Lessor Amounts shall be suspended, and (y) each outstanding Eurodollar Loan/Lessor Amount held by such Participant shall automatically convert into a Base Rate Loan/Lessor Amount on the last day of the current Interest Period applicable thereto.

Section 13.9. Increased Costs, etc. (a) If the adoption of or any change in a Requirement of Law or in the interpretation or application thereof applicable to any Participant, or compliance by any Participant with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Documentation Date (or, if later, the date on which such Participant becomes a Participant):

(i) shall subject such Participant to any tax of any kind whatsoever with respect to any Eurodollar Loans/Lessor Amounts made, continued or maintained by it or its obligation to make, continue or maintain Eurodollar Loans/Lessor Amounts, or change the basis of taxation of payments to such Participant in respect thereof (except for Taxes that would be excluded from the definition of Impositions, any changes in taxes measured by or imposed upon the overall gross or net income, franchise or other taxes (imposed in lieu of such net income tax), of such Participant its applicable lending office, branch, or any affiliate thereof); or

(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, Loans, Lessor Amounts, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Participant which is not otherwise included in the determination of the Adjusted Eurodollar Rate hereunder; or

(iii) shall impose on such Participant any other condition (excluding any Tax of any kind) whatsoever in connection with the Operative Documents;

and the result of any of the foregoing is to increase the cost to such Participant of making, continuing or maintaining Eurodollar Loans/Lessor Amounts or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Lessee from such Participant, the Lessee shall pay such Participant any additional amounts necessary to compensate such Participant for such increased cost or reduced amount receivable; provided

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Lam Research Corporation Participation Agreement

that, in any such case, the Lessee may elect to convert the Eurodollar Loans/Lessor Amounts made or held by such Participant hereunder to Base Rate Loans/Lessor Amounts by giving the Administrative Agent at least one (1) Business Day's notice of such election, in which case the Lessee shall promptly pay to such Participant, upon demand, without duplication, such amounts, if any, as may be required pursuant to Section 13.10. All payments required by this
Section 13.9(a) shall be made by the Lessee within five (5) Business Days after demand by the applicable Participant. The Lessee shall not be obligated to reimburse any Participant for any increased cost or reduced return incurred more than one hundred eighty (180) days prior to the date that such Participant delivers notice to the Lessee of such increased cost or reduced return unless such Participant gives notice thereof to the Lessee in accordance with this
Section 13.9 during such one hundred eighty (180) day period. If any Participant becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the Lessee, certifying (x) that one of the events described in this clause (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Participant and a reasonably detailed explanation of the calculation thereof (including the method by which such Participant allocated such amounts to the Lessee). Such a certificate as to any additional amounts payable pursuant to this clause submitted by such Participant, through the Administrative Agent, to the Lessee shall be conclusive and binding for all purposes, absent manifest error. This covenant shall survive the termination of this Participation Agreement and the payment of the Loans and Lessor Amounts, as the case may be, and all other amounts payable hereunder.

(b) Each Participant shall use its reasonable efforts to reduce or eliminate any unlawfulness or claim for compensation pursuant to Sections 13.7, 13.8 or 13.9(a), including, without limitation, a change in the office of such Participant at which its obligations related to this Participation Agreement are maintained if such change will cure the unlawfulness or avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Participant, be otherwise disadvantageous to it.

Section 13.10. Funding Losses; Break Costs. (a) The Lessee agrees to indemnify each Indemnitee and to hold each Indemnitee harmless from any loss or expense which such Indemnitee may sustain or incur as a consequence of (i) default by the Lessee in making a borrowing of Loans or Lessor Amounts which are Eurodollar Loans/Lessor Amounts after Lessee has given a notice requesting the same in accordance with the provisions of this Participation Agreement, (ii) default by the Lessee in making any prepayment of a Loan or Lessor Amount which is a Eurodollar Loan/Lessor Amount after the Lessee has given a notice thereof in accordance with the provisions of this Participation Agreement, or (iii) the making of a payment or prepayment of Loans or Lessor Amounts which are Eurodollar Loans/Lessor Amounts on a day which is not the last day of an Interest Period with respect thereto. This covenant shall survive the termination of this Participation Agreement or any other Operative Document and the payment of the Loans, Lessor Amounts and all other amounts payable under the Operative Documents.

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Lam Research Corporation Participation Agreement

(b) The Lessee shall, upon receipt from the Administrative Agent or any Participant of a statement of the amount of any loss, cost or expense constituting Break Costs prepared in good faith and in reasonable detail (which statement shall be binding absent manifest error), pay the amount of such Break Costs to the requesting Person.

Section 13.11. Capital Adequacy. (a) If 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 compliance by any Participant with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, in each case made subsequent to the Documentation Date has or will have the effect of reducing the rate of return on any Participant's or its parent company's capital, as a consequence of its commitments or obligations hereunder to a level below that which such Participant or its parent company could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Participant's or its parent company's policies with respect to capital adequacy), then, upon notice from such Participant, the Lessee shall pay to such Participant such additional amount or amounts as will compensate such Participant and its parent company for such reduction (it being understood that such parent company shall not be reimbursed to the extent its subsidiary Participant is reimbursed by the Lessee in connection with the same or a similar law, rule, regulation, change, request or directive applicable to such Participant). All payments required by this Section 13.11 shall be made by the Lessee within five (5) Business Days after demand by such Participant. The Lessee shall not be obligated to reimburse any Participant for any reduced return incurred more than one hundred eighty (180) days prior to the date that such Participant delivers notice to the Lessee of such reduced return unless such Participant gives notice thereof to the Lessee in accordance with this
Section 13.11 during such one hundred eighty (180) day period. If any Participant becomes entitled to claim any additional amounts pursuant to this clause, it shall provide prompt written notice thereof to the Lessee, through the Administrative Agent, certifying (x) that one of the events described in this clause (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Participant and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this clause submitted by such Participant to the Lessee shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Participation Agreement and the other Operative Documents and the payment of the Loans, Lessor Amounts and all other amounts payable hereunder and thereunder.

(b) Each Participant shall use its commercially reasonable efforts to reduce or eliminate, any claim for compensation pursuant to this Section 13.11, including, without limitation, a change in the office of such Participant at which its obligations related to the Operative Documents are maintained if such change will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Participant, be otherwise disadvantageous to it.

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ARTICLE XIV
[INTENTIONALLY RESERVED]

ARTICLE XV

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 any Property to the Lessor, any disposition of any interest of the Lessor or any Lender in any Property and the payment of the Notes and the Lessor Amounts, and shall be and continue in effect to the extent set forth in such Operative Documents 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 the 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 or in the other Operative Documents nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act, except that the Lessee has engaged the Arranger to act as placement agent. In the event that any party retains any other broker, finder or financial advisor, such party will promptly notify the other parties in writing of such broker, finder or financial advisor and such party shall be responsible for payment in full of such broker, finder or financial advisor. Any party which 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 (a) shall be directed to the address or facsimile number of such Person as indicated on Schedule II hereof and (b) shall be given in writing by United States mail, by nationally recognized courier service, by hand or by facsimile, and any such notice shall become effective (i) if delivered by United States mail, three (3) Business Days after being deposited in the mail, certified or registered with appropriate postage prepaid, (ii) if delivered by a nationally recognized courier service, upon delivery to the intended recipient,
(iii) if delivered by hand, when received, or (iv) if delivered by facsimile, when transmitted (upon electronic confirmation thereof) provided that any facsimile transmitted after 5:00 p.m. (recipient time) shall be deemed to have been received on the next Business Day. From time to time any party may designate a new address or facsimile number for purposes of notice hereunder by written notice to each of the other parties hereto in accordance with this Section.

