NOVELLUS SYSTEMS INC (Form: 10-K, Received: 03/05/2003 17:29:35)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


	[ X ]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002


	[ ]		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 000-17157

NOVELLUS SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)


California		77-0024666
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification Number)

4000 North First Street, San Jose, California 95134
(Address of principal executive offices including Zip code)

(408) 943-9700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

(Title of Class)

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 such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES [X] NO [ ]

As of June 28, 2002 the aggregate market value of voting and non-voting stock held by non-affiliates of the Registrant was approximately $5,064,390,563, based on the average of the high and low prices of the Common Stock as reported on the NASDAQ National Market on such date. Shares of Common Stock held by officers, directors and holders of more than 5% of the outstanding Common Stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the Registrant’s Common Stock outstanding on February 26, 2003 was 149,575,876.

Documents Incorporated by Reference: Part III of this Form 10-K incorporates information by reference from the Registrant’s Proxy Statement for its 2003 Annual Meeting of Shareholders.

TABLE OF CONTENTS


PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 4.5
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 10.36
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 12.1
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3

NOVELLUS SYSTEMS, INC.

2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


			Page

Part I
	Item 1:	Business		8
	Item 2:	Properties		16
	Item 3:	Legal Proceedings		16
	Item 4:	Submission of Matters to a Vote of Security Holders		18
Part II
	Item 5:	Market for Registrant’s Common Equity and Related Shareholder Matters		18
	Item 6:	Selected Financial Data		18
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 7A:	Quantitative and Qualitative Disclosures about Market Risk		33
	Item 8:	Financial Statements and Supplementary Data		35
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		65
Part III
	Item 10:	Directors and Executive Officers of the Registrant		65
	Item 11:	Executive Compensation		65
	Item 12:	Security Ownership of Certain Beneficial Owners and Management		65
	Item 13:	Certain Relationships and Related Transactions		65
	Item 14:	Controls and Procedures		65
Part IV
	Item 15:	Exhibits, Financial Statement Schedules and Reports on Form 8-K		67
Signatures				72

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions also identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K include, without limitation:

• Statements about the growth of the semiconductor industry; market size, share and demand; product performance; our expectations, objectives, anticipations, intentions and strategies regarding the future; expected operating results, revenues and earnings; and current and potential litigation, which statements are subject to various uncertainties, including, without limitation, those discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors”;

• The statements under the heading “Item 1. Business” concerning (1) the semiconductor industry’s migration to the use of copper and low-k dielectrics and (2) the growing importance of the surface preparation and CMP manufacturing steps, which statements are subject to various risks and uncertainties, including, without limitation, the failure of our expectations regarding the future direction of the semiconductor industry and our failure to combine the recently-acquired product offerings of GaSonics International Corporation and SpeedFam-IPEC, Inc. with our offerings;

• The statements under the heading “Item 1. Business – Industry Background” regarding our beliefs that (1) unit demand for semiconductor devices will continue to increase; (2) the next generation of chips will likely see line widths as small as 90 nanometer and below; (3) there will be a transition from aluminum to copper conductive material; (4) there will be a transition from silicon oxide films to low-k dielectric insulators; and (5) there is a trend toward larger wafer sizes, which statements are subject to various risks and uncertainties, including, without limitation, periodic downturns in the semiconductor industry, slowdowns in the rate of capital investment by semiconductor manufacturers, shifts in demand from expensive, high-performance products to lower priced, conventional products, and the failure of our expectations regarding the future direction of the semiconductor industry;

• The statements under the heading “Item 1. Business – Strategy,” concerning (1) our objective to increase our market share in the interconnect manufacturing market and strengthen our position as a leading supplier of semiconductor processing equipment; (2) our emphasis on high-productivity systems; (3) our focus on reducing customer costs; (4) our service differentiation philosophy; (5) our goal to lead in our target markets; (6) our goal to broaden our interconnect offerings; (7) our focus on major semiconductor manufacturers; (8) our intention to expand our market presence in Asia; and (9) our intention to leverage our low manufacturing cost structure, which statements are subject to various risks and uncertainties, including, without limitation, shifts in demand from expensive, high-performance products to lower priced, conventional products, resulting in reduced profit for semiconductor manufacturers, the current and other periodic downturns in the semiconductor industry and the economy in general, slowdowns in the rate of capital investment by semiconductor manufacturers and future product developments, introductions by competitors, increased competition in the

semiconductor equipment industry and risks and uncertainties associated with international operations, including economic downturns, trade balance issues, political instability, banking issues, fluctuations in interest and foreign currency exchange rates and slower economic development in Asia;

• The statements under the heading “Item 1. Business – Products” of our beliefs regarding our products, including (1) that Concept Two enables increased production throughput and system capability; (2) that Concept Three offers greater throughput in 300mm wafer-manufacturing applications; (3) that Concept Three SPEED offers minimal risk to our customers in making the transition from 200mm to 300mm volume chipmaking; (4) that Concept Two ALTUS is ideal for meeting the requirements of high-volume, automated 200mm wafer fabs producing semiconductor devices at 0.18 micron and below; (5) that the INOVA 200mm system will continue to gain market acceptance based on barrier seed step coverage performance; (6) that the 300 mm INOVA XT with Hollow Cathode Magnetron or HCM will continue to offer superior barrier performance; (7) that our Electrofill products are highly reliable and cost-effective; (8) the increasing importance of photoresist strip and clean processes; (9) that IRIDIA offers the highest productivity of any 200 mm dry-clean system currently on the market; (10) that SIERRA yields significantly higher capital productivity and significantly lower cost-of-ownership advantages than competing dry-clean systems; (11) that the opportunity to integrate and optimize the planarization, deposition and surface preparation steps gives us an important advantage in extending copper/low-k processes to advanced semiconductor devices; and (12) that MOMENTUM allows for maximum manufacturing flexibility, which statements are subject to various risks and uncertainties, including, among others, the inaccuracy of our assessment of the capabilities of our products, the greater financial, marketing, technical or other resources, broader product lines, greater customer service capabilities and larger and more established sales organizations and customer bases that some of our competitors possess, future competition from new market entrants, our competitors’ improvement of the design and performance of their products that may offer superior price or performance features over our products, and difficulties in selecting, developing, manufacturing and marketing our new products or enhancing our existing products;

• The statements under the heading “Item 1. Business – Marketing, Sales and Service” of our beliefs that (1) our strategy of supporting our installed base through customer support and R&D groups has accelerated penetration of certain key accounts; (2) our marketing efforts are enhanced by the technical expertise of our R&D personnel; and (3) our customer service is enhanced by the design simplicity of our systems, which statements are subject to certain risks and uncertainties, including, without limitation, that during periods of rapid growth, we may not be able to hire, assimilate and retain a sufficient number of qualified people and our failure to design simple, streamlined systems;

• The statement under the heading “Item 1. Business – Research and Development” regarding our expectation that research and development expenditures will continue to represent a substantial percentage of sales, which statement is subject to certain risks and uncertainties, including, among others, that we may be unable to allocate substantial resources to research and development;

• The statements under the heading “Item 1. Business – Manufacturing” regarding (1) our belief that our outsourcing strategy enables us to minimize our fixed costs and capital expenditures while also

providing the flexibility to increase capacity as needed and allows us to focus on product differentiation through system design and quality control; (2) our belief that the use of manufacturing specialists for our subsystems incorporate the most advanced technologies in robotics, gas panels and microcomputers; (3) our goal to work with suppliers to achieve mutual cost reduction through joint design efforts; and (4) our goal of reduced dependence on limited suppliers for certain key parts, which statements are subject to various risks and uncertainties, including, without limitation, the possible occurrence of a disruption or termination of certain limited source suppliers, our prolonged inability to obtain certain components, our failure to work efficiently with suppliers, and our inability to establish relationships with alternative suppliers of key parts;

• The statement under the heading “Item 1. Business – Competition” regarding our belief as to our favorable competitiveness in our market segments, which statement is subject to various risks and uncertainties, including, among others, the greater financial, marketing, technical or other resources, broader product lines, greater customer service capabilities and larger and more established sales organizations and customer bases that some of our competitors possess, future competition from new market entrants from overseas and domestic sources, our competitors’ improvement of the design and performance of their products that may offer superior price or performance features as compared to our products, and our success in selecting, developing, manufacturing and marketing our new products or enhancing our existing products;

• The statements under the heading “Item 1. Business – Patents and Proprietary Rights” regarding our beliefs and intentions (1) to pursue the legal protection of our technology primarily through patent and trade secret protection; (2) to file additional patent applications; (3) to vigorously protect our intellectual property rights; (4) that the outcomes of current litigation will not have a material impact on our business; and (5) that in the future, litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others, which statements are subject to various risks and uncertainties, including, without limitation, the absence of assurance that patents will be issued from any of our pending applications or that any claims allowed from existing or pending patents will be sufficiently broad to protect our technology, the fact that litigation could result in substantial cost and diversion of our effort and the fact that adverse litigation determinations could result in a loss of our proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products;

• The statements under the heading “Item 1. Business – Employees” that our success depends upon (1) our ability to recruit and retain engineers and technicians, marketing, sales, service and other key personnel and (2) the retention of a limited number of key employees and other members of our senior management, which statements are subject to risks and uncertainties, including, among others, our inability to successfully retain or recruit key personnel and our inability to effectively manage growth;

• The statement under the heading “Item 1. Business – Environmental Matters” that neither compliance with federal, state and local provisions regulating discharge of materials into the environment nor remedial agreements or other environmental actions is expected to have a material affect on our capital expenditures, financial condition, results of operations or competitive position, which statement is subject to various risks and uncertainties, including, among others, that we have inaccurately assessed the compliance requirements of environmental provisions;

• The statement under the heading “Item 2. Properties” of our belief that our current properties will be sufficient to meet our requirements for the foreseeable future is subject to various risks and uncertainties, including, without limitation, growth in net sales placing unexpected strains on our resources and properties;

• The statements under the headings “Item 3. Legal Proceedings” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 11. Litigation” of our beliefs (1) that there are meritorious defenses in the Applied Materials, Inc., Semitool, Inc., Plasma Physics Corporation, Solar Physics Corporation and Linear Technology Corporation litigation matters, and

(2) regarding the impact and outcome of the Applied, Semitool, Plasma Physics, Solar Physics and Linear Technology litigation matters, which statements are subject to various uncertainties, including, without limitation, our inability to accurately predict the determination of complex issues of fact and law;

• The statements under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” regarding calculation of allowances, reserves, and other estimates that are based on historical experience, the judgment of management, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, our beliefs about critical accounting policies, and the significant judgments and estimates used in the preparation of our consolidated financial statements, which statements are subject to certain risks, including, among others, the inaccuracy of our beliefs regarding critical accounting policies and that actual product failure rates, material usage, installation costs, customer reserves or other estimates may be different from our estimates, requiring revisions to our estimated allowance for doubtful accounts, additional inventory write-downs, restructuring charges, litigation, warranty, and other reserves;

• The statements under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” of our strategies, beliefs, plans, expectations, anticipations and hopes with respect to Net Sales, Gross Profit, Selling, General and Administrative, Research and Development, Acquired In-Process Research and Development, Restructuring and Other Charges, Bad Debt (Recovery) Write-off, Other Income, net, Provision for Income Taxes, Deferred Tax Assets, Foreign Currency Accounting and Foreign Exchange Contracts including, without limitation, (1) our plan to continue our R&D commitment to improvement of new and existing technologies; (2) our belief that substantial investment in R&D is required to remain competitive; (3) management’s beliefs regarding the realization of deferred tax assets; and (4) the belief that our forward foreign exchange contracts do not subject us to speculative risk that would otherwise result from changes in currency exchange rates; and our strategies, beliefs, plans, expectations, anticipations and hopes with respect to Liquidity and Capital Resources set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” including, without limitation, (1) our beliefs regarding the impact of the adoption of SFAS Nos. 143, 145 and 146; (2) our intention to continue our participation in synthetic leases in 2003; (3) our beliefs regarding our exposure in connection with the residual value guarantees related to our synthetic leases; (4) our belief that the fair market value of each of the properties subject to the synthetic leases exceeds the purchase option price for each property; (5) our beliefs regarding the impact to liquidity if we must purchase the properties subject to the synthetic leases; (6) our expectations regarding our actions if the lessor under the synthetic leases is deemed to be a voting interest entity versus a variable interest entity; (7) our belief that the additional taxes, losses and expenses associated with our maximum loss exposure on the synthetic leases would be immaterial; and (8) our belief that our current cash position, cash generated through operations and equity offerings, and available borrowings will be sufficient to meet our needs through at least the next twelve months, which statements are subject to numerous risks and uncertainties, including, without limitation, our inability to allocate substantial resources to R&D programs, the inaccuracy of our beliefs regarding taxes, foreign exchange contracts, the impact of certain accounting standards and our synthetic leases, that the semiconductor industry will continue to experience this or another periodic downturn, which could have a material adverse effect on the semiconductor industry’s demand for semiconductor processing equipment, including equipment we manufacture and market, and our success in selecting, developing, manufacturing and marketing our new products, or enhancing our existing products;

• The statement under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” that we believe that an immediate change to interest rates to variable short-term borrowings will not have a material effect on our results is subject to the risk, among other risks, that we have inaccurately assessed our future borrowing needs; and

• The statement in “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Significant Accounting Policies – Concentration of Credit and Other Risks” that we do not believe that there is a significant risk of nonperformance by counterparties on foreign exchange contracts is subject to the risk, among other risks, that we may fail to continuously monitor our positions and the credit ratings of counterparties.

The forward-looking statements in this Annual Report on Form 10-K are subject to additional risks and uncertainties further discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors” and are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Readers should also consult the cautionary statements and risk factors listed from time to time in our Reports on Forms 10-Q, 8-K, 10-K and in our Annual Reports to Shareholders.

PART I

ITEM 1. BUSINESS

Novellus Systems, Inc., a California corporation organized in 1984, develops, manufactures, sells and supports systems used in the fabrication of integrated circuits. The customers for these products are manufacturers of semiconductor integrated circuits, or chips, who either incorporate the chips they manufacture in their own products or sell them to other companies for use in electronic products.

Integrated circuits are generally built on a silicon wafer base and include a large number of different components, such as transistors, capacitors and other electronic devices that are connected by multiple layers of wiring or interconnects. To build an integrated circuit, transistors are first created on the surface of the silicon wafer. The wiring and insulating structures are then added as multiple thin-film layers through a series of processes. Typically, a first layer of dielectric, or insulating material is deposited on top of the formed transistors. That layer is then etched to create patterns that are subsequently filled with conductive metal (traditionally aluminum, but increasingly, copper is used). In copper dual damascene, a chemical mechanical planarization, or polishing, step follows to remove excess copper. The sequence is then repeated to create the multiple layers of wiring needed to connect the transistors and form the integrated circuit. Advanced chip designs require as many as 500 steps involving these and other manufacturing processes.

Novellus operates in a single industry segment for the manufacture, marketing and support of semiconductor fabrication equipment. Our product offerings are centered on the advanced systems used to deposit the films of conducting and insulating material, using chemical vapor deposition (CVD), physical vapor deposition (PVD) and electroplating or Electrofill ^TM , commonly known in the industry as electrochemical deposition (ECD) processes, to form the layers of wiring and insulation, known as the “interconnect,” in semiconductor devices. Our High-Density Plasma CVD (HDP) and Plasma-Enhanced CVD (PECVD) systems employ a chemical plasma to deposit all of the dielectric or insulating layers and some of the metal or conductive layers on the surface of a semiconductor wafer. Our PVD systems use direct-current power to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source. Our Electrofill systems are used for depositing conductive layers of copper on wafers in an electroplating or “damascene” process.

Building on our historical strength in deposition technologies, in 2001 we expanded into the area of wafer surface preparation by acquiring GaSonics International Corporation, a manufacturer of systems used to clean and prepare a wafer surface after the manufacturing steps that precede deposition. More recently, in December 2002 we completed the acquisition of SpeedFam-IPEC, Inc., a manufacturer of chemical mechanical planarization (CMP) products. As the semiconductor industry migrates to the use of copper and low-k (low-capacitance) dielectrics in semiconductors, the manufacturing steps for surface preparation and CMP are becoming increasingly important.

Our headquarters are located at 4000 North First Street, San Jose, California 95134. The telephone number is (408) 943-9700.

Additional information about Novellus is available on our web site at www.novellus.com . Novellus makes available free of charge on its web site its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, its Current Reports on Form 8-K and amendments to those Reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file them with or furnish them to the Securities and Exchange Commission, or the SEC. Information contained on our web site is not part of this Annual Report on Form 10-K or our other filings with the SEC.

Industry Background

Over the past twenty years, the semiconductor industry has grown rapidly as a result of increasing demand for personal computers, the expansion of the Internet and the telecommunications industry, and the emergence of new applications in consumer electronics. More recently, growth has slowed, and there are signs that the industry may be beginning to mature. While unit demand for semiconductor devices continues to rise, the average selling prices are declining. There is increasing pressure on chipmakers to reduce manufacturing costs while increasing the value of their products at the same time. The semiconductor industry has also been cyclical in nature over its history, with periods of rapid expansion followed by periods of over-capacity.

Several technological trends characterize semiconductor manufacturing. Perhaps the most prominent of these trends is increasing density. Moore’s Law, first postulated in the mid-1960s and still accurate almost 40 years later, states that the density of circuitry on an individual semiconductor chip doubles every 18 months. Today’s advanced devices are being manufactured with line widths as small as 0.13 micron and with up to eight layers of interconnect circuitry. By increasing circuit density, manufacturers can pack more electronic components on a chip and thereby provide higher performance and value. The next generation of chips will likely see line widths as small as 90 nanometer (0.09 micron) and below, requiring even more sophisticated interconnect wiring to keep pace.

Another trend worth noting is the transition to copper wiring in place of aluminum as the primary conductive material in semiconductor devices. Copper has a lower electrical resistance value than aluminum, and this provides a number of performance advantages. Because of the superior properties of copper, a chip made with copper may need only half as many metal layers as one made with aluminum. This provides a significant reduction in manufacturing cost. In addition, copper wiring produces a significant improvement in device performance and a significant reduction in power requirements as compared to aluminum.

A similar transition is underway to low-k dielectric insulators, which are replacing traditional silicon oxide films. Low-k dielectrics are better at limiting the capacitance that occurs between metal lines in a device. This quality is important to the goal of smaller line widths and increasing component density. However, low-k materials are also less stable than silicon oxide, and this poses a host of new challenges to the semiconductor industry in pursuing its goals of increased circuit density and, at the same time, lower cost of manufacture and higher performance and value of the manufactured product.

Another important trend is the move to larger wafer sizes. Chipmakers are migrating to larger, 300mm wafers because of the potential manufacturing cost advantages these larger wafers provide (through the production of more integrated circuits on each individual wafer) compared to the 200mm wafers that have been the industry standard for approximately the past ten years.

These trends shape the equipment and process demands that our customers place on us. Our customers generally measure the cost and performance of their production equipment in terms of “cost per wafer,” a ratio determined by factoring in the costs for acquisition and installation of a system, operating costs, and net throughput rate. A system with higher net throughput allows a manufacturer to recover the purchase price over a greater number of wafers, thereby reducing the cost of ownership of the system on a per-wafer basis. Yield and film qualities are also significant factors in selecting processing equipment. The higher costs of larger and more complex semiconductor wafers have made high yields extremely important to our customers. To achieve higher yields and better film quality, systems must be able to repeat a process consistently and reliably. This characteristic, known as repeatability, is critical in achieving commercially acceptable yields. Systems that operate at desired throughput rates without approaching critical tolerance limits can achieve repeatability more easily.

Strategy

Our business objective at Novellus is to use our core expertise to increase our market share in the interconnect manufacturing arena and strengthen our position as a leading supplier of semiconductor processing equipment. The following are the key elements of our strategy:

Emphasize High-Productivity Systems – We established our current position in the industry by emphasizing high productivity as the principal benefit that our products and technologies deliver to customers. Our unique multi-chamber system for continuous PECVD processing illustrates our commitment to productivity. This multi-chamber design enables our PECVD systems to attain very high levels of wafer throughput, yield and film quality. The simple architecture of our systems also takes up less space in the fab and requires less downtime than other system designs. We intend to retain our historical focus on productivity by applying our multi-chamber and continuous processing architecture in product enhancements and new product offerings.

Focus on Reducing Customer Costs – Cost is an important component when measuring overall productivity. To that end, we strive to provide products and technologies that reduce our customers’ overall cost of ownership. We pursue these advantages by offering chipmakers a number of process improvements and process differentiators, as well as by providing highly reliable systems that require less servicing than competing alternatives in the market.

Differentiate our Service Philosophy – We do not view our customer service operations as a profit center and source of revenue generation. Our philosophy is to develop reliable products that do not break down as often or require as much servicing as competing alternatives. In addition, we strive to provide support that minimizes the downtime and service costs that our customers’ experience.

Lead in our Target Markets – Our goal is to command a leadership position in each of our target market areas. Historically, we have aimed to be the leader or the second or third largest provider in each of the subsets that comprise the served available market for our deposition products: HDP, CVD, PECVD, PVD and ECD. Due to our 2001 acquisition of GaSonics and subsequent internal product development efforts, we are one of the leading providers of surface preparation products. Our 2002 acquisition of SpeedFam-IPEC has enabled us to become one of the industry’s top suppliers of CMP products. We intend to aggressively pursue a leadership position in CMP similar to those we have achieved in other market segments.

Broaden our Interconnect Offerings – As semiconductor manufacturing technology becomes more complex, the interconnect structures on a chip take on a greater importance in the manufacturing process. We believe that by expanding beyond our historical focus on deposition products we can add value in related interconnect manufacturing process steps. The acquisitions of GaSonics and SpeedFam-IPEC — which enabled Novellus to enter the surface preparation and CMP product arenas, respectively — are examples of this strategy in action.

Focus on Major Semiconductor Manufacturers – We have sold one or more systems to each of the 2002 world’s top 20 semiconductor manufacturing equipment capital spenders. Our sales objective is to work closely with our customers as they expand existing facilities, retrofit older manufacturing plants with new equipment, and build new fabrication facilities. We strive to build customer loyalty and achieve a high level of repeat business by offering high-reliability products, comprehensive field support, and a responsive parts replacement and service program.

Expand Market Presence in Asia – While we derive a significant percentage of net sales from Asia, we believe that substantial additional growth potential exists in the region over the long term. Japan, Taiwan and Korea continue to represent a disproportionate share of the world’s capacity for semiconductor manufacturing, and China is rapidly becoming a major manufacturing region for the industry. Our local presence in Asia includes sales and support offices throughout Japan. In addition, we maintain five offices in Korea, three in China, two each in Taiwan, Malaysia and Singapore, and one office in India. We plan to continue our efforts to better serve this region.

Leverage our Low Manufacturing Cost Structure – We do all system design, assembly and testing in-house, and outsource the manufacture of major subassemblies. This strategy allows us to minimize our fixed costs and capital expenditures and gives us the flexibility to increase capacity as needed. Outsourcing also allows us to focus on product differentiation through system design and quality control and helps to ensure that our subsystems incorporate the latest third-party technologies in robotics, gas panels and microcomputers. We work closely with our suppliers to achieve mutual cost reduction through joint design projects.

Products

Deposition Products

Our historical strength is rooted in deposition products, where we have consistently maintained a leadership position in the industry. We currently offer products that address the needs of manufacturers across a number of different deposition technologies — CVD, PVD and ECD.

Since the introduction of our Concept One dielectric platform in 1987, we have offered a range of processing systems for dielectric and metal deposition. In 1991, we introduced the Concept Two platform — a modular, integrated production system capable of depositing both dielectric and conductive metal layers by combining one or more processing chambers with a common, automated wafer handler. The Concept Two enables chipmakers to increase production throughput and system capability, as required in 200mm wafer manufacturing applications, by adding process modules without having to replace existing equipment. In 1997, we introduced the Concept Three platform, which builds on the foundation of its predecessor to offer greater throughput in 300mm wafer-manufacturing applications.

HDP CVD Products

In the CVD process, manufacturers place wafers in a reaction chamber, introduce a variety of pure and precisely metered gases into the chamber, and then add some form of energy to activate a chemical reaction that deposits a film on the wafer. The CVD process is the traditional method used to deposit dielectric (insulating) films on wafers. Manufacturers also use CVD to deposit conductive metal layers, particularly tungsten, as it is difficult to deposit such layers on devices with very small features using conventional PVD or other deposition technologies.

Concept Two SPEED ^® – Introduced in 1996, Concept Two SPEED was the semiconductor industry’s first high-density plasma system capable of high-volume manufacturing, and today it is one of the top two leading systems in the HDP CVD marketplace. Concept Two SPEED is a single-wafer processing system for 200mm substrates. It is targeted for depositing dielectric material in aluminum interconnect manufacturing processes, as well as for deposition of pre-metal layers in copper manufacturing processes.

Concept Three SPEED – The Concept Three SPEED is designed for applying dielectric material in 300mm wafer manufacturing processes. Because it is based on our production-proven Concept Two products, Concept Three SPEED offers minimal risk to our customers in making the transition from 200mm to 300mm wafer size in their high-volume integrated circuit manufacturing processes.

CVD Products

Concept Two ALTUS – In 1994, we introduced the Concept Two ALTUS, used to deposit the tungsten plugs and vias that connect aluminum interconnect lines in aluminum-based chips. The Concept Two ALTUS combines the modular architecture of the Concept Two with an advanced tungsten CVD dual-process chamber. The system is ideal for meeting the requirements of high-volume, automated 200mm wafer fabs producing semiconductor devices at 0.18 micron and below.

Concept Three ALTUS – The Concept Three ALTUS, introduced in 1997, brings the same advantages to 300mm wafer tungsten deposition as our Concept Two ALTUS predecessor provides for 200mm wafer applications.

PECVD Products

Concept Two SEQUEL Express ^® – Introduced in 1999, the Concept Two SEQUEL Express is designed to deposit our CORAL ^® family of low-k dielectric films, as well as other advanced films required for manufacturing 0.18 micron-and-smaller semiconductor devices. With a throughput in excess of 110 wafers per hour, Concept Two SEQUEL Express delivers up to 40 percent higher capital productivity and 40 percent lower cost of ownership than competing PECVD systems.

VECTOR ^® – Introduced in 2000, VECTOR is a PECVD system for depositing dielectric films on 300mm wafers. VECTOR delivers a fully integrated low-k dielectric structure at 0.10-micron-and-smaller design rules. With approximately two-thirds the footprint of the nearest competitor, 40 percent fewer critical subassemblies and a throughput of 120 wafers per hour, VECTOR delivers higher capital productivity than any other PECVD system currently on the market.

PVD Products

PVD, also known as “sputtering,” is a process where ions of an inert gas such as argon are electrically accelerated in a high vacuum toward a target of pure metal, such as tantalum or copper. Upon impact, the argon ions sputter off the target material, which is then deposited as a thin film on the silicon wafer. PVD processes are used to create the barrier and seed layers in copper damascene interconnect applications. We entered the PVD marketplace with the acquisition of Varian Associates’ Thin Film Systems Division in 1998.

INOVA ^® – The INOVA 200mm system was introduced in 1998 with a multi-chamber, single-wafer processing design. The Hollow Cathode Magnetron or HCM ionized PVD source continues to gain market acceptance based on barrier seed step coverage performance.

INOVA xT – In 2000, we introduced the 300mm INOVA xT with HCM technology. The product continues to offer superior barrier performance leading to low via resistance and improved device reliability.

Electrofill Products

Our Electrofill products are used to produce the primary copper conductive layers in advanced integrated circuits. Electrofill uses copper to fill a structure created within the circuit’s insulating layers, in a manufacturing process called copper damascene. Damascene manufacturing reverses the manufacturing process used with aluminum, where the metal is deposited first, then etched to create lines and vias, and finally filled with insulating layers between the metal lines. Our highly reliable and cost-effective Electrofill products employ liquid chemistries and electrolytic principles to deposit the copper wiring into the dielectric structure.

SABRE – The SABRE copper Electrofill system, introduced in 1998, is one of the most reliable and technologically advanced copper ECD system available on the market. SABRE meets today’s technology requirements for copper metal layers all the way down to 90 nanometer (0.09 micron) line widths and beyond. It employs a proprietary electrofilling cell that eliminates contamination of the back of the wafer with copper. It features a unique plating cell design that improves the repeatability of the copper fill. The simplicity of SABRE’s design is the key to the system’s high reliability and manufacturing availability. Coupled with the INOVA PVD system, SABRE provides a complete system for depositing advanced copper interconnects.

SABRE xT – The second generation SABRE xT, introduced in 1999, is the industry’s leading ECD platform at both 200 mm and 300 mm wafer sizes. New features on the xT that were not found on the original SABRE include programmable electrical waveforms, advanced plating chemistries, an integrated anneal module and closed-loop chemical monitoring.

Surface Preparation Products

Photoresist strip and clean processes represent an area of semiconductor manufacturing that is becoming increasingly important with the industry’s migration to copper interconnects. Chipmakers use surface preparation products to remove photoresist and other potential contaminants from a wafer before proceeding with the next deposition step in the manufacturing process. We entered this application arena by acquiring GaSonics in 2001, and today we are one of the industry’s leading suppliers of dry-clean surface preparation products.

GAMMA ^™ 2100 – The GAMMA 2100 200mm photoresist removal system uses a plasma source to strip photoresist. The GAMMA architecture features a multi-station sequential processing design with six strip stations, resulting in high wafer throughput with a minimal number of critical subsystems.

GAMMA 2130 – The GAMMA 2130 system is a front-end-of-line (FEOL) photoresist strip system for 300mm wafers. Our multi-station sequential processing architecture incorporates six stations within a single process chamber, enabling a 30 percent higher throughput rate when compared to that of the closest competitor.

PEP IRIDIA ^® – The PEP IRIDIA is an advanced cleaning system designed for sub-0.18-micron 200mm wafer applications. The IRIDIA’s modular architecture allows manufacturers to configure the system for both front and back-end-of-line cleaning applications down to 90 nanometer device geometries. Targeted at critical steps in copper and low-k manufacturing processes, the IRIDIA offers the highest productivity of any 200mm dry-clean system currently on the market.

SIERRA ^® – The SIERRA system is an advanced dry-clean system for 300mm wafer manufacturing processes. It delivers photoresist and residue removal for today’s most advanced applications. The SIERRA system is designed specifically to address the intricate cleaning challenges associated with the industry’s migration to copper metallization and low-k dielectrics. It yields significantly higher capital productivity and significantly lower cost-of-ownership advantages than competing dry-clean systems.

CMP Products

CMP systems polish the surface of a wafer after a deposition process to create a flat topography before moving on to subsequent manufacturing steps. Because copper is more difficult to polish and smooth than previous-generation aluminum interconnects, and because low-k dielectrics are much more porous than their predecessors, CMP has been elevated to the forefront of enabling technology required in a copper damascene manufacturing process. In recognition of this trend, in 2002, we completed the acquisition of SpeedFam-IPEC, a global supplier of CMP systems used in the fabrication of advanced copper interconnects. We believe that the opportunity to integrate the planarization, deposition and surface preparation steps and optimize them for overall performance gives us an important advantage in extending copper/low-k processes to advanced semiconductor devices.

MOMENTUM ^™ – MOMENTUM is a high-throughput, dry-in/dry-out CMP system for all 200mm-wafer process applications. Designed with extendibility to accommodate future reductions in line widths, the MOMENTUM has four independent wafer-polishing platens that allow for maximum manufacturing flexibility. It also employs a patented orbital polishing motion that minimizes surface dishing and erosion and a slurry delivery system that results in more efficient consumption of polishing chemicals.

MOMENTUM 300 – Our MOMENTUM 300 is a highly flexible, dry-in/dry-out CMP system that provides a transition for manufacturers moving from 200mm to 300mm wafer processing. The system is unique in that it combines a number of advanced

planarization and in-line inspection technologies to produce highly effective throughput, yield management, superior process capabilities and low cost of ownership.

Marketing, Sales and Service

We market products worldwide to manufacturers of semiconductor devices. In North America, we sell our products through a direct sales force that operates out of ten sales and support offices. In Europe, we sell our products predominantly through our sales and support facilities in France and Scotland. We also maintain sales and service support offices in the Netherlands, Germany, Ireland and Italy. In Asia, we sell our products directly in China, Japan, Korea, Malaysia, Singapore and Taiwan. Our Japanese operations, with headquarters near Tokyo, include ten sales offices throughout Japan.

The ability to provide prompt and effective field support is critical to our sales efforts, and we believe the support that we provide to our installed base has accelerated the penetration of certain key accounts. We also believe that our marketing efforts are enhanced by the technical expertise of our research and development personnel, who provide customer process applications support and participate in a number of industry forums such as conferences and technical symposia.

Equally significant, we believe that the design simplicity of our systems substantially enhances our ability to support our customers. In 1992, we became the first semiconductor equipment manufacturer to extend our warranty up to 24 months from shipment, and in 1993 we began to include the cost of consumable parts on some systems and preventative maintenance parts under warranty. We offer maintenance contracts as an additional service to customers.

For the year ended December 31, 2002, Samsung Electronics, Intel Corporation, Taiwan Semiconductor Manufacturing Company and International Business Machines Corporation accounted for 17%, 11%, 11% and 10% of our net sales, respectively. For the year ended December 31, 2001, Intel Corporation accounted for 16% of our net sales. For the year ended December 31, 2000, Intel Corporation and Taiwan Semiconductor Manufacturing Company accounted for 14% and 10% of our net sales, respectively. Historically, we have sold a significant proportion of systems in any particular period to a limited number of customers. Sales to our ten largest customers in 2002, 2001 and 2000 accounted for 79%, 61% and 71% of our net sales, respectively. We expect that sales of our products to relatively few customers — none of which has entered into a long-term agreement requiring it to purchase our products — will continue to account for a high percentage of our net sales in the foreseeable future.

Export sales — including sales by our Japanese subsidiary — for the year ended December 31, 2002 were approximately $513.6 million, or 61% of net sales. For the year ended December 31, 2001, export sales were $733.9 million, or 55% of net sales, while export sales for the year ended December 31, 2000 were approximately $834.5 million, or 63% of net sales.

Backlog

As of December 31, 2002, our backlog was $304.4 million, with no cancellations in the period subsequent to December 31, 2002 to the date of this Annual Report on Form 10-K, compared to a backlog of $266.5 million as of December 31, 2001, with approximately $81.8 million of cancellations subsequent to December 31, 2001. Our backlog includes only those customer orders for which we have accepted purchase orders and assigned shipment dates within twelve months. All orders are subject to cancellation or rescheduling by customers, with limited or no penalties. Some products are shipped in the same quarter in which the order was received. For this reason, and because of possible changes in delivery schedules, cancellations of orders and delays in shipments, our backlog as of any particular date is not necessarily a reliable indicator of actual sales for any succeeding period.

Research and Development

The highly cyclical semiconductor manufacturing industry is subject to rapid technological change and continual new product introductions and enhancements. Our ability to remain competitive depends in large part on our success in developing new and enhanced systems and introducing them at competitive prices on a timely basis. For this reason, we devote a significant portion of our personnel and financial resources to research and development programs.

Our current research and development efforts are directed at the development of new systems and processes and the improvement of the capabilities of existing systems. Research and development programs include advanced PVD systems, advanced gap fill technology, primary conductor metals, low-k dielectric materials, CMP systems, and additional advanced deposition and surface

preparation technologies for the next generation of smaller-geometry fabrication lines. All new systems under development are capable of processing 300mm wafers.

Expenditures for research and development during 2002, 2001 and 2000 were $222.3 million, $272.0 million and $198.3 million, respectively. These investments represented approximately 26%, 20% and 15% of our net sales in 2002, 2001 and 2000, respectively. We believe that research and development expenditures will continue to represent a substantial percentage of our net sales in the future.

Manufacturing

Our manufacturing activities consist primarily of assembling and testing components and subassemblies that we acquire from third-party vendors and then integrate into a finished system. We utilize an outsourcing strategy for the manufacture of major subassemblies, and we perform all system design, assembly and testing in-house. Our outsourcing strategy enables us to minimize fixed costs and capital expenditures as well as provide the flexibility to increase production capacity. This strategy also allows us to focus on product differentiation through system design and quality control. We believe that our use of outsourced product specialists enables our subsystems to incorporate the latest and most advanced technologies in robotics, gas panels and microcomputers without the need for in-house expertise. We strive to work as closely as possible with all of our suppliers to achieve mutual cost reduction through joint design efforts.

Although we make reasonable efforts to ensure that such parts are available from multiple suppliers, certain key parts may only be obtained from a single or limited source. These suppliers are in some cases thinly capitalized, independent companies that generate significant portions of their business from us and/or a small group of other companies in the semiconductor industry. We seek to reduce our dependence on single or limited source suppliers. However, disruptions in parts delivery or termination of certain of these suppliers may occur. Such disruptions and terminations could have an adverse effect on our operations. A prolonged inability to obtain certain parts could have a material adverse effect on our business, financial condition or results of operations, and could result in our inability to meet customer demands on time.

We manufacture our systems in clean room environments similar to those used by semiconductor manufacturers for wafer fabrication. This helps to minimize the amount of particulates and other contaminants in the final assembled system, which in turn improves yields and reduces the level of contaminants for our customers. Following assembly, we package our completed systems in plastic shrink-wraps to maintain clean room standards during shipment.

Competition

Significant competitive factors in the semiconductor equipment market include system performance and flexibility, cost, the size of each manufacturer’s installed customer base, customer support capability and the breadth of a company’s product line. We believe that we compete favorably in all of the market segments we serve because of the fundamental advantages associated with our system performance and flexibility, low cost of ownership, high wafer yields and customer support. However, we face substantial competition from both established competitors and potential new entrants in each of these markets. Installing and integrating capital equipment into a semiconductor production line represents a substantial investment. For this reason, once a manufacturer chooses a particular vendor’s capital equipment, experience has shown that the manufacturer will generally rely upon that equipment for the useful life of the specific application. As a result, all of today’s semiconductor equipment makers typically have difficulty in selling a product to a particular customer to replace or substitute for a competitor’s product previously chosen or qualified by that customer.

In the CVD, PECVD and PVD markets, our principal competitor is Applied Materials, Inc., a major supplier of systems which has established a substantial base of installed equipment among today’s leading semiconductor manufacturers. In the ECD market, our principal competitors are Semitool, which has a large base of installed equipment, and Applied, which entered the market in 1999. Our principal competitors in the surface preparation product arena are Mattson Technologies and Axcelis Technologies. In the CMP market, which we entered at the end of 2002, our major competitors are Applied and Ebara.

Patents and Proprietary Rights

We intend to continue to pursue the legal protection of our technology primarily through patent and trade secret protection. We currently hold over 300 patents. We have many pending patent applications, and we intend to file additional patent applications as appropriate. There can be no assurance that patents will be issued from any of these pending applications or future filings, or that any

claims allowed from existing patents or pending or future patent applications will be sufficiently broad to protect our technology. While we intend to vigorously protect our intellectual property rights, there can be no assurance that any patents we hold will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to us. See Item 3. Legal Proceedings for further discussions.

We also rely on trade secrets and proprietary technology that we protect through confidentiality agreements with employees, consultants, and other parties. There can be no assurance that these parties will not breach these agreements, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by others.

There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We are currently involved in such litigation. Except as set forth in Item 3. Legal Proceedings, we are not aware of any significant claim of infringement by our products of any patent or proprietary rights of others; however, we could become involved in additional litigation in the future. Although we do not believe the outcome of the current litigation will have a material impact on our business, financial condition or results of operations, no assurances can be given that this litigation or future litigation will not have such an impact. For further discussion see Item 3. Legal Proceedings.

In addition to the current litigation, our operations—including the further commercialization of our products—could provoke additional claims of infringement from third parties. In the future, litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how that we own, to defend ourselves against claimed infringement of the rights of others, or to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of our effort and could have a material adverse effect on our financial condition or operating results. In addition, adverse determinations in such litigation could result in our loss of proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties, or prevent us from manufacturing or selling our products. Any of these occurrences could have a material adverse effect on our business, financial condition or results of operations.

Employees

On December 31, 2002, we had 3,228 full-time and temporary employees. None of our employees are represented by a labor union, and we have never experienced a work stoppage, slowdown or strike. We consider our employee relations to be good.

The success of our future operations depends in large part on our ability to recruit and retain senior management, engineers, technicians, marketing, sales and service professionals and other key personnel. Qualified people are in great demand across each of these industry disciplines, and there can be no assurance that we will be successful in retaining or recruiting key personnel.

Business Combinations

We acquired SpeedFam-IPEC on December 6, 2002 in a stock-for-stock acquisition whereby each share of SpeedFam-IPEC common stock and options outstanding as of the closing date were converted into 0.1818 of a share of Novellus common stock or options on a fixed exchange ratio basis.

We acquired GaSonics in a stock-for-stock acquisition on January 10, 2001, with all outstanding shares of GaSonics capital stock converted into approximately 9,240,000 shares of Novellus’ common stock. In addition, all outstanding options to purchase shares of GaSonics capital stock were automatically converted into options to purchase approximately 1,400,000 shares of Novellus’ common stock. For further discussion of business combinations, see Note 7 to the Consolidated Financial Statements.

Environmental Matters

Neither compliance with federal, state and local provisions regulating discharge of materials into the environment, nor remedial agreements or other actions relating to the environment, has had — or is expected to have — a material effect on our capital expenditures, financial condition, results of operations or competitive position.

ITEM 2. PROPERTIES

Our operations are conducted primarily in 13 buildings with approximately 1,109,000 square feet of space. Eight buildings totaling approximately 559,000 square feet are located in the San Jose, California area, and four buildings totaling approximately 442,000 square feet are located in the Portland, Oregon area. In addition, we occupy one building of approximately 108,000 square feet in Chandler, Arizona, which served as the corporate headquarters of SpeedFam-IPEC prior to the December 2002 acquisition.

We lease buildings in San Jose under agreements that expire in 2006. These leases have options to extend for three one-year renewal periods with the lessor’s consent. These buildings house three manufacturing operations, a research and development facility, an applications demonstration lab, various administrative and customer support offices, and our headquarters.

Our properties in the Portland area consist of four buildings in the city of Tualatin. These buildings are located on 58 acres of owned land. Under a long-term ground lease, we lease a portion of the land consisting of 23 acres to the lessor of the buildings which have been constructed thereon. One building totaling approximately 65,000 square feet is owned by Novellus and provides manufacturing, research and development, and customer support for the SABRE, our Electrofill product. The remaining three buildings totaling approximately 377,000 square feet are leased under an agreement that expires in 2006 and contains an option to extend for three one-year renewal periods with the lessor’s consent. These buildings consist of manufacturing, research and development, engineering and training facilities.

Our Chandler facility consists of one building leased under an operating lease that expires in 2017. This building houses our CMP operations, including manufacturing, research and development and engineering.

We lease several field office sites domestically totaling approximately 94,000 square feet of space. In addition, we own one building totaling approximately 41,000 square feet in the Chicago, Illinois area, which we acquired in conjunction with the SpeedFam-IPEC acquisition in December 2002. We also sublease, or have available for sublease, approximately 778,000 square feet of space in and around the San Jose, California and Chandler, Arizona areas. We lease several sites outside of the United States which we use as sales and customer service centers. These sites total approximately 201,000 square feet of space.

Our European offices occupy approximately 38,000 square feet of space in various countries throughout Europe, including France, Germany, Italy, Ireland, the Netherlands and the United Kingdom. Our Asian offices occupy approximately 173,000 square feet of space in various countries throughout Asia, including China, India, Japan, Korea, Malaysia, Singapore and Taiwan.

We believe that our current facilities are sufficient to meet our requirements for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Applied Materials, Inc .

On June 13, 1997, we agreed to purchase the Thin Film Systems (“TFS”) business of Varian Associates, Inc. On the same day, Applied Materials, Inc. sued Varian in the United States District Court (the “Court”) for the Northern District of California for alleged infringement by TFS of several of Applied’s physical vapor deposition (PVD) patents (the “Applied Patents”).

On June 23, 1997, we sued Applied in the United States District Court for the Northern District of California, claiming infringement by Applied of several of our PVD patents acquired from Varian in the TFS purchase. Applied has filed counterclaims in this suit, alleging that we infringe Applied’s patents. We seek an injunction against future infringement by Applied, damages for past infringement and treble damages for willful infringement.

On July 7, 1997, Applied amended its complaint in its suit against Varian to add Novellus as a defendant. We have requested that the Court dismiss us as a defendant in this suit. The Court has not yet ruled on the request or required us to file an answer in this lawsuit.

The relief requested by Applied in both suits includes a permanent injunction against future infringement, damages for alleged past infringement and treble damages for alleged willful infringement.

certain indemnity obligations undertaken by Varian, which include reimbursement of certain legal expenses and a portion of any losses incurred from this litigation — we do not believe that Applied’s claims will have a material adverse effect on our business, financial condition or results of operations.

Semitool, Inc.

On August 10, 1998, Semitool, Inc. sued Novellus for patent infringement in the United States District Court for the Northern District of California. Semitool alleges patent infringement concerning several patents related to our SABRE and SABRE xT systems for depositing copper layers on semiconductor wafers. Semitool seeks an injunction against the manufacturing and sale of the SABRE and SABRE xT systems by Novellus, and damages for alleged past infringement. Semitool also seeks treble damages for alleged willful infringement.

On March 17, 2000, the District Court granted our motion for summary judgment and ruled that our SABRE and SABRE xT systems do not infringe Semitool’s patents. On May 15, 2000, Semitool appealed this ruling to the United States Court of Appeals for the Federal Circuit. On June 8, 2001, the Court of Appeals affirmed the judgment of non-infringement. On September 6, 2001, Semitool then filed a petition with the United States Supreme Court to review the judgment of the Court of Appeals. The Supreme Court vacated the opinion of the Court of Appeals and remanded the case to the Court of Appeals for further consideration. On July 23, 2002, the Court of Appeals again affirmed the District Court’s judgment of non-infringement.

On June 11, 2001, Semitool again sued Novellus for patent infringement in the United States District Court for the District of Oregon. In this second lawsuit, Semitool alleges that our SABRE and SABRE xT systems infringe one of Semitool’s patents. Semitool seeks an injunction against future infringement by Novellus, damages for alleged past infringement and treble damages for alleged willful infringement.

On November 13, 2001, we countersued Semitool for patent infringement in the United States District Court for the District of Oregon. We allege that Semitool infringes certain Novellus patents related to the SABRE and SABRE xT systems. We seek an injunction against Semitool, damages for past infringement, and treble damages for willful infringement by Semitool.

This litigation is in its early stages and therefore is inherently difficult to assess. We believe that we have meritorious claims against Semitool, and that this litigation will not have a material adverse impact on our business, financial condition or results of operations. However, the outcome of patent disputes is often affected by uncertainty in the resolution of complex issues of fact and law. If Semitool were to prevail against us, the adverse effect on our business, financial condition or results of operations could be material.

Plasma Physics Corporation and Solar Physics Corporation

On June 14, 2002, certain of our customers — including Agilent Technologies, Inc., Micron Technology, Inc., Agere Systems, Inc., National Semiconductor Corporation, Koninklijke Philips Electronics N.V., Texas Instruments, Inc., ST Microelectronics, Inc., LSI Logic Corporation, International Business Machines Corporation, Conexant Systems, Inc., Motorola, Inc., Advanced Micro Devices, Inc. and Analog Devices Inc. were sued for patent infringement by Plasma Physics Corporation and Solar Physics Corporation. We have not been sued by Plasma Physics, Solar Physics, or any other party in connection with any allegation of patent infringement by Plasma Physics or Solar Physics. Certain defendants in the case have notified us that they believe that we have indemnification obligations and liability relating to these lawsuits. We believe that this matter will not have a material adverse impact on our business, financial condition or results of operations. There can be no assurance, however, that we will not be sued in the future in connection with the allegations made by Plasma Physics and Solar Physics or that, if we are sued, we will prevail in any such lawsuit. If a party were to file such a lawsuit and prevail against us, the adverse impact on our business, financial condition or results of operations could be material.