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Lam Research Corporation Participation Agreement

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, Etc. Neither any Operative Document nor any of the terms thereof may be terminated (except as expressly required under the terms of any Operative Document or upon payment in full of the Lease Balance or effective exercise and consummation of the Remarketing Option in accordance with Article XX of the Master Lease and payment in full of all amounts due in accordance therewith), amended, supplemented, waived or modified without the written agreement or consent of the Required Participants; provided, however, that:

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

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

(ii) amend, modify, waive or supplement any of the provisions of Section 2.5, 2.6 or 2.7 of the Loan Agreement;

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

(iv) modify, postpone, reduce or forgive, in whole or in part, any payment of Rent (other than pursuant to the terms of any Operative Document), any Loan or Lessor Amount, the Lease Balance, the Loan Balance, the Lessor Balance, Commitment Fees and any other fee payable hereunder, amounts due pursuant to Section 20.2 of the Master Lease, interest or Yield (except that any Person may consent to any modification, postponement, reduction or forgiveness of any payment of any fee payable to it) or, subject to subclause
(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 Document), Maximum Recourse Amount, Loans or Lessor Amounts, Lease Balance, Loan Balance, Commitment Fees, Shortfall Amount, Participant 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 Master Lease or any Lease Supplement by the Lessee except as expressly permitted by the Operative Documents, release Lessee from its obligations in respect of the payments of Rent or Lease Balance or change the absolute and unconditional character of such obligations or release any Collateral from the Liens created by the Operative Documents; or

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Lam Research Corporation Participation Agreement

(vi) release of any Lien granted by the Lessee or the Lessor under the Operative Documents, except as provided in the Operative Documents.

(b) no such termination, amendment, supplement, waiver or modification of any provision of the Operative Documents relating to the Structuring Fee or any indemnity in favor of the Arranger shall be effective without the Arranger's written consent, and the Arranger shall be a third party beneficiary of such provisions and this Section 15.5(b).

Section 15.6. Headings, Etc. The Table of Contents and headings of the various Articles and 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 is intended for the benefit of any Person except the parties hereto. No party hereto shall assign or transfer any of its rights or obligations under the Operative Documents except in accordance with the terms and conditions thereof.

Section 15.8. GOVERNING LAW. THIS PARTICIPATION AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS (EXCEPT AS OTHERWISE PROVIDED IN ANY OPERATIVE DOCUMENT) AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

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. The parties hereto agree that except as specifically set forth herein or in any other Operative Document, the Lessor shall not have any personal liability whatsoever to the Administrative Agent, the Lessee or any Lender or their respective successors and assigns for any claim based on or in respect hereof or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby and recourse, if any, shall be solely had against the Collateral, including the Properties but excluding the Excluded Payments; provided, however, that Lessor shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence, (b) breach of any of its representations, warranties or covenants under the Operative Documents, or (c) any Lessor Liens attributable to it. It is understood and agreed that, except as provided in the preceding sentence: (i) the Lessor shall not have any personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; and (ii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor.

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Lam Research Corporation Participation Agreement

Section 15.11. SUBMISSION TO JURISDICTION. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT OR ANY OF THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO 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 15.12. Setoff. The Participants shall, upon the occurrence of any Lease Event of Default, have the right to appropriate and, subject to
Section 4.7, apply to the payment of Lessee's obligations under the Lease, and the other Operative Documents as security for the payment of such obligations, any and all balances, credits, deposits, accounts or moneys of Lessee then or thereafter maintained with any Participant. The rights of the Participants under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which any such Person may have.

Section 15.13. No Participant Responsible for Other Participants. The obligations of each Participant under this Participation Agreement and the other Operative Documents are several and not joint; and in the event of a failure by a Participant to perform any of its obligations hereunder or under any other Operative Document, neither the Administrative Agent, the Lessor nor any other Lender (other than the defaulting Participant) shall have any liability as a consequence thereof.

Section 15.14. Execution of Documents for Widening Project. The Lessee authorizes and directs the Lessor to enter into a "permit-to-enter" and a "right of way contract" in favor of the City of Fremont for purposes of the Cushing Parkway Widening Project, such permit to enter and right of way contract to be based upon the forms submitted to the Lessor on or about March 4, 2003, with such changes as shall be mutually acceptable to the Lessee and the Lessor. Such permit-to-enter and right of way contract shall not constitute a Lessor Liens. The Administrative Agent and the Lender consent to such action by the Lessor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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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.

LAM RESEARCH CORPORATION, as Lessee


By /s/ Craig Garber
   ----------------------------------
   Name Craig Garber
   Its Treasurer and Vice President


SELCO SERVICE CORPORATION, as Lessor


By /s/ Donald C. Davis
   ----------------------------------
   Donald C. Davis
   Its Vice President


KEY CORPORATE CAPITAL INC., as Lender


By /s/ Thomas A. Crandell
   ----------------------------------
   Name Thomas A. Crandell
   Its Senior Vice President


KEY CORPORATE CAPITAL INC., as
Administrative Agent


By /s/ Thomas A. Crandell
   ----------------------------------
   Name Thomas A. Crandell
   Its Senior Vice President


S-1


CONFIDENTIAL TREATMENT REQUESTED

APPENDIX A
TO PARTICIPATION AGREEMENT

A. Interpretation. In each Operative Document, unless a clear contrary intention appears:

(i) the singular number includes the plural number and vice versa;

(ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

(iii) reference to any gender includes each other gender;

(iv) reference to any agreement, document or instrument (including any Operative Document) means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents, and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor;

(v) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Requirement of Law means that provision of such Requirement of Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;

(vi) reference in any Operative Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or
Section thereof or Appendix, Schedule or Exhibit thereto, and reference in any Section of any Operative Document to any clause means such clause of such Section;

(vii) "hereunder," "hereof, "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof;

(viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and

(ix) with respect to any rights and obligations of the parties under the Operative Documents, all such rights and obligations shall be construed to the extent permitted by Applicable Law.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


Lam Research Corporation Definitions

B. Computation of Time Periods. Unless otherwise specified in any Operative Document, for purposes of computation of periods of time under the Operative Documents, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding."

C. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used therein shall be interpreted, all accounting determinations thereunder shall be made, and all financial statements required to be delivered thereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Lessee's independent public accountants) with the most recent audited consolidated financial statements of the Lessee and its Subsidiaries delivered to the Participants.

D. Conflict in Operative Documents. If there is any conflict between any Operative Documents, such Operative Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control.

E. Legal Representation of the Parties. The Operative Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Documents to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof.

F. Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document.

"Account" means the account identified by the Administrative Agent in a writing delivered to Lessee into which all payments by the Lessee under the Operative Documents shall be made. The Account shall be specified on Schedule II to the Participation Agreement, as such Schedule may from time to time be amended, supplemented, amended and restated or otherwise modified.

"Account Control Agreement" means the Account Control Agreement dated as of March 25, 2003 among the Administrative Agent, the Lessee and KeyBank National Association, as depository bank.

"Acquisition Date" is defined in Section 6.1 of the Participation Agreement.

"Adjusted Eurodollar Rate" means, as applicable to any Interest Period for any Loan or Lessor Amount, (x) a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/16th of it) by dividing (i) the applicable London Interbank Offering Rate for such Interest Period by (ii) 1.00 minus the Eurodollar Reserve Percentage, plus (y) in the case of Loans, the Loan Margin and in the case of Lessor Amounts, the Lessor Margin. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage.

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Lam Research Corporation Definitions

"Administrative Agent" means Key Corporate Capital Inc., in its capacity as Administrative Agent, and any successors or assigns thereto in such capacity appointed in accordance with Section 7.9 of the Loan Agreement.

"Advance" means an advance of funds by the applicable Lenders to the Lessor and the Lessor making funds available to acquire a Property pursuant to Article III of the Participation Agreement.

"Affected Property" is defined in Section 15.1 of the Master Lease.

"Affiliate" means, as to any Person, (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, controls such Person or (ii) any Person (other than such Person and its Subsidiaries) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

"After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient (less any tax savings realized and the present value of any tax savings projected to be realized by the recipient as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made.

"Aggregate Commitment Amount" means, on any date, $54,434,812.68 as such amount may be reduced from time to time pursuant to Section 4.3(b) of the Participation Agreement.

"Applicable Law" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Properties, the Improvements thereon or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Properties or in any way limited the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. S 1201 et seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments that are of record affecting the Properties, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Master Lease.

"Appraisal" means, with respect to any Property, an appraisal of the Fair Market Sales Value of such Property, which appraisal complies in all material respects with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law, and is addressed to the Administrative Agent, each Lender and the Lessor.

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Lam Research Corporation Definitions

Each Appraisal shall be prepared by an Appraiser selected by the Administrative Agent and the Lessor and reasonably acceptable to the Lessee.

"Appraiser" means the appraiser that prepared an Appraisal of the Properties or such other Person selected by the Administrative Agent and the Lessor.

"Appurtenant Rights" means, with respect to any Land, (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, and other rights and benefits at any time belonging or pertaining to such Land or the Improvements thereon, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to such Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to such Land.

"Arranger" means Key Lease Advisory Services, in its capacity as arranger.