Linear Technology Corporation

On March 12, 2002, Linear Technology Corporation filed a complaint against Novellus, among other parties, in the Superior Court of the State of California for the County of Santa Clara. The complaint seeks damages (including punitive damages) and injunctions for causes of actions involving alleged breach of contract, fraud, unfair competition, breach of warranty and declaratory relief. We filed a demurrer to Linear’s complaint.

This litigation is in its early stages and is therefore inherently difficult to assess. We believe that this litigation will not have a material adverse impact on our business, financial condition or results of operations. However, the outcome of patent disputes is often affected by uncertainty in the resolution of complex issues of fact and law. If Linear were to prevail against us, the adverse effect on our business, financial condition or results of operations could be material.

Other Litigation

We are a defendant or plaintiff in various actions that have arisen in the normal course of business. We believe that the ultimate disposition of these matters will not have a material adverse effect on our business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Stock Information

Novellus’ common stock is traded on the NASDAQ Stock Market and is quoted on the NASDAQ National Market under the symbol “NVLS.” The following table sets forth the high and low prices of our common stock as reported by the NASDAQ National Market for the periods indicated:


2002	High		Low

First Quarter	$	54.48	$	36.18
Second Quarter		54.45		29.69
Third Quarter		34.56		19.61
Fourth Quarter		38.09		19.40


2001	High		Low

First Quarter	$	49.50	$	34.19
Second Quarter		58.70		32.56
Third Quarter		57.20		25.84
Fourth Quarter		45.70		25.37

We have not paid cash dividends on our common stock since inception, and our Board of Directors presently plans to reinvest our earnings in the business. Accordingly, it is anticipated that no cash dividends will be paid to holders of common stock in the foreseeable future. As of February 26, 2003, there were 1,179 holders of record of our common stock.

ITEM 6. SELECTED FINANCIAL DATA

Set forth below is a summary of certain consolidated financial information with respect to Novellus as of the dates and for the periods indicated. The consolidated statements of operations data set forth below for the fiscal years ended December 31, 2002, 2001, 2000, 1999 and 1998 and the consolidated balance sheet data as of December 31, 2002, 2001, 2000, 1999 and 1998 have been derived from our consolidated financial statements, which have been audited. We acquired GaSonics on January 10, 2001, in a transaction accounted for as a pooling-of-interests. The selected financial data includes the operating results and financial data of Novellus and GaSonics for all periods. We acquired SpeedFam-IPEC on December 6, 2002, in a transaction accounted for as a purchase business combination. The selected financial data includes the operating results and financial data of SpeedFam-IPEC from December 6, 2002.

Selected Consolidated Financial Data
(in thousands, except per share data)


Years ended December 31,			2002			2001			2000 ⁽¹⁾			1999		1998

Consolidated Statements of Operations Data:
Net sales			$	839,958		$	1,339,322		$	1,319,486		$	657,021	$	619,208
Gross profit				378,523			691,351			730,893			351,839		330,774
Income before cumulative effect of change in accounting principle				22,920			144,470			239,168			68,707		47,115
Cumulative effect of change in accounting principle				—			—			(89,788	)		—		—
Net income			$	22,920	^(3,4)	$	144,470	^(2,3)	$	149,380		$	68,707	$	47,115
Per common share:
	Income before cumulative effect of change in accounting principle
		Basic	$	0.16		$	1.01		$	1.76		$	0.56	$	0.43
		Diluted	$	0.15		$	0.97		$	1.66		$	0.54	$	0.42
	Cumulative effect of change in accounting principle, net of tax
		Basic		—			—		$	(0.66	)		—		—
		Diluted		—			—		$	(0.62	)		—		—
	Net income
		Basic	$	0.16		$	1.01		$	1.10		$	0.56	$	0.43
		Diluted	$	0.15		$	0.97		$	1.04		$	0.54	$	0.42
Shares used in basic per share calculations				144,371			142,462			135,728			122,261		109,406
Shares used in diluted per share calculations				148,748			148,924			143,654			127,826		112,437

Pro forma amounts with the change in accounting principle related to revenue recognition applied retroactively: (unaudited) ⁽¹⁾
	Net revenues			—			—			—		$	582,397		—
	Net income			—			—			—			39,550		—
	Net income per share:
		Basic		—			—			—		$	0.32		—
		Diluted		—			—			—		$	0.31		—

December 31,			2002			2001			2000			1999		1998

Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments			$	1,019,652		$	921,822		$	1,219,664		$	413,014	$	163,156
Working capital				1,252,324			1,395,902			1,410,836			646,063		344,908
Total assets				2,493,994			3,031,124			2,205,474			1,000,352		649,155
Long-term obligations				—			—			—			—		65,223
Shareholders’ equity				2,055,688			1,871,994			1,641,475			837,537		450,873


(1)	We recorded a non-cash charge of $89.8 million, after reduction for income taxes of $48.6 million, or $0.62 per diluted share, to reflect the cumulative effect of a change in accounting principle as of January 1, 2000 related to the adoption of the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” or SAB No. 101. If the change in accounting principle had been applied retroactively to 1999, net sales would have been $582.4 million. Data was not available to calculate the effect of applying such change for years prior to 1999. Net income for the year ended December 31, 2000 also included a pre-tax charge of $6.0 million for acquired in-process research and development associated with GaSonics’ acquisition of Gamma Precision Technology.

(2) We recorded pre-tax charges totaling $84.5 million for the year ended December 31, 2001 associated with restructuring and acquisition activities, other than temporary decline in value of an investment and write-off of a bad debt.

(3) We adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” or SFAS No. 142, in the first quarter of 2002. As a result of its adoption, we no longer amortize goodwill, which resulted in an increase in net income of $3.6 million for the year ended December 31, 2002. Retroactive application of SFAS No. 142 would have resulted in an increase in net income for the year ended December 31, 2001 of $3.5 million, or $0.02 per diluted share. Amortization of goodwill was not material in all years shown prior to 2001.

(4) We recorded pre-tax charges totaling $32.5 million for the year ended December 31, 2002 associated with restructuring and severance activities of $6.5 million, write-off of debt issuance costs of $17.0 million and acquired in-process research and development charge relating to the acquisition of SpeedFam-IPEC of $9.0 million. Additionally, we recorded a pre-tax benefit of $12.3 million for the year ended December 31, 2002 associated with the recovery of a receivable previously written off of $7.7 million and a gain on the sale of an equity investment of $4.6 million.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a supplier of semiconductor manufacturing equipment used in the fabrication of integrated circuits. Demand for our systems can vary significantly from period to period as a result of various factors, including, but not limited to, downturns in the semiconductor industry, supply and demand for semiconductor devices and substantial competition in the semiconductor industry among suppliers of similar products. For these and other reasons, our results of operations for fiscal 2002, 2001 and 2000 may not necessarily be indicative of future operating results.

As more fully described in Note 7 to the Consolidated Financial Statements, we acquired GaSonics, a developer and supplier of semiconductor equipment used for photoresist and residue removal, on January 10, 2001 in a pooling-of-interests transaction. The consolidated financial statements for fiscal 2000 have been restated to include the results of operations and cash flows of GaSonics. Because of differing year-end periods, financial information relating to Novellus’ fiscal year ended December 31, 2000 has been combined with financial information relating to GaSonics’ fiscal year ended September 30, 2000. GaSonics’ net income for the three months ended December 31, 2000 was not combined with our net income, but rather was included as an adjustment to shareholders’ equity. Revenue and net income of GaSonics for the three-month period ended December 31, 2000, which are excluded from the accompanying statements of operations, were $47.7 million and $0.9 million, respectively. There were no transactions between GaSonics and Novellus prior to the combination.

On December 6, 2002, we completed the acquisition of SpeedFam-IPEC, a global supplier of CMP systems used in the fabrication of advanced copper interconnects. Under the terms of the definitive agreement signed on August 12, 2002, we acquired all outstanding shares of SpeedFam-IPEC in a stock-for-stock acquisition whereby each share of SpeedFam-IPEC common stock outstanding as of the closing date was converted into 0.1818 of a share of Novellus common stock on a fixed exchange ratio basis. In addition, we assumed all $116.4 million of SpeedFam-IPEC’s 6.25% Convertible Subordinated Notes, originally due in 2004. The notes were subsequently paid off in full in January 2003. The acquisition was accounted for as a purchase business combination and qualifies as a tax-free reorganization under IRS regulations. The consolidated financial statements for fiscal 2002 include the financial position, results of operations and cash flows of SpeedFam-IPEC from December 6, 2002. For further discussion, see Note 7 to the Consolidated Financial Statements.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventory valuation, goodwill and other intangible assets, deferred tax assets, warranty obligations and restructuring and impairment charges. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, or SAB 101, “Revenue Recognition in Financial Statements” and “SAB 101: Revenue Recognition in Financial Statements-Frequently Asked Questions and Answers” (“SAB 101 FAQ”). We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured.

Certain of our product sales are accounted for as multiple-element arrangements. A multiple-element arrangement is a transaction which may involve the delivery or performance of multiple products, services, or rights to use assets, and performance may occur at different points in time or over different periods of time. If we have met defined customer acceptance experience levels with both the customer and the specific type of equipment, then we recognize equipment revenue upon shipment and transfer of title, with the remainder generally recognized at the later of completion of the installation services or customer acceptance.

Installation services are not essential to the functionality of the delivered equipment. We allocate revenue based on the residual method as a fair value has been established for installation services. However, since the final payment is not typically due until customer acceptance, we defer revenue for the final payment, which is in excess of the fair value of the installation services. All other equipment sales are recognized upon customer acceptance.

Revenue related to spare part sales is recognized upon shipment. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is not significant and is included in other accrued liabilities.

Inventory Valuation

We assess the recoverability of all inventory, including raw materials, work-in-process, finished goods and spare parts to determine whether adjustments for impairment are required. Inventory that is obsolete or in excess of our forecasted usage is written down to its estimated market value based on assumptions about future demand and market conditions. If actual demand is lower than our forecast, additional inventory write-downs may be required.

Goodwill and Other Intangible Assets

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and identifiable intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Furthermore, SFAS No. 142 includes provisions on the identification of intangible assets, reclassification of certain intangible assets from previously reported goodwill, and reassessment of the useful lives of existing intangible assets. Upon adoption, we reassessed the useful lives and residual values of all acquired identifiable intangible assets to identify any necessary amortization period adjustments and to determine whether other intangible assets should be reclassified from goodwill. Based on that assessment, no adjustments were made to the amortization period or residual values of identifiable intangible assets.

Deferred Tax Assets

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Our valuation allowance was recorded as an increase to goodwill in connection with acquired net operating loss carryforwards, which are not realizable until 2009 and beyond. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Should the existing deferred tax asset, which is currently offset by the valuation allowance, be realized, the benefit of such realization and the related reversal of the valuation allowance would result in a reduction of goodwill. If we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would decrease income in the period such determination was made.

Warranty Obligations

Our warranty policy generally states that we will provide warranty coverage for a predetermined amount of time on systems and modules for material and labor to repair and service the equipment. We record the estimated cost of warranty coverage to cost of sales

upon system shipment. The estimated cost of warranty is determined by the warranty term, as well as the average historical labor and material costs for a specific product. Should actual product failure rates or material usage differ from our estimates, revisions to the estimated warranty liability may be required. These revisions could have a positive or negative impact on gross profit. We review the actual product failure rates and material usage rates on a quarterly basis and adjust our warranty liability as necessary.

Restructuring and Impairment Charges

We account for restructuring in accordance with Emerging Issues Task Force (EITF) 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 Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” and SAB No. 100, “Restructuring and Impairment Charges.” Accordingly, restructuring accruals are recorded when management initiates an exit plan that will cause us to incur costs that have no future economic benefit. Also under the terms of EITF 94-3, a liability for the restructuring charges is recognized in the period management approves the restructuring plan. Additionally, certain restructuring charges related to asset impairments are recorded in accordance with SFAS No. 144. The restructuring accrual related to vacated properties is calculated net of estimated sublease income we expect to receive once we sublet the properties that have been vacated. Sublease income is estimated based on current market quotes for similar properties. If we are unable to sublet these properties on a timely basis or if we are forced to sublet them at lower rates due to changes in market conditions, we would adjust the accrual accordingly.

Results of Operations
(dollars in thousands)

Net Sales


	Years ended December 31,
							% Change		% Change
	2002		2001		2000		in 2002		in 2001

Net sales	$	839,958	$	1,339,322	$	1,319,486		-37%		2	%

We operate our business in the semiconductor equipment industry, which is subject to cyclical conditions. These conditions have played a major role in the fluctuations in our net sales. The decrease in net sales of 37% from 2001 was primarily due to a substantial reduction in customer capital spending in response to weakened worldwide demand for semiconductor devices. The demand for semiconductor manufacturing equipment has historically fluctuated with changes in the supply of and demand for semiconductor devices and other factors, including rapid technological advances in the semiconductor manufacturing processes. The increase in net sales of 2% in 2001 from 2000 was attributable to an increase in sales of our Electrofill and 300mm product lines, partially offset by a decrease in sales of our 200mm products.

International sales were 61% of net sales in 2002, an increase from 55% in 2001. This increase was attributable to higher demand in the Asian region, primarily related to higher demand in China, Taiwan and Korea, and partially offset by lower demand in Southeast Asia and Japan. The Asian region accounted for 54% and 48% of total net sales in 2002 and 2001, respectively. International sales in 2001 were down from 63% of total net sales in 2000. The decrease in international sales as a percentage of net sales in 2001 was a result of lower demand in China, Taiwan, Southeast Asia and Korea, partially offset by higher demand in Japan.

Gross Profit


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Gross profit	$	378,523		$	691,351		$	730,893			-45	%		-5	%
% of net sales		45	%		52	%		55	%

The decline in gross profit as a percentage of net sales in 2002 compared to 2001 and 2000 was primarily due to the reduced absorption of fixed overhead costs resulting from lower production and shipments. During 1999 and 2000, and through our acquisition of GaSonics in January 2001, we expanded our manufacturing facilities to accommodate the unprecedented growth in demand for

semiconductor manufacturing equipment. As a result of the industry downturn and overall slowing economy that began in 2001 and continued through 2002, orders for our equipment were not sufficient to fully absorb the fixed overhead costs of these facilities in those periods. In 2001, we implemented a restructuring plan to consolidate some of our facilities. The 2001 gross profit was reduced by a $7.1 million charge associated with the write-off of inventory related to two products which we discontinued in connection with our restructuring plan. The gross profit was also impacted by a benefit of $4.4 million related to our decision not to pay our 2001 bonus and profit sharing because we did not meet the minimum performance guidelines required for bonus payment.

In addition, our gross profit is impacted by our treatment of certain product sales as multiple-element arrangements in accordance with SAB 101, for which we recognize all of a product’s cost upon shipment even though a portion of a product’s revenue may be deferred until final payment is due, which is typically upon customer acceptance.

Selling, General and Administrative


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Selling, general and administrative	$	154,172		$	198,567		$	232,749			-22	%		-15	%
% of net sales		18	%		15	%		18	%

Selling, general and administrative, or SG&A, expenses include compensation and benefits for corporate, financial, marketing, and administrative personnel, travel, utilities, communications expenses and professional fees. Also included are expenses for rents, depreciation and amortization related to the assets utilized by the functions noted above. The increase in SG&A expenses as a percentage of net sales in 2002 over 2001 was primarily due to the substantial reduction in net sales. The decrease in the absolute dollar amount of these expenses reflects the impact of the cost reduction measures that we implemented in the second half of 2001. These cost reduction measures include executive and employee pay reductions and facilities consolidation. In addition, we had workforce reductions in the first and fourth quarter of 2002. The decrease in SG&A expense, both in absolute dollars and as a percentage of net sales in 2001 over 2000, reflects the impact of the cost reduction measures as well as our decision not to pay $13.1 million of bonus and profit sharing in 2001 as we did not meet the minimum performance guidelines required for bonus payment.

Research and Development


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Research and development	$	222,344		$	272,032		$	198,310			-18	%		37	%
% of net sales		26	%		20	%		15	%

Our significant investments in research and development, or R&D, over the past three years reflect our strong commitment to the continuous improvement of our current product lines and the development of new products and technologies. We plan to continue to focus our R&D investment on the continuous improvement of our existing product lines as well as the development of new products and technologies such as advanced PVD and CMP systems, advanced gap fill technology, primary conductor metals, low-k dielectric materials, additional advanced deposition and surface preparation technologies for the next generation of smaller geometry fabrication lines and equipment to process 300mm wafers. R&D expenses include compensation and benefits for our research and development personnel, project materials, chemicals and other direct expenses incurred in product and technology development, repairs and maintenance, rent, depreciation and amortization expenses associated with patents and purchased technologies. The increase in R&D expenses as a percentage of net sales in 2002 over 2001 was primarily due to the substantial reduction in net sales. The 18% decrease in the absolute dollar amount of R&D expenses from 2001 to 2002 was due to the decision to lower our investment levels in R&D spending. The increase in R&D expenses from 2000 to 2001 resulted from our continued commitment to invest in new products and technologies. This increase was partially offset by our decision to cancel the payment of our 2001 bonus and profit sharing of $7.9 million as we did not meet the minimum performance guidelines required for bonus payment.

Fiscal 2002 R&D expense as a percentage of net sales increased from 2001 primarily because of the substantial reduction in net sales in 2002. This increase in R&D expenses as a percentage of net sales reflects our continued commitment to the development of new products and technologies to provide competitive cost advantages for our customers. Despite the downturn in the industry and weakened demand for semiconductor equipment, we continue to believe that substantial investments in R&D are critical to remaining competitive and positioning ourselves to meet current and projected requirements of semiconductor fabrication processes.

Acquired In-Process Research and Development


	Years ended December 31,
									% Change			% Change
	2002			2001		2000			in 2002			in 2001

Acquired in-process research and development	$	9,003		$	—	$	6,000			100	%		-100	%
% of net sales		1	%		—		0.5	%

In connection with the acquisition of SpeedFam-IPEC in December 2002, we recorded a $9.0 million charge to write-off certain acquired in-process research and development, or IPR&D. Projects which qualify as IPR&D have not yet reached technological feasibility and have no alternative future use. Technological feasibility is defined as being equivalent to completion of a beta-phase working prototype in which there is no significant remaining risk relating to the development.

The value assigned to IPR&D was determined by considering the importance of each project to the overall development plan, estimating costs to develop the acquired IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The revenue estimates used to value the purchased IPR&D were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by SpeedFam-IPEC and its competitors.

The rates utilized to discount the net cash flows to their present value were based on a weighted-average cost of capital determined by examining market information for several comparable companies. The weighted-average cost of capital was adjusted to reflect the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, the percentage of completion of each project, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. Based on these factors, a discount rate of 25% was deemed appropriate for valuing the IPR&D. The estimates used in valuing IPR&D were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. As a result, actual results may differ from estimates.

In fiscal 2000, GaSonics recorded a charge of $6.0 million for the write-off of acquired in-process research and development associated with the acquisition of Gamma Precision Technologies, Inc., or GPT, because certain of GPT’s ongoing research and development projects had not reached technological feasibility and had no alternative future use. This included development, engineering and testing activities associated with the introduction of GPT’s new products and technologies.

Restructuring and Other Charges


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Restructuring and other charges	$	6,467		$	61,106		$	—			-89	%		100	%
% of net sales		1	%		5	%		0	%

Restructuring and other charges in 2002 consisted of $1.5 million related to vacated facilities and $5.0 million of severance benefits for workforce reductions. In 2001, we implemented a restructuring plan and recorded restructuring and asset impairment charges of $47.9 million and acquisition costs of $13.2 million related to the acquisition of GaSonics. The restructuring and asset impairment charges included $33.8 million related to vacated facilities, $9.5 million related to abandoned assets associated with the discontinuation of certain projects and $4.6 million related to a write-off of abandoned purchased technology. The discontinuation of two products resulted in a $7.1 million inventory write-down in 2001, which is included in cost of sales for that year.

The charge for vacated facilities relates to rent obligations after the abandonment of certain facilities currently under long-term operating lease agreements. When applicable, anticipated future sublease income related to the vacated buildings has been offset against the charge for the remaining lease payments. Additionally, certain fixed assets, including leasehold improvements, associated with the abandoned facilities that had no future economic benefit have been written off. Except for the future rent obligations and the sublease of the vacated facilities, substantially all actions under the 2001 restructuring plan had been achieved as of December 31, 2001. Under the 2001 restructuring plan, $18.5 million remains for future rent obligations, which are to be paid in cash over the next four years. For further discussion, see Note 8 to the Consolidated Financial Statements.

The restructuring saved us approximately $38.8 million of expenses in fiscal 2002. Of the $38.8 million in savings, $9.8 million relates to savings from vacated facilities and $29.0 million relates to savings from workforce reductions.

The acquisition costs related to the acquisition of GaSonics included $9.4 million of professional fees and financial printing and $3.8 million of other related costs. The acquisition costs also included charges related to the cancellation of various contracts and the write-off of certain redundant assets. All expenses related to this acquisition have been paid.

Bad Debt (Recovery) Write-off


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Bad debt (recovery) write-off	$	(7,662	)	$	7,662		$	—		-	200	%		100	%
% of net sales		-1	%		1	%		0	%

In September 2001, we determined that an outstanding accounts receivable balance was at risk for collection because the customer was facing financial difficulties, payment was overdue and overall industry conditions continued to deteriorate. Accordingly, we recorded a write-off of $7.7 million. However, in the first quarter of 2002, all amounts owed under this accounts receivable balance were collected, resulting in a benefit to operations of $7.7 million.

Other Income, net


	Years ended December 31,
										% Change			% Change
	2002			2001			2000			in 2002			in 2001

Other income, net	$	28,721		$	57,393		$	56,330			-50	%		2	%
% of net sales		3	%		4	%		4	%

Other income, net, includes interest income, interest expense and other non-operating income and expenses. The decrease in other income, net, from 2001 to 2002 reflects a decrease in interest income primarily due to a continued decline in interest rates and a decrease in interest-bearing investments after we used $880.0 million of restricted investments to retire substantially all of our Liquid Yield Option ^TM Notes, or LYONs, in the third quarter of 2002. Additionally, we recorded a non-cash charge of $17.0 million for the unamortized issuance costs related to the retirement of the LYONs in the third quarter of 2002. The decrease in other income in 2002 was partially offset by a $4.6 million gain on the sale of an equity investment.

The increase in other income, net from 2000 to 2001 is attributable to higher cash and short-term investment balances in the second half of the year as a result of the $880.0 million cash obtained from the LYONs, partially offset by an $8.6 million write-down of an equity investment due to an other-than-temporary decline in fair value.

Provision for Income Taxes

The provision for income taxes reflects an effective tax rate of zero in 2002, 31.0% in 2001 and 31.7% in 2000. The decrease in the effective tax rate compared with the prior years is due primarily to the relative benefit of tax credits being higher due to decreased profitability in 2002.

Deferred Tax Assets

As of December 31, 2002, we had approximately $100.1 million of deferred tax assets, net of a valuation allowance, related principally to acquired net operating loss carryforwards and items that are not currently deductible. Management believes the deferred tax assets will be realized due to anticipated future income and potentially refundable taxes in available carryback periods. We have a valuation allowance of $57.0 million principally related to acquired net operating loss carryforwards, which are not realizable until 2009 and beyond.

Foreign Currency Accounting

The local currency is the functional currency for all foreign operations. Accordingly, translation gains or losses related to our foreign subsidiaries are included as a component of accumulated other comprehensive income (loss).

Foreign Exchange Contracts

We conduct our business in various foreign currencies. Forward foreign exchange contracts are used to hedge against the short-term impact of foreign currency fluctuations on intercompany accounts payable denominated in U.S. dollars recorded by our Japanese

subsidiary. We also enter into forward foreign exchange contracts to buy and sell foreign currencies to hedge our intercompany balances denominated in a currency other than the U.S. dollar. In 2002 and 2001, these hedging contracts were denominated primarily in the Japanese yen and the Taiwanese dollar. The forward foreign exchange contracts we use are generally short-term in nature. The effect of exchange rate changes on forward foreign exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes in currency exchange rates. Net foreign currency gains and losses have not been material to the results of operations.

Related Parties

We lease an aircraft from NVLS I, LLC, a third-party entity wholly owned by Richard S. Hill, our Chairman and Chief Executive Officer. Under the aircraft lease agreement, we incurred lease expense of approximately $0.2 million through December 31, 2002. The Board of Directors authorized us to commission an accounting firm to conduct a study of lease rates for similar aircraft. The results of this study confirmed that rates charged by NVLS I, LLC are comparable to amounts charged by third-party commercial charter companies for similar aircraft.

A member of our Board of Directors, D. James Guzy, is also a member of the Board of Directors of Intel Corporation, which is one of our significant customers. Intel Corporation represented approximately 11%, 16% and 14% of net sales for the years ended December 31, 2002, 2001 and 2000, respectively. Intel Corporation also accounted for 18% and 14% of our accounts receivable as of December 31, 2002 and 2001, respectively.

From time to time we have made secured relocation loans to our executive officers, vice presidents and key personnel. As of December 31, 2002, we do not have any outstanding loans to our executive officers as defined by the Securities and Exchange Commission. However, we do have outstanding loans to certain non-executive vice-presidents and key personnel. As of December 31, 2002, the total outstanding balance of loans to non-executive vice presidents and key personnel was approximately $5.7 million, of which $5.5 million are secured by collateral and $0.2 million are unsecured. All loans except relocation loans bear interest.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We do not expect that the adoption of SFAS No. 143 will have a material effect on our financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” For most companies, SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, rather than as extraordinary items, as previously required under SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt, an amendment of APB Opinion No. 30.” Extraordinary treatment will be required for certain extinguishments, as provided in APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The statement also amended SFAS No. 13, “Accounting for Leases,” for certain sale-leaseback transactions and sublease accounting. We are required to adopt the provisions of SFAS No. 145 effective January 1, 2003. We do not expect the adoption of SFAS No. 145 to have a material effect on our financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, and must be applied beginning on January 1, 2003. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than when the exit or disposal plan is approved. We do not expect the adoption of SFAS No. 146 to have a material effect on our financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 has not had a material effect on our financial condition or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” or FIN 45. FIN 45 will significantly change current practice in the accounting for, and disclosure of, guarantees. FIN 45 requires certain guarantees to be recorded at fair value, which is different from the current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in SFAS No. 5, “Accounting for Contingencies.” FIN 45 also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote, which is another change from the current practice. FIN 45 disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We are currently evaluating the impact of the adoption of FIN 45 on our results of operations or financial condition.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are currently evaluating our synthetic leases and seeking additional information from the lessor and its advisors with regard to whether the lessor should be characterized as a variable interest entity. Consequently, we have not yet concluded whether it is reasonably possible that we would be required to record the specific assets and liabilities associated with our synthetic leases in our financial statements for our third fiscal quarter beginning on June 29, 2003. In the event the leasing structures used in our synthetic leases qualify as variable interest entities, we would seek to refinance with entities with whom we would not be required to consolidate or purchase the properties by exercising our purchase option. For further discussion, see Note 10 to the Consolidated Financial Statements.

Liquidity and Capital Resources

We have historically financed our operating and capital resource requirements through cash flows from operations, sales of equity securities and borrowings. Our primary source of funds as of December 31, 2002 consisted of $1,019.7 million of cash, cash equivalents and short-term investments. This amount represents an increase of $97.9 million from the December 31, 2001 balance of $921.8 million. The increase is primarily due to net cash provided by operating activities, which is attributable to net income, as adjusted to exclude non-cash charges and benefits and changes in working capital. The increase is partially offset by our decision to participate in the synthetic leases. Our participation in the synthetic lease transactions is further discussed below.

Net cash provided by operating activities for the year ended December 31, 2002 was $214.9 million. The primary sources of cash from operating activities were net income, as adjusted to exclude non-cash charges and benefits and changes in working capital requirements, including notable decreases in accounts receivable, inventories and prepaid and other current assets. The decrease in accounts receivable is attributable to the decrease in net sales and improved cash collections. The decrease in inventories, as adjusted to exclude inventories acquired from SpeedFam-IPEC, is due to a lower inventory level as a result of certain inventory management programs initiated in 2002. The decrease in prepaid and other current assets is primarily due to a $69.0 million income tax refund received during the year.

Net cash provided by investing activities was $777.2 million for the year ended December 31, 2002. The cash inflows from investing activities consist primarily of $3.0 billion in proceeds from sales and maturities of available-for-sale securities and restricted investments, partially offset by purchases of new investments of $2.0 billion. Additionally, we acquired $43.5 million of net cash upon the closing of the acquisition of SpeedFam-IPEC on December 6, 2002. The cash inflows were partially offset by $26.8 million of capital expenditures and $177.5 million of cash used for collateral in synthetic lease transactions.

We did not have any significant property and equipment purchase commitments as of December 31, 2002.

For the year ended December 31, 2002, net cash used in financing activities was $926.9 million, which was attributable to the $880.0 million retirement of the LYONs, $78.2 million for repurchases of common stock, and $23.4 million for repayment of borrowings under lines of credit. The cash used in financing activities is partially offset by proceeds of $54.4 million from the issuance of common stock under our employee stock option and stock purchase plans.

The following is a table summarizing our significant commitments as of December 31, 2002, consisting of future minimum lease payments under all non-cancelable operating leases, including synthetic leases, with initial or remaining terms in excess of one year and debt payments related to the convertible debentures assumed as part of our acquisition of SpeedFam-IPEC. These convertible debentures were redeemed in January 2003. Amounts payable under synthetic leases exclude any payments under residual value guarantees and relate only to the net lease financing amounts. In addition, payments under synthetic leases are subject to changes in the London Interbank Offer Rate (LIBOR) and have been included using interest rates on December 31, 2002 (in thousands):


	Convertible		Operating
	debt		leases

2003	$	116,437	$	27,132
2004		—		27,185
2005		—		26,540
2006		—		18,966
2007		—		5,933
Thereafter		—		45,499

Total commitments	$	116,437	$	151,255

We lease nearly all of our facilities under operating leases, including synthetic leases, which expire at various dates through 2017. A synthetic lease is a form of operating lease wherein a third party lessor funds 100% of the acquisition and construction costs relating to one or more properties to be leased to a lessee. The lessor is the owner of the leased property and must provide at least 3% of the required funds in the form of at-risk equity. The lessor generally borrows the balance of the funds necessary to fund the acquisition and construction. Under our synthetic lease agreements, we are obligated to lend approximately 87% of the cost of the leased asset to the lessor upon completion of construction. The leases with this requirement are known as defeased or self-funded transactions. Additionally, our synthetic leases require us to maintain collateral for the benefit of the lessor.

The San Jose lease agreement covers 13 properties located in and around San Jose, California, including manufacturing, research and development, and administrative facilities, as well as our corporate headquarters. The lease has a term of five years beginning in September 2001 and covers properties with original values of approximately $293.2 million. The lease agreement requires the lessor to provide 3.5% of at-risk equity throughout the term of the lease. The remaining 96.5% of the lessor’s financing was in the form of debt, including $257.0 million loaned to the lessor which is classified as notes receivable on our balance sheet. We have also provided the lessor with $36.2 million in collateral, which is classified within other assets on our balance sheet.

Under the lease agreement, we have the right to purchase the properties at any time prior to the expiration date of the lease for an amount that equals the total lease financing amount of $293.2 million plus any current rent due and payable. At the end of the lease term, we may renew the lease for up to three additional years with the lessor’s consent, refinance the lease, purchase the properties under a purchase option or arrange to sell the properties to a third party. If we choose the sale option we will be obligated to the lessor up to the amount of the residual value guarantee if the sale price falls below the lease financing amount. The aggregate residual value guarantee related to the San Jose properties is approximately $258.2 million as of December 31, 2002, and represents an off-balance sheet contingent liability for which we do not believe that we have any significant exposures as discussed below.

Rent payments under the San Jose lease agreement are based on the net outstanding lease balance, which includes the cost of the leased properties, less the amount defeased by us, multiplied by either a fixed rate or LIBOR plus an applicable margin. As of December 31, 2002, the net outstanding lease balance and the amount we have defeased were $293.2 million, and $257.0 million, respectively. Rent expense and interest income on the lease balance includes $8.0 million of imputed amounts at rates of 2% to 4% for the year ended December 31, 2002. Imputed amounts result from the application of a deemed market rate of interest on loan balances, including the lease receivable from the lessor, which is non-interest bearing, and a portion of the collateral, which is interest bearing at lower than the deemed market rate of interest. Our lease receivable from the lessor is repayable in full only if we choose the sale option at the end of the lease term and successfully sell the properties for amounts in excess of the cost. Our collateral is available to the lessor upon default, with certain exceptions.

On April 18, 2001, we entered into a synthetic lease agreement for the development of a manufacturing, research and development and administrative facility to be constructed on 23 acres of land we own in Tualatin, Oregon. We have leased the land to the lessor under a long-term ground lease. Construction was completed at the Tualatin site in May 2002. The construction costs totaled $163.2 million and were fully financed by the lessor. The lease agreement requires the lessor to maintain 3% of at-risk equity throughout the term of

the lease. The lessor financed the balance of the construction costs with debt. Upon completion of construction, we defeased $140.4 million of the lessor’s debt financing in the form of a non-interest bearing loan to the lessor, which is included in notes receivable on our balance sheet at December 31, 2002. We have also provided $22.8 million in collateral held by the lessor to cover the remainder of the lease financing, which is classified as other assets on our balance sheet.

We have the right to purchase the property at any time prior to the expiration date of the lease for an amount that equals the total lease financing amount of $163.2 million, plus any current rent due and payable. At the end of the five-year lease term, we may renew the lease for up to three additional years with the lessor’s consent, purchase the property under the purchase option for an amount equal to the total lease financing amount or arrange to sell the property to a third party. If we choose the sale option, we will be obligated to the lessor up to the amount of the residual value guarantee if the sale price falls below the lease financing amount. The residual value guarantee related to the Tualatin property is approximately $140.4 million as of December 31, 2002 and represents an off-balance sheet contingent liability for which we do not believe that we have any significant exposure as discussed below.

Rent payments under the Tualatin lease agreement are based on the net outstanding lease balance, which includes the cost of the leased properties, less the amount defeased by us, multiplied by either a fixed rate or LIBOR, plus an applicable margin. As of December 31, 2002, the net outstanding lease balance and the amount we have defeased were $163.2 million and $140.4 million, respectively. Rent expense and interest income on the lease balance includes $2.9 million of imputed amounts at rates of 2% to 4% for the year ended December 31, 2002. Imputed amounts result from the application of a deemed market rate of interest on loan balances, including the lease receivable from the lessor, which is non-interest bearing, and a portion of the collateral, which is interest bearing at lower than the deemed market rate of interest. Our lease receivable from the lessor is repayable in full only if we choose the sale option at the end of the lease term and successfully sell the property for an amount in excess of the cost. Our collateral is available to the lessor upon default, with certain exceptions.

If we purchase the San Jose and Tualatin properties at the end of their respective lease terms or earlier, the transactions would increase property and equipment by the lower of the purchase option price or the then fair value of the purchased properties. As of December 31, 2002, we believe that the fair market value for each property exceeds the purchase option price for each property. We estimate the cumulative fair value of all properties to be approximately $456.4 million as of December 31, 2002. Upon purchase of the properties, our note receivable and collateral would be returned to us as cash or used to offset the purchase price of the properties. As a result of the purchase, depreciation expense would increase by approximately $30.0 million to $35.0 million per year, and rent expense and interest income would each decrease by approximately $12.6 million per year, based on current interest rates. If we purchased the properties at the end of their respective lease terms or earlier, we believe there would be no material impact on our liquidity, as the cash paid to purchase the properties would be offset by the note receivable and collateral associated with our participation in these leases.

The synthetic lease agreements contain certain restrictive covenants, which include quick ratio and tangible net worth tests. We were in compliance with these covenants as of December 31, 2002. If we had not complied with these covenants, the lessor could have terminated the leases, resulting in an acceleration of our purchase obligation, in which case, our residual value guarantee would have equaled 100% of the lease balances.

Our intention with respect to the properties we lease under synthetic leases is dependent upon the treatment of our lessor under FIN 46. If the lessor is deemed to be a voting interest entity, we would expect to continue the synthetic lease arrangements and exercise our three one-year renewals subject to obtaining the lessor’s consent. If our lessor is deemed to be a variable interest entity and we are deemed to be the primary beneficiary, we would seek to refinance with entities with whom we would not be required to consolidated or purchase the properties by exercising our purchase option.

The maximum exposure to loss on our synthetic leases includes (i) residual value guarantee payments as described above, (ii) certain tax indemnifications in the event third parties are obligated for certain federal, state or local taxes as a result of their participation in the transaction, and (iii) indemnification for various losses, costs and expenses incurred by third-party participants as a result of their ownership of the leased property or participation in the transaction, and as a result of the environmental condition of the property. The additional taxes, losses and expenses as described in (ii) and (iii) are contingent upon the existence of certain conditions that may arise in the future and, therefore, are not quantifiable at this time. However, we do not expect these additional taxes, losses and expenses to be material. In addition, as noted above, we have funded advances to the lessor in the aggregate amounts of $257.0 million for the San Jose facilities and $140.4 million for the Tualatin facilities, and have deposited with the lessor investment collateral in the amount of $36.2 million for the San Jose facilities and $22.8 million for the Tualatin facilities as a source of payment for our obligations for the residual value guarantee payments and other amounts owed under the leases.

As of December 31, 2002, our subsidiaries had no outstanding obligation under lines of credit with banks. The available lines of credit with these banks total $36.7 million. These credit facilities bear interest at various rates, expire on various dates through December 2003 and are used for general corporate purposes. As of December 31, 2001, amounts outstanding under these lines of credit were $26.2 million at an annual weighted-average interest rate of 0.62%. There were no balances outstanding under these lines of credit as of December 31, 2002.

On December 6, 2002, in connection with the acquisition of SpeedFam-IPEC, we assumed SpeedFam-IPEC’s $115.0 million Convertible Subordinated Notes due in 2004. The notes accrue interest at a rate of 6.25%, which is payable semi-annually in March and September and were adjusted to their fair value of $116.4 million as of the acquisition date. The notes were subordinated to all existing and future senior indebtedness and could be converted into 3.3096 shares of Novellus’ common stock at a conversion price of $302.15 per $1,000 principal amount. We had the right to redeem the Notes at various prices, subject to specified conditions as set forth in the indenture.

We called the Notes on January 8, 2003 at a redemption price of $117.1 million, which represents 101.786% of par value. We recognized approximately $0.6 million in expense in January 2003 as a result of the redemption of the Notes. The $0.6 million expense represents the difference between the carrying value and the redemption price of the Notes.

On July 26, 2001, we issued $880.0 million of Liquid Yield Option™ Notes (“LYONs”) due July 26, 2031. The net proceeds after issuance costs (which were being amortized over 30 years) from the LYONs offering were $862.4 million. The LYONs are zero coupon, zero-yield subordinated debentures convertible into shares of our common stock or redeemable for cash by the security holder, subject to specified conditions as set forth in the indenture.

On July 26, 2002, the holders of the LYONs exercised their option to require us to repurchase the LYONs for $1,000 in cash each on such date, or approximately $880.0 million for substantially all of the outstanding LYONs. We used restricted short-term investments, which had matured to $880.0 million, to repurchase the LYONs. We recorded a charge of approximately $17.0 million in other expenses for the remaining unamortized issuance costs related to the LYONs.

We believe that our current cash position, cash generated through operations and equity offerings, and available borrowings will be sufficient to meet our needs through at least the next twelve months.

Risk Factors

Set forth below and elsewhere in this Annual Report on Form 10-K, including in Item 7. Management’s Discussion and Analysis, and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report.

Cyclical Downturns in the Semiconductor Industry

Our business depends predominantly on the capital expenditures of semiconductor manufacturers, which in turn depend on current and anticipated market demand for integrated circuits and the products that use them. The semiconductor industry has historically been very cyclical and has experienced periodic downturns that have had a material adverse effect on the demand for semiconductor processing equipment, including equipment that we manufacture and market. During periods of reduced and declining demand, we must be able to quickly and effectively align our costs with prevailing market conditions, as well as motivate and retain key employees. In particular, our inventory levels during periods of reduced demand have at times reached and are now at higher-than-necessary levels relative to the current levels of production demand. We cannot provide any assurance that we may not be required to make inventory valuation adjustments in future periods. During periods of rapid growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meet customer demand, and hire and assimilate a sufficient number of qualified people. We cannot give assurances that our net sales and operating results will not be adversely affected if the current downturn in the semiconductor industry continues, or if other downturns or slowdowns in the rate of capital investment in the semiconductor industry occur in the future.

The Semiconductor Industry is Intensely Competitive and Capital-Intensive

We face substantial competition in the industry, both from potential new entrants into the market and established competitors. Some of these companies may have greater financial, marketing, technical or other resources than we do, as well as broader product lines, greater customer service capabilities, or larger and more established sales organizations and customer bases. Remaining competitive in the market depends in part upon our ability to develop new and enhanced systems, and to introduce them at competitive prices on a timely basis.

Our customers must incur substantial expenditures to install and integrate capital equipment into their semiconductor production lines. Once a manufacturer has selected another vendor’s capital equipment, the manufacturer is generally reliant upon that equipment vendor for the specific production line application in question. Accordingly, we may experience difficulty in selling a product to a particular customer for a significant period of time when that customer has selected a competitor’s product. In addition, sales of our systems depend in significant part upon a prospective customer’s decision to increase manufacturing capacity or expand current manufacturing capacity—both of which typically involve a significant capital commitment. From time to time, we have experienced delays in finalizing system sales following initial system qualification. Due to these and other factors, our systems typically have a lengthy sales cycle, during which we may expend substantial funds and management effort.

Rapidly Changing Technology

We devote a significant portion of our personnel and financial resources to research and development programs, and we seek to maintain close relationships with our customers in order to remain responsive to their product needs. As is typical in the semiconductor capital equipment market, we have experienced delays from time to time in the introduction of and certain technical and manufacturing difficulties with certain of our products and product enhancements. In addition, we may experience delays and technical and manufacturing difficulties in future introductions or volume production of our new systems or enhancements.

Our success in developing, introducing and selling new and enhanced systems depends upon a variety of factors. These include product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, product performance in the field, and effective sales and marketing. There can be no assurance that we will be successful in selecting, developing, manufacturing and marketing new products, or in enhancing our existing products. In addition, we could incur substantial unanticipated costs to ensure the functionality and reliability of our future product introductions early in their product life cycles. If new products have reliability or quality problems, reduced orders, or higher manufacturing costs, then delays in collecting accounts receivable and additional service and warranty expenses may result. Any of these events could materially adversely affect our business, financial condition or results of operations.

International Operations

Export sales currently account for a significant portion of our net sales. This trend is expected to continue in the foreseeable future. As a result, a significant portion of our sales is subject to certain risks, including, but not limited to:

• Tariffs and other trade barriers;

• Challenges in staffing and managing foreign subsidiary operations;

• Difficulties in managing foreign distributors;

• Potentially adverse tax consequences;

• Imposition of legislation and regulations relating to the import or export of semiconductor products, either by the United States or other countries;

• Periodic economic downturns;

• Political instability; and

• Fluctuations in interest and foreign currency exchange rates, creating the need to enter into forward foreign exchange contracts to hedge against the short-term impact of foreign currency fluctuations, specifically yen-denominated transactions.

There can be no assurance that any of these factors or the adoption of restrictive policies will not have a material adverse effect on our business, financial condition or results of operations. In addition, each region in the global semiconductor equipment market exhibits unique market characteristics that can cause capital equipment investment patterns to vary significantly from period to period. We derive a substantial portion of our revenues from customers in Asian countries. Any negative economic developments in these countries could result in the cancellation or delay by Asian customers of orders for our products, which could adversely affect our business, financial condition or results of operations.

Variability of Quarterly Operating Results

We have experienced and expect to continue experiencing significant fluctuations in our quarterly operating results. These fluctuations are due to a number of factors that include, but are not limited to:

• Building our systems according to forecast, and not using limited backlog information, which hinders our ability to plan production and inventory levels;

• Failure to receive anticipated orders in time to permit shipment during that quarter;

• Customers rescheduling or canceling shipments;

• Manufacturing difficulties;

• Customers deferring orders of our existing products due to new product announcements by us and/or our competitors; and

• Overall business conditions in the semiconductor equipment industry.

Variations in quarterly operating results or changes in analysts’ earnings estimates may subject the price of our common stock to wide fluctuations and possible rapid increases or declines in a short time period.

Acquisitions

We have made—and may in the future make—acquisitions of or significant investments in businesses with complementary products, services and/or technologies. Acquisitions involve numerous risks, including, but not limited to:

• Difficulties in integrating the operations, technologies, products and personnel of acquired companies;

• Lack of synergies or the inability to realize expected synergies;

• Difficulties in managing geographically dispersed operations;

• The potential loss of key employees, customers and strategic partners of acquired companies;

• Diversion of management’s attention from normal daily operations of the business; and

• The impairment of acquired intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies.

Acquisitions are inherently risky, and we cannot provide any assurance that our previous or future acquisitions will be successful. The inability to effectively manage the risks associated with previous or future acquisitions could materially and adversely affect our business, financial condition or results of operations.

A Large Portion of Net Sales is Derived from Sales to a Few Customers

We currently sell a significant proportion of our systems in any particular period to a limited number of customers, and we expect that sales of our products to relatively few customers will continue to account for a high percentage of our net sales in the foreseeable future. In addition, we believe that sales to certain of our customers will decrease in the near future as they complete current purchasing requirements for new or expanded fabrication facilities. Although the composition of the group comprising our largest customers varies from year to year, the loss of a significant customer or any reduction in orders from any significant customer—including reductions due to customer departures from recent buying patterns, as well as economic or competitive conditions in the semiconductor industry—could adversely affect our business, financial condition or results of operations.

Intellectual Property

We intend to continue pursuing the legal protection of our proprietary technology primarily through patent and trade secret protection. There can be no assurance that patents will be issued from any of these pending applications, or that any claims allowed from existing or pending patents will be sufficiently broad to protect our proprietary technology. There is also no guarantee that any patents we hold will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to us. We also cannot provide assurance that the confidentiality agreements we enter into with employees, consultants and other parties will not be breached.

We are currently involved in a number of legal disputes regarding patent and other intellectual property rights. Except as set forth in Item 3. Legal Proceedings in this document, we are not aware of any significant claim of infringement by our products of any patent or proprietary rights of others. Adverse outcomes in current or future legal disputes could result in our loss of proprietary rights, subject the company to significant liabilities to third parties, require us to seek licenses from third parties, or prevent us from manufacturing or selling our products. Any of these circumstances could have a material adverse effect on our business, financial condition or results of operations.

Supply Shortages

We use numerous suppliers to obtain parts, components and sub-assemblies for the manufacture and support of our products. Although we make reasonable efforts to ensure that such parts are available from multiple suppliers, certain key parts may only be obtained from a single or limited source. These suppliers are in some cases thinly capitalized, independent companies that generate significant portions of their business from us and/or a small group of other companies in the semiconductor industry. We seek to reduce our dependence on this limited group of sources. However, disruption or termination of certain of these suppliers may occur. Such disruptions could have an adverse effect on our operations. A prolonged inability to obtain certain parts could have a material adverse effect on our business, financial condition or results of operations, and could result in our inability to meet customer demands on time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and short-term debt obligations. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer.

We mitigate default risk by investing in only the safest and highest credit quality securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We have no material cash flow exposure due to rate changes for cash equivalents and short-term investments.

The majority of our short-term obligations have fixed interest rates, including the convertible bonds assumed in connection with the SpeedFam-IPEC acquisition, all of which were subsequently redeemed in January 2003. Therefore, our results are only affected by the interest rate changes to variable rate short-term borrowings. Due to the short-term nature of these borrowings, an immediate change to interest rates is not expected to have a material effect on our results.

The table below presents principal amounts and related weighted interest rates by year of maturity for our investment portfolio and debt obligations and the fair value of each as of December 31, 2002 and 2001. All of our available-for-sale investments and debt securities mature within two years from the original purchase or issuance date.


		Periods of Maturity
											Fair Value
											December 31,
In thousands		2003			2004			Total			2002

Assets:
	Cash equivalents	$	615,844			—		$	615,844		$	615,844
	Average interest rate		1.36	%		—			1.36	%
	Short-term investments	$	385,793		$	18,016		$	403,809		$	403,809
	Average interest rate		2.04	%		1.92	%		2.03	%
	Restricted investments	$	58,995			—		$	58,995		$	58,995
	Average interest rate		0.32	%		—			0.32	%
	Total investment securities	$	1,060,952		$	18,016		$	1,078,648		$	1,078,648
	Average interest rate		1.55	%		1.92	%		1.55	%
Liabilities:
	Convertible debentures	$	116,437			—		$	116,437		$	116,437
	Average interest rate		6.25	%		—			6.25	%


		Periods of Maturity
											Fair Value
											December 31,
In thousands		2002			2003			Total			2001

Assets:
	Cash equivalents	$	550,640			—		$	550,640		$	550,640
	Average interest rate		1.96	%		—			1.96	%
	Short-term investments	$	364,716		$	6,466		$	371,182		$	371,182
	Average interest rate		3.28	%		4.84	%		3.31	%
	Restricted investments	$	961,643			—		$	961,643		$	961,643
	Average interest rate		3.34	%		—			3.34	%
	Total investment securities	$	1,876,999		$	6,466		$	1,883,465		$	1,883,465
	Average interest rate		2.93	%		4.84	%		2.94	%
Liabilities:
	Short-term borrowing	$	26,179			—		$	26,179		$	26,179
	Average interest rate		0.62	%		—			0.62	%
	Convertible debentures	$	880,000			—		$	880,000		$	876,700
	Average interest rate		0.00	%		—			0.00	%

We have operating lease agreements on several properties. The agreements are for five years with interest rates that approximate the London Interbank Offer Rate (LIBOR). Rent expense was approximately $17.8 million, $16.9 million and $20.1 million for the years ended December 31, 2002, 2001 and 2000, respectively, net of sublease income of $7.4 million, $7.2 million and $8.1 million, respectively. Rent expense may increase significantly with changes in prevailing interest rates.

Excluded from the 2002 table above is $456.4 million of collateralized investments recorded within other assets and as a note receivable, related to our participation in the synthetic leases. Of this amount, $15.2 million is subject to interest rate risk since amounts payable as rent expense are based on LIBOR. The remaining balance of rent expense is either paid using a fixed rate of interest or is non-

interest bearing. Imputed amounts result from the application of a deemed market rate of interest on loan balances, including the lease receivable from the lessor, which is non-interest bearing, and a portion of the collateral, which is interest bearing at lower than the deemed market rate of interest. Since interest is imputed for financial reporting and disclosure purposes only, market risk is not associated with these instruments. For further discussion, see Note 10 to the Consolidated Financial Statements.

Foreign Currency Risk

We transact business in various foreign countries. Our primary foreign currency cash flows are in Asia and Europe. During 2002 and 2001, we utilized foreign currency forward exchange contracts to hedge foreign currency denominated balance sheet positions. Under this program, increases or decreases in currency commitments and balance sheet positions, as translated into U.S. dollars, were primarily offset by realized gains and losses on the hedging instruments. The goal of the hedging program is to minimize the impact of foreign currency fluctuations on our results of operations. We do not use foreign currency forward exchange contracts for speculative or trading purposes.

All of our unsettled foreign currency contracts are marked-to-market, with unrealized gains and losses included as a component of other income and expense. The following table provides information as of December 31, 2002 and 2001 about our derivative financial instruments, which are comprised of foreign currency forward exchange contracts. The information is provided in U.S. dollar equivalent amounts, as presented in our consolidated financial statements. The table below presents the notional amounts (at the contract exchange rates), the weighted-average contractual foreign currency exchange rates, and the estimated fair value of those contracts.


December 31, 2002		Notional Amount			Average		Estimated Fair
In thousands, except for average contract rate		(Buy) Sell			Contract Rate		Value-Gain (Loss)

Foreign currency forward exchange contracts:
	Japanese yen	$	18,460			118.33	$	817
	British pound		(4,140	)		0.64		(8	)
	Euro		(2,417	)		0.99		3
	Singapore dollar		(4,563	)		1.76		(7	)
	Taiwan dollar		(21,957	)		34.86		72
	Korean won		(7,914	)		1,215.25		21
	Chinese Yuan		(494	)		8.27		—

		$	(23,024	)			$	898


December 31, 2001		Notional Amount			Average		Estimated Fair
In thousands, except for average contract rate		(Buy) Sell			Contract Rate		Value-Gain (Loss)

Foreign currency forward exchange contracts:
	Japanese yen	$	72,930			115.55	$	8,626
	British pound		(1,949	)		0.69		(16	)
	Euro		(660	)		1.14		4
	Singapore dollar		(1,970	)		1.85		22
	Taiwan dollar		(10,598	)		35.00		182
	Korean won		(2,839	)		1,322.00		140

		$	54,914				$	8,958

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NOVELLUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)


					Years Ended December 31,

					2002			2001			2000

Net sales					$	839,958		$	1,339,322		$	1,319,486
Cost of sales						461,435			647,971			588,593

Gross profit						378,523			691,351			730,893
Operating expenses:
		Selling, general and administrative				154,172			198,567			232,749
		Research and development				222,344			272,032			198,310
		Acquired in-process research and development				9,003			—			6,000
		Restructuring and other charges				6,467			61,106			—
		Bad debt (recovery) write-off				(7,662	)		7,662			—

Total operating expenses						384,324			539,367			437,059
Operating (loss) income, net						(5,801	)		151,984			293,834
Other income (expense):
		Interest income				41,851			64,297			58,755
		Interest expense				(1,020	)		(1,146	)		(2,425	)
		Other, net				(12,110	)		(5,758	)		—

Other income, net						28,721			57,393			56,330

Income before provision for income taxes and cumulative effect of a change in accounting principle						22,920			209,377			350,164
Provision for income taxes						—			64,907			110,996

Income before cumulative effect of a change in accounting principle						22,920			144,470			239,168
Cumulative effect of a change in accounting principle, net of tax						—			—			(89,788	)

Net income					$	22,920		$	144,470		$	149,380

Net income per share:
	Basic
			Income before cumulative effect of a change in accounting principle		$	0.16		$	1.01		$	1.76
			Cumulative effect of a change in accounting principle			—			—			(0.66	)

				Basic net income per share	$	0.16		$	1.01		$	1.10

		Diluted
			Income before cumulative effect of a change in accounting principle		$	0.15		$	0.97		$	1.66
			Cumulative effect of a change in accounting principle			—			—			(0.62	)

				Diluted net income per share	$	0.15		$	0.97		$	1.04

Shares used in basic per share calculations						144,371			142,462			135,728

Shares used in diluted per share calculations						148,748			148,924			143,654

See accompanying Notes to the Consolidated Financial Statements.

NOVELLUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)


					December 31,

					2002			2001

ASSETS
Current assets:
		Cash and cash equivalents			$	615,844		$	550,640
		Short-term investments				403,808			371,182
		Restricted short-term investments				—			961,643
		Accounts receivable, net of allowance for doubtful accounts of $7,339 in 2002 and $14,390 in 2001				192,862			222,857
		Inventories				257,358			244,712
		Deferred tax assets, net				119,699			84,421
		Prepaid and other current assets				44,363			81,049

				Total current assets		1,633,934			2,516,504
Property and equipment, net						179,926			177,601
Notes receivable						397,429			244,673
Goodwill						163,136			21,262
Intangible and other assets						119,569			71,084

Total assets					$	2,493,994		$	3,031,124

	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
		Accounts payable			$	71,218		$	67,317
		Accrued payroll and related expenses				36,748			34,211
		Accrued warranty				31,002			43,337
		Other accrued liabilities				56,522			40,194
		Income taxes payable				14,070			5,870
		Deferred profit				55,613			40,835
		Current obligations under lines of credit				—			26,179
		Convertible subordinated debentures				116,437			862,659

			Total current liabilities			381,610			1,120,602
Deferred income tax liabilities						19,502			21,462
Other liabilities						37,194			17,066

Total liabilities						438,306			1,159,130

Commitments and contingencies
Shareholders’ equity:
		Preferred stock, no par value; authorized shares - 10,000; issued and outstanding shares - none				—			—
		Common stock, no par value; authorized shares - 240,000; issued and outstanding shares - 149,119 in 2002 and 143,606 in 2001				1,487,281			1,273,201
		Retained earnings				570,153			597,267
		Accumulated other comprehensive (loss) income				(1,746	)		1,526

Total shareholders’ equity						2,055,688			1,871,994

Total liabilities and shareholders’ equity					$	2,493,994		$	3,031,124

See accompanying Notes to the Consolidated Financial Statements.

NOVELLUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


					Years Ended December 31,

					2002			2001			2000

Cash flows from operating activities:
Net income					$	22,920		$	144,470		$	149,380
	Adjustments to reconcile net income to net cash provided by operating activities:
			Write-off of debt issuance costs			17,047			—			—
			(Gain) loss on sale/impairment of equity investments			(4,602	)		8,556			—
			Non-cash portion of restructuring and other charges			—			25,501			—
			Bad debt (recovery) write-off			(7,662	)		7,662			—
			Adjustment to conform fiscal year end of GaSonics			—			1,714			—
			Depreciation and amortization			44,310			51,934			46,951
			Amortization of deferred compensation			1,626			1,451			1,780
			Cumulative effect of a change in accounting principle, net of tax benefit			—			—			89,788
			Acquired in-process research and development			9,003			—			6,000
			Income tax benefits from employee stock plans			19,427			25,037			40,247
			Changes in operating assets and liabilities:
				Accounts receivable		58,341			167,713			(168,627	)
				Inventories		19,912			(50,079	)		(85,287	)
				Prepaid and other current assets		42,706			(66,511	)		(5,755	)
				Deferred income taxes		3,346			55,860			(41,378	)
				Accounts payable		(4,021	)		(55,706	)		73,894
				Accrued payroll and related expenses		(2,809	)		(36,000	)		46,250
				Accrued warranty		(13,599	)		(8,006	)		29,008
				Other accrued liabilities		(11,995	)		11,073			12,437
				Income taxes payable		6,186			(54,502	)		40,433
				Deferred profit		14,778			(153,078	)		55,777

Net cash provided by operating activities						214,914			77,089			290,898

Cash flows from investing activities:
Purchases of short-term investments						(2,028,463	)		(2,293,771	)		(1,268,238	)
Proceeds from sales and maturities of short-term investments						2,956,991			1,599,183			842,386
Capital expenditures						(26,776	)		(79,965	)		(77,704	)
Decrease (increase) in intangible and other assets						9,407			(7,443	)		3,092
Increase in synthetic lease collateral						(177,458	)		(244,673	)		—
Cash acquired from SpeedFam-IPEC acquisition, net						43,462			—			—
Cash used in Gamma Precision Technology acquisition, net						—			—			(18,454	)

Net cash provided by (used in) investing activities						777,163			(1,026,669	)		(518,918	)

Cash flows from financing activities:
Proceeds (repayments) from convertible subordinated debentures						(879,750	)		862,400			—
Proceeds from employee stock compensation plans						54,434			45,469			42,008
Proceeds (repayments) from lines of credit, net						(23,380	)		4,577			5,249
Repurchases of common stock						(78,177	)		(1,641	)		(1,158	)
Proceeds from common stock offering, net						—			—			572,910

Net cash provided by (used in) financing activities						(926,873	)		910,805			619,009

Net increase (decrease) in cash and cash equivalents						65,204			(38,775	)		390,989
Cash and cash equivalents at the beginning of the year						550,640			589,415			198,426

Cash and cash equivalents at the end of the year					$	615,844		$	550,640		$	589,415

Supplemental disclosures:
	Cash paid (received) during the year for:
		Interest			$	204		$	1,146		$	2,425
		Income taxes			$	(63,329	)	$	63,201		$	69,221
	Non-cash financing activities:
		Issuance of common stock and stock options related to SpeedFam-IPEC acquisition, net of deferred compensation of $3,104			$	166,736		$	—		$	—
		Subordinated debt assumed from SpeedFam-IPEC acquisition			$	116,437		$	—		$	—
		Issuance of GaSonics’ common stock related to GPT acquisition			$	—		$	—		$	12,679

See accompanying Notes to the Consolidated Financial Statements.

NOVELLUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)


				Common Stock						Retained			Accumulated Other Comprehensive			Total Shareholders’
				Shares			Amount			Earnings			(Loss) Income			Equity

Balance at December 31, 1999					126,543		$	531,224		$	304,898		$	1,415		$	837,537
	Components of comprehensive income:
		Net income			—			—			149,380			—			149,380
		Net change in unrealized losses on available-for-sale securities			—			—			—			(10,191	)		(10,191	)
		Foreign currency translation adjustments			—			—			—			(3,717	)		(3,717	)

			Comprehensive income														135,472

	Proceeds from common stock offering, net				10,089			572,910			—			—			572,910
	Issuance of common stock under employee compensation plans				3,441			42,008			—			—			42,008
	Issuance of restricted common stock				219			—			—			—			—
	Acquisition of Gamma Precision Technology				341			12,679			—			—			12,679
	Amortization of deferred compensation, net of cancellations of restricted common stock				(12	)		1,780			—			—			1,780
	Income tax benefits realized from activity in employee stock plans				—			40,247			—			—			40,247
	Repurchases of common stock				(20	)		(130	)		(1,028	)		—			(1,158	)

Balance at December 31, 2000					140,601			1,200,718			453,250			(12,493	)		1,641,475
	Components of comprehensive income:
		Net income			—			—			144,470			—			144,470
		Net change in unrealized gains on available-for-sale securities			—			—			—			7,988			7,988
		Foreign currency translation adjustments			—			—			—			127			127
		Other than temporary loss included in net income, net of tax			—			—			—			5,904			5,904

			Comprehensive income														158,489

	Issuance of common stock under employee compensation plans				2,954			45,469			—			—			45,469
	Adjustment to conform fiscal year end of GaSonics				57			851			863			—			1,714
	Issuance of restricted common stock				31			—			—			—			—
	Amortization of deferred compensation				—			1,451			—			—			1,451
	Income tax benefits realized from activity in employee stock plans				—			25,037			—			—			25,037
	Repurchases of common stock				(37	)		(325	)		(1,316	)		—			(1,641	)

Balance at December 31, 2001					143,606			1,273,201			597,267			1,526			1,871,994
	Components of comprehensive income:
		Net income			—			—			22,920			—			22,920
		Net change in unrealized losses on available-for-sale securities			—			—			—			(350	)		(350	)
		Foreign currency translation adjustments			—			—			—			714			714
		Gain on sale of an equity investment, net of tax			—			—			—			(3,636	)		(3,636	)

			Comprehensive income														19,648

	Issuance of common stock under employee compensation plans				2,870			54,434			—			—			54,434
	Issuance of common stock and assumption of stock options in connection with the acquisition of SpeedFam-IPEC				5,733			166,736			—			—			166,736
	Issuance of restricted common stock				100			—			—			—			—
	Amortization of deferred compensation				—			1,626			—			—			1,626
	Income tax benefits realized from activity in employee stock plans				—			19,427			—			—			19,427
	Repurchases of common stock				(3,190	)		(28,143	)		(50,034	)		—			(78,177	)

Balance at December 31, 2002					149,119		$	1,487,281		$	570,153		$	(1,746	)	$	2,055,688

See accompanying Notes to the Consolidated Financial Statements.

NOVELLUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 DESCRIPTION OF THE BUSINESS

Novellus Systems, Inc. is a supplier of semiconductor manufacturing equipment used in the fabrication of integrated circuits. We are focused on delivering innovative interconnect products and technologies that meet the increasingly complex and demanding needs of the world’s largest semiconductor manufacturers. The semiconductor manufacturing equipment that we build, market and service provides today’s chipmakers with high productivity and low cost of ownership.

As part of our growth strategy from time to time we make acquisitions. On January 10, 2001, we acquired GaSonics International Corporation, a developer and supplier of photoresist and residue removal technologies in a pooling-of-interests transaction. Our consolidated financial statements for fiscal 2000 have been restated to include the financial position, results of operations and cash flows of GaSonics. Because of differing year ends, financial information relating to our fiscal year ended December 31, 2000 has been combined with financial information relating to GaSonics’ fiscal year ended September 30, 2000. GaSonics’ net income for the three months ended December 31, 2000 was not combined with our net income, but rather was included as an adjustment to shareholders’ equity. Revenue and net income of GaSonics for the three-month period ended December 31, 2000, which is excluded from the accompanying consolidated statements of operations, were $47.7 million and $0.9 million, respectively. There were no transactions between GaSonics and Novellus prior to the combination.

On December 6, 2002, we acquired SpeedFam-IPEC, Inc., a global supplier of chemical mechanical planarization (CMP) systems used in the fabrication of advanced copper interconnects. The acquisition was accounted for as a purchase business combination and qualifies as a tax-free reorganization under IRS regulations. Our consolidated financial statements for fiscal 2002 include the financial position, results of operations and cash flows of SpeedFam-IPEC from December 6, 2002.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries after elimination of all significant intercompany account balances and transactions. Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the 2002 presentation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, cash and investments, allowance for doubtful accounts, inventory valuation, deferred tax assets, property and equipment, goodwill and other intangible assets, warranty obligations, restructuring and impairment charges, contingencies and litigation and stock-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our intent is to accurately state our assets given facts known at the time of valuation. Our assumptions may prove incorrect as facts change in the future. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition - We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” or SAB 101, and “SAB 101: Revenue Recognition in Financial Statements-Frequently Asked Questions and Answers,” or SAB 101 FAQ. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured.

Installation services are not essential to the functionality of the delivered equipment. We allocate revenue based on the residual method, as a fair value has been established for installation services. However, since the final payment is not typically due until customer acceptance, we defer revenue for the final payment, which is in excess of the fair value of the installation services. All other equipment sales are recognized upon customer acceptance.

In accordance with guidance provided in SAB 101 and SAB 101 FAQ, Novellus recorded a non-cash charge of $89.8 million, net of income tax of $48.6 million, or $0.62 per diluted share, to reflect the cumulative effect of the change in accounting principle as of the beginning of fiscal year 2000. The decrease to net income before the cumulative effect of the change in accounting principle as a result of the adoption was $98.1 million or $0.68 per diluted share for fiscal year 2000.

Cash, Cash Equivalents and Short-Term Investments - We consider all highly liquid debt instruments with insignificant interest rate risk and original maturities of ninety days or less to be cash equivalents. Investments with original maturities greater than three months and that mature within one year from the balance sheet date are considered to be short-term investments. Our short-term investments are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in shareholders’ equity. The fair value of short-term investments is based on quoted market prices. Realized gains and losses and declines in fair value that are other than temporary are recorded in earnings when realized. The cost of securities sold is based on the specific identification method.

Allowance for Doubtful Accounts - We evaluate our allowance for doubtful accounts based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we provide a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize an allowance for doubtful accounts based on a certain percentage of total revenues, which is based on our historical experience over the past five years. If circumstances change (e.g. higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations), we may amend our estimates of the recoverability of the outstanding balance.

Inventories and Inventory Valuation - Inventories are stated at the lower of cost (first-in, first-out) or market. We assess the recoverability of all inventories, including raw materials, work-in-process, finished goods and spare parts to determine whether adjustments for impairment are necessary. Inventory that is obsolete or in excess of our forecasted usage is written down to our estimated market value based on assumptions about future demand and market conditions. Due to the fast moving technology used in our business actual demand can differ materially from forecasted demand. If actual demand is lower than our forecast, additional inventory write-downs may be required.

Deferred Tax Assets - We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Our valuation allowance was recorded as an increase to goodwill in connection with acquired net operating loss carryforwards, which are not realizable until 2009 and beyond. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Should the existing deferred tax asset, which is currently offset by the valuation allowance, be realized, the benefit of such realization and the related reversal of the valuation allowance would result in a reduction of goodwill. If we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would decrease income in the period such determination was made.

Property and Equipment - Property and equipment are stated at cost. Depreciation and amortization are provided mainly on the straight-line method over the following estimated useful lives:


Machinery and equipment		2 – 7 years
Furniture and fixtures		3 – 5 years
Buildings		30 – 40 years
Leasehold improvements		Shorter of useful life or remaining lease term

Goodwill and Other Intangible Assets - Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” or SFAS No. 142. SFAS No. 142 requires that goodwill and identifiable intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, as superseded by SFAS No. 144. Furthermore, SFAS No. 142 includes provisions on the identification of intangible assets, reclassification of certain intangibles from previously reported goodwill, and reassessment of the useful lives of existing intangible assets. Upon adoption, we reassessed the useful lives and residual values of all acquired identifiable intangible assets to identify any necessary amortization period adjustments and to determine whether other intangible assets should be reclassified from goodwill. Based on that assessment, no adjustments were made to the amortization period or residual values of identifiable intangible assets.

We review our long-lived assets, including goodwill and intangible assets, for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. For further discussion, see Note 6 to the Consolidated Financial Statements.

Warranty - Our warranty policy generally states that we will provide warranty coverage for a predetermined amount of time on systems and modules for material and labor to repair and service the equipment. We record the estimated cost of warranty coverage to cost of sales upon system shipment. The estimated cost of warranty is determined by the warranty term as well as the average historical labor and material costs for a specific product. Should actual product failure rates or material usage differ from our estimates, revisions to the estimated warranty liability may be required. These revisions could have a positive or negative impact on gross profit. We review the actual product failure rates and material usage rates on a quarterly basis and adjust our warranty liability as necessary.

Restructuring and Impairment Charges - We account for restructuring in accordance with Emerging Issues Task Force (EITF) 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 Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” and SAB No. 100, “Restructuring and Impairment Charges.” In accordance with this guidance, restructuring accruals are recorded when management initiates an exit plan that will cause us to incur costs that have no future economic benefit. Also under the terms of EITF No. 94-3, a liability for the restructuring charges are recognized in the period management approves the restructuring plan. Additionally, certain restructuring charges related to asset impairments are recorded in accordance with SFAS No. 144.

Contingencies and Litigation - We assess the probability of adverse judgments in connection with current and threatened litigation. We would accrue the cost of an adverse judgment if, in our estimation, the adverse outcome is probable and we can reasonably estimate the ultimate cost. We have made no such accruals as of December 31, 2002.

Foreign Currency Translation - For all of our foreign subsidiaries, the local currency is the functional currency. Accordingly, translation gains or losses related to these foreign subsidiaries are included as a component of accumulated other comprehensive income (loss).

Forward Foreign Exchange Contracts - Forward foreign exchange contracts are used to hedge against the short-term impact of foreign currency fluctuations on intercompany accounts payable denominated in U.S. dollars recorded by our Japanese subsidiary. We also enter into forward foreign exchange contracts to buy and sell foreign currencies to hedge the parent’s intercompany balances denominated in a currency other than the U.S. dollar. In 2002 and 2001, these hedging contracts were denominated primarily in the Japanese yen and the Taiwanese dollar. The forward foreign exchange contracts we use are generally short-term in nature. The effect of exchange rate changes on forward exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes in currency exchange rates. All unsettled foreign currency contracts are marked-to-market, with unrealized gains and losses included as a component of other income and expense. Net foreign currency gains and losses have not been material to the results of operations.

Advertising Expenses - We expense advertising costs as incurred. Advertising expenses for 2002, 2001 and 2000 were $2.7 million, $4.7 million and $9.5 million, respectively.

Employee Stock Plans - We account for stock-based employee compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” whereby stock-based employee compensation arrangements are accounted for under the intrinsic value method prescribed by the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” We provide pro forma disclosures of net income and earning per share as if the fair value method prescribed by SFAS No. 123 had been applied in measuring employee compensation expense. In December 2002, the FASB issued SFAS No. 148, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements effective for the first quarter of 2003. SFAS No. 148’s amendment of the transition and annual disclosure requirements of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. For further discussion, see Note 14 to the Consolidated Financial Statements.

Concentration of Credit and Other Risks - We use financial instruments that potentially subject us to concentrations of credit risk. Such instruments include cash equivalents, short-term investments, accounts receivable and financial instruments used in hedging activities. We invest our cash in cash deposits, money market funds, commercial paper, certificates of deposit, readily marketable debt securities, or medium-term notes. We place our investments with high–credit quality financial institutions, which limits the credit exposure from any one financial institution or instrument. To date, we have not experienced significant losses on these investments. We sell a significant portion of our systems to a limited number of customers. Sales to our ten largest customers in 2002, 2001 and 2000 accounted for 79%, 61% and 71% of net sales, respectively. One customer accounted for 18% and 14% of receivables at December 31, 2002 and 2001, respectively. We expect that sales of our products to relatively few customers, none of which has entered into a long-term agreement requiring them to purchase our systems, will continue to account for a high percentage of our net sales in the foreseeable future. If the financial condition or operations of these customers deteriorate substantially, our operating results could be adversely affected. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral. We have an exposure to nonperformance by counterparties on the foreign exchange contracts used in hedging activities. These counterparties are large international financial institutions and to date, no such counterparty has failed to meet its financial obligations to us. We do not believe there is a significant risk of nonperformance by these counterparties because we continuously monitor our positions and the credit ratings of such counterparties and the amount of contracts we enter into with any one party. However, there can be no assurance that there will be no significant nonperformance by these counterparties and that this would not materially adversely affect our business, financial condition, and results of operations.

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” For most companies, SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, rather than as extraordinary items, as previously required under SFAS No. 4, “Reporting Gains and Losses for Extinguishment of Debt, an amendment of APB Opinion No. 30.” Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 145 also amended SFAS No. 13, “Accounting for Leases” for certain sale-leaseback transactions and sublease accounting. We are required to adopt the provisions of SFAS No. 145 effective January 1, 2003. We do not expect the adoption of SFAS No. 145 to have a material effect on our financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, and must be applied beginning January 1, 2003. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than when the exit or disposal plan is approved. We do not expect the adoption of SFAS No. 146 to have a material effect on our financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 does not have a material effect on our results of operations or financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” or FIN 45. FIN 45 will significantly change current practice in the accounting for and disclosure of guarantees. FIN 45 requires certain guarantees to be recorded at fair value which is different from the current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in SFAS No. 5, “Accounting for Contingencies.” FIN 45 also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote, which is another change from the current practice. FIN 45 disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We are currently evaluating the impact of the adoption of FIN 45 on our results of operations or financial condition.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are currently evaluating our synthetic leases and seeking additional information from the lessor and its advisors as to whether the lessor should be characterized as a variable interest entity. Consequently, we have not yet concluded whether it is reasonably possible that we would be required to record the specific assets and liabilities associated with our synthetic leases in our financial statements for our third fiscal quarter beginning on June 29, 2003. In the event the leasing structures used in our synthetic leases qualify as variable interest entities, we would seek to refinance with entities with whom we would not be required to consolidate or purchase the properties by exercising our purchase option. For further discussion, see Note 10 to the Consolidated Financial Statements.

NOTE 3 FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Short-term Investments

The following table presents the estimated fair value of our short-term investments by investment grade (in thousands):


			December 31,

			2002		2001

Cash			$	7,727	$	23,456
Institutional money market funds				565,694		442,072
Commercial paper				42,423		81,912
Municipal securities				—		3,200

	Amounts included in cash and cash equivalents			615,844		550,640
US Government agencies				314,545		220,365
Municipal securities				27,532		23,668
Commercial paper				25,783		33,447
Corporate securities				18,653		78,302
Tax-exempt auction rate notes				14,700		15,400
Mutual Fund				2,595		—

	Amounts included in short-term investments			403,808		371,182

		Total cash, cash equivalents and short-term investments	$	1,019,652	$	921,822

Unrealized gains (losses) on all securities were not significant as of December 31, 2002 and 2001. All debt securities held at December 31, 2002 are due in less than two years.

Fair Value of Other Financial Instruments

The carrying and estimated fair values of our other financial instruments are as follows (in thousands):


	December 31,

	2002				2001

	Carrying		Estimated Fair		Carrying		Estimated Fair
	Value		Value		Value		Value

Restricted investment - current	$	—	$	—	$	961,643	$	961,643
Restricted investment - noncurrent		58,995		58,995		34,293		34,293
Notes receivable		397,429		397,429		244,673		244,673
Current obligations under lines of credit		—		—		26,179		26,179
Convertible subordinated debentures		116,437		116,437		862,659		876,700

The fair values of our restricted investments are based on quoted market prices as of December 31, 2002 and 2001. The fair value of our obligations under lines of credit is based on current rates offered to us for similar debt instruments of the same remaining maturities.

Financial Instruments with Off-Balance Sheet Risk

As part of our asset and liability management, we enter into various types of transactions that involve financial instruments with off-balance sheet risk. We enter into foreign forward exchange contracts in order to manage foreign exchange risk. The notional amounts, carrying amounts and estimated fair values of our foreign currency forward exchange contracts are as follows (in thousands):


						December 31,

				2002						2001

	Notional			Carrying		Estimated		Notional		Carrying		Estimated
	Amount			Amount		Fair Value		Amount		Amount		Fair Value

Sell foreign currency, primarily Japanese yen	$	(23,024	)	$	898	$	898	$	54,914	$	8,958	$	8,958

The fair value of our foreign forward exchange contracts is calculated based on quoted market prices or pricing models using current market rates as of December 31, 2002 and 2001, respectively.

NOTE 4 BALANCE SHEET DETAILS

Inventories



		December 31,

(in thousands)		2002		2001

Purchased and spare parts		$	205,341	$	199,702
Work-in-process			45,487		42,717
Finished goods			6,530		2,293

	Total inventories	$	257,358	$	244,712

Property and equipment, net


		December 31,

(in thousands)		2002		2001

Property and equipment:
	Machinery and equipment	$	290,273	$	243,677
	Furniture and fixtures		19,725		15,256
	Leasehold improvements		87,740		79,264
	Land		8,983		8,782

			406,721		346,979
Less accumulated depreciation			226,795		169,378

	Total property and equipment	$	179,926	$	177,601

Accrued warranty

Changes in our accrued warranty liability were as follows (in thousands):


		December 31,

		2002		2001

Balance, beginning of period		$	43,337	$	51,343
	Warranties issued		42,723		64,457
	Settlements		(56,322)		(72,463)
	SpeedFam-IPEC balance at acquisition		1,264		—
	Changes in liability for pre-existing warranties, including expirations		—		—

Balance, end of period		$	31,002	$	43,337

NOTE 5 EARNINGS PER SHARE

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. For purposes of computing net income per share, the weighted-average number of outstanding shares of common stock excludes shares of restricted stock subject to repurchase.

Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding, including shares of restricted common stock subject to repurchase and, when dilutive, potential shares from stock options to purchase common stock using the treasury stock method and from convertible securities on an as-if-converted basis.

The following table provides a reconciliation of the numerators and denominators of the basic and diluted per share computations (in thousands, except for per share amounts):


		Years ended December 31,

		2002		2001		2000

Numerator:
	Net income	$	22,920	$	144,470	$	149,380
Denominator:
	Basic weighted-average shares outstanding		144,371		142,462		135,728
	Employee stock options		4,179		6,342		7,719
	Restricted stock		198		120		207

	Diluted weighted-average shares outstanding		148,748		148,924		143,654

Basic net income per share		$	0.16	$	1.01	$	1.10
Diluted net income per share		$	0.15	$	0.97	$	1.04

Options to purchase 8,717,229, 3,596,000 and 519,000 shares of common stock at weighted-average prices of $42.60, $46.77 and $55.35 per share were outstanding during 2002, 2001 and 2000, respectively, but were not included in the computation of diluted net income per common share because the exercise price of the options was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS

As described in Note 2, we adopted SFAS No. 142 effective January 1, 2002. SFAS No. 142 requires that goodwill and identifiable intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 provides a six-month transitional period from the effective date of adoption to perform an assessment of whether there is an indication of goodwill impairment at the reporting unit level. To perform the impairment test, it is necessary to identify our reporting units and determine the carrying value of each reporting unit by assigning the

assets and liabilities to the reporting units as of the date of adoption. A reporting unit is the same as, or one level below, an operating segment as defined by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” We have only one reporting unit as we operate in one segment, the manufacturing, marketing and servicing of semiconductor wafer fabrication equipment. Additionally, all of the operating components of our operating segment qualify for aggregation under SFAS No. 142, due to their identical customer base and similarities in economic characteristics, nature of products and services, and procurement, manufacturing and distribution processes and therefore are considered one reporting unit. We completed the first step of the transitional goodwill impairment test in the first quarter of fiscal 2002 and completed the annual goodwill impairment test in the fourth quarter of fiscal 2002. The first step of the test identifies when impairment may have occurred, while the second step of the test measures the amount of the impairment, if any. The result of our impairment test did not indicate impairment.

As of December 31, 2001, we had goodwill of approximately $20.1 million. As a result of the acquisition of SpeedFam-IPEC in December 2002, we recorded additional goodwill in the amount of $143.0 million, which resulted in an ending balance of $163.1 million as of December 31, 2002. The following table reconciles the reported net income and net income per share for fiscal years 2001 and 2000 to their respective pro forma balances, adjusted to exclude goodwill amortization expense, net of tax. Fiscal 2002 results are presented for comparative purposes (in thousands, except for net income per share):


		Years ended December 31,

		2002		2001		2000

Reported net income		$	22,920	$	144,470	$	149,380
	Add back goodwill amortization, net of tax		—		2,232		736

Adjusted net income		$	22,920	$	146,702	$	150,116

Basic and diluted income per share:
	Reported basic net income per share	$	0.16	$	1.01	$	1.76
	Add back goodwill amortization, net of tax		—		0.02		0.01

	Adjusted basic income per share	$	0.16	$	1.03	$	1.77

	Reported diluted net income per share	$	0.15	$	0.97	$	1.66
	Add back goodwill amortization, net of tax		—		0.02		0.01

	Adjusted diluted income per share	$	0.15	$	0.99	$	1.67

Intangible assets consist primarily of purchased technology. Intangible assets amounted to $25.6 million (net of accumulated amortization of $2.4 million) and $11.2 million (net of accumulated amortization of $1.0 million) as of December 31, 2002 and 2001, respectively. The amortization expense for the identifiable intangible assets is approximately $1.4 million, $1.0 million and $0.2 million for the years ended December 31, 2002, 2001 and 2000, respectively. Our estimated amortization expense for the identifiable intangible assets for each of the next five years will be approximately $4.0 million per year. We have no identifiable intangible assets with indefinite lives.

NOTE 7 BUSINESS COMBINATIONS

Acquisition of SpeedFam-IPEC

On December 6, 2002, we acquired all of the outstanding stock of SpeedFam-IPEC in exchange for 0.1818 of a share of Novellus common stock for each outstanding share of SpeedFam-IPEC common stock. We assumed options to purchase SpeedFam-IPEC common stock based on the same ratio. In addition, we assumed all $115.0 million of SpeedFam-IPEC’s 6.25% Convertible Subordinated Notes due in 2004. The Notes were adjusted to a fair value of $116.4 million as of the acquisition date. The acquisition of SpeedFam-IPEC enables us to increase our product portfolio. The acquisition was accounted for as a purchase business combination and qualifies as a tax-free reorganization under IRS regulations. The results of SpeedFam-IPEC’s operations

have been included in the consolidated financial statements since December 6, 2002. The total purchase price of approximately $174.4 million includes Novellus common stock valued at $153.4 million, assumed options and warrants with a fair value of $16.4 million and estimated direct transaction costs of $4.5 million. The fair value of Novellus’ common stock was derived using an average market price per share of $26.77, which was based on an average of the closing prices for a range of five trading days around August 12, 2002, the announcement date of the acquisition. The fair value of the stock options was determined using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 85%, 3.3 years and a risk-free interest rate of 2.49%. The model assumed an expected life of 3.3 years for assumed options and 0.5 years for assumed warrants. The purchase price was allocated to the fair market value of assets acquired and liabilities assumed as follows (in thousands):


Cash and cash equivalents		$	43,463
Accounts receivable			22,622
Inventories			33,972
Deferred tax assets, current			38,625
Deferred tax assets, non-current			6,915
Property, plant and equipment			24,125
Prepaid and other assets			6,777
Intangible assets – developed and core technology			17,380
In-process research and development (IPR&D)			9,003
Goodwill			142,996
Accounts payable and accrued liabilities			(25,424	)
Restructuring accrual			(28,528	)
Long-term debt			(116,437	)
Other long-term liabilities			(4,217	)
Deferred compensation on unvested stock options			3,104

	Total purchase price	$	174,376

Intangible Assets - As of the closing of our acquisition of SpeedFam-IPEC on December 6, 2002, $17.4 million of the total purchase price was allocated to intangible assets subject to amortization, including developed and core technologies. Developed technologies, which comprise products that have reached technological feasibility, include products in most of SpeedFam-IPEC’s product lines, principally the SpeedFam-IPEC MOMENTUM ^TM family of products. Core technologies represent a combination of SpeedFam-IPEC processes and trade secrets developed through years of experience in design and development of CMP technologies. We are amortizing the developed and core technologies on a straight-line basis over an average estimated life of six years.

The allocated intangible assets as of December 6, 2002 decreased $27.7 million from the preliminary allocation of $45.1 million as of June 29, 2002, as noted in our Registration Statement on Form S-4/A filed with the Securities and Exchange Commission (SEC) on November 1, 2002. The decrease was due to a change in the revenue estimates and projected cash flows of SpeedFam-IPEC.

Goodwill - The potential value of the combined companies’ products and technologies contributed to a purchase price that resulted in goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is not deductible for tax purposes and is not subject to amortization, however, it is to be tested for impairment at least annually in accordance with SFAS No. 142. Approximately $143.0 million of the total purchase price was allocated to goodwill upon the closing of our acquisition of SpeedFam-IPEC on December 6, 2002.

The increase in the allocated goodwill as of December 6, 2002 from the preliminary allocation of $55.1 million as of June 29, 2002, as noted in our Registration Statement on Form S-4/A filed with the SEC on November 1, 2002, was due to several factors. These factors include estimated restructuring charges of $28.5 million for certain activities of SpeedFam-IPEC which we will discontinue, a $27.7 million decrease in the estimated fair value of amortizable intangible assets and a $9.4 million decrease in the estimated fair value of IPR&D costs. The increase in goodwill was also attributed to a higher purchase consideration due to an increase in the number of shares of common stock and stock options assumed, and the decrease in net assets of SpeedFam-IPEC due to its operating loss for the period from June 29, 2002 to December 6, 2002.

In-process Research and Development - Of the total purchase price as of December 6, 2002, approximately $9.0 million was allocated to IPR&D and was immediately written off as an acquired IPR&D charge in fiscal 2002. Projects which qualify as IPR&D have not yet reached technological feasibility and have no alternative future use. Technological feasibility is defined as being equivalent to completion of a beta-phase working prototype in which there is no significant remaining risk relating to the development.

The allocated IPR&D as of December 6, 2002 decreased $9.4 million from the preliminary allocation of $18.4 million as of June 29, 2002, as noted in our Registration Statement on Form S-4/A filed with the SEC on November 1, 2002. The decrease was due to a change in the revenue estimates and projected cash flows of SpeedFam-IPEC.

Restructuring accrual - The restructuring accrual of $28.5 million consists of facility-related costs of $27.0 million, severance-related costs for involuntary terminations of $0.3 million and other costs associated with exiting certain activities of SpeedFam-IPEC of $1.2 million. The facility-related accrual was calculated net of estimated sublease income we expect to receive once we sublet the facilities that have been vacated. Sublease income is estimated based on current market quotes for similar properties. If we are unable to sublet these properties on a timely basis or are forced to sublet them at lower rates due to changes in the market conditions, we may have to adjust the purchase price allocation. For further discussion, see Note 8 to the Consolidated Financial Statements.

Deferred Compensation - The intrinsic value of unvested SpeedFam-IPEC options of approximately $3.1 million as of December 6, 2002 has been allocated to deferred compensation in the purchase price allocation. The deferred compensation will be amortized over the remaining vesting period of the options, which was approximately four years as of December 6, 2002. Stock options assumed in conjunction with the acquisition had exercise prices ranging from $11.22 — $324.53, with a weighted-average exercise price of $42.85 and a weighted-average remaining contractual life of five years. Approximately 755,000 of the approximately 1,145,000 shares of stock options assumed were fully vested.

Pro Forma Results - The following table represents the unaudited pro forma consolidated results of operations, assuming the acquisition of SpeedFam-IPEC was consummated as of the beginning of the periods presented. The pro forma information excludes $9.0 million of acquired IPR&D. The unaudited pro forma information has been prepared for comparative purposes only and is not indicative of what operating results would have been if the acquisition had taken place at the beginning of fiscal 2001 or of future operating results. Due to different fiscal period ends, the combined operating results below consist of historical

results of Novellus for the years ended December 31, 2002 and 2001 and historical results of SpeedFam-IPEC for the twelve months ended December 1, 2002 and 2001.


	(unaudited)
	Years ended December 31,

(in thousands, except per share data)		2002			2001

Net sales	$	944,142		$	1,516,381
Net (loss) income		(9,526	)		55,115
Net (loss) income per share	$	(0.06	)	$	0.36

Acquisition of GaSonics

On January 10, 2001, we acquired GaSonics. The transaction, accounted for as a pooling of interest, involved our acquisition of all outstanding shares of GaSonics in a stock-for-stock acquisition in exchange for approximately 9,240,000 shares of Novellus’ common stock. In addition, all outstanding options to purchase shares of GaSonics capital stock were automatically converted into options to purchase approximately 1,400,000 shares of Novellus’ common stock. Acquisition related costs of approximately $13.2 million were recorded in the first quarter of fiscal 2001 and were included in restructuring and other charges within our consolidated statement of operations.

The following is a reconciliation of the amounts of net sales and net income previously reported for the year ended December 31, 2000 with restated amounts (in thousands):


						Conforming
		Novellus		GaSonics		Adjustments			Combined

Year ended December 31, 2000:
	Revenue	$	1,173,731	$	155,833	$	(10,078	)	$	1,319,486
	Net income		151,065		14,381		(16,066	)		149,380

Conforming adjustments consist of an adjustment to the provision for income taxes for the realization of deferred tax assets in fiscal 2000 and adjustments related to adoption of SAB 101 and SAB 101 FAQ as of the beginning of GaSonics’ fiscal year 2000.

Acquisition of Gamma Precision Technology

On September 13, 2000, GaSonics completed its acquisition of Gamma Precision Technology (GPT), a global supplier of products and services used in the fabrication of advanced integrated circuits. GaSonics issued 340,900 shares of common stock (as adjusted for the acquisition exchange ratio of 0.52 of a Novellus share for each share of GaSonics) and paid approximately $21.5 million in cash in exchange for all outstanding GPT common stock, preferred stock, warrants and vested options. In connection with the acquisition, GaSonics recorded a $6.0 million charge to operating expenses relating to the write-off of in-process research and development, as certain products had not reached technological feasibility and, in management’s opinion, had no probable alternative future use. In addition, GaSonics assumed all unvested options. The total cost of the acquisition, including transaction costs, was approximately $34.9 million.

NOTE 8 RESTRUCTURING AND OTHER CHARGES

The components of restructuring and other charges are as follows (in thousands):


				Asset						Acquisition						Discontinued
	Facilities			Impairment			Severance			Expense			Total			Inventory

Restructuring charges for 2001	$	33,818		$	14,127		$	—		$	13,161		$	61,106		$	7,102
Cash payments		(952	)		(1,745	)		—			(13,161	)		(15,858	)		—
Non-cash charges		(6,017	)		(12,382	)		—			—			(18,399	)		(7,102	)

Balance at December 31, 2001		26,849			—			—			—			26,849			—
Restructuring charges for 2002		1,478			—			4,989			—			6,467			—
SpeedFam-IPEC related restructuring charges		27,024			—			251			1,253			28,528			—
Cash payments		(9,783	)		—			(4,989	)		—			(14,772	)		—

Balance at December 31, 2002	$	45,568		$	—		$	251		$	1,253		$	47,072		$	—

In September 2001, we implemented a restructuring plan that was driven by the decline in sales orders due to the contraction of the semiconductor capital equipment market from calendar year 2000 levels and the need to improve our cost structure by consolidating excess facilities. As a result, we recorded restructuring and asset impairment charges totaling $55.0 million, of which $47.9 million is included in operating expense and $7.1 million is included in cost of sales. The restructuring charges consist of $33.8 million related to vacated facilities, $14.1 million of asset impairment charges and $7.1 million of discontinued inventory write-downs. Of the $14.1 million asset impairment charge, $9.5 million related to abandoned assets associated with the discontinuation of certain projects and $4.6 million related to the write-off of purchased technology.

The restructuring charges in 2002 include approximately $28.5 million incurred in connection with exiting activities of SpeedFam-IPEC that were recognized as liabilities assumed in the purchase business combination. These activities relate primarily to facility-related charges of $27.0 million, severance-related charges of $0.3 million and other costs associated with exiting activities of SpeedFam-IPEC of $1.2 million.

Facilities – The 2001 vacated facilities charge of $33.8 million relates to rent obligations after the abandonment of five corporate facilities in California, primarily San Jose, and eleven field offices located in Arizona, California, Florida, Washington, the Netherlands, Germany, Israel, Singapore and Japan, which are currently under long-term operating lease agreements. The abandoned corporate facilities are redundant facilities from the GaSonics acquisition. The closure of the field offices was due to a slowdown in the semiconductor capital equipment market. As of December 31, 2001, we estimated anticipated future sublease income of $4.5 million relating to the vacated facilities and offset the amount against the remaining lease payments. During the fourth quarter of 2002, an additional charge of $1.5 million was recorded due to a decrease in our future sublease income estimate. As of December 31, 2002, the estimated future sublease income was $3.0 million. Actual future cash requirements may differ materially from the accrual at December 31, 2002, particularly if actual sublease income is significantly different from current estimates.

The facility-related charges of $27.0 million in 2002 are attributable to the closure and/or subletting of excess SpeedFam-IPEC office space, primarily in the U.S. and Asia. The majority of the facility-related charges consisted of remaining rent obligations and restoration costs offset by estimated sublease income of approximately $44.1 million. The estimated costs of abandoning these leased facilities, including estimated sublease income, were based primarily on market information analyses provided by a commercial real estate brokerage firm retained by us. Net cash payments through December 31, 2002 related to abandoned SpeedFam-IPEC facilities amounted to $0.4 million. Actual future cash requirements could differ materially from the accrual at December 31, 2002, particularly if actual sublease income is significantly different from the current estimate. As of December 31, 2002, $26.6 million of SpeedFam-IPEC’s remaining facility-related liability is expected to be paid by the end of fiscal 2017.