"Assigned Leases" is defined in Section 2(a) of the Assignment of Lease and Rent.

"Assignment of Lease and Rent" means the Assignment of Lease and Rent and Security Agreement dated as of March 24, 2003, from the Lessor, as assignor, to the Administrative Agent for the benefit of the Lenders, as assignee, substantially in the form of Exhibit H to the Participation Agreement, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Authorized Officer" means the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Vice President and Treasurer and any other officer of the Lessee authorized by the board of directors of the Lessee to execute and deliver any Operative Document on behalf of the Lessee.

"Available Commitments" means the sum of the Available Loan Commitments and the Available Lessor Commitment.

"Available Lessor Commitment" means, at any time, an amount equal to the excess, if any, of (x) the Lessor Commitment, minus (y) the aggregate Lessor Amounts outstanding.

"Available Loan Commitment" means, at any time, an amount equal to the excess, if any, of (x) the aggregate amount of the Loan Commitments minus (y) the aggregate principal amount of all Loans outstanding.

"Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto.

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Lam Research Corporation Definitions

"Base Rate" means, for any day, the greater of:

(i) the rate of interest announced by KeyBank National Association from time to time as its prime commercial rate (the "Prime Rate"), or equivalent, as in effect on such day, with any change in the Prime Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate; and

(ii) the sum of (x) the Federal Funds Rate, plus
(y)1/2of 1% (.50%).

"Base Rate Loan/ Lessor Amount" means a Loan or Lessor Amount, as the case may be, bearing interest at the Base Rate.

"Basic Rent" means the sum of (i) the Lender Basic Rent plus (ii) the Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is due.

"Bill of Sale" is defined in Section 6.1(j) of the Participation Agreement.

"Break Costs" means an amount equal to the amount, if any, required to compensate any Participant for any additional losses (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or redeployment of deposits or funds acquired by such Participant to fund its obligations under the Operative Documents) it may incur with respect to Eurodollar Loan/Lessor Amounts as a result of (v) the Lessee's payment of Rent other than on a Scheduled Payment Date (except for Rent not due on a Scheduled Payment Date), (w) any Advance not being made on the date specified therefor in the applicable Funding Request (other than as a result of a breach by such Participant of its obligation under Section 3.1, 3.2 or 3.3, as the case may be, of the Participation Agreement to make Lessor Amounts or Loans available), (x) the Lessee's payment of the Lease Balance or any Property Balance on any date other than a Scheduled Payment Date or (y) any conversion of the Eurodollar Loans/Lessor Amounts in accordance with Section 13.7 or 13.8 of the Participation Agreement on a day other than the last day of the then current Interest Period with respect thereto. A statement as to the amount of such loss, cost or expense, prepared in good faith and in reasonable detail and submitted by such Participant, as the case may be, to the Administrative Agent, shall be correct and binding on the Administrative Agent and the Lessee absent manifest error.

"Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in San Francisco, California, Cleveland, Ohio and New York, New York are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan/Lessor Amount, such day shall also be a day on which dealings between banks are carried on in Dollar deposits in London, England.

"Capitalized Lease" means any lease in which the obligation for rentals with respect thereto is required to be capitalized on a balance sheet of the lessee in accordance with GAAP.

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Lam Research Corporation Definitions

"Cash Collateral" has the meaning specified in the Cash Collateral Pledge Agreement.

"Cash Collateral Pledge Agreement" means the Cash Collateral Pledge Agreement dated as of March 25, 2003 between the Lessee and the Administrative Agent.

"Cash Collateral Documents" means the Cash Collateral Pledge Agreement, the Account Control Agreement and any other documents or instruments evidencing or relating to the Cash Collateral.

"Casualty" means any damage or destruction of all or any portion of any Property as a result of a fire, flood, earthquake or other casualty.

"CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986.

"Certifying Party" is defined in Section 22.1 of the Master Lease.

"Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever, but shall not include Taxes or Impositions.

"Code" means the Internal Revenue Code of 1986 and regulations promulgated thereunder.

"Collateral" means any collateral pledged by the Lessor to the Administrative Agent pursuant to the Operative Documents to secure the Lessor's obligations under the Loan Agreement and the Notes, but excluding any Excepted Payments.

"Commitment" means (i) as to any Lender, its Loan Commitment, and (ii) as to the Lessor, the Lessor Commitment.

"Commitment Fee" is defined in Section 4.4(b) of the Participation Agreement.

"Commitment Percentage" means, with respect to any Participant, the percentage set forth opposite such Participant's name under the heading "Commitment Percentage" on Schedule I to the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Commitment Period" means the period from and including the Documentation Date to and including the date occurring on the earliest of (i) the date on which the sum of the aggregate outstanding Loans and aggregate outstanding Lessor Amounts equals the Aggregate Commitment Amount, and (ii) March 27, 2003.

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Lam Research Corporation Definitions

"Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to any Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, such Property or alter the pedestrian or vehicular traffic flow to such Property so as to result in change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title vests in the condemning authority.

"Consolidated Subsidiary" means, at any date as of which the same is to be determined, any Subsidiary of the Lessee the account of which would be consolidated with those of the Lessee in its consolidated financial statements if such statements were prepared as of such date in accordance with generally accepted accounting principles.

"Contract Rents" is defined in Section 2(b) of the Assignment of Lease and Rent.

"Contracts" is defined in Section 2(b) of the Assignment of Lease and Rent.

"Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

"Deed" means a grant deed with respect to the real property comprising a Property, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to such real property to the Lessor, subject only to Permitted Property Liens.

"Default" means any Event of Default or any condition, occurrence or event that, after notice or lapse of time or both, would constitute an Event of Default.

"Documentation Date" is defined in Section 2.1 of the Participation Agreement.

"Dollar Amount" of any currency at any date means (i) the amount of such currency if such currency is Dollars or (ii) the equivalent amount of Dollars if such currency is any currency other than Dollars, calculated at approximately 11:00 a.m. (London Time) as set forth on the applicable Telerate Screen on the date of determination; provided that if more than one rate is listed then the applicable conversion rate shall be the arithmetic average of such rates. If for any reason such conversion rates are not available, the Dollar Amount shall be calculated using the arithmetic average of the spot buying rates for such currency in Dollars as quoted to the Administrative Agent by three foreign exchange dealers of recognized standing in the United States selected by the Administrative Agent at approximately 11:00 a.m. (London time) on any date of determination.

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Lam Research Corporation Definitions

"Dollars" and "$" mean dollars in lawful currency of the United States.

"Eligible Lender Assignee" means (a) a commercial bank organized under the laws of the United States, or any State thereof, and having combined capital and surplus of $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development ("OECD"), or a political subdivision of any such country, and having a combined capital and surplus of $100,000,000; provided, however, that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD or the Cayman Islands; and provided, further, that such bank is entitled to a zero percent (0%) United States withholding tax rate; (c) the central bank of any country which is a member of the OECD; provided that such bank is entitled to a zero percent (0%) United States withholding tax rate; (d) a finance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) organized under the laws of the United States, or any State thereof, that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having a combined capital and surplus of $100,000,000; (e) an insurance company organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of $100,000,000; (f) any Lender a party to this Agreement; and (g) any Affiliate of a Lender; provided that any Affiliate of the Lessee shall not qualify as an Eligible Lender Assignee. So long as no Lease Event of Default is continuing, Lessee shall have the right to approve any Eligible Lender Assignee, which approval shall not be unreasonably withheld.

"Eligible Lessor Assignee" means, with respect to any assignment by the Lessor pursuant to Section 12.1(b) of the Participation Agreement, any Person that meets all of the following requirements: (i) such Person is (x) a leasing company, bank, bank subsidiary or bank Affiliate, insurance company or other institutional investor with a net worth or, in the case of a bank or lending institution, combined capital and surplus on a consolidated basis at the time of transfer of at least $100,000,000 determined in accordance with GAAP or (y) a Person described in clause (x) that is an Affiliate of a financial institution meeting such net worth or capital and surplus standard, (ii) such assignment to such Person would not result in such Person or the Properties being consolidated onto the balance sheet of the Lessee, and (iii) so long as no Lease Event of Default is continuing, such Person is approved by Lessee, which approval shall not be unreasonably withheld.

"End of the Term Report" is defined in Section 13.2(a) of the Participation Agreement.

"Environmental Audit" means, with respect to any Property, a Phase One environmental site assessment (the scope and performance of which meets or exceeds the then most current ASTM Standard Practice E1527 for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of such Property.