Asset Impairment – In 2001, we abandoned assets and wrote off purchased technology of $14.1 million. The charge for abandoned assets of $9.5 million relates to the write-off of evaluation tools of $6.1 million, with the remaining balance pertaining to the write-off of certain assets related to two abandoned product lines and certain previous generation lab equipment. These items have been written off due to the fact that we do not expect future cash flows from them. The write-off of purchased technology of $4.6 million relates to technology purchased from a third party vendor for use in certain research and development projects. The purchased technology has been written off as these research and development projects have been cancelled and there is no future economic benefit pertaining to the purchased technology. The results of operations relating to these product lines were not material to our consolidated results of operations.

Severance – In the first and fourth quarters of 2002, we reduced our workforce by approximately 13.1% and 8.0% in response to market conditions, and accordingly recorded charges of $3.3 million and $1.7 million, respectively, primarily for the cost of severance compensation. These employee reductions affected approximately 500 people across all business functions, operating units and major geographic regions. As of December 31, 2002, significantly all severance benefits related to these reductions in workforce had been paid.

SpeedFam-IPEC’s severance-related charges of $0.3 million were attributable to workforce reductions in the U.S. and various international locations across many business functions and job classes. The charges include severance, payroll taxes and COBRA benefits. None of these severance-related charges had been paid as of December 31, 2002.

Acquisition Costs – In addition to the restructuring charges, we also incurred acquisition costs of $13.2 million related to the acquisition of GaSonics in the first quarter of fiscal 2001. These costs included professional fees, financial printing and other related costs. Additionally, these costs included charges related to the cancellation of various contracts and the write-off of certain redundant assets. At December 31, 2001, all expenses related to these accruals had been paid.

Other costs of $1.2 million recorded in 2002 primarily relate to fees and other exit costs associated with the closing of SpeedFam–IPEC foreign entities. These costs include legal and other professional fees.

Discontinued Inventory – The charge for discontinued inventory of $7.1 million in 2001 relates to the abandonment of two product lines. One product line was not a part of our core business strategy and the other, a PECVD product, has been replaced by a next-generation product. The results of operations relating to these product lines were not material to our consolidated results of operations.

The restructuring saved us approximately $38.8 million in fiscal 2002. Of the $38.8 million savings, $9.8 million relates to savings from vacated facilities and $29.0 million relates to savings from workforce reductions.

As of December 31, 2002, significantly all actions under the 2001 restructuring plan have been achieved, except for future rent obligations of $18.5 million, which are to be paid in cash over the next four years.

NOTE 9 CONVERTIBLE SUBORDINATED DEBENTURES

On December 6, 2002, in connection with the acquisition of SpeedFam-IPEC, we assumed SpeedFam-IPEC’s $115.0 million Convertible Subordinated Notes due in 2004. The notes were adjusted to their fair value of $116.4 million as of the acquisition date and accrued interest at a rate of 6.25%, which is payable semi-annually in March and September. The notes were subordinated to all existing and future senior indebtedness and could be converted into 3.3096 shares of Novellus’ common stock at a conversion price of $302.15 per $1,000 principal amount. We exercised our right to redeem the notes on January 8, 2003 at a redemption price of $117.1 million. The redemption price represents 101.786% of par value. In January 2003, we recognized approximately $0.6 million in expense for the difference between the fair value as of the acquisition date and the redemption price.

On July 26, 2001, we issued $880.0 million of Liquid Yield Option Notes ™ (LYONs) due July 26, 2031. The net proceeds after issuance costs (which were being amortized over 30 years) from the LYONs offering were $862.4 million. The LYONs are zero coupon, zero-yield subordinated debentures convertible into shares of Novellus’ common stock or redeemable for cash by the security holder, subject to specified conditions as set forth in the indenture.

On July 26, 2002, the holders of the LYONs exercised their option to require us to repurchase the LYONs for $1,000 in cash each on such date, or approximately $880.0 million for substantially all of the outstanding LYONs. We used restricted short-term investments, which had matured to $880.0 million, to repurchase the LYONs. We recorded a charge of approximately $17.0 million in other expense for the remaining unamortized issuance costs related to the LYONs.

NOTE 10 COMMITMENTS

construction costs relating to one or more properties to be leased to a lessee. The lessor is the owner of the leased property and must provide at least 3% of the required funds in the form of at-risk equity. The lessor generally borrows the balance of the funds necessary to fund the acquisition and construction. Under our synthetic lease agreements, we are obligated to lend approximately 87% of the cost of the leased asset to the lessor upon completion of construction. The leases with this requirement are known as defeased or self-funded transactions. Additionally, our synthetic leases require us to maintain collateral for the benefit of the lessor.

San Jose, California

Under the lease agreement, we have the right to purchase the properties at any time prior to the expiration date of the lease for an amount that equals the total lease financing amount of $293.2 million plus any current rent due and payable. At the end of the lease term, we may renew the lease for up to three additional years with the lessor’s consent, refinance the lease, purchase the properties under a purchase option or arrange to sell the properties to a third party. If we choose the sale option, we will be obligated to the lessor up to the amount of the residual value guarantee if the sale price falls below the lease financing amount. The aggregate residual value guarantee related to the San Jose properties is approximately $258.2 million as of December 31, 2002, and represents an off-balance sheet contingent liability for which we do not believe that we have any significant exposure as discussed below.

Rent payments under the San Jose lease agreement are based on the net outstanding lease balance, which includes the cost of the leased properties, less the amount defeased by us, multiplied by either a fixed rate or the London Interbank Offer Rate (LIBOR) plus an applicable margin. As of December 31, 2002, the net outstanding lease balance and the amount we have defeased were $293.2 million, and $257.0 million, respectively. Rent expense and interest income on the lease balance includes $8.0 million of imputed amounts at rates of 2% to 4% for the year ended December 31, 2002. Imputed amounts result from the application of a deemed market rate of interest on loan balances, including the lease receivable from the lessor, which is non-interest bearing, and a portion of the collateral, which is interest bearing at lower than the deemed market rate of interest. Our lease receivable from the lessor is repayable in full only if we choose the sale option at the end of the lease term and successfully sell the properties for amounts in excess of the cost. Our collateral is available to the lessor upon default, with certain exceptions.

Tualatin, Oregon

On April 18, 2001, we entered into a synthetic lease agreement for the development of a manufacturing, research and development, and administrative facility to be constructed on 23 acres of land we own in Tualatin, Oregon. We have leased the land to the lessor under a long-term ground lease. Construction was completed at the Tualatin site in May 2002. The construction costs totaled $163.2 million and were fully financed by the lessor. The lease agreement requires the lessor to maintain 3% of at-risk equity throughout the term of the lease. The lessor financed the balance of the construction costs with debt. Upon completion of construction, we defeased $140.4 million of the lessor’s debt financing in the form of a non-interest bearing loan to the lessor, which is included in notes receivable on our balance sheet at December 31, 2002. We have also provided $22.8 million in collateral held by the lessor to cover the remainder of the lease financing, which is classified as other assets on our consolidated balance sheet.

Summary information about our synthetic lease arrangements is as follows as of December 31, 2002 (currency amounts in thousands):


Property	Number of		Total Lease		Novellus		Net Lease		Collateral		Residual Value
Location	Properties		Financing		Participation		Financing		Value		Guarantee

San Jose, CA		13	$	293,183	$	257,042	$	36,141	$	36,141	$	258,220
Tualatin, OR		1		163,241		140,387		22,854		22,854		140,387

		14	$	456,424	$	397,429	$	58,995	$	58,995	$	398,607

If we purchase the San Jose and Tualatin properties at the end of their respective lease terms or earlier, the transactions would increase property and equipment by the lower of the purchase option price or the then fair value of the purchased properties. As of December 31, 2002, we believe that the fair market value for each property exceeds the purchase option price for each property. We estimate the cumulative fair value of all properties to be approximately $456.4 million as of December 31, 2002. Upon purchase of the facilities, our note receivable and collateral would be returned to us as cash or used to offset the purchase price of the properties. As a result of the purchase, depreciation expense would increase by approximately $30.0 million to $35.0 million per year, and rent expense and interest income would each decrease by approximately $12.6 million per year, based on current interest rates.

Under the FASB’s new rule, FIN 46, if the lessee under a synthetic lease is the primary beneficiary of a variable interest entity which leases property to the lessee, the lessee would be required to consolidate the variable interest entity. We are currently evaluating our synthetic leases and seeking additional information from the lessor and its advisors as to whether the lessor should be characterized as a variable interest entity. Consequently, we have not yet concluded whether it is reasonably possible that we would be required to record the specific assets and liabilities associated with our synthetic leases in our financial statements for our third fiscal quarter beginning June 29, 2003. In the event the leasing structures used in synthetic leases qualify as variable interest entities, we would seek to refinance with entities with whom we would not be required to consolidate or purchase the properties by exercising our purchase option.

The following table summarizes our future minimum lease payments under all non-cancelable operating leases, including synthetic leases, and future sublease income under non-cancelable subleases. Amounts payable under the synthetic leases exclude any payments under residual value guarantees and relate only to the net lease financing amounts. In addition, payments under the synthetic leases are subject to changes in LIBOR and have been included in the table using interest rates as of December 31, 2002 (in thousands):


2003	$	27,132
2004		27,185
2005		26,540
2006		18,966
2007		5,933
Thereafter		45,499

		151,255
Less: future sublease income		43,097

Total minimum lease payments	$	108,158

Rent expense was approximately $17.8 million, $16.9 million and $20.1 million for the years ended December 31, 2002, 2001 and 2000, respectively, net of sublease income of $7.4 million, $7.2 million and $8.1 million, respectively.

Restrictive Covenants

The synthetic lease agreements contain certain restrictive covenants, which include quick ratio and tangible net worth tests. We were in compliance with these covenants at December 31, 2002. If we had not complied with these covenants, the lessor could have terminated the leases, resulting in an acceleration of our

purchase obligation, in which case our residual value guarantee would equal 100% of the lease balances.

Lines of Credit

Our subsidiaries, Novellus Systems, Japan and Novellus Systems, Korea, have available lines of credit with various banks for a total of $36.7 million. These credit facilities bear interest at various rates, expire at various dates through December 2003 and are used for general corporate purposes. As of December 31, 2001, amounts outstanding under these lines of credit were $26.2 million, at an annual weighted-average interest rate of 0.62%. There were no outstanding balances under these lines of credit as of December 31, 2002.

NOTE 11 LITIGATION

Applied Materials, Inc.

On June 13, 1997, we agreed to purchase the Thin Film Systems (TFS) business of Varian Associates, Inc. On the same day, Applied Materials, Inc. sued Varian in the United States District Court for the Northern District of California for alleged patent infringement concerning several of its physical vapor deposition (PVD) patents (the Applied Patents).

On June 23, 1997, we sued Applied in the United States District Court for the Northern District of California, claiming infringement by Applied of several of our PVD patents acquired from Varian in the TFS purchase. Applied has filed counterclaims in this suit, alleging that we infringed the Applied Patents. We are seeking an injunction against future infringement by Applied, damages for past infringement and treble damages for alleged willful infringement.

The relief requested by Applied in both suits includes a permanent injunction against future infringement, damages for alleged past infringement and treble damages for alleged willful infringement.

We believe that we have meritorious claims against Applied. We also believe that there are meritorious defenses to Applied’s allegations, including the defense that our operations and products (including TFS products and systems) do not infringe the Applied Patents, and that the Applied Patents are invalid, unenforceable or both. As a result of court rulings adverse to Applied, and in light of certain indemnity obligations undertaken by Varian, which include reimbursement of certain legal expenses and a portion of any losses incurred from this litigation, we do not believe that Applied’s claims will have a material adverse effect on our business, financial condition or results of operations.

Semitool, Inc.

On August 10, 1998, Semitool, Inc. sued us for patent infringement in the United States District Court for the Northern District of California. Semitool alleges patent infringement concerning several patents related to our SABRE and SABRE xT systems for depositing copper layers on semiconductor wafers. Semitool seeks an injunction against the manufacture and sale of the SABRE and SABRE xT systems by us, and damages for alleged past infringement. Semitool also seeks treble damages for alleged willful infringement.

On March 17, 2000, the District Court granted us a motion for summary judgment of non-infringement and ruled that our SABRE and SABRE xT systems do not infringe Semitool’s patents. On May 15, 2000, Semitool appealed this ruling to the United States Court of Appeals for the Federal Circuit. On June 8, 2001, the Court of Appeals affirmed the judgment of non-infringement. On September 6, 2001, Semitool then filed a petition with the United States Supreme Court to review the judgment of the Court of Appeals. The Supreme Court vacated the Court of Appeal’s opinion and remanded the case to the Court of Appeals for further consideration. On July 23, 2002, the Court of Appeals again affirmed the District Court’s judgment of non-infringement.

On June 11, 2001, Semitool again sued us for patent infringement in the United States District Court for the District of Oregon. In this second lawsuit, Semitool alleges that we infringed one of Semitool’s patents related to our SABRE and SABRE xT systems. Semitool seeks an injunction against future infringement by us, damages for past infringement, and treble damages for alleged willful infringement.

On November 13, 2001, we countersued Semitool for patent infringement in the United States District Court for the District of Oregon. We alleged that Semitool infringed certain patents related to the SABRE and SABRE xT systems. We seek an injunction against Semitool, damages for past infringement, and treble damages for willful infringement by Semitool.

This litigation is in its early stages, and therefore is inherently difficult to assess. We believe that we have meritorious claims against Semitool, and that this litigation will not have a material adverse impact on our business, financial condition or results of operations. However, the outcome of patent disputes is often affected by uncertainty in the resolution of complex issues of fact and law. If Semitool were to prevail against us, the adverse effect on our business, financial condition or results of operations could be material.

Plasma Physics Corporation and Solar Physics Corporation

On June 14, 2002, certain of our customers, including Agilent Technologies, Inc., Micron Technology, Inc., Agere Systems, Inc., National Semiconductor Corporation, Koninklijke Philips Electronics N.V., Texas Instruments, Inc., ST Microelectronics, Inc., LSI Logic Corporation, International Business Machines Corporation, Conexant Systems, Inc., Motorola, Inc., Advanced Micro Devices, Inc. and Analog Devices Inc., were sued for patent infringement by Plasma Physics Corporation and Solar Physics Corporation. We have not been sued by Plasma Physics, Solar Physics, or any other party in connection with any allegation of patent infringement by Plasma Physics or Solar Physics. Certain defendants in the case have notified us that they believe that we have indemnification obligations and liability relating to these lawsuits. We believe that this matter will not have a material adverse impact on our financial condition or results of operations. There can be no assurance, however, that we will not be sued in the future in connection with the allegations of patent infringement made by Plasma Physics and Solar Physics or that, if we are sued, we will prevail in any such lawsuit. If a party were to file such a lawsuit and prevail against us the adverse impact on our business, financial condition or results of operations could be material.

Linear Technology Corporation

This litigation is in its early stages and therefore inherently difficult to assess. We believe that this litigation will not have a material adverse impact on our financial condition or results of operations. However, the outcome of patent disputes is often affected by uncertainty in the resolution of complex issues of fact and law. If Linear were to prevail against us, the adverse effect on our business, financial condition or results of operations could be material.

Other Litigation

We are a defendant or plaintiff in various actions that arose in the normal course of business. We believe that the ultimate disposition of these matters will not have a material adverse effect on our business, financial condition or results of operations.

NOTE 12 INCOME TAXES

Significant components of the provision for income taxes attributable to income before income taxes and cumulative effect of a change in accounting principle are as follows (in thousands):


		Years ended December 31,

		2002			2001			2000

Federal
	Current	$	(41,842	)	$	(40,645	)	$	92,781
	Deferred		19,346			72,765			(37,681	)

			(22,496	)		32,120			55,100


State
	Current			377			864		9,552
	Deferred			(8,853	)		70		(3,697	)

				(8,476	)		934		5,855
Foreign
	Current			11,544			6,816		9,794
Income tax benefits attributable to employee stock plan activity allocated to shareholders’ equity				19,428			25,037		40,247

		Total provision for income taxes	$	—		$	64,907	$	110,996

Pre-tax income from foreign operations was approximately $18.0 million, $15.0 million and $31.0 million in 2002, 2001 and 2000, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands):


			December 31,

			2002			2001

Deferred tax assets:
	Financial valuation accounts		$	42,716		$	16,542
	Expenses not currently deductible			27,869			41,402
	Capitalized in-process research and development			29,826			27,282
	Deferred profit			25,527			22,729
	Net Operating Loss carryforwards			71,374			—
	Credits			29,188			—
	Other			—			9,590

		Total deferred tax assets		226,500			117,545
	Valuation allowance			(57,028	)		(7,628	)

		Deferred tax assets, net of valuation allowance		169,472			109,917
Deferred tax liabilities:
	Depreciation			(69,246	)		(44,823	)
	Other			(29	)		—

		Total net deferred tax assets	$	100,197		$	65,094

The net increase in the valuation allowance was $49.4 million during the year ended December 31, 2002. This includes an increase of $52.5 million related to the acquired deferred tax assets of SpeedFam-IPEC, which will be credited to goodwill when realized. It also includes a decrease of $3.1 million related to the amortization deduction realized on in-process technology purchased in a prior year.

At December 31, 2002, we had federal and state tax credit carryforwards of approximately $11.8 million and $17.4 million, respectively. The federal tax credit carryforwards expire in years 2006 through 2022. Of the state tax credit carryforwards, $15.4 million carry forward indefinitely and $2.0 million expire in 2009 and 2010.

The provision for income taxes differs from the provision calculated by applying the federal statutory tax rate to income before income taxes, and cumulative effect of a change in accounting principle, because of the following (in thousands):


		Years ended December 31,

		2002			2001			2000

Expected provision at 35%		$	8,022		$	73,282		$	122,557
State tax, net of federal benefit			(3,975	)		2,886			8,307
Research and development credits			(5,144	)		(6,783	)		(6,490	)
Export sales incentive			(1,199	)		(7,328	)		(13,663	)
Valuation allowance decrease			(3,100	)		(3,100	)		(3,100	)
Write-off of acquired IPR&D			3,151			—			—
Other			2,245			5,950			3,385

	Total provision for income taxes	$	—		$	64,907		$	110,996

NOTE 13 SHAREHOLDERS’ EQUITY

Other Comprehensive (Loss) Income

The components of accumulated other comprehensive (loss) income, net of related taxes are as follows (in thousands):


		December 31,

		2002			2001

Foreign currency translation adjustments		$	(1,461	)	$	(2,175	)
Unrealized gain (loss) on available-for-sale securities, net of tax			(285	)		3,701

	Accumulated other comprehensive (loss) income	$	(1,746	)	$	1,526

Common Stock Repurchase Program

Through December 1998, the Board of Directors approved plans to repurchase up to 10,460,000 shares of common stock for issuance in future employee benefit and compensation plans and other requirements. In October 2000, GaSonics and Novellus announced that their respective Boards of Directors had rescinded the authorization for the purchase of common stock under the common stock purchase program, through which time a total of 4,873,000 shares were repurchased.

On September 19, 2001, we announced that our Board of Directors authorized a stock repurchase program of up to $500 million over the next two years. As of December 31, 2002, 3,190,000 shares, or $78.2 million of common stock, has been repurchased under this program.

NOTE 14 EMPLOYEE BENEFIT PLANS

Employee Stock Option Plans

We grant options to employees under several stock option plans. Under the 1992 Stock Option Plan, which expired in fiscal 2002, options to purchase up to 33.3 million shares of Novellus’ common stock were made available for grant at not less than fair market value. In May 2001, our shareholders approved the 2001 Stock Incentive Plan, the terms of which reserve 6,360,000 shares of common stock for future issuance. In December 2001, the Board of Directors approved the reservation of 6,000,000 shares of common stock for future issuance under the 2001 Non-Qualified Option Plan. In fiscal 2002, an additional 4,500,000 shares of common stock were reserved for future issuance under the 2001 Non-Qualified Option Plan. Options generally vest ratably over a four-year period on the anniversary of the date of grant or as determined by the Board of Directors. Stock options expire ten years after the date of grant. In addition, we also award restricted stock to our employees from our 1992 Stock Option Plan and our 2001 Stock Incentive Plan. We awarded a total of 252,100 shares of common stock under our 1992 Stock Option Plan, of which 132,100 shares of common stock remain outstanding as of December 31, 2002. We awarded a total of 100,000 shares of common stock under our 2001 Stock Incentive Plan, of which 95,000 shares of common stock remain outstanding as of December 31, 2002.

Pursuant to the terms of the SpeedFam-IPEC acquisition agreement, we assumed SpeedFam-IPEC’s 1991 Employee Incentive Stock Option Plan, 1992 Stock Option Plan, 1995 Stock Plan, 2001 Nonstatutory Stock Option Plan and Stand-Alone Nonstatutory Stock Option Agreement. These plans accounted for approximately 1,675,000 shares of common stock, of which 530,000 had not been granted as of the acquisition date of December 6, 2002. These shares have been included in the stock option rollforward table presented below.

We have adopted the disclosure-only provisions of SFAS 123, and accordingly, no expense has been recognized for options granted to employees under the Plan. We amortize deferred stock-based compensation on the graded vesting method over the vesting periods of the applicable stock purchase rights and stock options, generally four years. The graded vesting method provides for vesting of portions of the overall awards at interim dates and results in greater vesting in earlier years than the straight-line method. Had compensation expense been determined based on the fair value at the grant date for

awards, consistent with the provisions of SFAS 123, our pro forma net income (loss) and net income (loss) per share would be as follows (in thousands, except per share data):


	Years ended December 31,

	2002			2001			2000

Net income as reported	$	22,920		$	144,470		$	154,064
Add back:
Intrinsic value method expense included in reported net income, net of related tax		1,178			1,175			1,216
Less:
Fair value method expense, net of related tax		(70,232	)		(68,478	)		(41,869	)

Pro-forma net (loss) income	$	(46,134	)	$	77,167		$	113,411

Pro-forma basic net (loss) income per share	$	(0.32	)	$	0.53		$	0.88
Pro-forma diluted net (loss) income per share	$	(0.32	)	$	0.49		$	0.82

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions for grants made in 2002, 2001 and 2000:

2002

2001

2000

Dividend yield

None

Expected volatility

0.85

0.83

Risk free interest rate

3.1%

4.1%

6.2%

Expected lives

3.1 years

3.3 years

The weighted-average fair value of options granted during the year was $17.67, $22.85 and $21.50 for 2002, 2001 and 2000, respectively. The effects of applying SFAS 123 on pro forma disclosures are not likely to be representative of the effects on pro forma disclosures of future years.

The pro forma net income and earnings per share listed above include expense related to our Employee Stock Purchase Plans. The fair value of issuance under the employee stock purchase plans is estimated on the date of issuance using the Black-Scholes option-pricing model, with the following weighted-average assumptions for issuance made in 2002, 2001 and 2000:

2002

2001

2000

Dividend yield

None

Expected volatility

0.72

0.81

1.03

Risk free interest rate

2.0%

4.2%

6.4%

Expected lives

1/2 year

The weighted average fair value of purchase rights granted during the year was $12.88, $16.76 and $21.66 for 2002, 2001 and 2000, respectively.

Information with respect to stock option activity is as follows (in thousands, except per share data):


		Options Outstanding

		Shares						Weighted-
		available			Number of			average
		for grant			shares			exercise price

Balances at December 31, 1999			1,855			17,222		$	16.11
	Additional authorization		6,195			—			—
	Options granted		(5,022	)		5,022		$	37.44
	Options exercised		—			(3,155	)	$	10.32
	Options canceled		1,095			(1,095	)	$	26.23

Balances at December 31, 2000			4,123			17,994		$	22.47
	Additional authorization		12,122			—			—
	Options granted		(7,614	)		7,614		$	39.85
	Options exercised		—			(2,506	)	$	14.04
	Options canceled		543			(543	)	$	32.64

Balances at December 31, 2001			9,174			22,559		$	29.04
	Additional authorization		4,500			—			—
	Assumption of SpeedFam-IPEC options		530			1,145		$	42.85
	Options granted		(6,292	)		6,292		$	33.34
	Options exercised		—			(2,485	)	$	15.23
	Options expired		(513	)		—		$	35.71
	Options canceled		1,455			(1,455	)	$	36.58

Balances at December 31, 2002			8,854			26,056		$	31.16

The following table summarizes information about stock options outstanding as of December 31, 2002 (share data in thousands):


Options Outstanding							Options Exercisable

			Weighted-Average
	Options Outstanding		Remaining					Options
	at December 31,		Contractual Life		Weighted-Average			Exercisable at		Weighted-Average
Range of Exercise Prices	2002		(years)		Exercise Price			December 31, 2002		Exercise Price

$4.69 - $25.08		5,493		5.48	$	14.69			4,779	$	14.07
$25.10 - $28.00		3,736		7.32	$	25.93			2,499	$	25.85
$28.16 - $30.25		7,276		9.16	$	29.63			1,370	$	30.21
$30.65 - $38.70		6,001		8.97	$	38.12			1,378	$	38.35
$38.87 - $324.53		3,550		7.63	$	53.52			1,390	$	59.71

$4.69 - $324.53		26,056		7.87	$	31.16			11,416	$	27.07

The range of option exercise prices for options outstanding at December 31, 2002 is wide, primarily due to the impact of assumed options of acquired companies that had experienced significant price fluctuations.

Employee Stock Purchase Plans

In December 1988 and May 1992, we adopted qualified Employee Stock Purchase Plans, referred to herein as the Purchase Plans, under Sections 421 and 423 of the Internal Revenue Code, and reserved 1,200,000 and 900,000 shares of common stock for issuance under the respective Purchase Plans. In April 1998, the Board of Directors approved amendments to the Purchase Plans, which were subsequently ratified by shareholders, increasing the number of shares available for issuance thereunder from 2,100,000 shares to 2,850,000 shares. In April 1999, the Board of Directors approved amendments to the Purchase Plans, which were subsequently ratified by shareholders, increasing the number of shares available for issuance thereunder from 2,850,000 shares to 3,900,000 shares. Under the Purchase Plans, qualified employees are entitled to purchase shares at 85% of the fair market value on specified dates. There were approximately 366,000, 309,000 and 237,000 shares issued under the Purchase Plans in 2002, 2001 and 2000, respectively. In fiscal 2002, an additional 1,000,000 shares of

common stock were reserved for future issuance under the Purchase Plans. As of December 31, 2002, approximately 1,051,000 shares were reserved for future issuance under the Purchase Plans.

Prior to our acquisition with GaSonics, GaSonics adopted the 1994 Employee Stock Purchase Plan, or the GaSonics Plan. Participants in this plan were able to purchase shares at 85% of the lower of the fair value of the common stock on the participant’s entry date into the offering period or the fair market value on the semi-annual purchase date. As of December 31, 2000, 379,000 shares were reserved for future issuance under the GaSonics Plan. There were approximately 49,000 and 89,000 shares issued under the GaSonics Plan in 2000 and 1999, respectively. Upon our acquisition of GaSonics in January 2001, the GaSonics Plan was liquidated.

Employee Savings and Retirement Plan

We maintain a 401(k) retirement savings plan for our full-time employees. Participants in the 401(k) plan may contribute up to 20% of their annual salary, limited by the maximum dollar amount allowed by the Internal Revenue Code. In January 2000, we announced that we would contribute a percentage of each participating employee’s salary deferral contributions, up to a maximum of $2,000, or 50% of the first 6% of an employee’s annual compensation. Our matching contributions are invested in Novellus common stock and become fully vested at the end of the employee’s third year of service beginning on January 1, 2000. We recorded $3.6 million, $4.7 million and $3.3 million of expense in connection with matching contributions under the 401(k) plan for the years ended December 31, 2002, 2001 and 2000, respectively.

Before our acquisition of GaSonics, GaSonics maintained a 401(k) benefit plan that covered all employees who met certain requirements. The GaSonics 401(k) Plan included a deferred compensation arrangement that permitted participants to make elective contributions. Contributions made by GaSonics employees were at the discretion of the GaSonics Board of Directors and were not material in 2000 and 1999. Upon consummation of the GaSonics acquisition in January 2001, GaSonics 401(k) plan was terminated.

NOTE 15 GEOGRAPHIC INFORMATION REPORTING AND MAJOR CUSTOMERS

We operate primarily in one segment, the manufacturing, marketing and servicing of semiconductor wafer fabrication equipment for thin film deposition, surface preparation and CMP systems. In accordance with SFAS No. 131, our chief operating decision-maker is the Chairman of the Board of Directors and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. All material operating units qualify for aggregation under SFAS No. 131, due to their identical customer base and similarities in economic characteristics, nature of products and services, and procurement, manufacturing and distribution processes. Since we operate in one segment and in one group of similar products and services, all financial segment and product line information required by SFAS No. 131 can be found in the consolidated financial statements.

For the year ended December 31, 2002, four customers accounted for 17%, 11%, 11% and 10% of our net sales, respectively. One customer accounted for 16% of our net sales for the year ended December 31, 2001. For the year ended December 31, 2000, two customers accounted for 14% and 10% of our net sales, respectively.

For geographical reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived property, plant and equipment, goodwill and other intangible assets are attributed to the geographic location in which they are located.

The following is a summary of operations in geographic areas (in thousands):


2002		North America			Europe		Asian Region		Eliminations			Consolidated

Sales to unaffiliated customers		$	719,957		$	8,031	$	111,970	$	—		$	839,958
Transfers between geographic locations			14,349			13,898		33,665		(61,912	)		—

	Total net sales		734,306			21,929		145,635		(61,912	)		839,958

Operating (loss) income		$	(47,548	)	$	37,017	$	4,730	$	—		$	(5,801	)

Long-lived assets			175,095			3,815		1,016		—			179,926
All other identifiable assets			2,190,365			15,717		107,986		—			2,314,068

	Total assets	$	2,365,460		$	19,532	$	109,002	$	—		$	2,493,994


2001		North America		Europe		Asian Region		Eliminations			Consolidated

Sales to unaffiliated customers		$	1,165,923	$	7,425	$	165,974	$	—		$	1,339,322
Transfers between geographic locations			84,257		16,185		33,347		(133,789	)		—

	Total net sales		1,250,180		23,610		199,321		(133,789	)		1,339,322

Operating Income		$	135,137	$	2,170	$	14,677	$	—		$	151,984

Long-lived assets			172,494		608		4,499		—			177,601
All other identifiable assets			2,758,827		5,475		89,221		—			2,853,523

	Total assets	$	2,931,321	$	6,083	$	93,720	$	—		$	3,031,124


2000		North America		Europe		Asian Region		Eliminations			Consolidated

Sales to unaffiliated customers		$	1,047,387	$	9,726	$	262,373	$	—		$	1,319,486
Transfers between geographic locations			158,258		13,387		33,994		(205,639	)		—

	Total net sales		1,205,645		23,113		296,367		(205,639	)		1,319,486
Operating income		$	261,560	$	1,827	$	30,173	$	274		$	293,834

Long-lived assets			137,972		327		10,083		—			148,382
All other identifiable assets			1,894,053		6,200		158,314		(1,475	)		2,057,092

	Total assets	$	2,032,025	$	6,527	$	168,397	$	(1,475	)	$	2,205,474

Revenue for each geographic area is recognized from the locations within a designated geographic region in accordance with SAB 101. Transfers and commission arrangements between geographic areas are at prices sufficient to recover a reasonable profit.

NOTE 16 BAD DEBT WRITE-OFF (RECOVERY)

In September 2001, we determined that, due to the financial difficulties facing one of our customers, an outstanding accounts receivable balance was at risk for collection. Accordingly, we recorded a write-off of $7.7 million. In the first quarter of 2002, all amounts under this accounts receivable balance were paid, resulting in a recovery of $7.7 million.

NOTE 17 RELATED PARTY TRANSACTIONS

Beginning in March 2002, we lease an aircraft from NVLS I, LLC, a third-party entity wholly-owned by Richard S. Hill, our Chairman and Chief Executive Officer. Under the aircraft lease agreement, we incurred lease expense of approximately $0.2 million, for the year ended December 31, 2002.

A member of our Board of Directors, D. James Guzy, is also a member of the Board of Directors of Intel Corporation, one of our significant customers. Intel Corporation represented approximately 11%, 16% and 14% of net sales for the years ended December 31, 2002, 2001 and 2000, respectively. Intel Corporation also accounted for 18% and 14% of our accounts receivable as of December 31, 2002 and 2001, respectively.

December 31, 2002 and 2001, the total outstanding balance of loans to certain vice-presidents and key personnel was approximately $5.7 million and $4.9 million, respectively. Of the $5.7 million of loans outstanding at December 31, 2002, $5.5 million were secured by collateral.

NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED)


			Year ended December 31, 2002

	First		Second		Third			Fourth
(In thousands, except per share data)	Quarter		Quarter		Quarter			Quarter

Net sales	$	169,679	$	222,147	$	230,495		$	217,637
Gross profit	$	71,350	$	101,564	$	109,382		$	96,048
Net income	$	3,836	$	12,013	$	4,083		$	2,988
Basic net income per share	$	0.03	$	0.08	$	0.03		$	0.02
Diluted net income per share	$	0.03	$	0.08	$	0.03		$	0.02
Shares used in basic per share calculations		144,255		145,120		143,691			144,416
Shares used in diluted per share calculations		150,624		151,053		146,094			147,219

			Year ended December 31, 2001

	First		Second		Third			Fourth
(In thousands, except per share data)	Quarter		Quarter		Quarter			Quarter(1)

Net sales	$	458,705	$	376,899	$	303,687		$	200,031
Gross profit	$	254,985	$	199,624	$	140,138		$	96,604
Net income (loss)	$	82,102	$	59,221	$	(14,019	)	$	17,166
Basic net income (loss) per share	$	0.58	$	0.42	$	(0.10	)	$	0.12
Diluted net income (loss) per share	$	0.55	$	0.40	$	(0.10	)	$	0.12
Shares used in basic per share calculations		141,009		142,267		143,218			143,354
Shares used in diluted per share calculations		148,108		149,643		143,218			148,459

(1)

Net income for the fourth quarter of 2001 includes the benefit of a pre-tax $25.4 million, or $0.12 per diluted share, for the reversal of bonus and profit sharing expense recorded in the first three quarters of 2001.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Novellus Systems, Inc.

We have audited the accompanying consolidated balance sheets of Novellus Systems, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). The consolidated financial statements give retroactive effect to the acquisition of GaSonics International Corporation by Novellus Systems, Inc. on January 10, 2001, which has been accounted for using the pooling of interests method as described in the notes to the consolidated financial statements. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the 2000 financial statements of GaSonics International Corporation, which statements reflect total net sales constituting 11% of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the data included for GaSonics International Corporation, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Novellus Systems, Inc. as of December 31, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the Consolidated Financial Statements, in 2000, Novellus changed its method of accounting for revenue recognition in accordance with guidance provided in SEC Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements.” As discussed in Note 6 to the consolidated financial statements, in 2002, Novellus changed its method of accounting for goodwill and other intangible assets in accordance with guidance provided in Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”


		/s/ ERNST & YOUNG LLP

San Jose, California
January 20, 2003

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is included under “Proposal No. 1: Election of Directors,” “Other Information - Executive Officers” and “Compliance with Section 16(a) of the Exchange Act” in our Proxy Statement, to be filed in connection with our 2003 Annual Meeting of Shareholders, and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included under “Other Information - Executive Compensation” in our Proxy Statement, to be filed in connection with our 2003 Annual Meeting of Shareholders, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is included under “Other Information - Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement, to be filed in connection with our 2003 Annual Meeting of Shareholders, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is included under “Other Information - Certain Transactions” in our Proxy Statement, to be filed in connection with our 2003 Annual Meeting of Shareholders, and is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Annual Evaluation of Our Disclosure Controls and Internal Controls

Within the 90 days prior to the date of this Annual Report on Form 10-K, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and our internal controls and procedures for financial reporting. This controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Rules adopted by the Securities and Exchange Commission, or the SEC, require that in this section of the Annual Report on Form 10-K, we present the conclusions of the CEO and the CFO about the effectiveness of our disclosure controls and internal controls based on and as of the date of the controls evaluation.

CEO and CFO Certifications

Appearing immediately following the Signatures section of this Annual Report on Form 10-K there are certifications of the Chief Executive Officer and the Chief Financial Officer. The certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Annual Report is the information concerning the controls evaluation referred to in the

Section 302 certifications and this information should be read in conjunction with the Section 302 certifications for a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls

The company’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation

The evaluation of our disclosure controls and our internal controls by our Chief Executive Officer and our Chief Financial Officer included a review of controls implemented by the Company and the effect of the controls on the information generated for use in this Annual Report on Form 10-K. In the course of the controls evaluation, we sought to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K. Our internal controls are also evaluated on an ongoing basis by our outsourced internal audit department, by other personnel in our finance department and by our independent auditors in connection with their audit and review activities. The overall goals of these various evaluation activities are to monitor our disclosure controls and our internal controls and to make modifications as necessary; our intent in this regard is that the disclosure controls and the internal controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in our internal controls, or whether we had identified any acts of fraud involving personnel who have a significant role in our internal controls. This information was important both for the controls evaluation generally and because Items 5 and 6 in the Section 302 certifications of the Chief Executive Officer and the Chief Financial Officer require that the Chief Executive Officer and the Chief Financial Officer disclose that information to our Board’s Audit Committee and to our independent auditors and to report on related matters in this section of the Annual Report on Form 10-K. In the professional auditing literature, “significant deficiencies” are referred to as “reportable conditions.” These are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A “material weakness” is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned

functions. We also sought to deal with other controls matters in the controls evaluation and, in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our ongoing procedures. In accordance with SEC requirements, the Chief Executive Officer and the Chief Financial Officer note that, since the date of the controls evaluation to the date of this Annual Report, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Conclusions

Based upon the controls evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls are effective to ensure that material information relating to the Company is made known to management, including the Chief Executive Officer and the Chief Financial Officer, particularly during the period when our periodic reports are being prepared, and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:


(1)		Financial Statements and Report of Ernst & Young LLP, Independent Auditors Consolidated Statements of Operations - Years Ended December 31, 2002, 2001, and 2000. Consolidated Balance Sheets at December 31, 2002 and 2001. Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001, and 2000. Consolidated Statement of Shareholders’ Equity - Years Ended December 31, 2002, 2001 and 2000. Notes to Consolidated Financial Statements. Report of Ernst & Young LLP, Independent Auditors.

(2)		Financial Statement Schedules The following financial statement schedule is filed as part of this Report on Form 10-K and should be read in conjunction with the financial statements: Schedule II - Valuation and Qualifying Accounts. All other schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.

(3)		Exhibits (numbered in accordance with Item 601 of Regulation S-K)

2.1(1)		Agreement and Plan of Reorganization by and among Novellus Systems, Inc., NHL Acquisition-Sub, Inc. and SpeedFam-IPEC, Inc. dated August 11, 2002.

3.1(2)		Amended and Restated Articles of Incorporation of Novellus.

3.2(3)		Form of Bylaws of Novellus, as amended.

4.1		Indenture between Integrated Process Equipment Corp. and State Street Bank and Trust Company of California, N.A. dated September 15, 1997, as guaranteed by Novellus.

4.2		First Supplemental Indenture by and among Integrated Process Equipment Corp., SpeedFam-IPEC, Inc. and State Street Bank and Trust Company of California, N.A. dated April 6, 1999, as guaranteed by Novellus.

4.3		Registration Rights Agreement between Integrated Process Equipment Corp. and the Initial Purchasers dated September 15, 1997, as guaranteed by Novellus.

4.4		Specimen of 6 1/4% Convertible Subordinated Note due 2004 in the amount of $115,000,000 issued by Integrated Process Equipment Corp. on September 17, 1997, as guaranteed by Novellus.

4.5		Second Supplemental Indenture by and among SpeedFam-IPEC Corporation f/k/a Integrated Process Equipment Corp., SpeedFam-IPEC, Inc., Novellus Systems, Inc. and State Street Bank and Trust Company of California, N.A. dated December 6, 2002.


8.1(4)		Written opinion regarding tax matters associated with the Liquid Yield Option™ Notes issued by Shearman & Sterling dated September 25, 2001.

10.3(5)		Assignment and Assumption of Lessee’s Interest in Lease (Units 8 and 9, Palo Alto) and Covenants, Conditions and Restrictions on Leasehold Interests (Units 1-12, Palo Alto) by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.4(6)		Sublease (Portion of Unit 9, Palo Alto) by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.5(7)		Environmental Agreement by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.8(8)		Settlement Agreement by and between Applied Materials, Inc. and Novellus dated May 4, 1997. Confidential treatment has been granted with respect to portions of this Exhibit.

*10.9(9)		Novellus’ 1992 Stock Option Plan, together with forms of agreements thereunder.

*10.10(10)		Form of Restated Stock Purchase Agreement between Novellus and Jeff Benzing, Wilbert van den Hoek and certain other employees of Novellus dated December 16, 1999.

*10.11(11)		Novellus’ 1992 Employee Stock Purchase Plan.

*10.12(12)		Form of Directors and Officers Indemnification Agreement.

*10.13(13)		Employment Agreement between Novellus and Peter Hanley dated June 15, 1992.

*10.14(14)		Offer Letter Agreement between Novellus and Richard S. Hill dated November 1, 1993.

*10.15(15)		Employment Agreement between Novellus and Richard S. Hill dated October 1, 1998.

*10.16(16)		Amendment to Employment Agreement between Novellus and Richard S. Hill dated December 16, 1999.

*10.17(16)		Restricted Stock Purchase Agreement between Novellus and Richard S. Hill dated December 16, 1999.

*10.18(17)		Employment Agreement between Novellus and Asuri Raghavan dated January 12, 2001.

*10.19(18)		GaSonics International Corporation Amended and Restated 1994 Stock Option/Stock Issuance Plan, together with forms of agreements thereunder, as assumed by Novellus.

*10.20(19)		Gamma Precision Technology, Inc. 1998 Stock Option Plan, together with forms of agreements thereunder, as assumed by Novellus.

*10.21(20)		GaSonics International Corporation Supplemental Stock Option Plan, as assumed by Novellus.

*10.22(21)		Form of Light Industrial Lease between Teachers Insurance and Annuity Association of America and GaSonics, Inc. for office space at 2730 Junction Avenue, San Jose, California.

10.23(22)		Participation Agreement among Novellus Systems, Inc., ABN AMRO Leasing, Inc., the participants named therein and ABN AMRO Bank N.V. dated April 18, 2001.

10.24(23)		Novellus Systems, Inc. 2001 Stock Incentive Plan dated May 11, 2001, together with forms of agreement thereunder.

10.25(24)		Participation Agreement among Novellus Systems, Inc., ABN AMRO Leasing, Inc., Novellus Investment I, LLC and ABN AMRO Bank N.V. dated September 21, 2001.

10.26(25)		Amended and Restated Ground Lease Agreement between Novellus Systems, Inc. and ABN AMRO Leasing, Inc. dated September 21, 2001.

*10.27		Employment Agreement between SpeedFam International, Inc. and Richard J. Faubert dated October 8, 1998.

*10.28		Letter Agreement between Novellus and Robert Smith dated September 24, 2002.

*10.29		Separation Agreement between Novellus and Asuri Raghavan dated February 5, 2003.

*10.30		SpeedFam-IPEC, Inc. Amended and Restated 1995 Stock Plan, as assumed by Novellus.


*10.31		SpeedFam-IPEC, Inc. 2001 Nonstatutory Stock Option Plan, together with forms of agreements thereunder, as assumed by Novellus.

*10.32		Integrated Process Equipment Corporation 1992 Stock Option Plan, as assumed by Novellus.

*10.33		SpeedFam International, Inc. Amended and Restated 1991 Employee Incentive Stock Option Plan, as assumed by Novellus.

*10.34		SpeedFam-IPEC, Inc. Stand-Alone Stock Option Agreement dated June 14, 2001 between SpeedFam-IPEC, Inc. and Peter Simone, as assumed by Novellus.

10.35		Lease Agreement between Seldin Properties and Integrated Process Equipment Corp. dated December 26, 1996.

10.36		Purchase and Sale Agreement between Glen Una Management Company, Inc. and SpeedFam-IPEC, Inc. dated May 31, 2002.

10.37		Lease Agreement between Phoenix Industrial Investment Partners, L.P. and SpeedFam-IPEC, Inc. dated June 21, 2002.

10.38		First Amendment to Lease Agreement between Phoenix Industrial Investment Partners, L.P. and SpeedFam-IPEC, Inc. dated January 21, 2003.

10.39		Lease Guaranty between Novellus and Phoenix Industrial Investment Partners, L.P. dated January 21, 2003.

12.1		Ratio of Earnings to Fixed Charges.

21.1		Subsidiaries of Novellus.

23.1		Consent of Ernst & Young LLP, Independent Auditors.

24.1		Power of Attorney (see page 72).

99.1		Certification of Richard S. Hill, Chairman of the Board of Directors and Chief Executive Officer of Novellus Systems, Inc. dated March 5, 2003 in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification of Kevin S. Royal, Vice President and Chief Financial Officer of Novellus Systems, Inc. dated March 5, 2003 in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.3		Statement Regarding Consent of Arthur Andersen LLP, Independent Public Accountants.

(1) Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2002.

(2) Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(3) Incorporated by reference to exhibit with the corresponding exhibit number in Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2002.

(4) Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Registration Statement on Form S-3 filed with the Securities and Exchange Commission on September 25, 2001.

(5) Incorporated by reference to Exhibit 2.3 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(6) Incorporated by reference to Exhibit 2.4 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(7) Incorporated by reference to Exhibit 2.6 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(8) Incorporated by reference to Exhibit 10.1 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on August 11, 1997.

(9) Incorporated by reference to Exhibit 10.30 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(10) Incorporated by reference to Exhibit 10.21 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(11) Incorporated by reference to Exhibit 10.31 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(12) Incorporated by reference to Exhibit 10.1 filed with Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2002.

(13) Incorporated by reference to Exhibit 10.34 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(14) Incorporated by reference to Exhibit 10.41 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 1994.

(15) Incorporated by reference to Exhibit 10.27 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 1999.

(16) Incorporated by reference to Exhibit 10.27 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(17) Incorporated by reference to Exhibit 10.30 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(18) Incorporated by reference to Exhibit 10.31 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(19) Incorporated by reference to Exhibit 10.32 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(20) Incorporated by reference to Exhibit 10.33 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(21) Incorporated by reference to Exhibit 10.34 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(22) Incorporated by reference to Exhibit 10.6 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001.

(23) Incorporated by reference to Exhibit 10.7 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001.

(24) Incorporated by reference to Exhibit 10.1 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on November 13, 2001.

(25) Incorporated by reference to Exhibit 10.2 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on November 13, 2001.

Management contracts or compensatory plans or arrangements.

(b) Reports on Form 8-K:

On December 9, 2002, Novellus filed a report on Form 8-K relating to the acquisition of SpeedFam- IPEC, Inc.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California on this 5th day of March, 2003.

NOVELLUS SYSTEMS, INC.


By:		/s/ Richard S. Hill
		Richard S. Hill Chairman of the Board of Directors and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard S. Hill and Kevin S. Royal, and each of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated.


Signature	Title	Date

/s/ Richard S. Hill Richard S. Hill	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	March 5, 2003

/s/ Kevin S. Royal Kevin S. Royal	Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 5, 2003

/s/ D. James Guzy D. James Guzy	Director	March 5, 2003

/s/ J. David Litster J. David Litster	Director	March 5, 2003

/s/ Yoshio Nishi Yoshio Nishi	Director	March 5, 2003

/s/ Glen Possley Glen Possley	Director	March 5, 2003




/s/ William R. Spivey William R. Spivey	Director	March 5, 2003

/s/ Ann D. Rhoads Ann D. Rhoads	Director	March 5, 2003

/s/ Delbert Whitaker Delbert Whitaker	Director	March 5, 2003

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard S. Hill, certify that:

1. I have reviewed this annual report on Form 10-K of Novellus Systems, Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers 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 annual 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 annual report (the “Evaluation Date”); and

c) presented in this annual 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 officers 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 functions):

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 officers and I have indicated in this annual report whether 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.


Date: March 5, 2003		/s/ Richard S. Hill Richard S. Hill Chairman of the Board of Directors and Chief Executive Officer

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kevin S. Royal, certify that:


Date: March 5, 2003		/s/ Kevin S. Royal Kevin S. Royal Vice President and Chief Financial Officer

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)


	Balance at										Balance at
	Beginning		Charged to								End
Description	of Period		Expense		Write-offs			Recoveries			of Period

Year Ended December 31, 2000
Allowance for Doubtful Accounts	$	4,375		1,335		(318	)		—		$	5,392
Year Ended December 31, 2001
Allowance for Doubtful Accounts	$	5,392		9,209		(211	)		—		$	14,390
Year Ended December 31, 2002
Allowance for Doubtful Accounts	$	14,390		1,042		(431	)		(7,662	)	$	7,339

EXHIBIT INDEX



2.1(1)		Agreement and Plan of Reorganization by and among Novellus Systems, Inc., NHL Acquisition-Sub, Inc. and SpeedFam-IPEC, Inc. dated August 11, 2002.

3.1(2)		Amended and Restated Articles of Incorporation of Novellus.

3.2(3)		Form of Bylaws of Novellus, as amended.

4.1		Indenture between Integrated Process Equipment Corp. and State Street Bank and Trust Company of California, N.A. dated September 15, 1997, as guaranteed by Novellus.

4.2		First Supplemental Indenture by and among Integrated Process Equipment Corp., SpeedFam-IPEC, Inc. and State Street Bank and Trust Company of California, N.A. dated April 6, 1999, as guaranteed by Novellus.

4.3		Registration Rights Agreement between Integrated Process Equipment Corp. and the Initial Purchasers dated September 15, 1997, as guaranteed by Novellus.

4.4		Specimen of 6 1/4% Convertible Subordinated Note due 2004 in the amount of $115,000,000 issued by Integrated Process Equipment Corp. on September 17, 1997, as guaranteed by Novellus.

4.5		Second Supplemental Indenture by and among SpeedFam-IPEC Corporation f/k/a Integrated Process Equipment Corp., SpeedFam-IPEC, Inc., Novellus Systems, Inc. and State Street Bank and Trust Company of California, N.A. dated as of December 6, 2002.

8.1(4)		Written opinion regarding tax matters associated with the Liquid Yield Option™ Notes issued by Shearman & Sterling dated September 25, 2001.

10.3(5)		Assignment and Assumption of Lessee’s Interest in Lease (Units 8 and 9, Palo Alto) and Covenants, Conditions and Restrictions on Leasehold Interests (Units 1-12, Palo Alto) by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.4(6)		Sublease (Portion of Unit 9, Palo Alto) by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.5(7)		Environmental Agreement by and between Varian Associates, Inc. and Novellus dated May 7, 1997.

10.8(8)		Settlement Agreement by and between Applied Materials, Inc. and Novellus dated May 4, 1997. Confidential treatment has been granted with respect to portions of this Exhibit.

*10.9(9)		Novellus’ 1992 Stock Option Plan, together with forms of agreements thereunder.

*10.10(10)		Form of Restated Stock Purchase Agreement between Novellus and Jeff Benzing, Wilbert van den Hoek and certain other employees of Novellus dated December 16, 1999.

*10.11(11)		Novellus’ 1992 Employee Stock Purchase Plan.

*10.12(12)		Form of Directors and Officers Indemnification Agreement.

*10.13(13)		Employment Agreement between Novellus and Peter Hanley dated June 15, 1992.

*10.14(14)		Offer Letter Agreement between Novellus and Richard S. Hill dated November 1, 1993.

*10.15(15)		Employment Agreement between Novellus and Richard S. Hill dated October 1, 1998.

*10.16(16)		Amendment to Employment Agreement between Novellus and Richard S. Hill dated December 16, 1999.

*10.17(16)		Restricted Stock Purchase Agreement between Novellus and Richard S. Hill dated December 16, 1999.

*10.18(17)		Employment Agreement between Novellus and Asuri Raghavan dated January 12, 2001.

*10.19(18)		GaSonics International Corporation Amended and Restated 1994 Stock Option/Stock Issuance Plan, together with forms of agreements thereunder, as assumed by Novellus.


*10.20(19)		Gamma Precision Technology, Inc. 1998 Stock Option Plan, together with forms of agreements thereunder, as assumed by Novellus.

*10.21(20)		GaSonics International Corporation Supplemental Stock Option Plan, as assumed by Novellus.

*10.22(21)		Form of Light Industrial Lease between Teachers Insurance and Annuity Association of America and GaSonics, Inc. for office space at 2730 Junction Avenue, San Jose, California.

10.23(22)		Participation Agreement among Novellus Systems, Inc., ABN AMRO Leasing, Inc., the participant named therein and ABN AMRO Bank N.V. dated April 18, 2001.

10.24(23)		Novellus Systems, Inc. 2001 Stock Incentive Plan dated May 11, 2001, together with forms of agreement thereunder.

10.25(24)		Participation Agreement among Novellus Systems, Inc., ABN AMRO Leasing, Inc., Novellus Investment I, LLC and ABN AMRO Bank N.V. dated September 21, 2001.

10.26(25)		Amended and Restated Grand Lease Agreement between Novellus Systems, Inc. and ABN AMRO Leasing, Inc. dated September 21, 2001.

*10.27		Employment Agreement between SpeedFam International, Inc. and Richard J. Faubert dated October 8, 1998.

*10.28		Letter Agreement between Novellus and Robert Smith dated September 24, 2002.

*10.29		Separation Agreement between Novellus and Asuri Raghavan dated February 5, 2003.

*10.30		SpeedFam-IPEC, Inc. Amended and Restated 1995 Stock Plan, as assumed by Novellus.

*10.31		SpeedFam-IPEC, Inc. 2001 Nonstatutory Stock Option Plan, together with forms of agreements thereunder, as assumed by Novellus.

*10.32		Integrated Process Equipment Corporation 1992 Stock Option Plan, as assumed by Novellus.

*10.33		SpeedFam International, Inc. Amended and Restated 1991 Employee Incentive Stock Option Plan, as assumed by Novellus.

*10.34		SpeedFam-IPEC, Inc. Stand-Alone Stock Option Agreement dated June 14, 2001 between SpeedFam-IPEC, Inc. and Peter Simone, as assumed by Novellus.

10.35		Lease Agreement between Seldin Properties and Integrated Process Equipment Corp. dated December 26, 1996.

10.36		Purchase and Sale Agreement between Glen Una Management Company, Inc. and SpeedFam-IPEC, Inc. dated May 31, 2003.

10.37		Lease Agreement between Phoenix Industrial Investment Partners, L.P. and SpeedFam-IPEC, Inc. dated June 21, 2002.

10.38		First Amendment to Lease Agreement between Phoenix Industrial Investment Partners, L.P. and SpeedFam-IPEC, Inc. dated January 21, 2003.

10.39		Lease Guaranty between Novellus and Phoenix Industrial Investment Partners, L.P. dated January 21, 2002.

12.1		Ratio of Earnings to Fixed Charges.

21.1		Subsidiaries of Novellus.

23.1		Consent of Ernst & Young LLP, Independent Auditors.

24.1		Power of Attorney (see page 72).

99.1		Certification of Richard S. Hill, Chairman of the Board of Directors and Chief Executive Officer of Novellus Systems, Inc. dated March 5, 2003 in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification of Kevin S. Royal, Vice President and Chief Financial Officer of Novellus Systems, Inc. dated March 5, 2003 in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


99.3		Statement Regarding Consent of Arthur Andersen LLP, Independent Public Accountants.

Management contracts or compensatory plans or arrangements.

EXHIBIT 4.1

INTEGRATED PROCESS EQUIPMENT CORP.

STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.
TRUSTEE

INDENTURE

DATED AS OF SEPTEMBER 15, 1997

6 1/4% SUBORDINATED NOTES DUE 2004

INTEGRATED PROCESS EQUIPMENT CORP.

Reconciliation and Tie Between the Trust Indenture Act of 1939 and indenture, dated as of September 15,1997, between Integrated Process Equipment Corp. and State Street Bank and Trust Company of California, N.A., as Trustee.

Trust Indenture

ACT SECTION                                     INDENTURE SECTION
Section 310(a)(1)                               8.9
(a)(2)                                          8.9
(a)(3)                                          Not Applicable
(a)(4)                                          Not Applicable
(a)(5)                                          8.9
(b)                                             8.8; 8.9; 8.10; 8.11
Section 311(a)                                  8.13
(b)                                             8.13
(b)(2)                                          6.3(a)
Section 312(a)                                  6.1; 6.2(a)
(b)                                             6.2(b)
(c)                                             6.2(c)
Section 313(a)                                  6.3(a)
(b)                                             6.3(a)
(c)                                             6.3(a)
(d)                                             6.3(b)
Section 314(a)                                  6.14
(b)                                             Not Applicable
(c)(1)                                          16.5
(c)(2)                                          16.5
(c)(3)                                          Not Applicable
(d)                                             Not Applicable
(e)                                             16.5
Section 315(a)                                  8.1
(b)                                             7.8
(c)                                             8.1
(d)                                             8.1
(d)(1)                                          8.1(a)
(d)(2)                                          8.1(b)
(d)(3)                                          8.1(c)
(e)                                             7.9
Section 316(a)                                  7.7
(a)(1)(A)                                       7.7

ACT SECTION                        INDENTURE SECTION
(a)(1)(B)                            7.7
(a)(2)                               Not Applicable
(b)                                  7.4
Section 317(a)(1)                    7.5
(a)(2)                               7.5
(b)                                  5.4
Section 318(a)                      16.7

Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS

                                                                            PAGE
ARTICLE I          DEFINITIONS...........................................     1

    Section 1.1    Definitions...........................................     1
                   Affiliate.............................................     2
                   Applicable Price......................................     2
                   Board of Directors....................................     2
                   Business Day..........................................     2
                   Closing Price.........................................     2
                   Commission............................................     2
                   Common Stock..........................................     2
                   Company...............................................     3
                   Conversion Price......................................     3
                   Corporate Trust Office................................     3
                   Custodian.............................................     3
                   Default...............................................     3
                   Depositary............................................     3
                   Designated Senior Indebtedness........................     3
                   Exchange Act..........................................     4
                   Event of Default......................................     4
                   Fundamental Change....................................     4
                   Indebtedness..........................................     4
                   Indenture.............................................     5
                   Initial Purchasers....................................     5
                   Institutional Accredited Investor.....................     5
                   Liquidated Damages....................................     5
                   Loan Agreement........................................     5
                   Non-U.S. Person.......................................     5
                   Note or Notes.........................................     5
                   Noteholder or holder..................................     5
                   Note register.........................................     5
                   Officers' Certificate.................................     6
                   Opinion of Counsel....................................     6
                   outstanding...........................................     6
                   Payment Blockage Notice...............................     6
                   Person................................................     6
                   Portal Market.........................................     6
                   Predecessor Note......................................     6
                   QIB...................................................     7
                   Reference Market Price................................     7
                   Registration Rights Agreement.........................     7
                   Regulation S..........................................     7

TABLE OF CONTENTS
(CONTINUED)

                                                                            PAGE
                   Representative........................................     7
                   Responsible Officer...................................     7
                   Restricted Securities.................................     7
                   Rule 144A.............................................     7
                   Securities Act........................................     7
                   Senior Indebtedness...................................     7
                   Significant Subsidiary................................     8
                   Subsidiary............................................     8
                   Trading Day...........................................     8
                   Trigger Event.........................................     9
                   Trust Indenture Act...................................     9
                   Trustee...............................................     9

ARTICLE II         ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND
                   EXCHANGE OF NOTES.....................................     9

    Section 2.1    Designation Amount and Issue of Notes.................     9
    Section 2.2    Form of Notes.........................................     9
    Section 2.3    Date and Denomination of Notes; Payments of Interest..    10
    Section 2.4    Execution of Notes....................................    11
    Section 2.5    Exchange and Registration of Transfer of Notes:
                   Restrictions on Transfer; Depositary..................    12
    Section 2.6    Mutilated, Destroyed, Lost or Stolen Notes............    19
    Section 2.7    Temporary Notes.......................................    20
    Section 2.8    Cancellation of Notes Paid, Etc.......................    21
    Section 2.9    CUSIP Numbers.........................................    21

ARTICLE III        REDEMPTION OF NOTES...................................    21

    Section 3.1    Redemption Prices.....................................    21
    Section 3.2    Notice of Redemption; Selection of Notes..............    21
    Section 3.3    Payment of Notes Called for Redemption................    23
    Section 3.4    Conversion Arrangement on Call for Redemption.........    24
    Section 3.5    Redemption at Option of Holders.......................    24

ARTICLE IV         SUBORDINATION OF NOTES................................    27

    Section 4.1    Agreement of Subordination............................    27
    Section 4.2    Payments to Noteholders...............................    27
    Section 4.3    Subrogation of Notes..................................    30

TABLE OF CONTENTS
(CONTINUED)

                                                                            PAGE
    Section 4.4    Authorization to Effect Subordination.................    31
    Section 4.5    Notice to Trustee.....................................    31
    Section 4.6    Trustee's Relation to Senior Indebtedness.............    32
    Section 4.7    No Impairment of Subordination........................    32
    Section 4.8    Certain Conversions Not Deemed Payment................    32
    Section 4.9    Article Applicable to Paying Agents...................    33
    Section 4.10   Senior Indebtedness Entitled to Rely..................    33
    Section 4.11   Reliance on Judicial Order or Certificate of
                   Liquidating Agent.....................................    33

ARTICLE V          PARTICULAR COVENANTS OF THE COMPANY...................    34

    Section 5.1    Payment of Principal, Premium and Interest............    34
    Section 5.2    Maintenance of Office or Agency.......................    34
    Section 5.3    Appointments to Fill Vacancies in Trustee's Office....    35
    Section 5.4    Provisions as to Paying Agent.........................    35
    Section 5.5    Existence.............................................    36
    Section 5.6    Maintenance of Properties.............................    36
    Section 5.7    Payment of Taxes and Other Claims.....................    36
    Section 5.8    Rule 144A Information Requirement.....................    37
    Section 5.9    Stay, Extension and Usury Laws........................    37
    Section 5.10   Compliance Certificate................................    37

ARTICLE VI         NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE
                   TRUSTEE...............................................    38

    Section 6.1    Noteholders' Lists....................................    38
    Section 6.2    Preservation and Disclosure of Lists..................    38
    Section 6.3    Reports by Trustee....................................    38
    Section 6.4    Reports by Company....................................    39

ARTICLE VII        REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT
                   OF DEFAULT............................................    39

    Section 7.1    Events of Default.....................................    39
    Section 7.2    Payments of Notes on Default; Suit Therefor...........    41
    Section 7.3    Application of Monies Collected by Trustee............    43
    Section 7.4    Proceedings by Noteholder.............................    43
    Section 7.5    Proceedings by Trustee................................    44
    Section 7.6    Remedies Cumulative and Continuing....................    44

iii

TABLE OF CONTENTS
(CONTINUED)

                                                                            PAGE
    Section 7.7    Direction of Proceedings and Waiver of Defaults by
                   Majority of Noteholders...............................    45
    Section 7.8    Notice of Defaults....................................    45
    Section 7.9    Undertaking to Pay Costs..............................    45

ARTICLE VIII       CONCERNING THE TRUSTEE................................    46

    Section 8.1    Duties and Responsibilities of Trustee................    46
    Section 8.2    Reliance on Documents, Opinions, Etc..................    47
    Section 8.3    No Responsibility for Recitals, Etc...................    48
    Section 8.4    Trustee, Paying Agents, Conversion Agents or
                   Registrar May Own Notes...............................    48
    Section 8.5    Monies to Be Held in Trust............................    48
    Section 8.6    Compensation and Expenses of Trustee..................    49
    Section 8.7    Officers' Certificate as Evidence.....................    49
    Section 8.8    Conflicting Interests of Trustee......................    49
    Section 8.9    Eligibility of Trustee................................    49
    Section 8.10   Resignation or Removal of Trustee.....................    50
    Section 8.11   Acceptance by Successor Trustee.......................    51
    Section 8.12   Succession by Merger, Etc.............................    52
    Section 8.13   Preferential Collection of Claims.....................    52
    Section 8.14   Trustee's Application for Instructions from the
                   Company...............................................    52

ARTICLE IX         CONCERNING THE NOTEHOLDERS............................    53

    Section 9.1    Action by Noteholders.................................    53
    Section 9.2    Proof of Execution by Noteholders.....................    53
    Section 9.3    Who Are Deemed Absolute Owners........................    53
    Section 9.4    Company-Owned Notes Disregarded.......................    53
    Section 9.5    Revocation of Consents; Future Holders Bound..........    54

ARTICLE X          NOTEHOLDERS' MEETINGS.................................    54

    Section 10.1   Purpose of Meetings...................................    54
    Section 10.2   Call of Meetings by Trustee...........................    55
    Section 10.3   Call of Meetings by Company or Noteholders............    55
    Section 10.4   Qualifications for Voting.............................    55
    Section 10.5   Regulations...........................................    55
    Section 10.6   Voting................................................    56

TABLE OF CONTENTS
(CONTINUED)

                                                                            PAGE
    Section 10.7   No Delay of Rights by Meeting.........................    56

ARTICLE XI         SUPPLEMENTAL INDENTURES...............................    57

    Section 11.1   Supplemental Indentures Without Consent of
                   Noteholders...........................................    57
    Section 11.2   Supplemental Indentures with Consent of Noteholders...    58
    Section 11.3   Effect of Supplemental Indenture......................    59
    Section 11.4   Notation on Notes.....................................    59
    Section 11.5   Evidence of Compliance of Supplemental Indenture to
                   Be Furnished Trustee..................................    59

ARTICLE XII        CONSOLIDATION. MERGER, SALE, CONVEYANCE AND LEASE.....    60

    Section 12.1   Company May Consolidate Etc. on Certain Terms.........    60
    Section 12.2   Successor Corporation to Be Substituted...............    60
    Section 12.3   Opinion of Counsel to Be Given Trustee................    61

ARTICLE XIII       SATISFACTION AND DISCHARGE OF INDENTURE...............    61

    Section 13.1   Discharge of Indenture................................    61
    Section 13.2   Deposited Monies to Be Held in Trust by Trustee.......    62
    Section 13.3   Paying Agent to Repay Monies Held.....................    62
    Section 13.4   Return of Unclaimed Monies............................    62
    Section 13.5   Reinstatement.........................................    62

ARTICLE XIV        IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
                   AND DIRECTORS.........................................    63

    Section 14.1   Indenture and Notes Solely Corporate Obligations......    63

ARTICLE XV         CONVERSION OF NOTES...................................    63

    Section 15.1   Right to Convert......................................    63
    Section 15.2   Exercise of Conversion Privilege; Issuance of Common
                   Stock on Conversion; No Adjustment for Interest or
                   Dividends    .........................................    63
    Section 15.3   Cash Payments in Lieu of Fractional Shares............    65
    Section 15.4   Conversion Price......................................    65
    Section 15.5   Adjustment of Conversion Price........................    65
    Section 15.6   Effect of Reclassification, Consolidation, Merger or
                   Sale..................................................    74

TABLE OF CONTENTS
(CONTINUED)

                                                                            PAGE
    Section 15.7   Taxes on Shares Issued................................    75
    Section 15.8   Reservation of Shares; Shares to Be Fully Paid;
                   Compliance with Governmental Requirements; Listing of
                   Common Stock..........................................    75
    Section 15.9   Responsibility of Trustee.............................    76
    Section 15.10  Notice to Holders Prior to Certain Actions............    77

ARTICLE XVI        MISCELLANEOUS PROVISIONS..............................    77

    Section 16.1   Provisions Binding on Company's Successors............    77
    Section 16.2   Official Acts by Successor Corporation................    78
    Section 16.3   Addresses for Notices, Etc............................    78
    Section 16.4   Governing Law.........................................    78
    Section 16.5   Evidence of Compliance with Conditions Precedent;
                   Certificates to Trustee...............................    78
    Section 16.6   Legal Holidays........................................    79
    Section 16.7   Trust Indenture Act...................................    79
    Section 16.8   No Security Interest Created..........................    79
    Section 16.9   Benefits of Indenture.................................    79
    Section 16.10  Table of Contents, Headings, Etc......................    79
    Section 16.11  Authenticating Agent..................................    80
    Section 16.12  Execution in Counterparts.............................    80

INDENTURE

INDENTURE, dated as of September 15, 1997, between Integrated Process Equipment Corp., a Delaware corporation (hereinafter sometimes called the "Company", as more fully set forth in Section 1.1), and State Street Bank and Trust Company of California, N.A., a national banking association organized under the laws of the United States of America, as trustee hereunder (hereinafter sometimes called the "Trustee", as more fully set forth in Section 1.1).

WITNESSETH:

WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its 6 1/4% Convertible Subordinated Notes due 2004 (hereinafter sometimes called the "Notes"), in an aggregate principal amount not to exceed $115,000,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture: and

WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Fundamental Change, and a form of conversion notice to be borne by the Notes are to be substantially in the forms hereinafter provided for; and

WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That in order to declare the terms and conditions upon which the Notes are, and are to be. authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below), as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1 DEFINITIONS. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture that are defined in the Trust Indenture

Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein," "hereof," "hereunder," and words of similar import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision. The terms defined in this Article include the plural as well as the singular.

AFFILIATE: The term "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control." when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

APPLICABLE PRICE: The term "Applicable Price" shall mean (i) in the event of a Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the arithmetic average of the Closing Price for the Common Stock (determined as set forth in
Section 15.5(h)) during the ten Trading Days (as defined in Section 15.5(h)) prior to (A) the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change, or, (B) if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets in connection with the Fundamental Change.

BOARD OF DIRECTORS: The term "Board of Directors" shall mean the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder.

BUSINESS DAY: The term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking institutions in The City of New York, Phoenix, Arizona or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close or be closed.

CLOSING PRICE: The term "Closing Price" shall have the meaning specified in Section 15.5(h)(1).

COMMISSION: The term "Commission" shall mean the Securities and Exchange Commission.

COMMON STOCK: The term "Common Stock" shall mean any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated

as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassification thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

COMPANY: The term "Company" shall mean Integrated Process Equipment Corp., a Delaware corporation, having its principal office at 4717 E. Hilton Avenue, Phoenix, Arizona 85034 and subject to the provisions of Article XII, shall include its successors and assigns.

CONVERSION PRICE: The term "Conversion Price" shall have the meaning specified in Section 15.4.

CORPORATE TRUST OFFICE: The term "Corporate Trust Office" or other similar term, shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 725 Figueroa Street, Los Angeles, California, 90017, Attention: Corporate Trust Department.

CUSTODIAN: The term "Custodian" shall mean State Street Bank and Trust Company of California, N.A., as custodian with respect to the Notes in global form, or any successor entity thereto.

DEFAULT: The term "default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default.

DEPOSITARY: The term "Depositary" shall mean, with respect to the Notes issuable or issued in whole or in part in global form, the person specified in
Section 2.5(d) as the Depositary with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor.

DESIGNATED SENIOR INDEBTEDNESS: The term "Designated Senior Indebtedness" shall mean Senior Indebtedness under the Loan Agreement or any other particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness

is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return.

EXCHANGE ACT: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

EVENT OF DEFAULT: The term "Event of Default" shall mean any event specified in Section 7.1 (a), (b), (c), (d) or (e).

FUNDAMENTAL CHANGE: The term "Fundamental Change" shall mean the occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, be converted into, be acquired for, or constitute in all material respects solely the right to receive, consideration which is not all or substantially all common stock which is (or, upon consummation of or immediately following such transaction or event, will be) listed on a United States national securities exchange or approved for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise).

INDEBTEDNESS: The term "Indebtedness" shall mean, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof) (other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services); (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances; (c) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property; (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities

(contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through
(d); (f) any indebtedness or other obligations described in clauses (a) through
(d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person: and (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f).

INDENTURE: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented.

INITIAL PURCHASERS: The term "Initial Purchasers" shall mean Morgan Stanley & Co. Incorporated. Hambrecht & Quist LLC, Prudential Securities Incorporated and UBS Securities LLC.

INSTITUTIONAL ACCREDITED INVESTOR: The term "Institutional Accredited Investor" shall mean an institutional "accredited investor" within the meaning of Rule 501(a)(l), (2), (3) or (7) under the Securities Act.

LIQUIDATED DAMAGES: The term "Liquidated Damages" shall have the meaning specified in Section 2(f) of the Registration Rights Agreement.

LOAN AGREEMENT: The term "Loan Agreement" shall mean that certain Loan Agreement, dated as of April 24, 1996, between the Company, IPEC Clean, Inc., IPEC Precision, Inc., IPEC Planar, Inc., formerly known as IPEC Planar Phoenix, Inc., successor-by-merger to IPEC Planar Portland, Inc., and Wells Fargo Bank, National Association, successor-by-merger to First Interstate Bank of Arizona, N.A., individually as Agent, as amended through the date hereof, as further amended, amended and restated, supplemented or otherwise modified from time to time.

NON-U.S. PERSON: The term Non-U.S. Person shall mean a person other than a U.S. Person (as defined in Regulation S).

NOTE OR NOTES: The terms "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture, including the Global Note.

NOTEHOLDER OR HOLDER: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), shall mean any person in whose name at the time a particular Note is registered on the Note registrar's books.

NOTE REGISTER: The term "Note register" shall have the meaning specified in Section 2.5.

OFFICERS' CERTIFICATE: The term "Officers' Certificate," when used with respect to the Company, shall mean a certificate signed by both (a) the President, the Chief Executive Officer, Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) by the Treasurer or any Assistant Treasurer or Secretary or any Assistant Secretary of the Company.

OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel acceptable to the Trustee.

OUTSTANDING: The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 9.4, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except

(a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(b) Notes, or portions thereof, (i) for the redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or (ii) which shall have been otherwise defeased in accordance with Article XIII;

(c) Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of
Section 2.6; and

(d) Notes converted into Common Stock pursuant to Article XV and Notes deemed not outstanding pursuant to Article III.

PAYMENT BLOCKAGE NOTICE: The term "Payment Blockage Notice" shall have the meaning specified in Section 4.2.

PERSON: The term "Person" shall mean a corporation, an association, a partnership, a limited liability corporation, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof.

PORTAL MARKET: The term "The Portal Market" shall mean The Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto.

PREDECESSOR NOTE: The term "Predecessor Note" of any particular Note shall mean every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note that it replaces.

QIB: The term "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A.

REFERENCE MARKET PRICE: The term "Reference Market Price" initially shall mean $20.00 and in the event of any adjustment to the Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e), (f) or (g) the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $20.00 to the initial Conversion Price specified in the form of Note attached hereto (without regard to any adjustment thereto).

REGISTRATION RIGHTS AGREEMENT: The term "Registration Rights Agreement" shall mean that certain Registration Rights Agreement, dated as of September 15, 1997, between the Company and the Initial Purchasers, as amended from time to time in accordance with its terms, a copy of which is attached as Exhibit C hereto.

REGULATION S: The term "Regulation S" shall mean Regulation S as promulgated under the Securities Act.

REPRESENTATIVE: The term "Representative" shall mean the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or
(b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness.

RESPONSIBLE OFFICER: The term "Responsible Officer," when used with respect to the Trustee, shall mean an officer of the Trustee in the Corporate Trust Office assigned and duly authorized by the Trustee to administer its corporate trust matters.

RESTRICTED SECURITIES: The term "Restricted Securities" shall have the meaning specified in Section 2.5.

RULE 144A: The term "Rule 144A" shall mean Rule 144A as promulgated under the Securities Act.

SECURITIES ACT: The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

SENIOR INDEBTEDNESS: The term "Senior Indebtedness" shall mean the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness

of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is "pari passu" or " junior" to the Notes. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return.

SIGNIFICANT SUBSIDIARY: The term "Significant Subsidiary" shall mean, as of any date of determination, a subsidiary of the Company, a majority of the voting stock or other voting power of which is owned directly or indirectly by the Company, if as of such date of determination either (a) the assets of such subsidiary equal 10% or more of the Company's total consolidated assets or (b) the total revenue of which represented 10% or more of the Company's consolidated total revenue for the most recently completed fiscal year. Notwithstanding the foregoing, until the second anniversary of the date of this Indenture, the term "Significant Subsidiary" shall include each of IPEC Planar, Inc. ("Planar") and IPEC Precision, Inc. ("Precision"), whether or not such entities meet one of the foregoing tests. From and after the second anniversary of the date of this Indenture and until the third anniversary of the date of this Indenture, the term "Significant Subsidiary" shall include Planar and/or Precision if the assets or total revenue of such entity equal or represent 5% or more of the Company's total consolidated assets or total consolidated revenue, as applicable, for the most recently completed fiscal year. From and after the third anniversary of the date of this Indenture, the term "Significant Subsidiary" shall include Planar and/or Precision only if such entity meets the test set forth in the first sentence of this paragraph.

SUBSIDIARY: The term "Subsidiary" shall mean, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such Person or a subsidiary of such Person or (b) the only general partners of which are such Person or of one or more subsidiaries of such Person (or any combination thereof).

TRADING DAY: The term "Trading Day" shall have the meaning specified in
Section 15.5(h)(5).

TRIGGER EVENT: The term "Trigger Event" shall have the meaning specified in Section 15.5(d).

TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 11.3 and 15.6; provided, however, that in the event the Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended.

TRUSTEE: The term "Trustee" shall mean State Street Bank and Trust Company of California, N.A. and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder.

The definitions of certain other terms are as specified in Sections 2.5 and 3.5 and Article XV.

ARTICLE II

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES

SECTION 2.1 DESIGNATION AMOUNT AND ISSUE OF NOTES. The Notes shall be designated as "6 1/4% Convertible Subordinated Notes due 2004." Notes not to exceed the aggregate principal amount of $100,000,000 (or $115,000,000 if the over-allotment option set forth in Section 2 of the Purchase Agreement dated September 11, 1997 (as amended from time to time by the parties thereto) by and between the Company and the Initial Purchasers is exercised in full) (except pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its (a) Chief Executive Officer, President, Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and
(b) Treasurer or Assistant Treasurer or its Secretary or any Assistant Secretary, without any further action by the Company hereunder.

SECTION 2.2 FORM OF NOTES. The Notes and the Trustee's certificate of authentication to be borne by such Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this Indenture.

Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule

or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed, or to conform to usage.

Any Note in global form shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a Note in global form to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Notes in accordance with this Indenture. Payment of principal of and interest and premium, if any, on any Note in global form shall be made to the holder of such Note.

The terms and provisions contained in the form of Note attached as Exhibit A hereto shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.

SECTION 2.3 DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication and shall bear interest from the applicable date in each case as specified on the face of the form of Note attached as Exhibit A hereto. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve (12) 30-day months.

The person in whose name any Note (or its Predecessor Note) is registered on the Note register at the close of business on any record date with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date, except (i) that the interest payable upon redemption (unless the date of redemption is an interest payment date) will be payable to the person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) which is converted into Common Stock of the Company during the period from (but excluding) a record date to (but excluding) the next succeeding interest payment date either (i) if such Note (or portion thereof) has been called for redemption on a redemption date which occurs during such period, or is to be redeemed in connection with a Fundamental Change on a Repurchase Date (as defined in Section 3.5) which occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) except to the extent required to be paid upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5 hereof or (ii) if otherwise, any Note (or portion thereof) submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. Interest may, as the Company shall specify to the paying agent in writing by each record date, be paid either (i) by check mailed to the address of the person entitled thereto as it appears in the Note register (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such

holder, be paid by wire transfer in immediately available funds) or (ii) by transfer to an account maintained by such person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The term "record date" with respect to any interest payment date shall mean the September 1 or March 1 preceding said March 15 or September 15, respectively.

Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any said March 15 or September 15 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below;

(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment, and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment, the Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2) of this Section 2.3.

(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

SECTION 2.4 EXECUTION OF NOTES. The Notes shall be signed in the name and on behalf of the Company by the facsimile signature of its Chief Executive Officer, President, any

Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and attested by the facsimile signature of its Secretary or any of its Assistant Secretaries or Treasurer or any of its Assistant Treasurers (which may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Note attached as Exhibit A hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 16.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture.

In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer:

SECTION 2.5 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES:
RESTRICTIONS ON TRANSFER; DEPOSITARY.

(a) The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 5.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Note register shall be in written form or in any form capable of being converted into written form within a reasonably prompt period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars in accordance with
Section 5.2.

Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture.

Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to
Section 5.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and

deliver, the Notes which the Noteholder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding.

All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange.

All Notes presented or surrendered for registration of transfer or for exchange, redemption or conversion shall (if so required by the Company or the Note registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes.

Neither the Company nor the Trustee nor any Note registrar or any Company registrar shall be required to exchange or register a transfer of (a) any Notes for a period of fifteen (15) days next preceding any selection of Notes to be redeemed or (b) any Notes or portions thereof called for redemption pursuant to Section 3.2 or (c) any Notes or portion thereof surrendered for conversion pursuant to Article XV or (d) any Notes or portions thereof tendered for redemption (and not withdrawn) pursuant to Section 3.5.

(b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes that upon initial issuance are beneficially owned by QIBs and all Notes that are beneficially owned by Non-U.S. Persons as a result of a sale or transfer after initial issuance will be represented by one or more Notes in global form registered in the name of the Depositary or the nominee of the Depositary (the "Global Note"), except as otherwise specified below. The transfer and exchange of beneficial interests in any such Global Note shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of any such Global Note as set forth on the face of the Note ("Principal Amount") to reflect any such transfers. Except as provided below, beneficial owners of a Global Note shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered Holders of such Notes in global form.

(c) So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note to a QIB in accordance with Rule 144A or to a Non-U.S. Person in accordance with Regulation S, and upon receipt of the definitive Note or Notes being so transferred, together with a certification, substantially in the form on the reverse of the Note, from the transferor that the transfer is being made in

compliance with Rule 144A or to a Non-U.S. Person in accordance with Regulation S (or other evidence satisfactory to the Trustee), the Trustee shall make an endorsement on the Global Note to reflect an increase in the aggregate Principal Amount of the Notes represented by such Note in global form, the Trustee shall cancel such definitive Note or Notes in accordance with the standing instructions and procedures of the Depositary, the aggregate Principal Amount of Notes represented by such Note in global form to be increased accordingly; provided that no definitive Note, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in such Note in global form until such definitive Note is freely tradable in accordance with Rule 144(k); provided further that the Trustee shall issue Notes in definitive form upon any transfer of a beneficial interest in the Note in global form to the Company or any Affiliate of the Company.

Upon any sale or transfer of a Note to an Institutional Accredited Investor (other than pursuant to a registration statement that has been declared effective under the Securities Act), such Institutional Accredited Investor shall, prior to such sale or transfer, furnish to the Company and/or the Trustee a signed letter containing representations and agreements relating to restrictions on transfer substantially in the form set forth in Exhibit B to this Indenture.

Any Note in global form may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on The Portal Market or as may be required for the Notes to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject.

(d) Every Note that bears or is required under this
Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this
Section 2.5(d) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Note, by such Noteholder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security.

Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Note (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(e), if applicable) shall bear a legend in substantially the following form, unless such Note has been sold pursuant to a registration statement that has been declared effective under the Securities Act

(and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee:

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO INTEGRATED PROCESS EQUIPMENT CORP. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS

OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A UNITED STATES PERSON. THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(d).

Notwithstanding any other provisions of this Indenture (other than the provisions set forth in the second paragraph of Section 2.5(b) and in this
Section 2.5(d)), a Note in global form may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or

by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.

The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Notes in global form. Initially, the Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co.

If at any time the Depositary for a Note in global form notifies the Company that it is unwilling or unable to continue as Depositary for such Note, the Company may appoint a successor Depositary with respect to such Note. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, will authenticate and deliver, Notes in certificated form, in aggregate principal amount equal to the principal amount of such Note in global form, in exchange for such Note in global form.

If a Note in certificated form is issued in exchange for any portion of a Note in global form after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such Note, but will be payable on such interest payment date, subject to the provisions of
Section 2.3, only to the person to whom interest in respect of such portion of such Note in global form is payable in accordance with the provisions of this Indenture.

Notes in certificated form issued in exchange for all or a part of a Note in global form pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Notes in certificated form to the persons in whose names such Notes in certificated form are so registered.

At such time as all interests in a Note in global form have been redeemed, converted, canceled, exchanged for Notes in certificated form, or transferred to a transferee who receives Notes in certificated form thereof, such Note in global form shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a global Note is exchanged for Notes in certificated form, redeemed, converted, repurchased or canceled, exchanged for Notes in certificated form or transferred to a transferee who receives Notes in certificated form therefor or any Note in certificated form is exchanged or transferred for part of a Note in global form, the principal amount of such Note in global form shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an endorsement

shall be made on such Note in global form, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase.

(e) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of such Note shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Notes that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent:

THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO INTEGRATED PROCESS EQUIPMENT CORP. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER FURNISHES TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO

SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF IHE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(e).

(f) Any Note or Common Stock issued upon the conversion or exchange of a Note that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Notes or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144).

SECTION 2.6 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its written request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery, a new Note, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen. In every case the applicant for

a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof.

Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Note and make available for delivery such Note. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note which has matured or is about to mature or has been called for redemption or has been tendered for redemption (and not withdrawn) or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof.

Every substitute Note issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender.

SECTION 2.7 TEMPORARY NOTES. Pending the preparation of Notes in certificated form, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon the written request of the Company, authenticate and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the Notes in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in

substantially the same manner, and with the same effect, as the Notes in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or such authenticating agent Notes in certificated form (other than in the case of Notes in global form) and thereupon any or all temporary Notes (other than any such Note in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 5.2 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Notes an equal aggregate principal amount of Notes in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Notes in certificated form authenticated and delivered hereunder.

SECTION 2.8 CANCELLATION OF NOTES PAID, ETC. All Notes surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer, shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall return such canceled Notes to the Company. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation.

SECTION 2.9 CUSIP NUMBERS. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Noteholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers.

ARTICLE III

REDEMPTION OF NOTES

SECTION 3.1 REDEMPTION PRICES. The Company may not redeem the Notes prior to September 20, 2000. At any time on or after September 20, 2000, the Company may, at its option, redeem all or from time to time any part of the Notes on any date prior to maturity, upon notice as set forth in Section 3.2, and at the optional redemption prices set forth in the form of Note attached as Exhibit A hereto, together with accrued interest to, but excluding, the date fixed for redemption.

SECTION 3.2 NOTICE OF REDEMPTION; SELECTION OF NOTES. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant

to Section 3.1, it shall fix a date for redemption and it or, at its written request received by the Trustee not fewer than forty-five (45) days prior (or such shorter period of time as may be acceptable to the Trustee) to the date fixed for redemption, the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed a notice of such redemption at least thirty (30) days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register; provided that if the Company shall give such notice, it shall also give written notice, and written notice of the Notes to be redeemed, to the Trustee. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note.

Each such notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the CUSIP numbers, the date fixed for redemption (which shall be a Business Day), the redemption price at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert such Notes or portions thereof into Common Stock will expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers, if any). In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued.

On or prior to the redemption date specified in the notice of redemption given as provided in this Section 3.2, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to redeem on the redemption date all the Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to, but excluding, the date fixed for redemption; provided that if such payment is made on the redemption date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time, on such date. If any Note called for redemption is converted pursuant hereto, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its written request, or, if then held by the Company shall be discharged from such trust. Whenever any Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers' Certificate not fewer than forty-five (45) days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed.

If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof of the Global Note or the Notes in certificated form to be redeemed (in principal amounts of $1,000 or integral multiples thereof), by lot on a pro rata basis or by another method the Trustee deems fair and appropriate. If any Note selected for partial redemption is converted in part after such selection, the converted portion of such Note shall be deemed (so far as may be) to be the portion to be selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Note is converted as a whole or in part before the mailing of the notice of redemption.

Upon any redemption of less than all Notes, the Company and the Trustee may (but need not) treat as outstanding any Notes surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a notice of redemption and may (but need not) treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period.

SECTION 3.3 PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to (but excluding) the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to said date), interest on the Notes or portion of Notes so called for redemption shall cease to accrue and such Notes shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 8.5 and 13.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to (but excluding) the date fixed for redemption. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to (but excluding) the date fixed for redemption; provided that, if the applicable redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date instead of the holders surrendering such Notes for redemption on such date.

Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented.

Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any notice of optional redemption during the continuance of a default in payment of interest or premium on the Notes or of any Event of Default of which, in the case of any Event of Default other than under Sections 7.1 (a) or 7.1
(b), a Responsible Officer of the Trustee has knowledge. If any

Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for.

SECTION 3.4 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to (but excluding) the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to (but excluding) the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XV) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture.

SECTION 3.5 REDEMPTION AT OPTION OF HOLDERS.

(a) If there shall occur a Fundamental Change, then each Noteholder shall have the right, at such holder's option, to require the Company to redeem all of such holder's Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, on the date (the "Repurchase Date") that is thirty (30) days after the date of the Company Notice (as defined in Section 3.5(b) below) of such Fundamental Change (or, if such 30th day is not a Business Day, the next succeeding Business Day). Such repayment shall be made at 106.250% from the date of initial issuance of the Notes until September 14, 1998; 105.357% from September 15, 1998 until September 14, 1999; 104.464% from September 15, 1999 until September 19,2000; 103.571% from September 20, 2000 until September 14, 2001 and thereafter at the following

prices (expressed as percentages of the principal amount) in the event of a Fundamental Change occurring during the twelve (12) month period beginning September 15:

YEAR            REDEMPTION PRICE
2001                102.679%
2002                101.786%
2003                100.893%

and 100% at September 15, 2004; provided that, if the Applicable Price with respect to the Fundamental Change is less than the Reference Market Price, the Company shall redeem such Notes at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay to such holders accrued interest on the redeemed Notes to, but excluding, the Repurchase Date; provided that, if such Repurchase Date is March 15 or September 15, then the interest payable on such date shall be paid to the holders of record of the Notes on the next preceding March 1 or September 1, respectively.

Upon presentation of any Note redeemed in part only, the Company shall execute and, upon the Company's written direction to the Trustee, the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented.

(b) On or before the tenth day after the occurrence of a Fundamental Change, the Company, or, at its written request (which must be received by the Trustee at least five (5) Business Days prior to the date the Trustee is requested to give notice as described below), the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed to all holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the redemption right at the option of the holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in the first paragraph of Section 3.2. The Company shall also deliver a copy of the Company Notice to the Trustee at such time as it is mailed to Noteholders.

Each Company Notice shall specify the circumstances constituting the Fundamental Change, the Repurchase Date, the price at which the Company shall be obligated to redeem Notes, the latest time (not less than thirty (30) days after the date of the Company's notice of a Fundamental Change) on the Repurchase Date by which the holder must exercise the redemption right (the "Fundamental Change Expiration Time"), that the holder shall have the right to withdraw any Notes surrendered prior to the Fundamental Change Expiration Time, a description of the procedure which a Noteholder must follow to exercise such redemption right and to withdraw any surrendered Notes, the place or places where the holder is to surrender such holder's Notes, and the amount of interest accrued on each Note to the Repurchase Date.

No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders' redemption rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 3.5.

(c) For a Note to be so repaid at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose or, at the option of such holder, the Corporate Trust Office, such Note with the form entitled "Option to Elect Repayment Upon A Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the Fundamental Change Expiration Time. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment shall be determined by the Company, whose determination shall be final and binding absent manifest error.

(d) On or prior to the Repurchase Date, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to repay on the Repurchase Date all the Notes to be repaid on such date at the appropriate redemption price, together with accrued interest to (but excluding) the Repurchase Date; provided that if such payment is made on the Repurchase Date it must be received by the Trustee or paying agent, as the case may be, by 10:00
a.m. New York City time, on such date: Payment for Notes surrendered for redemption (and not withdrawn) prior to the Fundamental Change Expiration Time will be made promptly (but in no event more than five (5) Business Days) following the Repurchase Date by mailing checks for the amount payable to the holders of such Notes entitled thereto as they shall appear on the registry books of the Company.

(e) In the case of a reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 15.6 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive stock, securities or other property or assets (including cash), which includes shares of Common Stock of the Company or another person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such stock, securities or other property or assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such supplemental indenture complies with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Notes to cause the Company to repurchase the Notes following a Fundamental Change, including without limitation the applicable provisions of this Section 3.5 and the definitions of the Applicable Price, Common Stock, Fundamental Change and Reference Market Price, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the common stock and the issuer

thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company).

(f) The Company will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act to the extent then applicable in connection with the redemption rights of the holders of Notes in the event of a Fundamental Change.

ARTICLE IV

SUBORDINATION OF NOTES

SECTION 4.1 AGREEMENT OF SUBORDINATION. The Company covenants and agrees, and each holder of Notes issued hereunder by its acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article IV; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions.

The payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on all Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in the Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred.

No provision of this Article IV shall prevent the occurrence of any default or Event of Default hereunder.

SECTION 4.2 PAYMENTS TO NOTEHOLDERS. No payment shall be made with respect to the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with
Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, if:

(i) a default in the payment of principal, premium, if any, interest, rent or other obligations in respect of Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness) (a "Payment Default"), unless and until such Payment Default shall have been cured or waived or shall have ceased to exist; or

(ii) a default, other than a Payment Default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a holder of Designated Senior Indebtedness, a Representative of Designated Senior Indebtedness or the Company (a "Non-Payment Default").

If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 4.2 unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes that have come due have been paid in full in cash. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice.

The Company may and shall resume payments on and distributions in respect of the Notes upon the earlier of:

(1) the date upon which any such Payment Default is cured or waived or ceases to exist, or

(2) in the case of a Non-Payment Default, the earlier of
(a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated,

unless this Article IV otherwise prohibits the payment or distribution at the time of such payment or distribution.

Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding up, liquidation or reorganization); and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provision of this Article IV, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in

bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee.

For purposes of this Article IV, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article IV with respect to the Notes to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII.

In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in the Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration.

In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 4.2, shall be received by the Trustee or the holders of the Notes before

all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

Nothing in this Section 4.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to the further provisions of Section 4.5.

SECTION 4.3 SUBROGATION OF NOTES. Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article IV (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article IV, and no payment over pursuant to the provisions of this Article IV, to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article IV, which would otherwise have been paid to the holders of Senior Indebtedness shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article IV are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand.

Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the principal of, premium, if any, and interest (including Liquidated Damages, if any) on the Notes as and when the same shall become

due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article IV of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Company referred to in this Article IV, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article IV.

SECTION 4.4 AUTHORIZATION TO EFFECT SUBORDINATION. Each holder of a Note by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article IV and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 7.2 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes.

SECTION 4.5 NOTICE TO TRUSTEE. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article IV. Notwithstanding the provisions of this Article IV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article IV, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative or a holder or holders of Senior Indebtedness or from any trustee thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not less than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on any Note) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 4.5, then, anything herein

contained to the contrary notwithstanding, the Trustee shall have full power and authority to apply moneys received to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date.

Notwithstanding anything in this Article IV to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1, and any such payment shall not be subject to the provisions of Section 4.1 or 4.2.

The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. The Trustee shall not be required to make any payment or distribution to or on behalf of a holder of Senior Indebtedness pursuant to this Article IV unless it has received satisfactory evidence as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article IV.

SECTION 4.6 TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article IV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder.