"Environmental Laws" means any and all applicable federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, permits, licenses, authorizations, decrees or other legal requirement regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment or the use, storage, recycling,

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Lam Research Corporation Definitions

handling, disposal, discharge, transport, treatment or generation of Hazardous Materials, as now or may at any time be in effect during the Lease Term, including CERCLA, RCRA, the Clean Air Act, 42 USC Section 7401 et seq., the Toxic Substances Control Act 15 USC Section 2601 et seq. and any rules and regulations promulgated thereunder.

"Environmental Violation" means, with respect to any Property, any activity, occurrence or condition that violates, or results in non-compliance with any Environmental Law.

"Equipment" means all equipment, apparatus, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired by the Lessor using the proceeds of the Loans and/or the Lessor Amounts and now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of any Property, including but without limiting the generality of the foregoing, all furniture and furnishings, heating, electrical, switch gear, power supply, lightening, plumbing, ventilation, air conditioning and air cooling systems, refrigerating equipment, generators, locking and unlocking equipment, communication systems, sprinkler system and fire prevention systems, security systems and fixtures of all kinds; provided however, that the term "Equipment" shall expressly exclude all inventory.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

"Eurodollar Loan/Lessor Amount" means a Loan or Lessor Amount as the case may be, bearing interest or Yield, respectively, at or based upon the Adjusted Eurodollar Rate.

"Eurodollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the F.R.S. Board, for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans/Lessor Amounts is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any bank to United States residents).

"Event of Default" means a Lease Event of Default or a Loan Agreement Event of Default.

"Event of Loss" means any Significant Casualty or any Significant Condemnation.

"Event of Loss Purchase" means the payment by the Lessee of the Property Cost and all other amounts described in Section 15.1 of the Master Lease with respect to any Property.

"Excepted Payments" means:

(a) all indemnity payments (including indemnity payments made pursuant to Article XIII of the Participation Agreement) to which the Administrative Agent, the

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Lam Research Corporation Definitions

Arranger, the Lessor, any Lender or any of their respective Affiliates, agents, officers, directors or employees is entitled;

(b) any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 15.1 of the Master Lease or Articles XVI, XVIII or XX of the Master Lease) payable under any Operative Document to reimburse the Administrative Agent, the Arranger, the Lessor, any Lender or any of their respective Affiliates (including the reasonable expenses of the Administrative Agent, the Arranger, the Lessor, any Lender or such Affiliates incurred in connection with any such payment) for performing or complying with any of the obligations of Lessee under and as permitted by any Operative Document;

(c) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies;

(d) any insurance proceeds under policies maintained by any Participant;

(e) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Administrative Agent, the Lessor, the Arranger or any Lender; and

(f) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (e) above.

"Excess Casualty/Condemnation Proceeds" is defined in Section 14.2(f) of the Master Lease.

"Excess Sales Proceeds" means with respect to any Property the excess, if any, of (x) the aggregate of all proceeds received by the Lessor in connection with any sale or reletting of such Property pursuant to the Lessor's exercise of remedies under Section 16.2 of the Master Lease or the Lessee's exercise of the Remarketing Option with respect to such Property under Article XX of the Master Lease (in either case, less, to the extent not reimbursed by the Lessee, all fees, costs and expenses of the Lessor in connection with the exercise of its rights and remedies thereunder or any such sale or reletting), minus (y) the Property Balance of such Property.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and regulations promulgated thereunder.

"Expiration Date" means, with respect to the Master Lease, the earlier of (a) the date the Master Lease shall have been terminated in accordance with the provisions thereof and (b) the fifth anniversary of the Documentation Date, provided, however, with respect to Article XX of the Master Lease, the Expiration Date shall be the later of (i) the date set forth in clause (b) above and (ii) the Extended Expiration Date.

"Expiration Date Purchase Obligation" means the Lessee's obligation, pursuant to Section 18.2 of the Master Lease, to purchase one or more Properties on the Expiration Date.

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Lam Research Corporation Definitions

"Extended Expiration Date" is defined in Section 20.3(a) of the Master Lease.

"Fair Market Sales Value" means, with respect to any Property, the amount, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of such Property. The Fair Market Sales Value of any Property shall be determined based on the assumption that, except for purposes of Article XVI of the Master Lease and Section 13.2 of the Participation Agreement, such Property is in the condition and state of repair required under Section 9.1 of the Master Lease and the Lessee is in compliance with the other requirements of the Operative Documents relating to the condition of such Property.

"Federal Funds Rate" means, for any day or period, as applicable, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of it) at which Federal funds in the amount equal to the principal or analogous amount of the related Loans or Lessor Amounts are offered in the interbank market to the Administrative Agent or the Lessor, as the case may be, as of 11:00 a.m. (New York time) on such day for such day or for such period, as applicable.

"Fees" is defined in Section 4.4 of the Participation Agreement.

"F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto.

"Funding Office" means the office of each Participant identified on Schedule II to the Participation Agreement as its funding office.

"Funding Request" is defined in Section 3.4 of the Participation Agreement.

"GAAP" means accounting principles generally accepted in the United States from time to time set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

"Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of any Property.

"Governmental Authority" means the United States Federal government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative

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Lam Research Corporation Definitions

functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

"Gross Remarketing Proceeds" is defined in Section 20.2(h) of the Master Lease.

"Guaranty" of any Person means any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any creditor of such other Person against loss, and shall include, without limitation, the contingent liability of such Person under or in relation to any letter of credit (or similar instrument), but shall exclude endorsements for collection or deposit in the ordinary course of business.

"Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Material; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Material into the environment (including air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Material; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law.

"Hazardous Materials" means any hazardous, toxic or dangerous materials, substances, chemicals, wastes or pollutants that from time to time are defined by or pursuant to or are regulated under any Environmental Laws, including asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons, urea formaldehyde and any material, substance, pollutant or waste that is defined as a hazardous waste under RCRA or defined as a hazardous substance under CERCLA.

"Impositions" means any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever (all of the foregoing being defined as "Taxes") (including, without limitation, (i) real and personal property taxes, including personal property taxes on any property covered by the Master Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes;
(ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; (vi) assessments on any Property, including all assessments for public improvements or benefits (whether or not such improvements are commenced or completed within the Lease Term; and (vii) all filing and reporting fees and expenses relating thereto, for such Property), and all interest, additions to tax and penalties, which at any time may be levied, assessed or imposed by any Federal, state or local authority upon or with respect to (a) any Tax Indemnitee, any Property or any part thereof or interest therein, or the Lessee or any sublessee or user of any Property; (b) the financing,

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Lam Research Corporation Definitions

refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, activity conducted on, delivery, insuring, use, operation, improvement, transfer, return or other disposition of any Property or any part thereof or interest therein; (c) the Notes, the Lessor Amounts or other indebtedness with respect to any Property or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from any Property or any part thereof or interest therein; (e) the Operative Documents or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to any Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract relating to the acquisition or delivery of the Improvements or any part thereof or interest therein; (h) the issuance of the Notes and payments thereon; or (i) otherwise in connection with the transactions contemplated by the Operative Documents.

Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Imposition" shall not mean or include:

(i) Taxes that are based upon or measured by or with respect to the net income of any Tax Indemnitee (including, without limitation, any minimum Taxes, value added Taxes imposed in lieu of net income Taxes, income or capital gains Taxes, excess profits Taxes, items of Tax preference, or capital stock, franchise, business privilege or doing business Taxes), (but Taxes described in this clause
(i) shall not include Taxes imposed under Section 1446 of the Code or that are, or are in the nature of, sales, use, rental, transfer or property Taxes), in each case imposed by any Governmental Authority in the jurisdiction of incorporation or residence of such Tax Indemnitee, or the jurisdiction in which such Tax Indemnitee maintains its principal office, applicable lending office or a place of business or a jurisdiction that imposes such Tax because of such Tax Indemnitee's activities in such jurisdiction, provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made, provided, further that this clause (i) shall not apply to Taxes imposed on a Tax Indemnitee solely as a result of the Lessee's activities or the location of any Property in the jurisdiction imposing such Taxes;