With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article IV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and subject to the provisions of Section 8.1, the Trustee shall not be liable to any holder of Senior Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver to holders of Notes, the Company or any other person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise.

SECTION 4.7 NO IMPAIRMENT OF SUBORDINATION. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.

SECTION 4.8 CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the purposes of this Article IV only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any)

on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.3), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on such Note. For the purposes of this Section 4.8, the term "junior securities" means (a) shares of any stock of any class of the Company or
(b) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Noteholders, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article XV.

SECTION 4.9 ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any paying agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee; provided, however; that the first paragraph of Section 4.5 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as paying agent.

The Trustee shall not be responsible for the actions or inactions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents.

SECTION 4.10 SENIOR INDEBTEDNESS ENTITLED TO RELY. The holders of Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article IV, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto.

SECTION 4.11 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Noteholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Noteholders, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.

ARTICLE V

PARTICULAR COVENANTS OF THE COMPANY

SECTION 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any (including upon redemption pursuant to Article III), and interest (including Liquidated Damages, if any) on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Each installment of interest on the Notes due on any semi-annual interest payment date may be paid either (i) by check mailed to the address of the person entitled thereto as it appears in the Note register; provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer in immediately available funds; or (ii) by transfer to an account maintained by such person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of Depositary or its nominee.

SECTION 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain an office or agency in The Borough of Manhattan, The City of New York, an office or agency where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office or the office or agency of the Trustee in The Borough of Manhattan, The City of New York (which shall initially be State Street Bank and Trust Company, N.A., an affiliate of the Trustee located at 61 Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006).

The Company may also from time to time designate co-registrars and one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to any such designation or rescission and of any change in the location of any such other office or agency.

The Company hereby initially designates the Trustee as paying agent, Note registrar, Custodian and conversion agent and each of the Corporate Trust Office of the Trustee and the office or agency of the Trustee in The Borough of Manhattan, The City of New York (which shall initially be State Street Bank and Trust Company, N.A., an Affiliate of the Trustee located at 61 Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006), shall be considered as one such office or agency of the Company for each of the aforesaid purposes.

So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the third paragraph of Section 8.11. If co-registrars have been appointed in accordance with this Section, the Trustee shall mail such notices only to the Company and the holders of Notes it can identify from its records.

SECTION 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so that there shall at all times be a Trustee hereunder.

SECTION 5.4 PROVISIONS AS TO PAYING AGENT.

(a) If the Company shall appoint a paying agent other than the Trustee, or if the Trustee shall appoint such a paying agent, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this
Section 5.4:

(1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes;

(2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of and premium, if any, or interest on the Notes when the same shall be due and payable; and

(3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust.

The Company shall, on or before each due date of the principal of, premium, if any, or interest on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided that if such deposit is made on the due date, such deposit shall be received by the paying agent by 10:00 a.m. New York City time, on such date.

(b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest (including Liquidated Damages, if any) so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes when the same shall become due and payable.

(c) Anything in this Section 5.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 5.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums.

(d) Anything in this Section 5.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 5.4 is subject to Sections 13.3 and 13.4.

The Trustee shall not be responsible for the actions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents.

SECTION 5.5 EXISTENCE. Subject to Article XII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights (charter and statutory); provided, however, that the Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the holders.

SECTION 5.6 MAINTENANCE OF PROPERTIES. The Company will cause all properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Significant Subsidiary and not disadvantageous in any material respect to the holders.

SECTION 5.7 PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Significant Subsidiary and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in

the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings.

SECTION 5.8 RULE 144A INFORMATION REQUIREMENT. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Notes or any Common Stock issued upon conversion thereof (other than a holder or beneficial holder of Notes or any Common Stock issued upon conversion thereof that is an Affiliate of the Company) which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Notes or such Common Stock from such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Notes or such Common Stock and it will take such further action as any holder or beneficial holder of such Notes or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Notes or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Notes or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements.

SECTION 5.9 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.

SECTION 5.10 COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee, within one hundred twenty (120) days after the end of each fiscal year of the Company, a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which the signer may have knowledge.

The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this

Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto.

Any notice required to be given under this Section 5.10 shall be delivered to the Trustee at its Corporate Trust Office.

ARTICLE VI

NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

SECTION 6.1 NOTEHOLDERS' LISTS. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semiannually, not more than fifteen (15) days after each March 1 and September 1 in each year beginning with March 1, 1998, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Notes as of a date not more than fifteen (15) days (or such other date as the Trustee may reasonably request in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished by the Company to the Trustee so long as the Trustee is acting as the sole Note registrar.

SECTION 6.2 PRESERVATION AND DISCLOSURE OF LISTS.

(a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes contained in the most recent list furnished to it as provided in Section 6.1 or maintained by the Trustee in its capacity as Note registrar or co-registrar in respect of the Notes, if so acting. The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished.

(b) The rights of Noteholders to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.

(c) Every Noteholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of holders of Notes made pursuant to the Trust Indenture Act.

SECTION 6.3 REPORTS BY TRUSTEE.

(a) Within sixty (60) days after May 31 of each year commencing with the year 1998, the Trustee shall transmit to holders of Notes such reports dated as of May 31 of the

year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.

(b) A copy of such report shall, at the time of such transmission to holders of Notes, be filed by the Trustee with each stock exchange and automated quotation system upon which the Notes are listed and with the Company. The Company will notify the Trustee in writing within a reasonable time when the Notes are listed on any stock exchange or automated quotation system.

SECTION 6.4 REPORTS BY COMPANY. The Company shall file with the Trustee (and the Commission if at any time after the Indenture becomes qualified under the Trust Indenture Act), and transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act, whether or not the Notes are governed by such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or I5(d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).

ARTICLE VII

REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT

SECTION 7.1 EVENTS OF DEFAULT. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing:

(a) default in the payment of any installment of interest (including Liquidated Damages, if any) upon any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is permitted under Article IV hereof; or

(b) default in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall become due and payable either at maturity or in connection with any redemption pursuant to Article III, by acceleration or otherwise, whether or not such payment is permitted under Article IV hereof; or

(c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section 7.1 specifically dealt with) continued for a period of sixty (60) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and a Responsible Officer of the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or

(d) the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or any Significant Subsidiary or its such Significant Subsidiary's debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any Significant Subsidiary or any substantial part of the property of the Company or any Significant Subsidiary, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or any Significant Subsidiary, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; provided that a liquidation or winding up of a Significant Subsidiary pursuant to applicable corporate law shall not be deemed an Event of Default hereunder; or

(e) an involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or any Significant Subsidiary or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any Significant Subsidiary or any substantial part of the property of the Company or any Significant Subsidiary, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days;

then, and in each and every such case (other than an Event of Default specified in Section 7.1 (d) or (e) with respect to the Company), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of and premium, if any, on all the Notes and the interest accrued thereon (including Liquidated Damages, if any) to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 7.1(d) or (e) with respect to the Company occurs, the principal of all the Notes and the interest accrued thereon shall (including Liquidated Damages, if any) be immediately and automatically due and payable without necessity of further action. This provision, however, is subject to the conditions that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment

or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon (including Liquidated Damages, if any) all Notes and the principal of and premium, if any, on any and all Notes which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (including Liquidated Damages, if any) (to the extent that payment of such interest is .enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on (including Liquidated Damages, if any) Notes which shall have become due by acceleration, shall have been cured or waived pursuant to
Section 7.7 -- then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Company shall notify a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any Event of Default.

In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes, and the Trustee shall continue as though no such proceeding had been taken.

SECTION 7.2 PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon (including Liquidated Damages, if any) any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption, by or under this Indenture declaration or otherwise -- then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal and premium, if any, or interest (including Liquidated Damages, if any), as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on (including Liquidated Damages, if any) the Notes to the registered holders, whether or not the Notes are overdue.

In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable.

In the case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 7.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest (including Liquidated Damages, if any) owing and unpaid in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee
Section under 8.6; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee: red, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee and any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise.

All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Notes.

In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings.

SECTION 7.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies collected by the Trustee pursuant to this Article VII shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid:

FIRST: To the payment of all amounts due the Trustee under
Section 8.6;

SECOND: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on (including Liquidated Damages, if any) the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes, such payments to be made ratably to the persons entitled thereto;

THIRD: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon the Notes for principal and premium, if any, and interest (including Liquidated Damages, if any), with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest (including Liquidated Damages, if any) without preference or priority of principal and premium, if any, over interest (including Liquidated Damages, if any), or of interest (including Liquidated Damages, if any) over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest; and

FOURTH: Subject to the provisions of Article IV, to the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto.

SECTION 7.4 PROCEEDINGS BY NOTEHOLDER. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than twenty-five percent(25%) in aggregate principal amount of the Notes

then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 7.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity.

Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of and premium, if any (including upon redemption pursuant to Article
III), and accrued interest on (including Liquidated Damages, if any) such Note, on or after the respective due dates expressed in such Note or in the event of redemption, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder.

Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in its own behalf and for its own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, its rights of conversion as provided herein.

SECTION 7.5 PROCEEDINGS BY TRUSTEE. In case of an Event of Default the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.

SECTION 7.6 REMEDIES CUMULATIVE AND CONTINUING. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default

or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders.

SECTION 7.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF NOTEHOLDERS. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, however, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction and (c) the Trustee may decline to take any action that would benefit some Noteholder to the detriment of other Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may on behalf of the holders of all of the Notes waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock, (iii) a default in the payment of redemption price pursuant to Article III or (iv) a default in respect of a covenant or provisions hereof which under Article XI cannot be modified or amended without the consent of the holders of all Notes then outstanding. Upon any such waiver, the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 7.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

SECTION 7.8 NOTICE OF DEFAULTS. The Trustee shall, within ninety (90) days after a Responsible Officer of the Trustee has knowledge of the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Note register, notice of all defaults known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; and provided that, except in the case of default in the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Noteholders.

SECTION 7.9 UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that

such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 7.9 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder, or group of Noteholders, holding in the aggregate more than ten percent in principal amount of the Notes at the time outstanding determined in accordance with Section 9.4, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article XV.

ARTICLE VIII

CONCERNING THE TRUSTEE

SECTION 8.1 DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that

(a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred:

(1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture and the Trust Indenture Act, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture and the Trust Indenture Act against the Trustee; and

(2) in the absence of bad faith and willful misconduct on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture;

(b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless the Trustee was negligent in ascertaining the pertinent facts;

(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding determined as provided in Section 9.4 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture;

(d) whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section;

(e) the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to receive or any other matters relating to payment) or notice effected by the Company or any paying agent or any records maintained by any co-registrar with respect to the Notes; and

(f) if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its failure to receive such notice as reason to act as if no such event occurred.

None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

SECTION 8.2 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise provided in Section 8.1:

(a) the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties;

(b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company;

(c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;

(d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Noteholders pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby;

(e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and

(f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder.

SECTION 8.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture.

SECTION 8.4 TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY OWN NOTES. The Trustee, any paying agent, any conversion agent or Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar.

SECTION 8.5 MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4 and Section 4.2, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as may be agreed from time to time by the Company and the Trustee.

SECTION 8.6 COMPENSATION AND EXPENSES OF TRUSTEE. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as mutually agreed to in writing between the Company and the Trustee, and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements; and advances reasonably incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence, willful misconduct, recklessness or bad faith. The Company also covenants to indemnify the Trustee (or any officer, director or employee of the Trustee) in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any loss, liability or expense incurred without negligence, willful misconduct, recklessness, or bad faith on the part of the Trustee or such officers, directors, employees and agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability in the premises. The obligations of the Company under this Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The obligation of the Company under this Section shall survive the satisfaction and discharge of this Indenture.

When the Trustee and its agents and any authenticating agent incur expenses or render services after an Event of Default specified in Section
7.l(d) or (e) with respect to the Company occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy, insolvency or similar laws.

SECTION 8.7 OFFICERS' CERTIFICATE AS EVIDENCE. Except as otherwise provided in Section 8.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence, willful misconduct, recklessness, or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee.

SECTION 8.8 CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.

SECTION 8.9 ELIGIBILITY OF TRUSTEE. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 (or if such Person is a member of

a bank holding company system, its bank holding company shall have a combined capital and surplus of at least $50,000,000). If such person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

SECTION 8.10 RESIGNATION OR REMOVAL OF TRUSTEE.

(a) The Trustee may at any time resign by giving written notice of such resignation to the Company and to the holders of Notes. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment sixty (60) days after the mailing of such notice of resignation to the Noteholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months may, subject to the provisions of Section 7.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee.

(b) In case at any time any of the following shall occur:

(1) the Trustee shall fail to comply with
Section 8.8 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months; or

(2) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.9 and shall fail to resign after written request therefor by the Company or by any such Noteholder; or

(3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation;

then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.9, any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and

the appointment of a successor trustee; provided that if no successor Trustee shall have been appointed and have accepted appointment sixty (60) days after either the Company or the Noteholders has removed the Trustee, the Trustee so removed may petition any court of competent jurisdiction for an appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee.

(c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time remove the Trustee and nominate a successor trustee which shall be deemed appointed as successor trustee unless within ten (10) days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Noteholder, upon the terms and conditions and otherwise as in Section 8.10(a) provided, may petition any court of competent jurisdiction for an appointment of a successor trustee.

(d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this
Section 8.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.11.

SECTION 8.11 ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee appointed as provided in Section 8.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 8.6, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee as such, except for funds held in trust for the benefit of holders of particular Notes, to secure any amounts then due it pursuant to the provisions of Section 8.6.

No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 8.8 and be eligible under the provisions of Section 8.9.

Upon acceptance of appointment by a successor trustee as provided in this Section 8.11, the Company (or the former trustee, at the written direction of the Company) shall mail or cause to be mailed notice of the succession of such trustee hereunder to the holders of Notes at their addresses as they shall appear on the Note register. If the Company fails to mail such notice within ten
(10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company.

SECTION 8.12 SUCCESSION BY MERGER, ETC. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee (including any trust created by this Indenture), shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that in the case of any corporation succeeding to all or substantially all of the corporate trust business of the Trustee such corporation shall be qualified under the provisions of Section 8.8 and eligible under the provisions of Section 8.9.

In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed by such predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee or an authenticating agent appointed by such successor trustee may authenticate such Notes either in the name of any predecessor trustee hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.

SECTION 8.13 PREFERENTIAL COLLECTION OF CLAIMS. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor).

SECTION 8.14 TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY. Any application by the Trustee for written instructions from the Company (other than with regard to any action proposed to be taken or omitted to be taken by the Trustee that affects the rights of the holders of the Notes or holders of Senior Indebtedness under this Indenture, including, without limitation, under Article IV hereof) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three (3) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted.

ARTICLE IX

CONCERNING THE NOTEHOLDERS

SECTION 9.1 ACTION BY NOTEHOLDERS. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article X, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen
(15) days prior to the date of commencement of solicitation of such action.

SECTION 9.2 PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a Noteholder or its agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the registry of such Notes or by a certificate of the Note registrar.

The record of any Noteholders' meeting shall be proved in the manner provided in Section 10.6.

SECTION 9.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the Trustee, any paying agent, any conversion agent and any Note registrar may deem the person in whose name such Note shall be registered upon the Note register to be, and may treat it as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Note.

SECTION 9.4 COMPANY-OWNED NOTES DISREGARDED. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes which are owned by the Company or any other obligor on the Notes or any Affiliate of the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such

determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action only Notes which a Responsible Officer knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 9.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or any Affiliate of the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described persons; and, subject to Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination.

SECTION 9.5 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may; by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 9.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor.

ARTICLE X

NOTEHOLDERS' MEETINGS

SECTION 10.1 PURPOSE OF MEETINGS. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes:

(1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VII;

(2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VIII;

(3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.2; or

(4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law.

SECTION 10.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses as they shall appear on the Note register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting.

Any meeting of Noteholders shall be valid without notice if the holders of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice.

SECTION 10.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten percent (10%) in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Noteholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 10.1, by mailing notice thereof as provided in Section 10.2.

SECTION 10.4 QUALIFICATIONS FOR VOTING. To be entitled to vote at any meeting of Noteholders a person shall (a) be a holder of one or more Notes on the record date pertaining to such meeting or (b) be a person appointed by an instrument in writing as proxy by a holder of one or more Notes. The only persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.

SECTION 10.5 REGULATIONS. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit.

The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote at the meeting.

Subject to the provisions of Section 9.4, at any meeting each Noteholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Notes represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice.

SECTION 10.6 VOTING. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballot on which shall be subscribed the signatures of the holders of Notes or of their representatives by proxy and the principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting.

Any record so signed and verified shall be conclusive evidence of the matters therein stated.

SECTION 10.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this Article X contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes.

ARTICLE XI

SUPPLEMENTAL INDENTURES

SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes:

(a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.6 and the redemption obligations of the Company pursuant to the requirements of
Section 3.5(e);

(b) subject to Article IV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets;

(c) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article XII;

(d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default;

(e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose;

(f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not materially adversely affect the interests of the holders of the Notes;

(g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or

(h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualifications of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted.

Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any supplemental indenture, the Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 11.2.

Notwithstanding any other provision of the Indenture or the Notes, the Registration Rights Agreement and the obligation to pay Liquidated Damages thereunder may be amended, modified or waived in accordance with the provisions of the Registration Rights Agreement.

SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. With the consent (evidenced as provided in Article IX) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than .that provided in the Notes, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to redeem any Note upon the happening of a Fundamental Change in a manner adverse to the holder of Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth herein, including Section 15.6, in each case, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding.

consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in is discretion, but shall not be obligated to, enter into such supplemental indenture.

It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.

SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental indenture executed pursuant to the provisions of this Article XI shall comply with the Trust Indenture Act, as then in effect; provided that this Section 11.3 shall not require such supplemental indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights; obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

SECTION 11.4 NOTATION ON NOTES. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article XI may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding.

SECTION 11.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE FURNISHED TRUSTEE. Prior to entering into any supplemental indenture, the Trustee may request an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article XI.

ARTICLE XII

CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

SECTION 12.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject to the provisions of Section 12.2, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other corporation (whether or not affiliated with the Company), authorized to acquire and operate the same and which shall be organized under the laws of the United States of America, any state thereof or the District of Columbia; provided that upon any such consolidation, merger, sale, conveyance or lease, the due and punctual payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on all of the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the corporation (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the corporation which shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 15.6.

SECTION 12.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the parry of the first part. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Integrated Process Equipment Corp. any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or lease, the person named as the "Company" in the first paragraph of this Indenture or any successor which shall thereafter have become such in the

manner prescribed in this Article XII may be dissolved, wound up and liquidated at any time thereafter and such person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture.

In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate.

SECTION 12.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance or lease and any such assumption complies with the provisions of this Article XII.

ARTICLE XIII

SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 13.1 DISCHARGE OF INDENTURE. When (a) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes which have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Notes (other than any Notes which shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, accompanied by a verification report, as to the sufficiency of the deposited amount, from an independent certified accountant or other financial professional satisfactory to the Trustee, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of principal of and premium, if any, and interest on, the Notes and the other rights, duties and obligations of Noteholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on written demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to

compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes.

SECTION 13.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1, provided such deposit was not in violation of Article IV, shall be held in trust for the sole benefit of the Noteholders and not to be subject to the subordination provisions of Article IV, and such monies shall be applied by the Trustee to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any.

SECTION 13.3 PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Notes (other than the Trustee) shall, upon written request of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such monies.

SECTION 13.4 RETURN OF UNCLAIMED MONIES. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium; if any, or interest on Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Notes shall thereafter look only to the Company for any payment which such holder may be entitled to collect unless an applicable abandoned property law designates another Person.

SECTION 13.5 REINSTATEMENT. If the Trustee or the paying agent is unable to apply any money in accordance with Section 13.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.1 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 13.2; provided, however, that if the Company makes any payment of interest on or principal of any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the money held by the Trustee or paying agent.

ARTICLE XIV

IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

SECTION 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes.

ARTICLE XV

CONVERSION OF NOTES

SECTION 15.1 RIGHT TO CONVERT. Subject to and upon compliance with the provisions of this Indenture, including without limitation Article IV, the holder of any Note shall have the right, at its option, at any time after ninety
(90) days following the latest date of original issuance thereof through the close of business on September 15, 2004 (except that, with respect to any Note or portion of a Note which shall be called for redemption, such right shall terminate, except as provided in Section 15.2 or Section 3.4, at the close of business on the Business Day next preceding the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Note or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 15.2. A Note in respect of which a holder is exercising its option to require redemption upon a Fundamental Change pursuant to Section 3.5 may be converted only if such holder withdraws its election to exercise in accordance with Section 3.5. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XV.

SECTION 15.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise the conversion privilege with respect to any Note in certificated form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency

maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 15.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to the office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney.

In order to exercise the conversion privilege with respect to any interest in a Note in global form, the holder must complete the appropriate instruction form for conversion pursuant to the Depository's book-entry conversion program, deliver by book-entry delivery an interest in such Note in global form, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or conversion agent, and pay the funds, if any, required by this Section 15.2 and any transfer taxes if required pursuant to
Section 15.7.

As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 5.2, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 15.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note.

Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 15.2 have been satisfied as to such Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall be surrendered.

Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding the following interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption on a redemption date which occurs during the period from the close of business on such record date to the close of business on the Business Day next preceding the following interest payment date) be accompanied by payment, in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. Except as provided above in this Section 15.2, no payment or other adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article.

Upon the conversion of an interest in a Note in global form, the Trustee (or other conversion agent appointed by the Company), or the Custodian at the direction of the Trustee (or other conversion agent appointed by the Company), shall make a notation on such Note in global form as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Notes effected through any conversion agent other than the Trustee.

SECTION 15.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment and payment therefor in cash at the current market price thereof to the holder of Notes. The current market price of a share of Common Stock shall be the Closing Price on the last Business Day immediately preceding the day on which the Notes (or specified portions thereof) are deemed to have been converted.

SECTION 15.4 CONVERSION PRICE. The conversion price shall be as specified in the form of Note (herein called the "Conversion Price") attached as Exhibit A hereto, subject to adjustment as provided in this Article XV.

SECTION 15.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be adjusted from time to time by the Company as follows:

(a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the

number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 15.5(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

(b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.

(c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be

combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 15.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 15.5(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 15.5(a) (any of the foregoing hereinafter in this Section 15.5(d) called the "Securities")), then, in each such case (unless the Company elects to reserve such Securities for distribution to the Noteholders upon the conversion of the Notes so that any such holder converting Notes will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its Notes into Common Stock immediately prior to the Record Date (as defined in Section 15.5(h) for such distribution of the Securities)), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board if Directors) on the Record Date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 15.5(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock.

Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this

Section 15.5 (and no adjustment to the Conversion Price under this Section 15.5 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Section 15.5(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 15.5 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued.

Notwithstanding the foregoing, in the event that the Company shall distribute rights or warrants to subscribe for additional shares of the Common Stock (other than rights or warrants described in Section 15.5(b)), pro rata to holders of Common Stock, and in the case of the rights issued pursuant to the Company's stockholder rights agreement in existence as of the date hereof, the Company may, in lieu of making any adjustment pursuant to this Section 15.5(d), make proper provision (in the case of the Company's stockholder rights agreement in existence as of the date thereof, to the extent it does not make proper provision) so that each holder of a Note who converts such Note (or any portion thereof) after the record date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion (the "Conversion Shares"), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of such rights or warrants of separate certificates evidencing such rights or warrants (the "Distribution Date"), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to such rights or warrants; and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which the principal amount of the Note so converted was convertible immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of, and applicable to such rights or warrants.

For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any dividend or distribution to which this Section 15.5(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Section 15.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 15.5(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 15.5(a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 15.5(a).

(e) in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Price pursuant to this
Section 15.5(e) (as adjusted to reflect subdivisions or combinations of the Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 15.5(h)) during the ten Trading Days (as defined in Section 15.5(h)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction of which the numerator shall be the Current Market Price of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such Current Market Price of the Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the record date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the Record Date. in the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 15.5(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this

Section 15.5(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution.

(f) In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board if Directors) that as of the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made.

(g) In case of a tender or exchange offer made by a person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and shall involve the payment by such person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Offer Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time and the

denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) on the Offer Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such person is obligated to purchase shares pursuant to any such tender or exchange offer, but such person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 15.5(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article XII.

(h) For purposes of this Section 15.5, the following terms shall have the meaning indicated:

(1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive.

(2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance, distribution or Fundamental Change requiring such computation) that requires an

adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d),
(e), (f) Or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance, distribution or Fundamental Change requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 15.5(d), (f) or (g), whose determination shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 15.5(f) or (g), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the Expiration Time or Offer Expiration Time, as the case may be, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Offer Expiration Time of such offer.

(3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction.

(4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash,

securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).

(5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

(i) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 15.5 (a), (b), (c),
(d), (e), (f) or (g) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.

To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Notes a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect.

(j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such price; provided, however, that any adjustments which by reason of this Section 15.5(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XV shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth (1/100) of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash.

(k) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price

setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty
(20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.

(l) In any case in which this Section 15.5 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 15.3.

(m) For purposes of this Section 15.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

SECTION 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5(c) applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share")), then for the purposes of this
Section 15.6 the kind and amount of

securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article.

The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at its address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances.

If this Section 15.6 applies to any event or occurrence, Section 15.5 shall not apply.

SECTION 15.7 TAXES ON SHARES ISSUED. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

SECTION 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Notes from time to time as such Notes are presented for conversion.

Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price.

The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof.

upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be.

The Company further covenants that if at any time the Common Stock shall be listed on the Nasdaq National Market or any other national securities exchange or automated quotation system the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Notes:
provided, however, that if rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time.

SECTION 15.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine the Conversion Price or whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 15.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 15.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 8.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto.

SECTION 15.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. in case:

(a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 15.5; or

(b) the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or

(c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any Significant Subsidiary; or

(d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company or any Significant Subsidiary;

the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up.

ARTICLE XVI

MISCELLANEOUS PROVISIONS

SECTION 16.1 PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the covenants, stipulations, promises and agreements by the Company contained in this indenture shall bind its successors and assigns whether so expressed or not.

SECTION 16.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company.

SECTION 16.3 ADDRESSES FOR NOTICES, ETC. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee) to integrated Process Equipment Corp., 4717 E. Hilton Avenue, Phoenix, Arizona 85034, Attention: Chief Financial Officer. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed to the Corporate Trust Office, which office is, at the date as of which this indenture is dated, located at 725 Figueroa Street, Suite 3100, Los Angeles, California, 90017, Attention: Corporate Trust Department (Integrated Process Equipment Corp. 6 1/4% Convertible Subordinated Notes due 2004).

The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications.

Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Note register and shall be sufficient given to him if so mailed within the time prescribed.

Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the address receives it.

SECTION 16.4 GOVERNING LAW. This Indenture and each Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York.

SECTION 16.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT; CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant

or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

SECTION 16.6 LEGAL HOLIDAYS. in any case where the date of maturity of interest on or principal of the Notes or the date fixed for redemption of any Note will not be a Business Day, then payment of such interest on or principal of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period from and after such date.

SECTION 16.7 TRUST INDENTURE ACT. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act; provided, however, that, unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Notes issued hereunder shall not be subject to the provisions of subsections (a)(l), (a)(2), and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as hereafter amended or modified; provided further; that this Section 16.7 shall not require this Indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in an indenture qualified under the Trust Indenture Act, such required provision shall control.

SECTION 16.8 NO SECURITY INTEREST CREATED. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its subsidiaries is located.

SECTION 16.9 BENEFITS OF INDENTURE. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any Person, other than the parties hereto, any paying agent, any authenticating agent, any Note registrar and their successors hereunder, the holders of Notes and the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 16.10 TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.

SECTION 16.11 AUTHENTICATING AGENT. The Trustee may appoint an authenticating agent which shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a person eligible to serve as trustee hereunder pursuant to Section 8.9.

Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this
Section 16.11, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation.

Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall either promptly appoint a successor authenticating agent or itself assume the duties and obligations of the former authenticating agent under this Indenture, and upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Notes as the names and addresses of such holders appear on the Note register.

The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services (to the extent pre-approved by the Company in writing), and the Trustee shall be entitled to be reimbursed for such pre-approved payments, subject to Section 8.6.

The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11 shall be applicable to any authenticating agent.

SECTION 16.12 EXECUTION IN COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

IN WITNESS-WHEREOF, the parties hereto have caused this Indenture to be duly executed.

INTEGRATED PROCESS EQUIPMENT CORP.

By: /s/ JOHN S. HODGSON
    -------------------------------
     Name:  JOHN S. HODGSON
            -------------------
     Title: V.P.& C.E.O.
            -------------------

STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee

By:________________________________
Name: _______________________
Title: _______________________

State Street Bank and Trust Company of California, N.A., hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed.

INTEGRATED PROCESS EQUIPMENT CORP.

By:________________________________
Name: ________________________
Title: ________________________

STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee

By: /s/ SCOTT C. EMMONS
    -------------------------------
    Name: SCOTT C. EMMONS
          ------------------------
    Title: ASSISTANT VICE PRESIDENT
           -----------------------

EXHIBIT A

[For Global Note only:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER. PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO INTEGRATED PROCESS EQUIPMENT CORP. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS

BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE). IT WILL FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO. THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S: PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM. OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE NOTES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

INTEGRATED PROCESS EQUIPMENT CORP.

6 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004

No:____ CUSIP:_______

INTEGRATED PROCESS EQUIPMENT CORP., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the indenture referred to on the reverse hereof, for value received hereby promises to pay to _________________ or registered assigns, the principal sum of __________ ($________) on September 15, 2004, at the office or agency of the Company maintained for that purpose in accordance with the terms of the indenture, or, at the option of the holder of this Note, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 15 and September 15, of each year, commencing March 15, 1998, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 6 1/4% from September 17, 1997 and thereafter to maturity from the March 15 or September 15, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from September 17, 1997, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any March 1 or September 1, as the case may be, and before the following March 15 or September 15, this Note shall bear interest from such March 15 or September 15; provided, however, that if the Company shall default in the payment of interest due on such March 15 or September 15, then this Note shall bear interest from the next preceding March 15 or September 15, to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from September 17, 1997. The interest payable on the Note pursuant to the Indenture on any March 15 or September 15 will be paid to the person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the March 1 or September 1 (whether or not a Business Day) next preceding such March 15 or September 15, as provided in the Indenture; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the indenture. Interest may, at the option of the Company, be paid either (i) by check mailed to the registered address of such person (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer in immediately available funds) or (ii) by transfer to an account maintained by such person located in the United States.

Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Notes to the prior payment in full of all Senior Indebtedness, as defined in the Indenture, and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred

to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place.

This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State.

This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture.

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal to be affixed or imported hereon.

INTEGRATED PROCESS EQUIPMENT CORP.

By:____________________________________
Name :
Title:

Attest:________________________________
Name :
Title:

Dated: _____________________

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes described in the within-named Indenture.

STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Trustee

By: ______________________________________ Authorized Signatory

By:._______________________________________ As Authenticating Agent

(if different from Trustee)

[FORM OF REVERSE OF NOTE]

INTEGRATED PROCESS EQUIPMENT CORP.

6 l/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004

This Note is one of a duly authorized issue of Notes of the Company, designated as its 6 1/4% Convertible Subordinated Notes due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $115,000,000 all issued or to be issued under and pursuant to an indenture dated as of September 15,1997 (herein called the "indenture"), between the Company and State Street Bank and Trust Company of California, N.A., as trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes.

In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest (including Liquidated Damages, if any) on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture;

The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Note, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to make redemption of any Note upon the happening of a Fundamental Change in a manner adverse to the holder of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, including Section 15.6 thereof, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest (including Liquidated Damages, if any) or any premium on or the principal of any of the Notes, a default in the payment of redemption price pursuant to Article III or a failure by

the Company to convert any Notes into Common Stock of the Company. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes.

The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose.

No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest (including Liquidated Damages, if any) on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed.

Interest on the Notes shall be computed on the basis of a year of twelve 30-day months.

The Notes are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations.

The Notes will not be redeemable at the option of the Company prior to September 20, 2000. At any time on or after September 20, 2000, and prior to maturity, the Notes may be redeemed at the option of the Company as a whole, or from time to time in part, upon mailing a notice of such redemption not less than 30 days before the date fixed for redemption to the holders of Notes at their last registered addresses, all as provided in the Indenture, at the following optional redemption prices (expressed as percentages of the principal amount), together in each case with accrued interest (including Liquidated Damages, if any) to, but excluding, the date fixed for redemption:

If redeemed during the period beginning September 20, 2000 and ending on September 14, 2001, at a redemption price of 103.571%, and if redeemed during the 12-month period beginning September 15:

YEAR               REDEMPTION PRICE
2001                   102.679%
2002                   101.786%
2003                   100.893%

and 100% at September 15, 2004; provided that if the date fixed for redemption is on March 15 or September 15, then the interest payable on such date shall be paid to the holder of record on the next preceding March 1 or September 1, respectively.

The Notes are not subject to redemption through the operation of any sinking fund.

If a Fundamental hang (as defined in the Indenture) occurs at any time prior to September 15, 2004, the other will be redeemable on the 30th day after notice thereof at the option of the holder. Such payment shall be made at 106.25% from the date of initial issuance of the Notes until September 14, 1998; at 105.357% from September 15, 1998 until September 14, 1999; at 104.464% from September 15, 1999 until September 19, 2000; at 103.571% from September 20, 2000 until September 14, 2001; and at the following prices (expressed as percentages of the principal amount) in the event of a Fundamental Change occurring during the 12-month period beginning September 15:

YEAR                 REDEMPTION PRICE
2001                    102.679%
2002                    101.786%
2003                    100.893%

and 100% at September 15, 2004; provided in each case that if the Applicable Price (as defined in the Indenture) is less than the Reference Market Price (as defined in the Indenture), the Company shall redeem such Notes at a price equal to the foregoing repayment price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. in each case, the Company shall also pay accrued interest, if any (including Liquidated Damages, if any) on such Notes to, but excluding, the Repurchase Date; provided that if such Repurchase Date is March 15 or September 15, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding March 1 or September 1. The Company shall mail to all holders of record of the Notes a notice of the occurrence of a Fundamental Change and of the redemption right arising as a result thereof on or before the 10th day after the occurrence of such Fundamental Change. For a Note to be so repaid at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, such Note with the form entitled "Option to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the 30th day after the date of

such notice (or if such 30th day is not a Business Day, the immediately preceding Business Day).

Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the latest date of original issuance thereof through the close of business on September 15, 2004, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof into that number of shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the Conversion Price of $39.00 or such Conversion Price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date, this Note (unless it or the portion being converted shall have been called for redemption during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date) must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion.

Any Notes called for redemption, unless surrendered for conversion on or before the close of business on the date fixed for redemption, may be deemed to be purchased from the holder of such Notes at an amount equal to the applicable redemption price, together with accrued interest (including Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the holders thereof and convert them into Common Stock of the Company and to make payment for such Notes as aforesaid to the Trustee in trust for such holders.

Upon due presentment for registration of transfer of this Note at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of the holder of this Note, at the Corporate Trust Office, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee

in exchange thereof; subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith.

The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note.

No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof; and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation; either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

This Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York, without regard to principles of conflicts of laws.

Terms used in this Note and defined in the Indenture are used herein as therein defined.

ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT -- _______ Custodian ______

TEN ENT - as tenant by the                               (Cust)          (Minor)
          entireties
JT TEN -  as joint tenants with   under Uniform Gifts to Minors Act
          right of survivorship
          and not as tenants in
          common                  ______________________________________________
                                                     (State)

                    Additional abbreviations may also be used
                          though not in the above list.

CONVERSION NOTICE

To: Integrated Process Equipment Corp.

The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Integrated Process Equipment Corp. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note.

Dated:__________

Signature(s)

Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock are to be
issued, or Notes to be delivered,
other than to and in the name of the
registered holder.

Signature Guarantee

Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder:

(Name)

(Street Address)

(City, State and Zip Code)

Please print name and address

Principal amount to be converted
(if less than all): $___________

Social Security or Other Taxpayer
Identification Number __________________

OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE

TO: INTEGRATED PROCESS EQUIPMENT CORP.

The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Integrated Process Equipment Corp. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note at the redemption price, together with accrued interest to, but excluding, such date, to the registered holder hereof.

Dated:_________________                _________________________________________

                                       _________________________________________
                                       Signature(s)

                                       NOTICE: The above signatures of the
                                       holder(s) hereof must correspond with
                                       the name as written upon the face of
                                       the Note in every particular without
                                       alteration or enlargement or any
                                       change whatever.

                                       Principal amount to be converted (if less
                                       than all):

                                             $_____________

                                       ________________________________________
                                       Social Security or Other Taxpayer
                                       Identification Number

ASSIGNMENT

For value received ____________________________hereby sell(s), assign(s) and transfer(s) unto ____________________________(Please insert social security or other Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints ____________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises.

In connection with any transfer of the Note within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Note is being transferred:

[ ] To Integrated Process Equipment Corp. or a subsidiary thereof, or

[ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or

[ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or

[ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or

[ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended;

and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").

[ ] The transferee is an Affiliate of the Company.

Dated:___________________               ________________________________________

                                        ________________________________________
                                        Signature(s)

                                        Signature(s) must be guaranteed by a
                                        commercial bank or trust company or a
                                        member firm of a major stock exchange
                                        if shares of Common Stock are to

                                        be issued, or Notes to be delivered,
                                        other than to or in the name of the
                                        registered holder.

                                        ________________________________________
                                        Signature Guarantee

NOTICE: The signature on the conversion notice, the option to elect repayment upon a Fundamental Change or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or

EXHIBIT B

Integrated Process Equipment Corp.
4717 E. Hilton Avenue
Phoenix, AZ 85034

State Street Bank and Trust Company
of California, N.A.
725 Figueroa Street, Suite 3100
Los Angeles, CA 90017
Attn: Corporate Trust Department

Ladies/Gentlemen:

We are delivering this letter in connection with an offering of 6 1/4% Convertible Subordinated Notes due 2004 (the "Notes), which are convertible into shares of Common Stock, $.01 par value (the "Common Stock"), of Integrated Process Equipment Corp. (the "Company").

We hereby confirm that:

- we are an "accredited investor" within the meaning of Rule
501(a)(l), (2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(l), (2) or (3) under the Securities Act (an "Institutional Accredited Investor");

- (A) any purchase of Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion;

- in the event that we purchase any Notes, we will acquire Notes having a minimum principal amount of not less than $100,000 for our own account or for any separate account for which we are acting;

- we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Notes;

- we are not acquiring Notes with a view to distribution thereof or with any present intention of offering or selling Notes or the Common Stock issuable upon

Conversion thereof, except as permitted below; provided that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and

- we have received a copy of the Offering Memorandum and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions or representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase Notes.

We understand that the Notes are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes and the shares of Common Stock issuable upon conversion thereof have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Notes, that if in the future we decide to resell or otherwise transfer such Notes or the Common Stock issuable upon conversion thereof, such Notes or Common Stock may be resold or otherwise transferred only (i) to the Company or any subsidiary thereof, or (ii) inside the United States to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, or (iii) inside the United States to an Institutional Accredited Investor that, prior to such transfer, furnishes to the Trustee or transfer agent for such securities a signed letter containing certain representations and agreements relating to the restrictions on transfer of such securities (the form of which letter can be obtained from such Trustee or transfer agent), or (iv) outside the United States in a transaction meeting the requirements of Rule 904 under the Securities Act, or (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Art (if applicable), or (vi) pursuant to a registration statement which has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), and in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Notes or the Common Stock issuable upon conversion thereof, as the case may be. We further agree to provide any person purchasing any of the Notes or the Common Stock issuable upon conversion thereof other than pursuant to clause (vi) above from us a notice advising such purchaser that resales of such securities are restricted as stated herein. We understand that the Trustee or transfer agent for the Notes and the Common Stock will not be required to accept for registration of transfer any Notes or any shares of Common Stock issued upon conversion of the Notes except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Notes and any certificates representing Common Stock will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph other than certificates representing Common Stock transferred pursuant to clause (vi) above.

We acknowledge that the Company, others and you will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete.

THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE

INTERNAL LAWS OF THE STATE OF NEW YORK

(Name of Purchaser)

By:_______________________________________

Name:_____________________________________
Title:____________________________________
Address:__________________________________

EXHIBIT C

REGISTRATION RIGHTS AGREEMENT

(SEE TAB 5)

EXHIBIT 4.2

INTEGRATED PROCESS EQUIPMENT CORP., Company

SPEEDFAM-IPEC, INC., Guarantor

and

STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N. A.
Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of April 6,1999

INDENTURE

Dated as of September 15,1997

Relating to

Integrated Process Equipment Corp.

6 1/4% Convertible Subordinated Notes
due 2004

This FIRST SUPPLEMENTAL INDENTURE, dated as of the 6th day of April, 1999, by and among INTEGRATED PROCESS EQUIPMENT CORP., a corporation duly organized and existing under the laws of the State of Delaware (the "Company") SPEEDFAM-IPEC, INC., a corporation duly organized and existing under the laws of the State of Illinois (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N. A., a national banking association organized under the laws of the United States of America, and trustee under the Indenture (as hereinafter defined) (the "Trustee").

WITNESSETH:

WHEREAS, the Company and the Trustee have heretofore entered into that certain Indenture, dated as of September 15, 1997, providing for the issuance of 6 1/4% Convertible Subordinated Debentures due 2004 (the "Notes"), in the aggregate principal amount not to exceed $115,000,000 (such Indenture, as further supplemented or amended in accordance with its terms, herein the "Indenture");

WHEREAS, the Company, SpeedFam, Inc., a Delaware corporation ("Merger Sub"), and the Guarantor have entered into an Agreement and Plan of Merger, dated as of November 19, 1998, as amended (the "Merger Agreement"), pursuant to which Merger Sub will merge (the "Merger") with and into the Company, and the Company will then become a wholly-owned subsidiary of the Guarantor, and each share of the Company's Common Stock outstanding immediately prior to the effective time of the Merger (the "Effective Time") will be converted into the right to receive 0.71 shares of Common Stock of the Guarantor in accordance with the terms of the Merger Agreement;

WHEREAS, Section 15.6 of the Indenture provides that, "If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5(c) applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, or (iii)
any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as

to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights or election shall not have been exercised ("nonelecting share")), then for purposes, of this
Section 15.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable or share by a plurality if the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article;"

WHEREAS, Section 12.1 of the Indenture permits the Company to merge with another corporation provided certain conditions are satisfied;

WHEREAS, the Guarantor is willing to guarantee, on a subordinated basis as set forth more fully herein, the payment of the principal of, premium, if any, and interest on the Notes in order to preserve the exemption available under Section 3 (a)(9) of the Securities Act for the conversion of Notes into Common Stock;

WHEREAS, Section 11.1 of the Indenture authorizes the Company, with the consent of the Trustee, to supplement or amend the Indenture to comply with
Section 15.6 hereof and to correct or supplement provisions of or make other provisions with respect to matters or questions arising under the Indenture that do not adversely affect the rights of any Noteholder;

WHEREAS, the Company and the Guarantor desire to execute a supplemental indenture that complies with Section 11.1 of the Indenture;

WHEREAS, all acts and things necessary to make this First Supplemental Indenture a valid and binding agreement for the purposes and objects herein expressed have been duly done and performed, and the execution of this First Supplemental Indenture have been, in all respects, duly authorized;

WHEREAS, the foregoing recitals are made as representations or statements of fact by the Company or the Guarantor, as applicable, and not by the Trustee; and

WHEREAS, the Trustee is authorized by Section 11.1 of the Indenture to execute this First Supplemental Indenture without the consent of the holders of the Notes;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Guarantor hereby covenant and agree with the Trustee, for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows:

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ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.1 The [Form of Face of Note] in the Indenture is hereby amended by deleting the reference to "Common Stock of the Company" that appears in the second paragraph thereof and inserting in lieu thereof the words "Common Stock."

SECTION 1.2 The [Form of Reverse of Note] in the Indenture is hereby amended by:

(a) Deleting the reference to "Common Stock of the Company" in the third paragraph thereof and inserting in lieu thereof the words "Common Stock;"

(b) Deleting the reference to "Company's Common Stock" that appears in the twelfth paragraph thereof and inserting in lieu thereof the words "Common Stock;"

(c) Deleting the reference to "Common Stock of the Company" that appears in the thirteenth paragraph thereof and inserting in lieu thereof the words "Common Stock;" and

(d) Deleting the sixteenth paragraph and inserting in lieu thereof the following paragraph:

No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company or the Guarantor in the Note or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby or the guarantee by the Guarantor thereof, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or the Guarantor or of any respective successor corporation, either directly or through the Company or the Guarantor or any respective successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released; provided, however, that the foregoing shall not affect or impair the obligations of the Guarantor hereunder.

SECTION 1.3 The [Form of Conversion Notice] in the Indenture is hereby amended by deleting the phrase "Common Stock of Integrated Process Equipment Corp." and inserting in lieu thereof the words "Common Stock."

SECTION 1.4 The terms defined in this Section 1.4 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this First Supplemental Indenture shall have the respective meanings specified in this Section 1.4. All other terms used in this First Supplemental Indenture which are defined in the Indenture, the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust

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Indenture Act and in said Securities Act as in force at the date of the execution of this First Supplemental Indenture. The words "herein," "hereof" and "hereunder," and words of similar import, refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other Subsection. The terms defined in this Article include the plural as well as the singular.

(a) The definitions of the following words contained in
Section 1.1 of the Indenture, are hereby amended by deleting them in their entirety and inserting in lieu thereof the following respective definitions:

COMMON STOCK: The term "Common Stock" shall mean any stock of any class of Guarantor which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Guarantor and which is not subject to redemption by the Guarantor. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as Common Stock of the Guarantor at the date of this First Supplemental Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Guarantor and which are not subject to redemption by the Guarantor, provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

REFERENCE MARKET PRICE: The term "Reference Market Price" shall initially mean $28.17, and in the event of any adjustment to the Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e) (f) or (g), the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $28.17 to the Conversion Price specified in the form of Note herein above set forth (without regard to any adjustment thereto).

(b) Section 1.1 of the Indenture is hereby amended to add the following definitions:

DESIGNATED GUARANTOR SENIOR INDEBTEDNESS: The term "Designated Guarantor Senior Indebtedness" shall mean Guarantor Senior Indebtedness under the Guarantor Loan Agreement or any other particular Guarantor Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Guarantor Senior Indebtedness shall be "Designated Guarantor Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Guarantor Senior Indebtedness to exercise the rights of Designated Guarantor Senior Indebtedness). If any payment made to any holder of any Designated Guarantor Senior Indebtedness or its Representative with respect to such Designated Guarantor Senior Indebtedness is rescinded or must otherwise be returned by such

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holder or Representative upon the insolvency, bankruptcy or reorganization of the Guarantor or otherwise, the reinstated Indebtedness of the Guarantor arising as a result of such rescission or return shall constitute Designated Guarantor Senior Indebtedness effective as of the date of such rescission or return.

GUARANTOR: The term "Guarantor" shall mean SpeedFam-Ipec, Inc., an Illinois corporation, and shall include its successors and assigns.

GUARANTOR LOAN AGREEMENT: The term "Guarantor Loan Agreement" shall mean the credit facility to be entered into between the Guarantor and First Chicago Capital Markets, Inc., a Bank One company, as further amended, amended and restated, supplemented or otherwise modified from time to time.