(ii) with respect to any Property, any Tax to the extent such Tax is attributable to any act, event or omission that occurs, or is attributable to a period beginning after the return of such Property to the Lessor in accordance with the terms of the Lease, (x) unless a Lease Event of Default has occurred and is continuing, after the Lease Termination Date or (y) if the Lessee is required to return such Property to the Lessor, provided, that there shall not be excluded from the definition of the term "Impositions" any Taxes to the extent such Taxes are attributable to events or circumstances occurring, or matters arising, prior to or ending with the Expiration Date, or if applicable, the events or circumstances set forth in clause (y) above;

(iii) any Tax for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5(b) of the Participation Agreement, provided that the foregoing shall not limit any obligation under such Section to advance

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Lam Research Corporation Definitions

to the relevant Tax Indemnitee amounts with respect to Taxes that are being contested in accordance with such Section or any expenses reasonably incurred by such Tax Indemnitee in connection with such contest;

(iv) any Taxes (including, without limitation, sales and transfer Taxes) to the extent imposed with respect to any voluntary transfer, sale, financing or other voluntary disposition (x) of any interest in any Property or any part thereof, or any interest therein or any interest or obligation under the Operative Documents (other than any transfer in connection with (1) the exercise by the Lessee of its Purchase Option or Remarketing Option or any termination option or other purchase of such Property by the Lessee, (2) the occurrence of a Lease Event of Default (3) a Casualty or Condemnation affecting such Property or (4) any sublease, modification or addition to such Property by the Lessee);

(v) Taxes to the extent resulting from, or to the extent that such Taxes would not have been imposed but for, the gross negligence or willful misconduct of such Tax Indemnitee or Affiliate thereof;

(vi) Taxes to the extent imposed solely as a result of a material breach by the Tax Indemnitee or any Affiliate thereof of any representations, warranties or covenants set forth in the Operative Documents (unless such breach is caused by the Lessee's breach of its representations, warranties or covenants set forth in the Operative Documents);

(vii) with respect to any Property, Taxes which are included in the Property Balance, if and to the extent actually paid, or property taxes to the extent reimbursable by the Lessor pursuant to the last sentence of Section 12.1(b) of the Participation Agreement;

(viii) Taxes imposed by any Governmental Authority to the extent that such Taxes would have been imposed in the absence of the transactions contemplated by the Operative Documents, and Taxes to the extent imposed by any Governmental Authority arising directly out of, or imposed solely as a result of, activities of a Tax Indemnitee or Affiliate thereof unrelated to the Transactions; and

(ix) Taxes arising directly out of or resulting solely from, or to the extent that such Taxes would not have been imposed but for the existence of, any Lessor Lien attributable to such Tax Indemnitee;

Notwithstanding the foregoing, the exclusions from the definition of Impositions set forth in clauses (i), (ii), (iv), (vii), (viii) and (ix) above, shall not apply to any aggregate increase in Taxes imposed on or paid by, directly or indirectly, a Tax Indemnitee or an entity directly or indirectly owned by a Tax Indemnitee net of any decrease in Taxes realized by such Tax Indemnitee or entity as a direct result of its payment of such Taxes, to the extent that such Tax increase would not have occurred if on each Acquisition Date the Lessor and the Lenders had

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Lam Research Corporation Definitions

advanced funds to the Lessee in the form of a loan secured by the Properties in an amount equal to the Advance funded on such Acquisition Date, with interest for such loans equal to the Basic Rent payable on each Scheduled Payment Date on a principal balance at the maturity of such loans in an amount equal to the then outstanding amount of the Advances at the end of the term of the Master Lease.

"Improvements" means all buildings, structures, fixtures, Equipment and other improvements of every kind existing at any time and from time to time (including those purchased with amounts advanced by the Participants pursuant to the Participation Agreement) on or under any parcel of Land to be acquired pursuant to the terms of the Operative Documents, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time.

"Imputed Return" means an amount equal to the Base Rate plus 4% per annum on each Participant's outstanding Loan Amount or Lessor Amount during the period from the Scheduled Lease Termination Date to the date of determination.

"Indebtedness" means, without duplication, with respect to the Lessee and each Subsidiary of the Lessee, such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of any of its property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from any property now or hereafter owned or acquired, including via merger, by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) obligations under Capitalized Leases which would be shown as a liability on a balance sheet of such Person,
(vi) net liabilities under any agreement, device or arrangement designed to protect at least one of the parties thereto from the fluctuation of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions (including any cancellation, buy back, reversal, termination or assignment thereof), (vii) derivative interests as defined in FAS 133 of the Financial Accounting Standards Board; (viii) Indebtedness of another Person for which such Person is obligated pursuant to a Guaranty, and (ix) the portion of any accounts receivable for which there is recourse to such Person; provided, that "Indebtedness shall not include any overdrafts arising under a Yen-Denominated Facility.

"Indemnitee" means each Participant, the Administrative Agent and the Arranger.

"Insurance Requirements" means the terms and conditions of any insurance policy, and the requirements of the issuer of any such policy, which insurance policy is required to be maintained by the Lessee under the Master Lease in each case the failure to comply with such terms, conditions and/or requirements would under applicable law or the terms of such insurance policy constitute a valid defense to the insurer against payment of insurance proceeds thereunder.

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Lam Research Corporation Definitions

"Interest Period" shall mean (x) with respect to any Loans or Lessor Amounts bearing interest or Yield at the Base Rate, the calendar month immediately preceding a Scheduled Payment Date, or a portion of such calendar month during which the relevant Loans bear interest by reference to the Base Rate and (y) with respect to any Loans or Lessor Amounts bearing interest or Yield at the applicable Adjusted Eurodollar Rate that are funded on any Acquisition Date, initially the period commencing on the Advance date of any such Loan or Lessor Amounts and ending on May 1, 2003, and thereafter each period commencing on the last day of the immediately preceding Interest Period applicable to such Loan or Lessor Amounts and ending one, two, three, or six months thereafter, as selected by the Lessee and confirmed in writing to the Administrative Agent and the Lessor not less than three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided that if Lessee fails to provide notice of its selection as provided above for any period, the Lessee shall be deemed to have selected a one-month period.

"Japanese Assets" means assets held in Lam Research Co., Ltd., a Japanese joint stock company, or any successor thereto.

"Land" means each individual fee interest or leasehold interest, as the case may be, in real property described on Schedule I to each Lease Supplement, and includes all Appurtenant Rights attached thereto.

"Lease" means, collectively, the Master Lease and each Lease Supplement.

"Lease Balance" means, as of any date of determination, an amount equal to the sum of the Loan Balance and the Lessor Balance and all other amounts owing by the Lessee under the Operative Documents (including without limitation, accrued and unpaid Basic Rent and Supplemental Rent, if any).

"Lease Default" means any event or condition that, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default.

"Lease Event of Default" is defined in Section 16.1 of the Master Lease.

"Lease Rents" is defined in Section 2(a)(i) of the Assignment of Lease and Rent.

"Lease Supplement" means each Lease Supplement substantially in the form set forth in Exhibit A to the Master Lease, executed by the Lessee, the Lessor and, if appropriate in the applicable jurisdiction, the trustee described therein, dated an Acquisition Date and covering the Property described therein as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Lease Term" is defined in Section 2.3 of the Master Lease.

"Lender Basic Rent" means, as determined as of any Scheduled Payment Date, interest due on the Loans, determined in accordance with Section 2.5 of the Loan Agreement and

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Lam Research Corporation Definitions

excluding (i) any interest at the applicable Overdue Rate on any installment of Lender Basic Rent not paid when due, and (ii) any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Lender Basic Rent.

"Lender Commitment" means the Commitment of each Lender in the amount set forth on Schedule I of the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated, reduced or otherwise modified from time to time.

"Lenders" means, collectively, Key Corporate Capital Inc., each Eligible Lender Assignee and each other holder from time to time of a Note.

"Lessee" means Lam Research Corporation, a Delaware corporation.

"Lessor" means SELCO Service Corporation, an Ohio corporation.

"Lessor Amount" is defined in Section 3.2 of the Participation Agreement.

"Lessor Balance" means, as of any date of determination, an amount equal to the sum of the outstanding Lessor Amounts together with all accrued and unpaid Yield thereon and all other amounts owing to the Lessor under the Operative Documents.

"Lessor Basic Rent" means the amount of accrued and unpaid Yield due on the Lessor Amounts, determined in accordance with Section 4.1 of the Participation Agreement as of any Scheduled Payment Date and excluding (i) any interest at the applicable Overdue Rate on any installment of Lessor Basic Rent not paid when due and (ii) any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Lessor Basic Rent.