GUARANTOR SENIOR INDEBTEDNESS: The term "Guarantor Senior Indebtedness" shall mean the principal of, premium, if any, and interest on, and any other payment due pursuant to the terms of any instrument (including, without limitation, fees, expenses, collection expenses (including attorneys' fees), interest yield amounts, post-petition interest and taxes) creating, securing or evidencing any of the following, whether outstanding at the date hereof or hereafter incurred or created:

(a) all indebtedness of the Guarantor for money borrowed (including any indebtedness secured by a mortgage, conditional sales contract or other lien which is (i) given to secure all or part of the purchase price of property subject thereto, whether given to the vendor of such property or to another or (ii) existing on property at the time of acquisition thereof);

(b) all indebtedness of the Guarantor evidenced by notes, debentures, bonds or other similar instruments;

(c) all indebtedness or other obligations of the Guarantor with respect to interest rate swap agreements, cap, floor and collar agreements, spot and forward contracts, and similar agreements and arrangements;

(d) all indebtedness or other obligations of the Guarantor with respect to letters of credit (including reimbursement obligations with respect thereto), bank guarantees and bankers' acceptances;

(e) all lease obligations of the Guarantor which are capitalized on the books of the Guarantor in accordance with generally accepted accounting principles;

(f) all indebtedness of others of the kinds described in the preceding clauses (a), (b), (c) or (d) and all lease obligations of others of the kind described in the preceding clause (e) assumed by or guaranteed in any manner by the Guarantor or in effect guaranteed by the Guarantor through an agreement to purchase, contingent or otherwise; and

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(g) all renewals, extensions or refundings of indebtedness of the kinds described in any of the preceding clauses (a), (b), (c), (d)} or (f) and all renewals or extensions of lease obligations of the kinds described in either of the preceding clauses (e) or (f);

unless, in the case of a particular indebtedness, lease, renewal, extension or refunding, the instrument or lease creating or evidencing the same or the assumption or guarantee of the same expressly provides that such indebtedness, lease, renewal, extension or refunding is not superior in right of payment to or is pari passu with or is subordinated or junior to, the Guarantor's obligations under the Guaranty. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include; (i) indebtedness evidenced by the Guaranty or otherwise in respect of the Notes; (ii) any indebtedness or lease obligation of any kind of the Guarantor to any subsidiary of the Guarantor; and (iii) indebtedness for trade payables or constituting the deferred purchase price of assets or services created or assumed by the Guarantor in the ordinary course of business.

GUARANTY: The term "Guaranty" shall mean the guarantee of the Guarantor pursuant to Section 17.1 hereof,

SUBSIDIARY: The term "subsidiary" of any specified person shall mean (i) a corporation a majority of whose capital stock with voting power under ordinary circumstances, to elect directors is at the time directly or indirectly owned by such person, or (ii) any other person (other than a corporation) in which such person or such person and a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of such person directly or indirectly, at the date of determination thereof, has at least majority ownership.

ARTICLE II

CONVERSION OF NOTES

SECTION 2.1 As a result of the Merger and without any action on the part of the holder of any Note, on and after the Effective Time each $1,000 principal amount of Notes shall be convertible into shares of Common Stock of the Guarantor, in accordance with the provisions of Article XV of the Indenture, at an initial Conversion Price per share of $54.93, such Conversion Price being subject to subsequent adjustment after the Effective Time in accordance with the provisions of Article XV of the Indenture.

SECTION 2.2 Section 15.2 of the Indenture is hereby amended by adding the words "or shall cause the Guarantor to" immediately after the words "the Company shall" that appear in the first sentence of the third paragraph thereof.

SECTION 2.3 Subsections (a) through (g) of Section 15.5 of the Indenture are hereby amended by deleting all references therein to "the Company" and inserting in lieu thereof "the Guarantor."

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SECTION 2.4 Section 15.6 of the Indenture is hereby amended by deleting the first paragraph of such Section in its entirety and inserting in lieu thereof the following:

SECTION 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5 (c) applies),
(ii) any consolidation, merger or combination of the Guarantor with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Guarantor as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute the Trustee a supplemental indenture (which shall conform to the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights or election shall not have been exercised ("nonelecting share")), then for purposes of this Section 15.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable or share by a plurality if the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article.

SECTION 2.5 Section 15.8 of the Indenture is hereby amended by deleting such Section' in its entirety and inserting in lieu thereof the following:

SECTION 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company shall use its best efforts to (a) cause the Guarantor to provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury or (b) otherwise make available sufficient shares to provide for the conversion of the Notes from time to time as such Notes are presented for conversion.

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Before the taking of any action by the Guarantor which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company shall cause the Guarantor to take all corporate action which may, in the opinion of the Company's counsel, be necessary in order that the shares of Common Stock issuable or otherwise deliverable upon conversion of the Notes may be validly and legally issued or delivered (as the case may be) at such adjusted Conversion Price.

The Company covenants that all shares of Common Stock which may be issued or otherwise delivered upon conversion of Notes will, when so issued or delivered, be fully paid and nonassessable by the Guarantor and the Company and free from all taxes, liens and charges with respect to the issue or delivery thereof.

The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be.

The Company further covenants that if at any time Common Stock shall be listed on the Nasdaq National Market or any other national securities exchange or automated quotation system the Company will, or shall cause the Guarantor to, if permitted by the rules of such exchange or automated quotation system, list and keep listed so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Notes; provided, however, that if rules of such exchange or automated quotation system permit the Company or the Guarantor to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time.

SECTION 2.6 Section 15.10 of the Indenture is hereby amended by deleting all references to "the Company" in clauses (a) through (d) thereof and inserting in lieu thereof the words "the Guarantor."

ARTICLE III

CERTAIN COVENANTS OF THE GUARANTOR

SECTION 3.1 The Guarantor hereby covenants and warrants that (a) immediately after the Effective Time, no condition or event shall exist which constitutes or would, after notice or lapse of time or both, constitute a Default or an Event of Default (both as defined in the Indenture), (b) it has complied, or has caused the Company to comply, and will comply, or will cause the Company to comply, with all applicable provisions of Article XV of the Indenture and (c) it has been authorized by

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its Board of Directors, pursuant to Section 11.1 of the Indenture, to execute this First Supplemental Indenture.

ARTICLE IV

GUARANTY OF NOTES

SECTION 4.1 GUARANTY OF NOTES. The Indenture is hereby amended to add the following provisions as a new Article XVII to be inserted immediately following Article XVI of the Indenture. Article XVII shall apply to the Notes only.

ARTICLE XVII

SUBORDINATED GUARANTY OF NOTES

SECTION 17.1 GUARANTY. Subject to the provisions of this Article XVII, the Guarantor hereby unconditionally guarantees, on a subordinated basis as set forth more fully in this Article XVII, to each holder of a Note authenticated and delivered by the Trustee in accordance with this Indenture (i) the due and punctual payment of the principal of, premium, if any, and interest (including interest on other amounts which may accrue after the filing against the Company of a petition under the United States Bankruptcy Code (the "Bankruptcy Code"), whether or not the obligation to pay interest on such amounts shall be enforceable against the Company) on such Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of, premium and interest, if any, on such Note, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the holders or the Trustee all in accordance with the terms of such Note and of this Indenture, and (ii) in the case of any extension of time of payment or renewal of any such Note or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. A demand for payment under this Article XVII shall not be effective prior to forty-eight (48) hours after a demand upon the Company for full and complete payment of all amounts due and payable under the Notes, unless such demand upon the Company shall be stayed by operation of
Section 362 of the Bankruptcy Code or otherwise. In all other respects, the Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto, by the holder of such Note or the Trustee, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor hereby waives diligence, presentment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, the benefit of discussion, protest or notice with respect to any such Note or the debt evidenced thereby and all demands whatsoever (except as specified above), and covenants, that this Guaranty will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and

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interest thereon. The Guarantor further agrees that, as between the Guarantor, on the one hand, and the Noteholder and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII hereof for the purposes of this Guaranty notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, provided that notice of such acceleration has been given to the Guarantor by the Trustee, and (ii) in the event of any declarations of acceleration of such obligations as provided in Article VII hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guaranty.

The Guarantor shall be subrogated to all rights of the holders of any Notes against the Company in respect of any amounts paid to the Noteholder by the Guarantor pursuant to the provisions of this Guaranty; provided that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, premium, if any, and interest on all the Notes shall have been paid in full and until all amounts payable under any Senior Indebtedness shall have been paid in full.

SECTION 17.2 AGREEMENT OF SUBORDINATION. The Guarantor covenants and agrees, and each holder of Notes issued hereunder by its acceptance thereof likewise covenants and agrees, that all Notes are subject to the provisions of this Article XVII; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions.

The payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on all Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in the Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred.

No provision of this Article XVII shall prevent the occurrence of any default or Event of Default hereunder.

SECTION 17.3 PAYMENTS TO NOTEHOLDERS. No payment shall be made with respect to the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with
Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 17.6, if:

(i) a default in the payment of principal, premium, if any, interest, rent or other obligations in respect of Guarantor Senior Indebtedness occurs and is continuing (or, in the case of Guarantor Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such

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Senior Indebtedness) (a "Payment Default"), unless and until such Payment Default shall have been cured or waived or shall have ceased to exist; or

(ii) a default, other than a Payment Default, on any Designated Guarantor Senior Indebtedness occurs and is continuing that then permits holders of such Designated Guarantor Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a holder of Designated Guarantor Senior Indebtedness, a Representative of Designated Guarantor Senior Indebtedness or the Guarantor (a "Non-Payment Default").

If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 17.3 unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes that have come due have been paid in full in cash. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice.

The Guarantor may and shall resume payments on and distributions in respect of the Notes upon the earlier of:

(1) the date upon which any such Payment Default is cured or waived or ceases to exist, or

(2) in the case of a Non-Payment Default, the earlier of (a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after notice is received if the maturity of such Designated Guarantor Senior Indebtedness has not been accelerated,

unless this Article XVII otherwise prohibits the payment or distribution at the time of such payment or distribution.

Upon any payment by the Guarantor, or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Guarantor Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to commencement Of proceedings for such dissolution, winding up, liquidation or reorganization); and upon any such dissolution or winding up

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or liquidation or reorganization of the Guarantor or bankruptcy, insolvency, receivership or other proceeding, any payment by the Guarantor, or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provision of this Article XVII, shall (except as aforesaid) be paid by the Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Guarantor Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Guarantor Senior Indebtedness in full, in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Guarantor Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee.

For purposes of this Article XVII, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Guarantor as reorganized or readjusted, or securities of the Guarantor or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XVII with respect to the Notes to the payment of all Guarantor Senior Indebtedness which may at the time be outstanding; provided that (i) the Guarantor Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Guarantor Senior Indebtedness (other than leases which are not assumed by the Guarantor or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Guarantor with, or the merger of the Guarantor into, another corporation or the liquidation or dissolution of the Guarantor following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 17.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII.

In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in the Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 17.6, until all Guarantor Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Guarantor Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, the Guarantor shall promptly notify holders of Guarantor Senior Indebtedness of the acceleration.

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In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 17.3, shall be received by the Trustee or the holders of the Notes before all Guarantor Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Guarantor Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Guarantor, for application to the payment of any Guarantor Senior Indebtedness remaining unpaid to the extent necessary to pay all Guarantor Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Guarantor Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Guarantor Senior Indebtedness.

Nothing in this Section 17.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. This Section 17.3 shall be subject to the further provisions of Section 17.6.

SECTION 17.4 SUBROGATION OF NOTES. Subject to the payment in full of all Guarantor Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Guarantor Senior Indebtedness pursuant to the provisions of this Article XVII (equally and ratably with the holders of all indebtedness of the Guarantor which by its express terms is subordinated to other indebtedness of the Guarantor to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Guarantor Senior Indebtedness to receive payments or distributions of cash, property or securities of the Guarantor applicable to the Guarantor Senior Indebtedness until the principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Guarantor Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article XVII, and no payment over pursuant to the provisions of this Article XVII, to or for the benefit of the holders of Guarantor Senior Indebtedness by holders of the Notes or the Trustee, shall, as between the Guarantor, its creditors other than holders of Guarantor Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Guarantor to or on account of the Guarantor Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article XVII, which would otherwise have been paid to the holders of Guarantor Senior Indebtedness shall be deemed to be a payment by the Guarantor to or for the account of the Notes. It is understood that the provisions of this Article XVII are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Guarantor Senior Indebtedness, on the other hand.

Nothing contained in this Article XVII or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Guarantor, its creditors other than the holders of Guarantor Senior Indebtedness, and the holders of the Notes, the obligation of the Guarantor, which is absolute

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and unconditional, to pay to the holders of the Notes the principal of premium, if any, and interest (including Liquidated Damages, if any) on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Guarantor other than the holders of the Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XVII of the holders of Guarantor Senior Indebtedness in respect of cash, property or securities of the Guarantor received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Guarantor referred to in this Article XVII, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Guarantor Senior Indebtedness and other indebtedness of the Guarantor, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article XVII.

SECTION 17.5 AUTHORIZATION TO EFFECT SUBORDINATION., Each holder of a Note by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article XVII and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 7.2 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Guarantor Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes.

SECTION 17.6 NOTICE TO TRUSTEE. The Guarantor shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Guarantor which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article XVII. Notwithstanding the provisions of this Article XVII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article XVII, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Guarantor (in the form of an Officers' Certificate) or a Representative or a holder or holders of Guarantor Senior Indebtedness or from any trustee thereof, and before the receipt of any such written notice, the Trustee, subject to the provisions of
Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not less than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest (Including Liquidated Damages, if any) on any Note) the

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Trustee shall not have received, with respect to such monies, the notice provided for in this Section 17.6, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to apply moneys received to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date.

Notwithstanding anything in this Article XVII to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1, and any such payment shall not be subject to the provisions of Section 17.2 or 17.3.

The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Guarantor Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Guarantor Senior Indebtedness or a trustee on behalf of any such holder or holders. The Trustee shall not be required to make any payment or distribution to or on behalf of a holder of Guarantor Senior Indebtedness pursuant to this Article XVII unless it has received satisfactory evidence as to the amount of Guarantor Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article XVII.

SECTION 17.7 TRUSTEE'S RELATION TO GUARANTOR SENIOR INDEBTEDNESS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVII in respect of any Guarantor Senior Indebtedness at any time held by it, to the same extent as any other holder of Guarantor Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder.

With respect to the holders of Guarantor Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XVII, and no implied covenants or obligations with respect to the holders of Guarantor Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness and, subject to the provisions of Section 8.1, the Trustee shall not be liable to any holder of Guarantor Senior Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver to holders of Notes, the Guarantor or any other person money or assets to which any holder of Guarantor Senior Indebtedness shall be entitled by virtue of this Article XVII or otherwise.

SECTION 17.8 NO IMPAIRMENT OF SUBORDINATION. No right of any present or future holder of any Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in an way be prejudiced or impaired by any act or failure to act on the part of the Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.

SECTION 17.9 CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the purposes of this Article XVII only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the

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principal of, premium, if any, or interest (including Liquidated Damages, if any) on Notes or on account of the purchase or other acquisition of Notes, and
(2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.3), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on such Note. For the purposes of this Section 17.9, the term "junior securities" means (a) shares of any stock of any class of the Guarantor or (b) securities of the Guarantor that are subordinated in right of payment to all Guarantor Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article. Nothing contained in this Article XVII or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Guarantor, its creditors (other than holders of Guarantor Senior Indebtedness) and the Noteholders, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article XV.

SECTION 17.10 ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any paying agent other than the Trustee shall have been appointed by the Guarantor and be then acting hereunder, the term "Trustee" as used in this Article shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 17.6 shall not apply to the Guarantor or any Affiliate of the Guarantor if it or such Affiliate acts as paying agent.

The Trustee shall not be responsible for the actions or inactions of any other paying agents (including the Guarantor if acting as its own paying agent) and shall have no control of any funds held by such other paying agents.

SECTION 17.11 GUARANTOR SENIOR INDEBTEDNESS ENTITLED TO RELY. The holders of Guarantor Senior Indebtedness (including, without limitation, Designated Guarantor Senior Indebtedness) shall have the right to rely upon this Article XVII, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto.

SECTION 17.12 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Guarantor referred to in this Article, the Trustee and the Noteholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Noteholders, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Indebtedness and other indebtedness of the Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.

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ARTICLE V

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,

OFFICERS AND DIRECTORS

SECTION 5.1 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS. Article XIV of the Indenture is hereby amended by deleting in entirety Article Fourteen and inserting in lieu thereof the following Article XIV:

ARTICLE XIV

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,

OFFICERS AND DIRECTORS

SECTION 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company or the Guarantor in this Indenture or in any supplemental indenture, or in any Note, or because of the creation of any indebtedness represented thereby or the guarantee by the Guarantor thereof, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or the Guarantor or of any respective successor corporation, either directly or through the Company or the Guarantor or any respective successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes; provided, however, that the foregoing shall not affect or impair the obligations of the Guarantor hereunder.

ARTICLE VI

MISCELLANEOUS PROVISIONS

SECTION 6.1 This First Supplemental Indenture shall become effective at the Effective Time and shall be automatically null and void if and in the event that the Merger shall not become effective on or prior to April 16,1999.

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SECTION 6.2 This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws thereof.

SECTION 6.3 Except as expressly contemplated by Sections 1.2(d) and 5.1 hereof, nothing in this First Supplemental Indenture, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and their successors hereunder, and the holders of the Notes or the holders of Guarantor Senior Indebtedness, any legal or equitable right, remedy or claim under or in respect to this First Supplemental Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and their successors hereunder and the holders of the Notes.

SECTION 6.4 The Trustee accepts the amendment of the Indenture effected by this First Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but only upon the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities and responsibilities in the performance of the trust created by the Indenture as hereby amended.

SECTION 6.5 After the Effective Time, any Notes authenticated and delivered in substitution for, or in lieu of, Notes then outstanding and all Notes presented or delivered to the Trustee on and after the Effective Time for such purpose shall be either restated to give the effect to the First Supplemental Indenture or, in lieu thereof, stamped with a notation substantially as follows:

The principal amount of this Note has become convertible into shares of the Common Stock, without par value per share, of SpeedFam-Ipec, Inc., at an initial Conversion Price per share of $54.93, such Conversion Price being subject to certain adjustments as set forth in the Indenture. Reference herein to "Common Stock of the Company" or the "Company's Common Stock" shall be deemed to be to the Common Stock of SpeedFam-Ipec, Inc. The payment of principal of, premium, if any, and interest on the Notes has been guaranteed by SpeedFam-Ipec, Inc. on a subordinated basis as set forth in the Indenture. The Indenture, dated as of September 15, 1997, referred to in this Note has been amended by a First Supplemental Indenture, dated as of April 6,1999, to provide for such convertibility and guarantee. Reference is hereby made to said First Supplemental Indenture, copies of which are on file with Integrated Process Equipment Corp. and SpeedFam-Ipec, Inc., for a statement of the amendment therein made.

Nothing contained in this First Supplemental Indenture shall require the holder of any Note to submit or exchange such Note prior to the Effective Time in order to obtain the benefits of the Guaranty or any other provisions hereunder.

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The Company agrees to provide the Trustee with a stamp or means of reproducing the above legend on the Notes without materially obscuring the text of the Notes.

Anything herein contained to the contrary notwithstanding, the Trustee shall not at any time be under any responsibility to acquire or cause any Note now or hereafter outstanding to be presented or delivered to it for any purpose provided for in this Section 6.5.

SECTION 6.6 Except as expressly supplemented by this First Supplemental Indenture, the Indenture, the Notes issued thereunder and the charge and obligation created thereby are in all respects ratified and confirmed and all of the rights, remedies, terms, conditions, covenants and agreements of the Indenture and the Notes issued thereunder shall remain in full force and effect.

SECTION 6.7 If any provision of this First Supplemental Indenture limits, qualifies or conflicts with (a) another provision of this First Supplemental Indenture, or (b) any provision of the Indenture, which is required to be included by any of the provisions of Section 310 to 317, inclusive, of the Trust Indenture Act, such required provision shall control.

SECTION 6.8 The recitals contained in this First Supplemental Indenture shall be taken as statements of the Company or the Guarantor, as applicable, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture.

SECTION 6.9 This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

INTEGRATED PROCESS EQUIPMENT CORP.

By:    /s/ John S. Hodgson
       _______________________
Name:  John S. Hodgson
Title: Vice President and CFO

SPEEDFAM-IPEC, INC.

By:    /s/ Richard Faubert
       ______________________
Name:  Richard Faubert
Title: President and CEO

STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee

By:    /s/ Scott C. Emmons
       _______________________
Name:  Scott C. Emmons
Title: Assistant Vice President

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EXHIBIT 4.3

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of September 15, 1997 by and among INTEGRATED PROCESS EQUIPMENT CORP., a Delaware corporation (the "Company") and MORGAN STANLEY & CO. INCORPORATED, HAMBRECHT & QUIST LLC, PRUDENTIAL SECURITIES INCORPORATED and UBS SECURITIES LLC (the "Initial Purchasers") pursuant to the Purchase Agreement, dated as of September 11, 1997 (the "Purchase Agreement"), between the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement.

The Company agrees with the Initial Purchasers, (i) for their benefit as Initial Purchasers and (ii) for the benefit of the holders from time to time of the Notes (including the Initial Purchasers) and the holders from time to time of the Common Stock issued upon conversion of the Notes (each of the foregoing a "Holder" and together the "Holders"), as follows:

1. DEFINITIONS. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

AFFILIATE: "Affiliate" means, with respect to any specified person,
(i) any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person or (ii) any officer or director of such other person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a person means the possession, direct or indirect, of the power (whether or not exercised) to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close.

COMMON STOCK: The shares of common stock, $.01 par value per share, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, in each case, as issuable or issued upon conversion of the Notes.

DAMAGES ACCRUAL PERIOD: See Section 2(f) hereof.

DAMAGES PAYMENT DATE: Each of the semi-annual interest payment dates provided in the Indenture.

DEFERRAL PERIOD: See Section 2(e) hereof.

EFFECTIVENESS PERIOD: The period commencing with the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities.

EVENT: See Section 2(f) hereof.

EVENT DATE: See Section 2(f) hereof.

EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

FILING DATE: See Section 2(a) hereof.

HOLDER: See the second paragraph of this Agreement.

INDENTURE: The Indenture, dated as of September 15, 1997, between the Company and State Street Bank and Trust Company of California, N.A., as Trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms hereof.

INITIAL PURCHASERS: Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC, Prudential Securities Incorporated and UBS Securities LLC.

INITIAL SHELF REGISTRATION: See Section 2(a) hereof.

LIQUIDATED DAMAGES: See Section 2(f) hereof.

LOSSES: See Section 6 hereof.

MANAGING UNDERWRITERS: The investment banking firm or firms that shall manage or co-manage an Underwritten Offering.

NOTES: 6 1/4% Convertible Subordinated Notes due 2004 of the Company being issued and sold pursuant to the Purchase Agreement and the Indenture.

NOTICE HOLDER: See Section 2(d) hereof.

PROSPECTUS: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

PURCHASE AGREEMENT: See the first paragraph of this Agreement.

RECORD HOLDER: (i) with respect to any Damages Payment Date relating to any Note as to which any such Liquidated Damages have accrued, the registered holder of such Note on the record date with respect to the interest payment date under the Indenture on which such Damages Payment Date shall occur and (ii) with respect to any Damages Payment Date relating to any Common Stock as to which any such Liquidated Damages have accrued, the registered holder of such Common Stock 15 days prior to the next succeeding Damages Payment Date.

REGISTRABLE SECURITIES: (A) The Common Stock of the Company into which the Notes are convertible or converted, whether or not such Notes have been converted, and at all times subsequent thereto, and any Common Stock issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such Common Stock, (i) it is effectively registered under the Securities Act and resold in accordance with the Registration Statement covering it, (ii) it is saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is sold to the public pursuant to Rule 144, and, as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Indenture (other than any such legends required solely as the consequence of the fact that such Common Stock (or the Notes, upon the conversion of which, such Common Stock was issued or is issuable) is owned by, or was previously owned by, the Company or an Affiliate of the Company) are removed or removable in accordance with the terms of the Indenture; (B) the Notes, until, in the case of any such Note, (i) it is converted into shares of Common Stock in accordance with the terms of the Indenture, (ii) it is effectively registered under the Securities Act and resold in accordance with the Registration Statement covering it, (iii) it is saleable by the holder thereof pursuant to Rule 144(k) or (iv) it is sold to the public pursuant to Rule 144, and, as a result of the event or circumstance described in any of the foregoing clauses (ii) through (iv), the legends with respect to transfer restrictions required under the Indenture (other than any such legends required solely as the consequence of the fact that such Note is owned by, or was previously owned by, the Company or an Affiliate of the Company) are removed or removable in accordance with the terms of the Indenture.

REGISTRATION EXPENSES: See Section 5 hereof.

REGISTRATION STATEMENT: Any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

RULE 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

RULE 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

SEC: The Securities and Exchange Commission.

SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.

SELLING PERIOD: See Section 2(d) hereof.

SHELF REGISTRATION: See Section 2(a) hereof.

SPECIAL COUNSEL: Cooley Godward LLP, or such successor counsel as shall be specified by the Holders of a majority of the Registrable Securities, the fees and expenses of which will be paid by the Company pursuant to Section 5 hereof.

SUBSEQUENT SHELF REGISTRATION: See Section 2(b) hereof.

TIA: The Trust Indenture Act of 1939, as amended.

TRUSTEE: The Trustee under the Indenture.

UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in which securities of the Company are sold to an underwriter for reoffering to the public.

2. SHELF REGISTRATION.

(a) SHELF REGISTRATION. The Company shall prepare and file with the SEC, as soon as practicable but in any event on or prior to the date ninety (90) days following the latest date of original issuance of the Notes (the "Filing Date"), a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration") registering the resale from time to time by Holders thereof of all of the Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by the Holders in the manner or manners designated by them (including, without limitation, one or more Underwritten Offerings). The Company shall use reasonable efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act as soon as practicable and to keep the Initial Shelf Registration continuously effective under the Securities Act until the earlier of the expiration of the Effectiveness Period or the date a Subsequent Shelf Registration, as defined below, covering all of the Registrable Securities has been declared effective under the Securities Act.

(b) If the Initial Shelf Registration or any Subsequent Shelf Registration, as defined below, ceases to be effective for any reason as a result of the issuance of a stop order by the SEC at any time during the Effectiveness Period, the Company shall use reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the

Company shall use reasonable efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective until the end of the Effectiveness Period.

(c) The Company shall supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Initial Purchasers or by the Trustee on behalf of a majority of the Holders of the Registrable Securities covered by such Registration Statement or by any Managing Underwriter of such Registrable Securities in the event of an Underwritten Offering of the Registrable Securities.

(d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell its Registrable Securities pursuant to a Shelf Registration and related Prospectus, it will do so only in accordance with this Section 2(d). Each Holder of Registrable Securities agrees to give written notice to the Company at least three Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration, which notice shall specify the date on which such Holder intends to begin such distribution and any information with respect to such Holder and the intended distribution of Registrable Securities by such Holder as may be required to amend the Registration Statement or supplement the related Prospectus with respect to such intended distribution of Registrable Securities by such Holder (the "Requisite Information"). In the event the Holder fails to provide the Requisite Information in its initial notice of its intention to distribute the Registrable Securities pursuant to the Registration Statement, the Company will promptly request such Holder to provide such Requisite Information. As soon as practicable after the date the Requisite Information is provided, and in any event within two Business Days after such date, the Company shall (i) if necessary, prepare and file with the Commission a post-effective amendment to the Shelf Registration or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide each Notice Holder (as defined below) copies of any documents filed pursuant to Section 2(d)(i); and
(iii) inform each Notice Holder that the Company has complied with its obligations in Section 2(d)(i) (or that, if the Company has filed a post-effective amendment to the Shelf Registration which has not yet been declared effective, the Company will notify the Notice Holder to that effect, will use reasonable efforts to secure the effectiveness of such post-effective amendment and will immediately notify the Notice Holder when the amendment has become effective); each Holder who has given notice of intention to distribute such Holder's Registrable Securities in accordance with Section 2(d) hereof (a "Notice Holder") will sell all or any of such Registrable Securities pursuant to the Shelf Registration and related Prospectus only during the thirty (30) day period commencing with the date on which the Company gives notice, pursuant to
Section 2(d)(iii), that

the Registration Statement and Prospectus may be used for such purpose (such thirty (30) day period is referred to as a "Selling Period"). The Notice Holders will not sell any Registrable Securities pursuant to such Registration Statement or Prospectus after such Selling Period without giving a new notice of intention to sell pursuant to Section 2(d) hereof and receiving a further notice from the Company pursuant to Section 2(d)(iii) hereof.

(e) In the event (i) of the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) hereof or (ii) that, in the judgment of the Company, it is advisable to suspend use of the Prospectus for a discrete period of time due to pending material corporate developments or similar material events that have not yet been publicly disclosed and as to which the Company believes public disclosure will be prejudicial to the Company, the Company shall deliver a certificate in writing, signed by an authorized executive officer of the Company, to the Notice Holders, the Special Counsel and the Managing Underwriters, if any, to the effect of the foregoing and, upon receipt of such certificate, each such Notice Holder's Selling Period will not commence until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in Section 2(d)(i)(A) hereof, or until it is advised in writing by the Company that the Prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use reasonable efforts to ensure that the use of the Prospectus may be resumed, and the Selling Period will commence, as soon as practicable and, in the case of a pending development or event referred to in Section 2(e)(ii) hereof, as soon as the earlier of (x) public disclosure of such pending material corporate development or similar material event or (y) in the judgment of the Company, public disclosure of such material corporate development or similar material event would not be prejudicial to the Company. Notwithstanding any other provision in this Agreement, the Company shall not under any circumstances be entitled to exercise its right under this Section 2(e) to defer the commencement of a Selling Period except as follows: the Company may defer the commencement of a Selling Period in accordance with this Section 2(e) for a period not to exceed thirty (30) days in any three-month period, or not to exceed an aggregate of sixty (60) days in any 12-month period, and the period in which a Selling Period is suspended shall not exceed fifteen (15) days unless the Company shall deliver to such Notice Holders a second notice to the effect set forth above, which shall have the effect of extending the period during which such Selling Period is deferred by up to an additional fifteen (15) days, or such shorter period of time as is specified in such second notice. In no event shall the Company be permitted to extend the period during which such Selling Period is deferred (a "Deferral Period") beyond such thirty (30) day period from and after the date a Notice Holder provides notice to the Company in accordance with Section 2(d) of its intention to distribute Registrable Securities.

(f) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration has not been filed on or prior to the Filing Date, (ii) prior to the end of the Effectiveness Period, the SEC shall have issued a stop order suspending the effectiveness of the Shelf Registration or proceedings have been initiated with respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities Act, (iii) the aggregate number of days in any one Deferral Period exceeds the periods permitted pursuant to

Section 2(e) hereof or (iv) the number of Deferral Periods exceeds the number permitted pursuant to Section 2(e) hereof (each of the events of a type described in any of the foregoing clauses (i) through (iv) are individually referred to herein as an "Event," and the Filing Date in the case of clause (i), the date on which the effectiveness of the Shelf Registration has been suspended or proceedings with respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities Act have been commenced in the case of clause (ii), the date on which the duration of a Deferral Period exceeds the periods permitted by
Section 2(e) hereof in the case of clause (iii), and the date of the commencement of a Deferral Period that causes the limit on the number of Deferral Periods under Section 2(e) hereof to be exceeded in the case of clause
(iv), being referred to herein as an "Event Date"). Events shall be deemed to continue until the date of the termination of such Event, which shall be the following dates with respect to the respective types of Events: the date the Initial Registration Statement is filed in the case of an Event of the type described in clause (i), the date that all stop orders suspending effectiveness of the Shelf Registration have been removed and the proceedings initiated with respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities Act have terminated, as the case may be, in the case of Events of the types described in clause (ii), termination of the Deferral Period which caused the aggregate number of days in any one Deferral Period to exceed the number permitted by Section 2(e) to be exceeded in the case of Events of the type described in clause (iii), and termination of the Deferral Period the commencement of which caused the number of Deferral Periods permitted by Section 2(e) to be exceeded in the case of Events of the type described in clause (iv).

Accordingly, upon the occurrence of any Event and until such time as there are no Events which have occurred and are continuing (a "Damages Accrual Period"), commencing on the Event Date on which such Damages Accrual Period began, the Company agrees to pay, as liquidated damages, and not as a penalty, an additional amount (the "Liquidated Damages"): (A)(i) to each holder of a Note that is a Notice Holder, accruing at a rate equal to one-half of one percent per annum (50 basis points) on the aggregate principal amount of Notes held by such Notice Holder and (ii) to each holder of Common Stock that is a Notice Holder, accruing at a rate equal to one-half of one percent per annum (50 basis points) calculated on an amount equal to the product of (x) the then-applicable Conversion Price (as defined in the Indenture) multiplied by (y) the number of shares of Common Stock held by such holder; and (B) if the Damages Accrual Period continues for a period in excess of thirty (30) days from the Event Date, from and after the end of such thirty (30) days until such time as there are no Events which have occurred and are continuing, (i) to each holder of a Note (whether or not a Notice Holder), accruing at a rate equal to one-half of one percent per annum (50 basis points) on the aggregate principal amount of Notes held by such holder and (ii) to each holder of Common Stock (whether or not a Notice Holder), accruing at a rate equal to one-half of one percent per annum (50 basis points) calculated on an amount equal to the product of (x) the then applicable Conversion Price (as defined in the Indenture) multiplied by (y) the number of shares of Common Stock held by such holder. Notwithstanding the foregoing, no Liquidated Damages shall accrue under clause (A) for the preceding sentence during any period for which Liquidated Damages accrue under clause (B) of the preceding sentence or as to any Registrable Securities from and after the expiration of the Effectiveness Period. The rate of accrual of the Liquidated

Damages with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events.

The Company shall pay the Liquidated Damages due on any Notes or Common Stock by depositing with the Trustee under the Indenture, in trust, for the benefit of the holders of Notes or Common Stock or Notice Holders, as the case may be, entitled thereto, at least one (1) Business Day prior to the applicable Damages Payment Date, sums sufficient to pay the Liquidated Damages accrued or accruing since the last preceding Damages Payment Date through such Damages Payment Date. The Liquidated Damages shall be paid by the Company to the Record Holders on each Damages Payment Date by wire transfer of immediately available funds to the accounts specified by them or by mailing checks to their registered addresses as they appear in the Note register (as defined in the Indenture), in the case of the Notes, and in the register of the Company for the Common Stock, in the case of the Common Stock, if no such accounts have been specified on or before the Damage Payment Date; provided, however, that any Liquidated Damages accrued with respect to any Note or portion thereof called for redemption on a redemption date, redeemed or repurchased in connection with a Fundamental Change (as defined in the Indenture) on a repurchase date, or converted into Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the holder who submitted such Note or portion thereof for redemption, repurchase or conversion on the applicable redemption date, repurchase date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion of a Note). The Trustee shall be entitled, on behalf of the holders of Notes, holders of Common Stock and Notice Holders, to seek any available remedy for the enforcement of this Agreement, including for the payment of such Liquidated Damages. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which Liquidated Damages are expressly provided shall be such Liquidated Damages. Nothing shall preclude a Notice Holder or Holder of Registrable Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement, in addition to the payment of Liquidated Damages.

All of the Company's obligations set forth in this Section 2(f) which are outstanding with respect to any Registrable Securities at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of the Agreement pursuant to Section 8(o)).

The parties hereto agree that the Liquidated Damages provided for in this
Section 2(f) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities (other than the Initial Purchasers) by reason of the failure of the Shelf Registration to be filed or declared effective or unavailable (absolutely or as a practical matter) for effecting resales of Registrable Securities, as the case may be, in accordance with the provisions hereof.

3. REGISTRATION PROCEDURES. In connection with the Company's registration obligations under Section 2 hereof, the Company shall effect such registrations to permit the sale of the Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall:

(a) Prepare and file with the SEC a Registration Statement or Registration Statements on any appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that, before filing any such Registration Statement or Prospectus or any amendments or supplements thereto (other than documents that would be incorporated or deemed to be incorporated therein by reference and that the Company is required by applicable securities laws or stock exchange requirements to file), the Company shall furnish to the Initial Purchasers, the Special Counsel and the Managing Underwriters of such offering, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of the Initial Purchasers, the Special Counsel and such Managing Underwriters, and the Company shall not file any such Registration Statement or amendment thereto or any Prospectus or any supplement thereto (other than such documents which, upon filing, would be incorporated or deemed to be incorporated by reference therein and that the Company is required by applicable securities laws or stock exchange requirements to file) to which the Holders of a majority of the Registrable Securities covered by such Registration Statement, the Initial Purchasers or the Special Counsel shall reasonably object in writing within two (2) full Business Days.

(b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement and Prospectus during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented.

(c) Notify the Notice Holders, the Initial Purchasers, the Special Counsel and the Managing Underwriters, if any, promptly, and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus, any Prospectus supplement, a Registration Statement or a post-effective amendment to a Registration Statement has been filed with the SEC, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the existence of any fact or happening of any event which makes any statement of a material fact in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which would require the making of any changes in the

Registration Statement or Prospectus in order that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate.

(d) Use reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest possible moment.

(e) If reasonably requested by the Initial Purchasers or the Managing Underwriters, if any, or the Holders of a majority of the Registrable Securities being sold, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement such information as the Initial Purchasers, the Special Counsel, the Managing Underwriters, if any, or such Holders, in connection with any offering of Registrable Securities, agree should be included therein as required by applicable law and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided that the Company shall not be required to take any actions under this Section 3(e) that are not, in the reasonable opinion of counsel for the Company, in compliance with applicable law.

(f) Furnish to each selling Holder, the Special Counsel, the Initial Purchasers and each Managing Underwriter, if any, without charge, at least one conformed copy of the Registration Statement or Statements and any amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing by such selling Holder, counsel, the Initial Purchasers or underwriter).

(g) Deliver to each selling Holder, the Special Counsel, the Initial Purchasers and each Managing Underwriter, if any, in connection with any offering of Registrable Securities, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such persons may reasonably request; and the Company hereby consents to the use of such Prospectus or each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities, to register or qualify or cooperate with the selling Holders, the Managing Underwriters, if any, and the Special Counsel in connection with the registration or qualification (or exemption from such registration

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or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder or Managing Underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject.

(i) Cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required solely as a consequence of the nature of such selling Holder, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals, as may be necessary to enable the selling Holder or Holders thereof or the Managing Underwriters, if any, to consummate the disposition of such Registrable Securities.

(j) During any Selling Period (other than during a Deferral Period), immediately upon the existence of any fact or the occurrence of any event as a result of which a Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or a Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, promptly prepare and file (subject to the proviso in Section 3(a)) a post-effective amendment to each Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document (such as a Current Report on Form 8-K) that would be incorporated by reference into the Registration Statement so that the Registration Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and so that the Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, use its reasonable efforts to cause it to become effective as soon as practicable.

(k) Enter into such agreements (including, in the event of an Underwritten Offering, an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other actions in connection therewith (including, in the event of an Underwritten Offering, those reasonably requested by the Managing Underwriters, if any, or the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities and in such

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connection, whether or not an underwriting agreement is entered into, and if the registration is an underwritten registration, (i) make such representations and warranties, subject to the Company's ability to do so, to the Holders of such Registrable Securities and the underwriters with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings (provided that the scope and substance shall not be materially different than those contained in the Purchase Agreement) and confirm the same if and when requested; (ii) use its best efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any, Special Counsel and the Holders of a majority of the Registrable Securities being sold) addressed to each of the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and Managing Underwriters; (iii) use its best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other certified public accountants of any business acquired or to be acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the Managing Underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with Underwritten Offerings; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold, the Special Counsel and the Managing Underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement as and to the extent required thereunder.

(l) If requested in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make available for inspection by a representative of the Holders of Registrable Securities being sold, any Managing Underwriter participating in any disposition of Registrable Securities, if any, and any attorney or accountant retained by such selling Holders or underwriter, financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the executive officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such representative, Managing Underwriter, attorney or accountant in connection with such disposition; subject to reasonable assurances by each such person that such information will only be used in connection with matters relating to such Registration Statement; provided, however, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any

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Registration Statement or the use of any prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement.

(m) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall cover said twelve (12) month periods.

(n) Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as such Holders may request.

(o) Provide the Trustee under the Indenture and the transfer agent for the Common Stock with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company.

(p) Cause the Common Stock covered by the Registration Statement to be listed on each securities exchange or quoted on each automated quotation system on which any of the Company's "Common Stock," as that term is defined in the Indenture, is then listed or quoted) no later than the date the Registration Statement is declared effective and, in connection therewith, to the extent applicable, to make such filings under the Exchange Act (e.g., the filing of a Registration Statement on Form 8-A) and to have such filings declared effective thereunder.

(q) Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc.

4. HOLDER'S OBLIGATIONS. Each Holder agrees, by acquisition of the Notes and Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with the notice required pursuant to Section 2(d) hereof and such other information regarding such Holder and the distribution of such Registrable Securities as may be required to be included in the Registration Statement or the Prospectus or as the Company may from time to time reasonably request. The Company may exclude from such registration the Registrable Securities of any Holder who does not furnish such information provided above for so long as such information is not so furnished.

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Each Holder of Registrable Securities as to which any Registration Statement is being effected agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not misleading. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to such Holder or its plan of distribution necessary to make the statements in such Prospectus, in light of the circumstances under which they were made, not misleading.

5. REGISTRATION EXPENSES. All fees and expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company whether or not any of the Registration Statements become effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the SEC or the National Association of Securities Dealers, Inc. and (y) relating to compliance with federal securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of Special Counsel in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Managing Underwriters, if any, or Holders of a majority of the Registrable Securities being sold may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the Special Counsel or the Holders of a majority of the Registrable Securities included in any Registration Statement), (iii) the reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock, (iv) messenger, telephone and delivery expenses relating to the performance of the Company's obligations hereunder, (v) reasonable fees and disbursements of counsel for the Company and the Special Counsel in connection with the Shelf Registration (provided that the Company shall not be liable for the fees and expenses of more than one separate firm, in addition to counsel for the Company, for all parties participating in any transaction hereunder), (vi) fees and disbursements of all independent certified public accountants referred to in Section 3(k)(iii) hereof (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance) and (vii) Securities Act liability insurance, to the extent obtained by the Company in its sole discretion. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay all underwriting discounts, selling commissions and stock transfer taxes applicable to the Registrable Securities, all selling expenses and all registration expenses to the extent that the Company is prohibited by applicable Blue Sky laws from paying for or on behalf of such seller of Registrable Securities.

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6. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold harmless the Initial Purchasers, each Holder and each person, if any, who controls the Initial Purchasers or any Holder (within the meaning of either
Section 15 of the Securities Act or Section 20(a) of the Exchange Act) from and against all losses, liabilities, damages and expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (collectively, "Losses"), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Losses arise out of or are based upon the information relating to the Initial Purchasers or any Holder furnished to the Company in writing by the Initial Purchasers or such Holder expressly for use therein; provided that the Company shall not be liable to any Holder of Registrable Securities (or any person controlling such Holder) to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (A)(i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claims from which such Losses arise and
(ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (B)(x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of a Registrable Security to the person asserting the claim from which such Losses arise. The Company shall also indemnify each underwriter and each person who controls such person (within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent and with the same limitations as provided above with respect to the indemnification of the Initial Purchasers or the Holders of Registrable Securities.

(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder agrees, and such agreement shall be evidenced by the Holder delivering the notice described in Section 2(d) hereof, severally and not jointly to indemnify and hold harmless the Initial Purchasers, the other selling Holders, the Company, its directors, its officers who sign a Registration Statement, and each person, if any, who controls the Company, the Initial Purchasers and any other selling Holder (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act), from and against all losses arising out of or based upon any untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or arising out of or based upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information relating to such Holder so furnished in writing by such Holder to the Company

15.

expressly for use in such Registration Statement or Prospectus. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Initial Purchasers and all persons, if any, who control the Initial Purchasers within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Holders and all persons, if any, who control any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and (c) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign a Registration Statement and each person, if any, who controls the Company within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In such case involving the Initial Purchasers and persons who control the Initial Purchasers, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In such case involving the Holders and such persons who control Holders, such firm shall be designated in writing by the Holders of the majority of Registrable Securities sold pursuant to the Registration Statement. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than forty-five (45) days after receipt

16.

by such indemnifying party of the aforesaid request and (ii) such indemnifying party, shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability or claims that are the subject matter of such proceeding.

(d) CONTRIBUTION. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in respect of any Losses or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the initial placement (before deducting expenses) of the Notes pursuant to the Purchase Agreement. Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions received by them pursuant to the Purchase Agreement and benefits received by any other Holders shall be deemed to be equal to the value of receiving Notes registered under the Securities Act. Benefits received by any underwriter shall be deemed to be equal to the total discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. The relative fault of the Holders on the one hand and the Company on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by the Company and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this paragraph are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method or allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 6(d), an indemnifying party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the

17.

total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

The indemnity, contribution and expense reimbursement obligations of the Company hereunder shall be in addition to any liability the Company may otherwise have hereunder, under the Purchase Agreement or otherwise. The provisions of this Section 6 shall survive so long as Registrable Securities remain outstanding, notwithstanding any transfer of the Registrable Securities by any Holder or any termination of this Agreement.

The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers, any Holder or any person controlling any Holder, or the Company, its officers or directors or any person controlling the Company and
(iii) the sale of any Registrable Securities by any Holder.

7. INFORMATION REQUIREMENTS.

(a) The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act, and if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The Company further covenants that it will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act. Upon the request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities under any section of the Exchange Act.

(b) The Company shall file the reports required to be filed by it under the Exchange Act and shall comply with all other requirements set forth in the instructions to Form S-3 in order to allow the Company to be eligible to file registration statements on Form S-3.

8. MISCELLANEOUS.

(a) REMEDIES. In the event of a breach by the Company of its obligations under this Agreement, each Holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific

18.

performance of its rights under this Agreement; provided that the sole damages payable for a violation of the terms of this Agreement for which Liquidated Damages are expressly provided pursuant to Section 2(e) hereof shall be such Liquidated Damages. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) NO CONFLICTING AGREEMENTS. The Company has not, as of the date hereof, and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. The Company represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements.

(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then outstanding Common Stock constituting Registrable Securities (with Holders of Notes deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Common Stock into which such Notes are convertible). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence.

(d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next-day courier, postage prepaid, to the parties as follows:

(i) if to a Holder of Registrable Securities, at the most current address given by such Holder to the Company in accordance with the provisions of Section 8(e);

(ii) if to the Company, to:

Integrated Process Equipment Corp.

4717 E. Hilton Avenue
Phoenix, AZ 85034
Attention: Chief Financial Officer
Telecopy No: (602) 517-6016

19.

with a copy to:

Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: Francis S. Currie Telecopy No: (650) 493-6811

and

(iii) if to the Special Counsel to:

Cooley Godward LLP One Maritime Plaza 20th Floor San Francisco, CA 94111 Attention: Kenneth L. Guernsey Telecopy No: (415) 951-3699

or to such other address as such person may have furnished to the other persons identified in this Section 8(d) in writing in accordance herewith.

(e) OWNER OF REGISTRABLE SECURITIES. The Company will maintain, or will cause its registrar and transfer agent to maintain, a register with respect to the Registrable Securities in which all transfers of Registrable Securities of which the Company has received notice will be recorded. The Company may deem and treat the person in whose name Registrable Securities are registered in such register of the Company as the owner thereof for all purposes, including without limitation, the giving of notices under this Agreement.