"Lessor Commitment" means the Commitment of the Lessor in the amount set forth on Schedule I of the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated, reduced or otherwise modified from time to time.

"Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's and the Administrative Agent's respective interests under the Master Lease and each Lease Supplement to the extent the Master Lease and the Lease Supplements are security agreements.

"Lessor Lien" means any Lien arising as a result of (a) any claim against any Participant not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of any Participant that is not required or permitted by the Operative Documents or is in violation of any of the terms of the Operative Documents or (c) any claim against any Participant with respect to Taxes or Transaction Expenses against which the Lessee is not required to indemnify such Participant pursuant to Article XIII of the Participation Agreement.

"Lessor Margin" means, with respect to any Lessor Amount which is a Eurodollar Loan/Lessor Amount, [***]% per annum.

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THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


CONFIDENTIAL TREATMENT REQUESTED

Lam Research Corporation Definitions

"Lessor Mortgage" means, with respect to each Property, the applicable Lease Supplement for such Property and any and all other security instruments in appropriate recordable form in the relevant jurisdiction sufficient to grant to the Lessor a first priority Lien on such Property.

"Lien" shall mean any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property.

"Loan Agreement" means the Loan Agreement, dated as of March 25, 2003, among the Lessor, as borrower thereunder, the Lenders, and the Administrative Agent, substantially in the form of Exhibit D to the Participation Agreement, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Loan Agreement Default" means any event, act or condition that with notice or lapse of time, or both, would constitute a Loan Agreement Event of Default.

"Loan Agreement Event of Default" is defined in Section 5.1 of the Loan Agreement.

"Loan Balance" means, as of any date of determination, an amount equal to the sum of the outstanding Loans together with all accrued and unpaid interest thereon pursuant to the Loan Agreement.

"Loan Commitment" means, with respect to each Lender, the aggregate Commitment of such Lender in the amount set forth on Schedule I to the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Loan Documents" means the Loan Agreement and the Notes.

"Loan Margin" means, with respect to any Loan that is a Eurodollar Loan/Lessor Amount, [***]% per annum.

"Loans" is defined in Section 2.1(a) of the Loan Agreement.

"London Interbank Offering Rate" means, as applicable to any Eurodollar Loan/Lessor Amount, for the Interest Period of such Eurodollar Loan/Lessor Amount, the rate per annum determined by the Administrative Agent with respect to Loans and by the Lessor with respect to Lessor Amounts on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal or analogous amount of such Eurodollar Loan/Lessor Amount

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THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


Lam Research Corporation Definitions

offered for a term comparable to such Interest Period, which rates appear on the Reuters Screen LIBO Page as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, provided that (i) if more than one such offered rate appears on the Reuters Screen LIBO Page, the "London Interbank Offering Rate" will be the arithmetic average (rounded upwards, if necessary, to the next higher 1/16th of it) of such offered rates; and (ii) if no such offered rates appear on such page, the "London Interbank Offering Rate" for such Interest Period will be the rate per annum quoted by the Administrative Agent, two (2) Business Days prior to the first day of such Interest Period, for deposits in Dollars offered to leading banks for a period comparable to such Interest Period in an amount comparable to the principal or analogous amount of such Eurodollar Loan/Lessor Amount.

"Margin Stock" has the meaning given such term under Regulation U of the F.R.S. Board.

"Marketing Period" means the period commencing on the date 180 days prior to the Expiration Date and ending on the Expiration Date.

"Master Lease" means the Amended and Restated Master Lease and Deed of Trust, dated as of March 25, 2003, between the Lessor and the Lessee, substantially in the form of Exhibit C to the Participation Agreement, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Material" and "Materially" mean material to (i) the ability of the Lessee to perform its obligations under the Operative Documents, (ii) the value, condition, utility or useful life of any Property or (iii) the business, financial condition or results of operations of the Lessee and its Subsidiaries taken as a whole.

"Material Adverse Change" means any material adverse change in the financial condition or results of operations of the Lessee and its Subsidiaries taken as a whole.

"Material Adverse Effect" means a material adverse effect on (a) the business, property, condition (financial or otherwise) or results of operations of the Lessee and its Subsidiaries taken as a whole, (b) the rights and remedies of the Lessor, the Administrative Agent or any Lender under the Operative Documents, (c) the ability of the Lessee to perform its obligations under the Operative Documents or (d) the value, utility, condition or useful life of any Property.

"Material Subsidiary" means any Subsidiary of the Lessee that has assets with a value of not less than 5% of the total value of the assets of the Lessee and its Subsidiaries taken as a whole as of the end of the most recently completed fiscal year of the Lessee.

"Maturity Date" means with respect to the Loans and the Lessor Amounts, the fifth anniversary of the Documentation Date.

"Maximum Lease Term" means the period ending on the fifth anniversary of the Documentation Date.

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Lam Research Corporation Definitions

"Maximum Recourse Amount" means, with respect to any Property, the Property Cost of such Property multiplied by the percentage set forth in the Lease Supplement for such Property.

"Modifications" is defined in Section 10.1 of the Master Lease.

"Moody's" means Moody's Investors Service, Inc.

"Mortgage" means any Mortgage or Deed of Trust, as the case may be, between the Lessor and the Administrative Agent, substantially in the form of Exhibit I to the Participation Agreement.

"Mortgage Foreclosure Act" is defined in Section 16.4 of the Master Lease.

"Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Lessee or other member of the Controlled Group is a party and to which more than one employer is obligated to make contributions.

"Net Proceeds" means the aggregate of all awards, compensation, insurance proceeds or other amounts received by the Administrative Agent, Lessor or any Lender in connection with any Casualty or Condemnation of any Property and all interest earned thereon, less, to the extent not previously reimbursed by the Lessee, the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Lessor, the Administrative Agent or any Lender is entitled to be reimbursed pursuant to the Lease.

"Non-U.S. Transferee" is defined in Section 12.3(a) of the Participation Agreement.

"Notes" means Series A Notes and Series B Notes, collectively, and "Note" means any of them.

"Obligations" means all obligations (monetary or otherwise) of the Lessee arising under or in connection with any of the Operative Documents.

"Off-Balance Sheet Obligations" means, with respect to the Lessee and each Subsidiary of the Lessee, (i) the principal portion of such Person's obligations under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product and (ii) the recourse portion of the aggregate amount of uncollected accounts receivable of such Person subject at such time to a sale of receivables (or similar transaction).

"Operative Documents" means the following:

(a) the Participation Agreement;

(b) the Master Lease;

(c) each Lease Supplement;

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CONFIDENTIAL TREATMENT REQUESTED

Lam Research Corporation                                             Definitions

                  (d)      the Loan Agreement;

                  (e)      each Note;

                  (f)      the Assignment of Lease and Rent;

                  (g)      each Deed and each Bill of Sale;

                  (h)      the Lessor Mortgages;

                  (i)      the Lessor Financing Statements;

                  (j)      each Mortgage; and

                  (k)      the Cash Collateral Documents.

"Original Executed Counterpart" is defined in Section 26.9 of the Master Lease.

"Overdue Rate" means, with respect to any Loan or Lessor Amount, the Base Rate, or the Adjusted Eurodollar Rate then in effect for such Loan or Lessor Amount, as the case may be, plus [***] per annum.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"Partial Termination Date" is defined in Section 15.2 of the Master Lease.

"Partial Termination Notice" is defined in Section 15.1 of the Master Lease.

"Participant Balance" means, with respect to any Participant as of any date of determination: (i) with respect to any Lender, an amount equal to the aggregate outstanding Loans of such Lender, together with all accrued and unpaid interest thereon or (ii) with respect to the Lessor, an amount equal to the aggregate outstanding Lessor Amounts, together with all amounts of accrued and unpaid Yield thereon.

"Participants" means, collectively, each Lender and the Lessor, and their successors and permitted assigns.

"Participation Agreement" means the Participation Agreement, dated as of March 25, 2003, among the Lessee, the Lessor, the Lenders and the Administrative Agent as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.

"Payment Date" means each Scheduled Payment Date and each other date on which Basic Rent is required to be paid by the Lessee.

-21-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


Lam Research Corporation Definitions

"Permitted Property Liens" means, with respect to any Property, any of the following:

(i) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents (including any Lien created pursuant to the Operative Documents);

(ii) the rights of any sublessee under a sublease permitted by the terms of the Master Lease;

(iii) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 12.1 of the Master Lease;

(iv) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than sixty (60) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the contest proceedings set forth in Section 12.1 of the Master Lease;

(v) Liens of any of the types referred to in clause (iii) or (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor and the Administrative Agent have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens;

(vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for contest proceedings set forth in Section 12.1 of the Master Lease;

(vii) easements, licenses, rights-of-way and other encumbrances on title to real property permitted pursuant to Section 11.2 of the Master Lease;

(viii) Lessor Liens;

(ix) Liens created by the Lessee with the consent of the Required Participants or otherwise permitted by the Operative Documents; and

(x) Liens described on the title insurance policy delivered with respect to such Property pursuant to Section 6.1(p) of the Participation Agreement, other than Liens described in clause (iv) or (vi) above.

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Lam Research Corporation Definitions

"Permitted Sales Costs" means, with respect to each Property, all reasonable costs of sale of such Property incurred by the Lessee pursuant to
Section 20.2 of the Master Lease which costs are of a type customarily paid by sellers of properties comparable to the applicable Property in the market where such Property is being sold; provided, however, that "Permitted Sales Costs" shall not include any costs of repairs, alterations or modifications (including Required Modifications) desired by the purchaser of any Property or required to cause any Property to comply with the requirements of the Master Lease.

"Person" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof.

"Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Lessee or any other member of the Controlled Group may have any liability.

"Plans and Specifications" means, with respect to each Property the final plans and specifications or detailed construction drawings for such Property.

"Property" means (i) the Lessor's fee simple interest in any parcel of Land (ii) all of the Improvements at any time located on or under such Land and
(iii) the Equipment at any time located on or under such Land.

"Property Balance" means, with respect to any Property, an amount equal to the outstanding principal or analogous amount of the Loans and Lessor Amounts relating to such Property, plus all accrued and unpaid interest and Yield thereon, plus any Supplemental Rent related to such Property or allocable to such Property plus any other amounts due and owing to the Participants and the Administrative Agent with respect to such Property or allocable to such Property.

"Property Cost" means, with respect to any Property, the amount of the Advance made under the Participation Agreement with respect to the acquisition of such Property.

"Purchase Notice" means an irrevocable written notice by the Lessee delivered to the Lessor pursuant to Section 18.1 of the Master Lease, notifying the Lessor of the Lessee's intention to exercise its option pursuant to such Section, and identifying the proposed purchase date therefor.

"Purchase Option" means the Lessee's option to purchase any or all of the Properties in accordance with the provisions of Section 18.1 of the Master Lease.

"Purchase Option Price" is defined in Section 18.1 of the Master Lease.

"RCRA" means the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Sections 6901 et seq.

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Lam Research Corporation Definitions

"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

"Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Material.

"Remarketing Option" is defined in Section 20.1 of the Master Lease.

"Rent" means, collectively, the Basic Rent and the Supplemental Rent.

"Rents" is defined in Section 2(b) of the Assignment of Lease and Rent.

"Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event.

"Requesting Party" is defined in Section 22.1 of the Master Lease.

"Required Lenders" means, at any time, Lenders having Loan Commitments representing at least 66-2/3% of the aggregate Loan Commitments of the Lenders or, for purposes of acceleration pursuant to Section 5.2(a)(ii)(y) of the Loan Agreement or in the event that the Loan Commitments have been terminated, Lenders representing at least 66-2/3% of the aggregate principal amount of Loans outstanding.

"Required Modification" is defined in Section 10.1(a) of the Master Lease.

"Required Participants" means the Lessor and the Required Lenders.

"Requirement of Law" means, as to any Person (a) the partnership agreement, certificate of incorporation, bylaws, operating agreement or other organizational or governing documents of such Person, and (b) all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting any Property, the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to any Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. S 1201 et seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are of record affecting any Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Master Lease.

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Lam Research Corporation Definitions

"Responsible Officer" means (a) as to the Lessee, any Authorized Officer, and (b) as to any other Person, the chief executive officer, the president, any vice president, the secretary, any assistant secretary or the treasurer of such Person.

"Responsible Officer's Certificate" means a certificate signed by any Responsible Officer, which certificate shall certify as true and correct the subject matter being certified to in such certificate.

"Return Conditions" is defined in Section 20.1 of the Master Lease.

"S&P" means Standard & Poor's Rating Service, a division of The McGraw-Hill Companies, Inc.

"Scheduled Payment Date" means (x) for funds accruing interest or Yield at the Base Rate, the first (1st) day of each calendar month, or if such day is not a Business Day, the next succeeding Business Day, and (y) for funds accruing interest or Yield at the Adjusted Eurodollar rate, the last day of the applicable Interest Period, or in the case of any Interest Period greater than three (3) months, three (3) months from the last Scheduled Payment Date, or if such day is not a Business Day, the next succeeding Business Day unless the result would be that the Scheduled Payment Date would be in the next succeeding calendar month, in which case such Payment Date shall be on the next preceding Business Day.

"SEC" means the Securities and Exchange Commission or any Governmental Authority succeeding to any of its principal functions.

"Securities Act" means the Securities Act of 1933, as amended from time to time.

"Series A Loans" means that portion of the Loans made by the Lenders allocated as "Series A Loans" pursuant to Schedule I to the Participation Agreement.

"Series B Loans" means that portion of the Loans made by the Lenders allocated as "Series B Loans" pursuant to Schedule I to the Participation Agreement.

"Series A Notes" means promissory notes of the Lessor substantially in the form of Exhibit A to the Loan Agreement with respect to the amounts of each Lender's Commitment allocated to Series A Loans.

"Series B Notes" means promissory notes of the Lessor substantially in the form of Exhibit A to the Loan Agreement with respect to the amounts of each Lender's Commitment allocated to Series B Loans.

"Severable Modifications" means modifications (a) that are not Required Modifications and (b) that can be removed from the applicable Property without
(i) causing damage to such Property that cannot be readily repaired or (ii) materially impairing the marketability, value,

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Lam Research Corporation Definitions

utility or useful life of such Property from that set forth in the Appraisal thereof delivered in connection with the Acquisition Date therefor.

"Short-Term Investments" means those assets shown as short term investments on the Lessee's financial statements prepared in accordance with GAAP.

"Shortfall Amount" means for each Property, as of the Expiration Date, an amount equal to (i) the Property Balance, minus (ii) the aggregate Maximum Recourse Amount minus (iii) the aggregate amount of the highest, binding, written, unconditional, irrevocable cash offer to purchase such Property obtained by the Lessee pursuant to Section 20.2(c) of the Master Lease; provided, however, that if the sale of such Property to the Person or Persons submitting such offer or offers is not consummated on or prior to the Expiration Date, then the term "Shortfall Amount" shall mean an amount equal to (i) such Property Balance, minus (ii) the Maximum Recourse Amount.

"Significant Casualty" with respect to a Property means a Casualty that in the reasonable, good faith judgment of the Administrative Agent and the Lessor (a) renders such Property unsuitable for continued use as an office facility, assembly facility or research and development facility, as applicable, or (b) is so substantial in nature that restoration of such Property to substantially its condition as it existed immediately prior to such Casualty would be impracticable or impossible.

"Significant Condemnation" with respect to a Property means (a) a Condemnation that involves a taking of the Lessor's entire title to the Land, or
(b) a Condemnation that in the reasonable, good faith judgment of the Administrative Agent and the Lessor (i) renders such Property unsuitable for continued use as an office facility, assembly facility or research and development facility, as applicable, or (ii) is so substantial in nature that restoration of the remaining portion of such Property to substantially its condition as it existed immediately prior to such Condemnation would be impracticable or impossible.

"Single Employer Plan" means a Plan maintained by the Lessee or any member of the Controlled Group for employees of the Lessee or any member of the Controlled Group.

"Solvent" means with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of

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Lam Research Corporation Definitions

contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability taking into account any subrogation and contribution rights.

"Structuring Fee" is defined in Section 4.4(a) of the Participation Agreement.

"Subject Improvements" is defined in each Lease Supplement.

"Subject Land" is defined in each Lease Supplement.

"Subject Property" is defined in each Lease Supplement and, as used in the Participation Agreement, means in the case of any Acquisition Date, the Property being acquired by the Lessor on such Acquisition Date.

"Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Lessee.

"Summary of Terms" means that certain Summary of Terms and Conditions dated February 21, 2003 between Lessee and the Arranger.

"Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) that the Lessee assumes or agrees to pay to the Administrative Agent, any Participant or any other Person under the Master Lease, or under any of the other Operative Documents, including, without limitation, Fees, Break Costs, Maximum Recourse Amounts, Shortfall Amounts, Transaction Expenses, amounts due pursuant to Article XIII of the Participation Agreement and payments pursuant to Sections 15.2 of the Master Lease and Articles XVIII and XX of the Master Lease.

"Tax Indemnitee" means each Participant, the Administrative Agent and the Arranger.

"Taxes" is defined in the definition of Impositions.

"Transaction Expenses" means all costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents including without limitation:

(a) the reasonable fees, out-of-pocket expenses and disbursements of Schiff Hardin & Waite, special counsel for the Lessor and the Arranger, in preparing and negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, the transactions contemplated thereby and in rendering other services customary for counsel

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Lam Research Corporation Definitions

representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents;

(b) (i) the reasonable fees, out-of-pocket expenses and disbursements of Heller Ehrman White & McAuliff LLP, special counsel for the Lessee, in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closings under, and rendering opinions in connection with, the transactions contemplated thereby and in rendering other services in connection with the transactions contemplated thereby customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents, and the reasonable fees, out-of-pocket expenses and disbursements of special counsel for the Lessee in connection with the transactions contemplated to occur on each Acquisition Date; and (ii) the reasonable fees, out-of-pocket expenses and disbursements of local counsel for the Lessee in each applicable jurisdiction in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closings under, and rendering opinions in connection with, the transactions contemplated to occur on each Acquisition Date and the Documentation Date and in rendering other services in connection with the transactions contemplated by the Operative Documents which are customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents;

(d) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency required by the Operative Documents in connection with the transactions contemplated by the Operative Documents;

(e) all reasonable out-of-pocket expenses, disbursements and costs of the Administrative Agent, the Arranger, the Lenders and the Lessor in connection with the transactions contemplated by the Operative Documents (including without limitation the transactions contemplated to occur on each Acquisition Date);

(f) all title fees, premiums and escrow costs and other expenses relating to title insurance and the closing contemplated by the Operative Documents;

(g) all expenses relating to Environmental Audits required to be delivered pursuant to Section 6.1(h) of the Participation Agreement;

(h) all fees and other expenses relating to Appraisals required to be delivered pursuant to Section 6.1(d) of the Participation Agreement;

(i) the Fees payable by the Lessee pursuant to Section
4.4 of the Participation Agreement;

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Lam Research Corporation Definitions

(j) the fees and expenses of any rating agency providing a rating with respect to the Notes and/or the Lessor's interest in the Transactions; and

(k) any other expenses incurred by the Lessee in connection with the Transactions.

"Transactions" shall mean the transactions contemplated under the Participation Agreement and each of the other Operative Documents.

"Unfunded Vested Liabilities" means the amount (if any) by which the present value of all currently accrued, vested and nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all assets of such Plan allocable to such benefits, all determined on an ongoing Plan basis as set forth in the then most recent actuarial valuation for each such Plan.

"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction.

"United States" means the United States of America.

"U.S. Transferee" is defined in Section 12.3(b) of the Participation Agreement.

"Yen-Denominated Facility" means any credit facility from time to time entered into by Lam Research Co., Ltd., a Japanese joint stock company or any successor thereto.

"Yield" is defined in Section 4.1(a) of the Participation Agreement.

"Yield Rate" means the Adjusted Eurodollar Rate applicable to Lessor Amounts, subject to the provisions of Sections 13.7, 13.8 and 13.9 of the Participation Agreement.

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SCHEDULE I
TO PARTICIPATION AGREEMENT

COMMITMENTS

                                                                                    COMMITMENT
      PARTICIPANT                            COMMITMENT                             PERCENTAGE
          LENDERS
Key Corporate Capital Inc.             Series A $48,283,678.85                         88.70%

Key Corporate Capital Inc.             Series B $ 4,245,915.39                          7.80%

   Total Loan Commitment                   $52,529,594.24                               96.5%

         LESSOR

SELCO Service Corporation                  $ 1,905,218.44                                3.5%

          TOTAL                            $54,434,812.68                                100%


SCHEDULE II
TO PARTICIPATION AGREEMENT

Notice Information, Wire Instructions and Funding Offices

LESSOR:

NOTICES:

SELCO SERVICE CORPORATION
c/o KeyCorp. Leasing
66 South Pearl Street
Albany, New York 12207
Attention: Mr. Donald C. Davis
Facsimile No.: (720) 304-1479

with a copy to

Key Equipment Finance
601 108th Avenue NE
Bellevue, Washington 98004
Attention: Mr. James Carney
Facsimile No.: (425) 709-4587

and a copy to

Key Technology Finance
601 108th Avenue NE
Bellevue, Washington 98004
Attention: Mr. Robert Boswell
Facsimile No.: (425) 709-4565

ADMINISTRATIVE AGENT:

NOTICES:

KEY CORPORATE CAPITAL INC.
601 108th Avenue NE
Bellevue, Washington 98004
Attention: Mr. Robert Boswell
Telephone No.: (425) 709-4580
Facsimile No.: (425) 709-4565


FUNDING, RATE SETS AND OTHER ADMINISTRATIVE:

Key Bank National Association
431 East Parkcenter Boulevard
Boise, Idaho 83706
Attention: Specialty Services Team
Telephone No.: (800) 297-5518
Facsimile No.: (800) 297-5495

WIRE TRANSFER INSTRUCTIONS:

Bank: KeyBank National Association
Bellevue, Washington
ABA Number: 125000574
Account Number: 3072
Ref: Lam Research Corporation

LENDER:

NOTICES:

KEY CORPORATE CAPITAL INC.
601-108th Avenue NE
Bellevue, Washington 98004
Attention: Mr. Robert Boswell
Telephone No.: (425) 709-4580
Facsimile No.: (425) 709-4565

WIRE TRANSFER INSTRUCTIONS:

Bank: KeyBank, N.A.
Bellevue, Washington
ABA Number: 125000574
Account Number: 3072
Ref: Lam Research Corporation

-2-


LESSEE:

LAM RESEARCH CORPORATION
4300 Cushing Parkway
Fremont, California 94538
Attention: Craig Garber
Telephone: (510) 572-1875
Facsimile: (510) 572-1586

-3-

 


 
EXHIBIT 10.83

AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT

THIS AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT, dated as of December 27, 2002 (this "AMENDMENT"), is entered into by and among LAM RESEARCH CORPORATION, a Delaware corporation (the "LESSEE"), SCOTIABANC INC., a Delaware corporation (subject to the definition of "Lessor" in Annex A to the Participation Agreement (as defined below) the "LESSOR") and THE BANK OF NOVA SCOTIA (subject to the definition of "Rent Purchaser" in the Participation Agreement, the "RENT PURCHASER") and as Agent for the Rent Purchasers (in such capacity, the "AGENT").

RECITALS

A. The Lessee, the Lessor, the Rent Purchaser and the Agent are parties to that certain Participation Agreement, dated as of January 19, 2000 (as amended by that certain Amendment No. 1 to Participation Agreement and to certain Operative Agreements, dated as of June 22, 2001, that certain Amendment No. 2 to Participation Agreement and Limited Waiver, dated as of February 11, 2002, that certain Amendment No. 3 to Participation Agreement, dated as of March 31, 2002, and as the same may be amended, restated or otherwise modified further, the "PARTICIPATION AGREEMENT").

B. The Lessee has requested an amendment to the EBITDAR covenant in the Participation Agreement. The Participants are willing to amend the Participation Agreement in the manner in which the Lessee desires, but only to the extent, subject to the terms and conditions, and in reliance upon the representations and warranties set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

SECTION 1. DEFINITIONS. Capitalized terms used herein without definitions shall have the meanings given to such terms in Annex A to the Participation Agreement.

SECTION 2. AMENDMENTS TO PARTICIPATION AGREEMENT AND ANNEX A TO PARTICIPATION AGREEMENT. The Participation Agreement is hereby amended as follows:

2.1 A new definition is added to Annex A of the Participation Agreement as follows:

"CONTROL AGREEMENT" shall mean the Securities Account Control Agreement by and among Lessee, Agent, Lessor and The Bank of Nova Scotia Trust Company (Cayman) Limited.

2.2 The definition of "COLLATERAL AGENT" in Annex A to the Participation Agreement is hereby amended to read as follows:

1


"COLLATERAL AGENT" shall mean The Bank of Nova Scotia, or, for purposes of the Pled