(f) APPROVAL OF HOLDERS. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, (i) Holders of Notes shall be deemed to be Holders, for such purposes, of the number of outstanding shares of Common Stock into which such Notes are convertible and
(ii) Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchasers or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(g) SUCCESSORS AND ASSIGNS. Any person who purchases any Registrable Securities from an Initial Purchasers shall be deemed, for purposes of this Agreement, to be an assignee of such Initial Purchasers. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities.

20.

(h) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement.

(i) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

(k) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, illegal, void or unenforceable.

(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings among the parties with respect to such registration rights.

(m) ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy.

(n) FURTHER ASSURANCES. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things reasonably necessary, proper or advisable under applicable law, and execute and deliver such documents and other papers, as may be required to carry out the provisions of

21.

this Agreement and the other documents contemplated hereby and consummate and make effective the transactions contemplated hereby.

(o) TERMINATION. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Sections 4, 5 or 6 hereof and the obligations to make payments of and provide for Liquidated Damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with their terms.

22.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

INTEGRATED PROCESS EQUIPMENT CORP.

By: /s/ John S. Hodgson
   ---------------------------
Name: John S. Hodgson
Title: V.P. & C.F.O

Accepted as of the date first above written:

MORGAN STANLEY & CO. INCORPORATED
HAMBRECHT & QUIST LLC
PRUDENTIAL SECURITIES INCORPORATED
UBS SECURITIES LLC

MORGAN STANLEY & CO. INCORPORATED

By:

23.

EXHIBIT 4.4

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE NOTES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. INTEGRATED PROCESS EQUIPMENT CORP.

6 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004

No: 01 CUSIP: 45812KAB4

INTEGRATED PROCESS EQUIPMENT CORP., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to CEDE & Co. or registered assigns, the principal sum of One Hundred Fifteen Million Dollars ($115,000,000) on September 15, 2004, at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or, at the option of the holder of this Note, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 15 and September 15, of each year, commencing March 15, 1998, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 6 1/4% from September 17, 1997 and thereafter to maturity from the March 15 or September 15, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from September 17, 1997, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any March 1 or September 1, as the case may be, and before the following March 15 or September 15, this Note shall bear interest from such March 15 or September 15; provided, however, that if the Company shall default in the payment of interest due on such March 15 or September 15, then this Note shall bear interest from the next preceding March 15 or September 15, to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from September 17, 1997. The interest payable on the Note pursuant to the Indenture on any March 15 or September 15 will be paid to the person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the March 1 or September 1 (whether or not a Business Day) next preceding such March 15 or September 15, as provided in the Indenture; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid either (i) by check mailed to the registered address of such person (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer in immediately available funds) or (ii) by transfer to an account maintained by such person located in the United States.

This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State.

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal to be affixed or imported hereon.

INTEGRATED PROCESS EQUIPMENT CORP.

                                 By: /s/ Roger D. McDaniel
                                     -------------------------------------------
                                         Roger D. McDaniel
                                         President and Chief Executive Officer


                                 Attest: /s/ John S. Hodgson
                                         -------------------------------------
                                         John S. Hodgson
                                         Vice President, Chief Financial Officer
                                         and Secretary

Dated: September 17, 1997

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes described in the within-named Indenture.

STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Trustee

By: /s/ Scott C Emmons
   --------------------------------
        Authorized Signatory

By:.

As Authenticating Agent
(if different from Trustee)

INTEGRATED PROCESS EQUIPMENT CORP.

6 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004

This Note is one of a duly authorized issue of Notes of the Company, designated as its 6 1/4% Convertible Subordinated Notes due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $115,000,000 all issued or to be issued under and pursuant to an indenture dated as of September 15, 1997 (herein called the "Indenture"), between the Company and State Street Bank and Trust Company of California, N.A., as trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes.

waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes.

Interest on the Notes shall be computed on the basis of a year of twelve 30-day months.

If redeemed during the period beginning September 20, 2000 and ending on September 14, 2001, at a redemption price of 103.571%, and if redeemed during the 12-month period beginning September 15:

YEAR                              REDEMPTION PRICE
----                              ----------------

2001                                  102.679%
2002                                  101.786%
2003                                  100.893%

The Notes are not subject to redemption through the operation of any sinking fund.

If a Fundamental Change (as defined in the Indenture) occurs at any time prior to September 15, 2004, the Notes will be redeemable on the 30th day after notice thereof at the option of the holder. Such payment shall be made at 106.25% from the date of initial issuance of the Notes until September 14, 1998; at 105.357% from September 15, 1998 until September 14, 1999; at 104.464% from September 15, 1999 until September 19, 2000; at 103.571% from September 20, 2000 until September 14, 2001; and at the following prices (expressed as percentages of the principal amount) in the event of a Fundamental Change occurring during the 12-month period beginning September 15:

YEAR                              REDEMPTION PRICE
----                              ----------------

2001                                  102.679%
2002                                  101.786%
2003                                  100.893%

and 100% at September 15, 2004; provided in each case that if the Applicable Price (as defined in the Indenture) is less than the Reference Market Price (as defined in the Indenture), the Company shall redeem such Notes at a price equal to the foregoing repayment price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest, if any (including Liquidated Damages, if any) on such Notes to, but excluding, the Repurchase Date; provided that if such Repurchase Date is March 15 or September 15, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding March 1 or September 1. The Company shall mail to all holders of record of the Notes a notice of the occurrence of a Fundamental Change and of the redemption right arising as a result thereof on or before the 10th day after the occurrence of such Fundamental Change. For a Note to be so repaid at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, such Note with the form entitled "Option to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the 30th day after the date of

such notice (or if such 30th day is not a Business Day, the immediately preceding Business Day).

in exchange thereof; subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith.

No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof; and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

Terms used in this Note and defined in the Indenture are used herein as therein defined.

10.

ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common           UNIF GIFT MIN ACT -- ________ Custodian _______
TEN ENT - as tenant by the entireties                          (Cust)            (Minor)
JT TEN -  as joint tenants with right    under Uniform Gifts to Minors Act
          of survivorship and not as
          tenants in common              _______________________________________________
                                                            (State)

Additional abbreviations may also be used though not in the above list.

11.

CONVERSION NOTICE

To: Integrated Process Equipment Corp.

Dated: ________________

Signature(s)

Signature Guarantee

12.

Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder:

(Name)

(Street Address)

(City, State and Zip Code)

Please print name and address

Principal amount to be converted
(if less than all): $____________

Social Security or Other Taxpayer
Identification Number ______________

13.

OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE

TO: INTEGRATED PROCESS EQUIPMENT CORP.

Dated: _______________              ____________________________________________


                                    ____________________________________________
                                    Signature(s)

                                    NOTICE: The above signatures of the
                                    holder(s) hereof must correspond with the
                                    name as written upon the face of the Note in
                                    every particular without alteration or
                                    enlargement or any change whatever.

                                    Principal amount to be converted (if less
                                    than all):

                                          $___________

Social Security or Other Taxpayer Identification Number

ASSIGNMENT

For value received ______________________________ hereby sell(s), assign(s) and transfer(s) unto ______________________________ (Please insert social security or other Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints _________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises.

[ ] To Integrated Process Equipment Corp. or a subsidiary thereof, or

[ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or

[ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or

[ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or

[ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended;

[ ] The transferee is an Affiliate of the Company.

Dated: _______________              ____________________________________________


                                    ____________________________________________
                                    Signature(s)

                                    Signature(s) must be guaranteed by a
                                    commercial bank or trust company or a member
                                    firm of a major stock exchange if shares of
                                    Common Stock are to

                                    be issued, or Notes to be delivered, other
                                    than to or in the name of the registered
                                    holder.


                                    ____________________________________________
                                    Signature Guarantee

EXHIBIT 4.5

SPEEDFAM-IPEC CORPORATION

f/k/a INTEGRATED PROCESS EQUIPMENT CORP., Company

SPEEDFAM-IPEC, INC., Original Guarantor

NOVELLUS SYSTEMS, INC., Novellus

And

STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
Trustee

SECOND SUPPLEMENTAL INDENTURE

Dated as of December 6, 2002

INDENTURE

Dated as of September 15, 1997

As First Supplemented April 6, 1999

Relating to

Integrated Process Equipment Corp.

6 -1/4% Convertible Subordinated Notes due 2004

SECOND SUPPLEMENTAL INDENTURE

This SECOND SUPPLEMENTAL INDENTURE, dated as of the 6th day of December,
2002, by and among SPEEDFAM-IPEC CORPORATION f/k/a INTEGRATED PROCESS EQUIPMENT CORP., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), SPEEDFAM-IPEC, INC., a corporation duly organized and existing under the laws of the State of Illinois and the Company's parent company (the "Original Guarantor"), NOVELLUS SYSTEMS, INC., a corporation duly organized and existing under the laws of the State of California ("Novellus"), and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized under the laws of the United States of America, and trustee under the Indenture (as hereinafter defined) (the "Trustee").

WITNESSETH:

WHEREAS, the Company and the Trustee have heretofore entered into that certain Indenture, dated as of September 15, 1997, providing for the issuance of 6 -1/4% Convertible Subordinated Debentures due 2004 (the "Notes"), in the aggregate principal amount not to exceed $115,000,000, as supplemented and amended by that certain First Supplemental Indenture, dated as of April 6, 1999 (the "First Supplemental Indenture") by and among the Company, the Original Guarantor, and the Trustee (such Indenture, as further supplemented or amended in accordance with its terms, herein the "Indenture");

WHEREAS, the Original Guarantor, NHL Acquisition-Sub, Inc., a Delaware corporation ("Merger Sub"), and Novellus have entered into an Agreement and Plan of Reorganization, dated as of August 11, 2002 (the "Merger Agreement"), pursuant to which Merger Sub will merge with and into the Original Guarantor (the "Merger"), with the Original Guarantor then becoming a direct wholly-owned subsidiary of Novellus and the Company becoming an indirect wholly-owned subsidiary of Novellus;

WHEREAS, pursuant to the Merger Agreement, each share of the Original Guarantor's common stock outstanding immediately prior to the effective time of the Merger (the "Effective Time") will be converted into the right to receive 0.1818 of a share of Common Stock of Novellus;

providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights or election shall not have been exercised ("nonelecting share")), then for purposes of this Section 15.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable or share by a plurality if the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article;"

WHEREAS, Section 12.1 of the Indenture permits the Company to merge with another corporation provided certain conditions are satisfied;

WHEREAS, pursuant to the First Supplemental Indenture, the Original Guarantor guaranteed, on a subordinated basis as set forth more fully therein, the payment of the principal of, premium, if any, and interest on the Notes in order to preserve the exemption available under Section 3(a)(9) of the Securities Act for the conversion of Notes into Common Stock;

WHEREAS, subject to the closing of the Merger, Novellus is willing to assume the obligations of the Original Guarantor under the Indenture and to guarantee, on a subordinated basis as set forth more fully herein, the payment of the principal of, premium, if any, and interest on the Notes in order to preserve the exemption available under Section 3(a)(9) of the Securities Act for the conversion of Notes into Common Stock;

WHEREAS, the Company, the Original Guarantor and Novellus desire to execute a supplemental indenture that complies with Section 11.1 of the Indenture;

WHEREAS, all acts and things necessary to make this Second Supplemental Indenture a valid and binding agreement for the purposes and objects herein expressed have been duly done and performed, and the execution of this Second Supplemental Indenture have been in all respects, duly authorized;

WHEREAS, the foregoing recitals are made as representations or statements of fact by the Company, the Original Guarantor, or Novellus, as applicable, and not by the Trustee; and

WHEREAS, the Trustee is authorized by Section 11.1 of the Indenture to execute this Second Supplemental Indenture without the consent of the holders of the Notes;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Original Guarantor, and Novellus hereby covenant and agree with the Trustee, for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows:

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.1 The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Second Supplemental Indenture shall have the respective meanings specified in this Section 1.1. All other terms used in this Second Supplemental Indenture which are defined in the Indenture, the Trust Indenture Act, or which are by reference therein defined in the Securities Act, (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Indenture, the Trust Indenture Act, and in said Securities Act, as in force at the date of the execution of this Second Supplemental Indenture. The words "herein," "hereof' and "hereunder," and words of similar import, refer to this Second Supplemental Indenture as a whole and not to any particular Article, Section or other Subsection. The terms defined in this Article include the plural as well as the singular.

(a) The definition of "COMMON STOCK" contained in Section 1.1 of the Indenture is hereby amended by deleting the reference to the "First Supplemental Indenture" and inserting in lieu thereof the words "Second Supplemental Indenture."

(b) The definition of "DESIGNATED GUARANTOR SENIOR INDEBTEDNESS" contained in Section 1.1 of the Indenture is hereby deleted in its entirety.

(c) The definition of "DESIGNATED SENIOR INDEBTEDNESS" contained in Section 1.1 of the Indenture is hereby amended by deleting the reference to "Loan Agreement" found therein.

(d) The definition of "GUARANTOR LOAN AGREEMENT" contained in
Section 1.1 of the Indenture is hereby deleted in its entirety.

(e) The definition of "LOAN AGREEMENT" contained in Section 1.1 of the Indenture is hereby deleted in its entirety.

(f) The definitions of the following words contained in
Section 1.1 of the Indenture are hereby amended by deleting them in their entirety and inserting in lieu thereof the following respective definitions:

REFERENCE MARKET PRICE: The term "Reference Market Price" shall initially mean $154.95, and in the event of any adjustment to the Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e), (f) or
(g), the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $154.95 to the Conversion Price specified in the form of Note herein above set forth (without regard to any adjustment thereto).

GUARANTOR: The term "Guarantor" shall mean Novellus Systems, Inc., a California corporation, and shall include its successors and assigns.

ARTICLE II

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES

SECTION 2.1 Section 2.8 of the Indenture is hereby amended by deleting such section in its entirety and inserting in lieu thereof the following:

SECTION 2.8 CANCELLATION OF NOTES PAID, ETC. All Notes surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer, shall, if surrendered to the Company, the Guarantor, or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall return such canceled Notes to the Guarantor. If the Company or the Guarantor shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by the Notes unless and until the same are delivered to the Trustee for cancellation.

ARTICLE III

PARTICULAR COVENANTS OF THE COMPANY

SECTION 3.1. Section 5.8 of the Indenture is hereby amended by deleting all references therein to "the Company" and inserting in lieu thereof "the Guarantor."

ARTICLE IV

SUBORDINATED GUARANTY OF NOTES

SECTION 4.1 Section 17.3(ii) of the Indenture is hereby amended by deleting such section in its entirety.

SECTION 4.2 Section 17.3 of the Indenture is hereby amended by deleting the fourth paragraph beginning "If the Trustee receives any Payment Blockage Notice . . ." therein.

SECTION 4.3 Section 17.3 of the Indenture is hereby amended by deleting the fifth paragraph beginning "The Guarantor may and shall resume payments . . ." therein and inserting in lieu thereof the following:

The Guarantor may and shall resume payments on and distributions in respect of the Notes on the date upon which any such Payment Default is cured or waived or ceases to exist unless this Article XVII otherwise prohibits the payment or distribution at the time of such payment or distribution.

SECTION 4.4 Section 17.11 of the Indenture is hereby amended by deleting the parenthetical "(including, without limitation, Designated Guarantor Senior Indebtedness)" therein.

ARTICLE V

CERTAIN COVENANTS OF NOVELLUS

SECTION 5.1 Novellus hereby covenants and warrants that (a) immediately after the Effective Time, no condition or event shall exist which constitutes or would, after notice or lapse of time or both, constitute a Default or an Event of Default (both as defined in the Indenture), (b) it has complied, or has caused the Company to comply, and will comply, or will cause the Company to comply, with all applicable provisions of Article XV of the Indenture and (c) it has been authorized by its Board of Directors, pursuant to Section 11.1 of the Indenture, to execute this Second Supplemental Indenture.

ARTICLE VI

CONVERSION OF NOTES

SECTION 6.1 As a result of the Merger and without any action on the part of the holder of any Note, on and after the Effective Time each $1,000 principal amount of Notes shall be convertible into shares of Common Stock of Novellus, in accordance with the provisions of Article XV of the Indenture, at an initial Conversion Price per share of $302.15, such Conversion Price being subject to subsequent adjustment after the Effective Time in accordance with the provisions of Article XV of the Indenture.

ARTICLE VII

MISCELLANEOUS PROVISIONS

SECTION 7.1 This Second Supplemental Indenture shall become effective at the Effective Time and shall be automatically null and void if and in the event that the Merger shall not become effective on or prior to December 16, 2002.

SECTION 7.2 This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws thereof.

SECTION 7.3 Nothing in this Second Supplemental Indenture, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and their successors hereunder, and the holders of the Notes or the holders of Guarantor Senior Indebtedness, any legal or equitable right, remedy or claim under or in respect to this Second Supplemental Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and their successors hereunder and the holders of the Notes.

SECTION 7.4 The Trustee accepts the amendment of the Indenture effected by this Second Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but only upon the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities and responsibilities in the performance of the trust created by the Indenture as hereby amended.

SECTION 7.5 After the Effective Time, any Notes authenticated and delivered in substitution for, or in lieu of, Notes then outstanding and all Notes presented or delivered to the Trustee on and after the Effective Time for such purpose shall be either restated to give the effect to the Second Supplemental Indenture or, in lieu thereof, stamped with a notation substantially as follows:

The principal amount of this Note has become convertible into shares of the Common Stock, without par value per share, of Novellus Systems, Inc., at an initial Conversion Price per share of $302.15, such Conversion Price being subject to certain adjustments as set forth in the Indenture. Reference herein to "Common Stock of the Company" or the "Company's Common Stock" shall be deemed to be to the Common Stock of Novellus Systems, Inc. The payment of principal of, premium, if any, and interest on the Notes has been guaranteed by Novellus Systems, Inc. on a subordinated basis as set forth in the Indenture. The Indenture, dated as of September 15, 1997, referred to in this Note has been amended by a First Supplemental Indenture, dated as of April 6, 1999, and a Second Supplemental Indenture, dated as of December 6, 2002, to provide for such convertibility and guarantee. Reference is hereby made to said First Supplemental Indenture and said Second Supplemental Indenture, copies of which are on file with SpeedFam-IPEC Corporation f/k/a Integrated Process Equipment Corp. and Novellus Systems, Inc., for a statement of the amendments therein made.

Nothing contained in this Second Supplemental Indenture shall require the holder of any Note to submit or exchange such Note prior to the Effective Time in order to obtain the benefits of the Guaranty or any other provisions hereunder.

The Company agrees to provide the Trustee with a stamp or means of reproducing the above legend on the Notes without materially obscuring the text of the Notes.

SECTION 7.6 Except as expressly supplemented by this Second Supplemental Indenture, the Indenture, the Notes issued thereunder and the charge and obligation created thereby are in all respects ratified and confirmed and all of the rights, remedies, terms, conditions, covenants and agreements of the Indenture and the Notes issued thereunder shall remain in full force and effect.

SECTION 7.7 If any provision of this Second Supplemental Indenture limits, qualifies or conflicts with (a) another provision of this Second Supplemental Indenture, or (b) any provision of the Indenture, which is required to be included by any of the provisions of Section 310 to 317, inclusive, of the Trust Indenture Act, such required provision shall control.

SECTION 7.8 The recitals contained in this Second Supplemental Indenture shall be taken as statements of the Company, the Original Guarantor, or Novellus, as applicable, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture.

SECTION 7.9 This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

SPEEDFAM-IPEC CORPORATION
f/k/a INTEGRATED PROCESS EQUIPMENT CORP.

By: /s/ Richard Faubert

Name: Richard Faubert

Title: President and CEO

SPEEDFAM-IPEC, INC.

By: /s/ Richard Faubert

Name: Richard Faubert

Title: President and CEO

NOVELLUS SYSTEMS, INC.

By: /s/ Kevin S. Royal

Name: Kevin S. Royal

Title: Vice President and Chief Financial
 Officer

STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee

By: /s/ Scott C. Emmons

Name: Scott C. Emmons

Title: Vice President

EXHIBIT 10.27

EMPLOYMENT AGREEMENT

THIS AGREEMENT is made and entered into this 8th day of October, 1998, by and between SPEEDFAM INTERNATIONAL, INC., an Illinois corporation (hereinafter referred to as the "Company") and RICHARD J. FAUBERT (hereinafter referred to as the "Executive").

W I T N E S S E T H :

WHEREAS, the Company desires to retain the services of the Executive in the capacities set forth herein, and the Executive desires to be employed by the Company in such capacities;

NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the Company and the Executive hereby agree as follows:

1. Employment. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company upon the terms and conditions hereinafter set forth and subject to the policies as published in the Company's Employee Handbook, Annual Incentive Compensation Plan, and the 1995 Stock Option Plan, each as from time to time amended.

2. Term. Subject to the provisions for extension hereinafter set forth in Section 3 and for earlier termination hereinafter set forth in
Section 12 of this Agreement, the term of employment hereunder shall commence on the date hereof and end on May 31, 2000.

3. Automatic Extension. The term of employment of the Executive hereunder shall automatically continue for additional one (1) year terms upon the same terms and conditions contained herein (except for the guaranteed minimum incentive compensation bonus (Section 4.3), certain severance payments (Section 4.8), and grant of 300,000 stock options (Section 4.7), each of which apply solely to the initial term) unless either the Company or the Executive shall notify the other at least thirty
(30) days prior to the expiration of the initial term or any renewal term of its or his intention to terminate this Agreement as of the end of its then current term.

4. Compensation. The Company agrees to provide the Executive with the following compensation for all services rendered under this Agreement:

4.1. Salary. During the term hereof, the Company shall pay to the Executive a Base Annual Salary of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00), payable in accordance with the standard payroll practices of the Company (including any salary-reduction contributions to plans or programs maintained by the Company). Further, the Base Annual Salary of the Executive

shall be reviewed annually by the Company and increased as appropriate, although the amount may be decreased after the first year, but only incident to, and consistent with (on a percentage basis), a general reduction in base salaries of Company's executives resulting from poor company performance.

4.2. Annual Incentive Opportunity. During the term of this Agreement, the Executive shall participate in the annual incentive plan maintained by the Company for its executives. The Executive's annual bonus under the incentive compensation plan shall be targeted at one hundred percent (100%) of the Executive's Base Annual Salary (with a maximum bonus of two hundred percent (200%) of the Executive's Base Annual Salary), subject to satisfaction of annual milestones reasonably established by the Compensation Committee of the Board of Directors of the Company. Annual milestone objectives for the years ending May 31, 1999, and May 31, 2000, shall be established within ninety (90) days from the date hereof.

4.3. Minimum Incentive Bonus. Solely for the fiscal year ending May 31, 1999 hereunder, the Company shall pay the Executive a guaranteed bonus under the incentive plan in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00), payable upon the Company's fiscal year end of May 31, 1999, it being agreed, however, that the 100% target bonus for the fiscal year ending May 31, 1999, will be Executive's relevant Base Annual Salary (an annualized figure as defined), prorated for the period beginning with the period of employment through May 31, 1999.

4.4. Long-term Incentive Opportunity. During the term of this Agreement, the Executive shall participate in any long-term incentive plan maintained by the Company, including, but not limited to, stock options, performance shares, restricted stock and long-term cash incentive plans, in a manner consistent with other executives of the Company, as reasonably determined by the Board of Directors of the Company.

4.5. Relocation and Commuting Benefits. For a two year period commencing with the execution of this Agreement, while the Executive remains an employee of the Company and commutes from Portland, Oregon, the Company shall lease in its name for the benefit and control of the Executive, a reasonably priced fully-furnished two bedroom apartment or two bedroom condominium in the Phoenix, Arizona area (maximum 2,500 square feet). During this two year period, the Company shall pay reasonable costs of coach class airline tickets for weekly travel for the Executive or his wife between Portland, Oregon and Phoenix, Arizona. Following this two year period, the Executive shall be responsible for all further commuting costs.

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4.5.1 If the Executive elects to move to the Phoenix area while employed by the Company, the Company will pay all reasonable and ordinary costs of relocating the Executive and his wife from Portland to the Phoenix area, including without limitation, moving costs, costs associated with selling the Executive's house in Portland (including, without limitation, real estate commissions), and reasonable and ordinary costs (other than purchase price) associated with purchasing a home in the Phoenix area. The Company shall not be responsible for any loss in equity incurred in the sale of the Executive's Portland, Oregon residence.

4.5.2 To the extent that any relocation or commuting benefit paid hereunder is taxable to the Executive, the Company shall pay to the Executive a full gross-up (except to the extent such expenditures by the Executive may be deducted on the Executive's personal income tax return) so that the amounts paid by the Company, net of the Executive's taxes, fully cover the relevant expenses.

4.6. Other Benefits. To the extent that the Executive is eligible under appropriate laws and regulations, the Executive shall be entitled to participate in and receive benefits under any and all pension, profit-sharing, health, disability and insurance plans, if any, which the Company may maintain. The Executive shall not receive automobile benefits or allowances.

4.7. Equity Incentive. Subject to shareholder approval to increase the number of authorized option shares, which is contemplated at the annual shareholders meeting scheduled for October 8, 1998, the Company shall grant the Executive options to purchase 300,000 shares of common stock of the Company. With respect to such options:

4.7.1. The exercise price for such options shall be the Company's per share market price at the close of business on October 8, 1998. The options will be non-qualified options, subject to all terms and conditions of the Company's 1995 Stock Option Plan. Except as set forth otherwise in the Stock Option Plan and herein, the options granted hereunder shall vest ratably (in 5 equal installments) and annually as of the end of each of the next 5 fiscal years ended May 31, with the first year's vesting to occur on May 31, 1999. Subject to the Stock Option Plan and this Agreement, vested options may be exercised for ten years from the date of grant. In the event of the death of the Executive, vested options may be exercised for one year from the date of death. In all other events, vested options must be exercised within 90 days of termination. Subject to the obligation of the Executive under the Company's 1995 Stock Plan for Employees and Directors to hold shares resulting from the exercise of an option for at least 6 months from the date the option was acquired, the

-3-

Company will cooperate in any same day exercise and sale (or if same is not available, a cashless exercise) associated with such options.

4.7.2 Upon termination of the Executive's employment, option vesting will cease; provided, however, that if any termination severance payment is due in connection therewith pursuant to Section 12.3, the Executive will receive an additional one year of vesting as of the date of termination. Payment of all amounts and benefits hereunder and additional vesting of stock shall be subject to compliance with the provisions of this Agreement and specifically the restrictive covenants set forth in Section 13 hereof.

4.8 Business Combination Severance Payment. If, within six (6) months of the date hereof, the Company has not closed a transaction to be merged with, acquire or be acquired by another company of at least approximate comparable size to the Company (based on annual sales), or if same is closed and Executive is not appointed President and Chief Executive Officer of the combined company, the Executive may terminate his employment hereunder, or if same is closed and Executive's employment as President and Chief Executive Officer is terminated (other than for cause) within one (1) year of such closing and except as otherwise provided in Section 12.2, then the Company shall pay the Executive a lump sum cash severance payment equal to two times his Base Annual Salary.

5. Duties. The Executive shall, subject to the right of the Board of the Company in its sole discretion to terminate Executive's employment pursuant to
Section 12.3 and thereby terminate his officer position, serve as President and Chief Executive Officer of the Company. As such, the Executive's duties and responsibilities shall include, but shall not be limited to, overseeing all corporate functions and directing the Company so as to seek to obtain sales and profit goals and maximum return on invested capital. The Executive's duties shall include the facilitation and execution of any plan of merger, acquisition or other business combination involving the Company as the Board of Directors shall reasonably direct. Subject to the approval of the Board of the Company, the President/Chief Executive Officer is responsible for the formulation of current and long range plans and objectives, and represents the organization with its customers and the business and non-business communities. The Executive shall also be responsible for the performance of such other duties and responsibilities as may be prescribed from time to time by the Board of Directors of the Company. The Board of Directors of the Company shall nominate the Executive, subject to their fiduciary duty as directors, for election by the shareholders to the Board of Directors.

6. Extent of Service. The Executive shall devote the Executive's full business time, attention, and energies to the business of the Company and its Affiliates and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such activity is pursued for gain, profit, or other pecuniary advantage, unless written approval is first secured from the Board of Directors of the

-4-

Company, with such approval not unreasonably being withheld. The following exception is agreed upon in advance: continued membership on the Board of Directors of Radisys.

7. Working Facilities. The Executive shall be furnished with office space, furnishings, secretarial support and such other facilities and services which are reasonably necessary for the performance of the Executive's duties.

8. Expenses. The Company will reimburse the Executive for all reasonable business expenses which are incurred by the Executive in the promoting of the interests of the Company upon presentation by the Executive from time to time (at least monthly) of an itemized account of such expenses containing such detail as may reasonably be required by the Board of Directors of the Company. In addition, the Company shall indemnify the Executive as a officer, director and employee to the maximum extent permitted under law and the Company's corporate documents.

9. Vacation. The Executive shall be entitled to paid vacation in accordance with Company policy as set forth in the Company's Employee Handbook. All vacation time shall be taken by the Executive at such times as shall be mutually agreed upon by the Executive and the Board of Directors of the Company.

10. Disability. If, as a result of sickness or other disability, the Executive is not able to perform the Executive's duties, this Section 10 shall apply as follows:

10.1. For the first ninety (90) consecutive days of sickness or other disability the Company shall continue to pay the Executive full Base Annual Salary (reduced by any payments from any short-term disability plan which may be maintained by the Company), and shall continue to pay premiums on then existing group life, health, disability and other insurance plans with respect to which the Executive participates, provided the Executive remains eligible to participate thereunder.

10.2 If the disability or other sickness continues past ninety (90) consecutive days, the Company, in its sole discretion, may elect to place the Executive on Disability Leave of Absence. During such period, the Company shall, for the remainder of the contract term, or until the Executive returns from such Disability Leave of Absence, continue to pay premiums on then existing group life, health, disability and other insurance plans with respect to which the Executive participates, provided the Executive remains eligible to participate thereunder. Further, the Company shall pay to the Executive, two-thirds (2/3) of the Executive's Base Annual Salary, reduced by any payments for which the Executive is eligible from any disability insurance programs maintained by the Company.

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11. Death. If the Executive dies during the term of this Agreement, the Company shall pay to the Executive's Beneficiary (or if there is no named Beneficiary, the estate of the Executive), the compensation as set forth in
Section 4 of this Agreement, for the period up to the date of the Executive's death, and the Executive's annual incentive award prorated through the date of death, payable at fiscal year end if and to the same extent bonuses are paid for that fiscal year to other executives generally. In no event shall the Company be obligated to pay to any person any other compensation with respect to any period following the date of the Executive's death.

12. Termination of Employment.

12.1. Termination for Cause. The Company may terminate the Executive's employment under this Section of the Agreement for Cause. Cause shall be defined as:

12.1.1. The Executive's Material Breach of this Agreement based on the Executive's willful or grossly negligent failure to perform his duties hereunder, which breach is not cured within ten (10) business days after written notice from the Company specifying such breach has been delivered to the Executive;

12.1.2. Commission by the Executive of any materially fraudulent or dishonest act in the performance of the Executive's duties hereunder, other than at the specific direction of the Board; or,

12.1.3. Arrest (unless the charges are dropped within 45 days) for any felony or crime involving moral turpitude. Executive agrees that following any such arrest and during the subsequent 45 day period he may, at the direction of the Board of Directors, be placed on unpaid leave of absence.

12.1.4. Following a Termination for Cause, the Company shall pay to the Executive the Base Annual Salary provided in Section 4.1 accrued up to the date of termination. In no event shall the Company be obligated to pay any other compensation with respect to any period before or after the date of such termination.

12.2. Termination Following a Change of Control. If in anticipation of and within 90 days of, or during a period of one (1) year following, a Change of Control (as hereinafter defined), the employment of the Executive is terminated by the Company for any reason other than Cause, or if the Executive is subject to Constructive Termination (as hereinafter defined), benefits shall be payable under this Section 12.2.

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12.2.1. The Executive shall receive all Base Annual Salary accrued up to the date of termination and, within thirty (30) days of termination, a single payment equal to the sum of (i) two (2) times the sum of the Executive's then current Base Annual Salary and (ii) the Executive's prorated target annual incentive award opportunity through date of termination.

12.2.2. All unvested stock options awarded to the Executive pursuant to the Company's stock option plans shall immediately vest in full to the Executive; provided that such stock options shall be exercisable only within ninety (90) days from such vesting.

12.3. Other Termination at the Election of the Company. Except as otherwise provided in Section 4.8, the Company may elect to terminate the employment of the Executive for any reason other than Cause or following a Change of Control, or to not renew the term of the Agreement, upon written notice to the Executive, accompanied by payment in a lump sum (except pursuant to Sections 12.3.2 and 12.3.3) of:

12.3.1. All compensation accrued up to the date of termination; plus

12.3.2. An amount equal to one (1) times the Executive's Base Annual Salary of record on the date of termination payable pro rata monthly over one year following termination; plus

12.3.3. The Executive's target annual incentive award, pro-rated through the date of termination and payable at fiscal year end if and to the same extent bonuses are paid for that fiscal year to other executives generally.

12.4. Benefit Payments. Following the termination of the Executive's employment for any reason, the Company shall pay to the Executive, under the terms of the Company's benefit plans, an amount equal to the vested benefits of the Executive in any pension or other benefit plan as of the termination date. If elected by the Executive, the Company shall, instead of direct payment to the Employer, transfer such funds to such other benefit plans as designated by the Executive.

13. Restrictive Covenants.

13.1. Executive understands that the Company's business involves the design, improvement, development, testing, manufacturing, marketing and sale of products, and that this business requires substantial investments in capital and substantial commitments of time and effort by the Company's employees. The Executive further understands that, as a result, certain of the Company's

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personnel, including the Executive, acquire information with respect to customer goodwill, trade secrets and Confidential Information (as hereinafter defined), which, of itself and apart from the Executive's abilities, could be of great value to a competitor of the Company, potential competitors of the Company, and to others.

13.2. The Executive further understands that employment with the Company is conditioned upon the Company's being able to place complete trust and confidence in the Executive and to rely on the Executive's doing everything possible to avoid the disclosure or use of Confidential Information to persons, corporations, organizations and others outside the Company, which may become known to, or subject to the control of the Executive during the term of employment hereunder. The Executive also understands that competition in the manufacture, sale, and development of products is not local in nature or scope, but involves various corporations, organizations and others located within the United States and throughout the world.

13.3. In recognition of these circumstances and for the purpose of inducing the Company to employ the Executive (or continue the employment of the Executive with appropriate compensation reviews) to repose trust and confidence in the Executive, and to make Confidential Information available to the Executive, the Executive agrees that the following restrictive covenants are necessary and proper for the protection of the Company.

13.4. Subject to Section 13.6 below, the Executive will promptly disclose and assign the Company, without the right to any form of compensation therefore, every invention that the Executive, individually or jointly with others, during the term of the Executive's employment with the Company and for a period of one (1) year following termination of such employment for any reason, may discover, invent, conceive or originate, relating in any way to the present or contemplated scope of the Company's business with regard to any of its clients, customers, or vendors or to any Product (as hereinafter defined), Technology (as hereinafter defined), process, or device dealt in, used or under development or manufacture by the Company for itself or others that results from or may be suggested by any work the Executive may do for the Company or at the Company's request and (in respect to the period of one (1) year following termination of such Executive) which involves Confidential Information. The Executive will fully cooperate with the Company in applying for and securing in the name of the Company or its designee patents or copyrights with respect to said Inventions (as hereinafter defined) in each country in which the Company may desire to secure patent or copyright protection. The Executive will promptly execute all proper documents presented to the Executive for signature by the Company to enable the Company or its designee to secure such patent or copyright protection and to transfer

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legal title therein, together with any patents or copyrights that may be issued thereon or in connection therewith, to the Company or its designee. The Executive will give such true information and testimony as may be requested of the Executive by the Company relative to any of said Inventions.

13.5. Subject to Section 13.6 below, the Company shall have the exclusive right to use in its business, and to make, use and sell products, processes, and/or services arising out of any Invention, whether or not patentable, which is assignable by the Executive to the Company pursuant to
Section 13.4 above.

13.6. The Executive is hereby notified that Sections 13.4 and 13.5 above do not apply to an Invention for which no equipment, supplies, facility, technology, confidential information, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless:

13.6.1. The Invention was related:

13.6.1.1. To the business of the Company; or

13.6.1.2. To the Company's actual or demonstrably anticipated research or development;

or;

13.6.2. The Invention results from any work performed by the Executive for the Company.

13.7. The Executive agrees that all financial data, customer lists, plans, contracts, agreements, literature, manuals, catalogues, brochures, books, records, computer files or applications, maps, correspondence, and other materials furnished or made available to the Executive by the Company or an Affiliate (as hereinafter defined), or any of its clients, or created, prepared or secured through the efforts of the Executive, relating to the business conducted by the Company or an Affiliate, whether or not containing any Confidential Information, are and shall remain the property of the Company, and the Executive agrees to deliver all such materials, including all copies thereof, to the Company upon termination of the Executive's employment hereunder, or at any other time at the Company's request.

13.8. Other than as expressly directed by the Company and in the performance of duties to the Company or with the expressed permission of the Company, the Executive shall never, during or following the Executive's

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employment with the Company, directly or indirectly, sell, use, disclose, lecture upon, or publish data of information containing or relating to any Confidential Information or Technology of the Company or its Affiliates or any Invention assignable to the Company pursuant to the terms of Section 13.4 above.

13.9. During the term of the Executive's employment with the Company and for a period of two (2) years after the termination thereof, the Executive agrees that the Executive will not:

13.9.1. Own or have any interest in, directly or indirectly, except through stock traded on a national stock exchange where the Executive owns less than one percent (1%) of the total issued and outstanding shares of such stock, or act as an officer, director, agent, employee, or consultant of, or assist in any way or in any capacity, any person, firm, association, partnership, corporation or other entity which sells or provides products or services in direct competition with the products or services of the Company or its Affiliates anywhere within the world where any Confidential Information acquired by the Executive would reasonably be considered advantageous to such other competing entity, or

13.9.2. Directly or indirectly entice, induce or in any manner influence any person who is, or shall be, in the service of the Company or its Affiliates to leave such service for the purpose of engaging in business or being employed by or associated with any person, firm, association, partnership, corporation or other entity which sells or provides products or services in competition with the Company or its Affiliates anywhere in the world.

If any court shall finally hold that the time, territory or any other provision of this Section 13.9 constitutes an unreasonable restriction against the Executive, the Executive agrees that the provisions hereof shall not be rendered null and void, but shall apply as to such time, territory, and other extent as such court may determine to be a reasonable restriction under the circumstances involved.

13.10. The Executive understands that if there is a breach by the Executive of any duty to the Company with respect to any Confidential Information or Invention, the Company may suffer irreparable injury and may not have adequate remedy at law. As a result, the Executive agrees that if a breach of this Agreement occurs, the Company may, in addition to any other remedies available to it, bring an action or actions for injunction, specific performance, or both, and have entered into a temporary restraining order, preliminary or permanent injunction, or other action compelling specific performance.

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14. Definitions.

14.1. "Affiliate" means any entity in which the Company, or any entity which owns, directly or indirectly, a majority ownership interest in the Company, owns, directly or indirectly, at least a twenty percent (20%) interest in such entity.

14.2. "Base Annual Salary" means the annualized value of the Executive's salary, based on the most recent pay period.

14.3. "Board" means the Board of Directors of the Company.

14.4. "Change in Duties" means:

14.4.1. A significant reduction in the nature or scope of the Executive's authority or duties from those immediately prior to the date on which a Change of Control occurs;

14.4.2. A reduction in the Executive's Base Annual Salary, other than as provided in Section 4.1;

14.4.3. Exclusion from any incentive or benefit program from which the Executive was previously eligible, and which other executives with comparable duties participate in; or

14.4.4. A change in location of the Executive's principal place of employment by more than fifty (50) miles.

14.5. "Change of Control" shall be deemed to have occurred upon:

14.5.1. A business combination, including a merger or consolidation, of the Company as a result of which the shareholders of the Company prior to the combination do not continue to own, directly or indirectly, more than fifty-one percent (51%) of the equity of the combined equity;

14.5.2. A sale, transfer, or other disposition in one or more transactions (other than in transactions in the ordinary course of business or in the nature of a financing) of the assets or earning power aggregating more than forty-five percent (45%) of the assets or operating revenues of the Company to any person or affiliated or associated group of persons (as defined by Rule 12b-2 of the Exchange Act in effect as of the date hereof);

14.5.3. The liquidation of the Company;

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14.5.4. One or more transactions which result in the acquisition by any person or associated group of persons (other than the Company, any Executive benefit plan whose beneficiaries are Executives of the Company or any of its subsidiaries) of the beneficial ownership (as defined in Rule 13d-3 of the Exchange Act, in effect as of the date hereof) of forty percent (40%) or more of the Common Stock of the Company or securities representing forty percent (40%) or more of the combined voting power of the voting securities of the Company, provided such affiliated persons owned less than forty percent (40%) prior to such transaction or transactions; or

14.5.5. The election or appointment, within a twelve (12) month period, of any person or affiliated or associated group, or its or their nominees, to the Board of Directors of the Company, such that such persons or nominees, when elected or appointed, constitute a majority of the Board of Directors of the Company and whose appointment or election was not approved by a majority of those persons who were directors at the beginning of such period or whose election or appointment was made at the request of an Acquiring Person. An "Acquiring Person" is any person who, or which, together with all affiliates or associates of such person, is the beneficial owner of twenty percent (20%) or more of the Common Stock of the Company then outstanding, except that an Acquiring Person does not include the Company or any Executive benefit plan of the Company or any of its subsidiaries or any person holding Common Stock of the Company for or pursuant to such plan. For the purpose of determining who is an Acquiring Person, the percentage of the outstanding shares of the Common Stock of which a person is a beneficial owner shall be calculated in accordance with Rule 13d-e of the Exchange Act.

14.6. "Code" means the Internal Revenue Code of 1986, as from time to time amended.

14.7. "Company" means SpeedFam International, Inc., an Illinois corporation.

14.8. "Confidential Information" means any and all Technology and/or information which:

14.8.1. Is provided to the Executive by the Company;

14.8.2. Is created, developed, or otherwise generated by or on behalf of the Company;

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14.8.3. Concerns or relates to any aspect of the Company's business; or

14.8.4. Is, for any reason, identified by the Company as confidential.

14.8.5. Notwithstanding the foregoing provisions of this Section 14.8, Confidential Information shall not include such information which the Executive can show, clearly and convincingly:

14.8.5.1. Is publicly and openly known and in the public domain;

14.8.5.2. Becomes publicly and openly known and in the public domain through no fault of the Executive; or

14.8.5.3. Is in the Executive's possession and documented prior to this Agreement, lawfully obtained from a source other than from the Company, and not subject to any obligation of confidentiality or restricted use.

14.9. "Constructive Termination" means the voluntary termination of employment by the Executive following a Change in Duties following a Change of Control.

14.10. "Exchange Act" means the Securities Exchange Act of 1934, as from time to time amended.

14.11. "Invention" means any new or useful art, discovery, or improvement (including any technologies, tests, programs, products, concepts, ideas, apparatus, equipment, machinery, processes, methods, formulae, designs or techniques), whether or not related to a Product and whether or not patentable, and all the know-how related thereto.

14.12. "Material Breach" means a willful or grossly negligent failure to perform the Executive's duties as set forth in this Agreement.

14.13. "Product" means any product or service which is, or may in the reasonable future be, manufactured, sold, designed, developed, considered by, or of interest to the Company or an Affiliate (including, but not limited to, any product or service involving CMP planarization technology, such as CMP-V tools or any free-abrasive machining, lapping, polishing and grinding).

14.14. "Technology" means prototypes, models, concepts, inventions, circuit designs, drawings, hardware, technological developments and improve-

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ments, methods, techniques, systems, documentation, data, works of authorship, products, and related information whether or not patentable, copyrightable, and whether or not presently used or used in the future.

14.15. "Voting Securities" means any securities which ordinarily possess the power to vote in the election of directors without the happening of any precondition or contingency.

15. Miscellaneous.

15.1. This Agreement supersedes all prior agreements and understandings by and between the Executive and the Company and any of its Affiliates or their respective directors, officers, shareholders, employees, attorneys, agents, or representatives, including any Severance Agreement, Employment Letter, Employment Terms, Non-Disclosure Agreement and/or Employment Agreement (including change of control provisions) and constitutes the entire agreement between the parties, respecting the subject matter hereof and there are no representations, warranties or other commitments other than those expressed herein.

15.2. The Executive represents and warrants to the Company that the Executive is not a party to or bound by, and the employment of the Executive by the Company or the Executive's disclosure of any information to the Company or its use of such information will not violate or breach any employment, retainer, consulting, license, non-competition, non-disclosure, trade secrets or other agreement between the Executive and any other person, partnership, corporation, joint venture, association or other entity.

15.3. No modification or amendment of, or waiver under, this Agreement shall be valid unless signed in writing and signed by the Executive and an appropriate officer of the Company, pursuant to expressed authority of the Board of Directors of the Company.

15.4. The Executive agrees to indemnify the Company and its Affiliates against, and to hold the Company and its Affiliates harmless from, any and all claims, lawsuits, losses, damages, expenses, costs and liabilities, including, without limitation, court costs and attorney's fees, which the Company or any of its Affiliates may sustain as a result of, or in connection with, either directly or indirectly, the Executive's breach or violation of any of the provisions of this Agreement.

15.5. The Company agrees to indemnify the Executive against, and to hold the Executive harmless from, any and all claims, lawsuits, losses, damages, expenses, costs and liabilities, including, without limitation, court costs and

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attorney's fees, which the Executive may sustain as a result of, or in connection with, either directly or indirectly, the breach or violation by the Company or its Affiliates of any of the provisions of this Agreement or any applicable law or regulations.

15.6. The Executive hereby agrees that if the Executive violates any provision of this Agreement, the Company will be entitled, if it so elects, to institute and prosecute proceedings at law or in equity to obtain damages with respect to such violation or to enforce the specific performance of this Agreement by the Executive or to enjoin the Executive from engaging in any activity in violation hereof.

15.7. The waiver by either party to this Agreement of a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any subsequent breach.

15.8. Any communication which may be required under this Agreement shall be deemed to have been properly given when delivered personally at the address set forth below for the intended party during normal business hours, when sent by facsimile or other electronic transmission to the respective facsimile transmission numbers of the parties set forth below with telephone confirmation of receipt, or when sent by U.S. registered or certified mail, return receipt requested, postage prepaid as follows:

If to the Company:       SpeedFam International, Inc.
                         305 N. 54th Street
                         Chandler, AZ 85226-2416
                         Attention: Chairman of the Board
                         Facsimile: 602-705-2122
                         Confirm: 602-705-2100

If to the Executive:     Richard J. Faubert
                         3359 N.W. 123rd Place
                         Portland, Oregon 97229
                         Confirm: 508-784-3563

Notices shall be given to such other addressee or address, or both, or by way of such other facsimile transmission number, as a particular party may from time to time request by written notice to the other party to the Agreement. Each notice, request, demand, approval or other communication which is sent in accordance with this Section shall be deemed to be delivered, given and received for all purposes of this Agreement as of two (2) business days after the date of deposit thereof for mailing in a duly constituted U.S. post office or branch thereof, one (1) business day after deposit with a recognized overnight courier

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service or upon written confirmation of receipt of any facsimile transmission. Notice given to a party hereto by any other method shall only be deemed to be delivered, given and received when actually received in writing by such party.

15.9. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive and their respective heirs, personal representatives, successors and assigns.

15.10. All claims, disputes and other matters in question arising out of, or relating to this Agreement, or the breach thereof, shall be decided by arbitration, pursuant to the rules established by the American Arbitration Association for the arbitration of such disputes, and such arbitration shall occur in Chandler, Arizona.

15.11. This Agreement may be signed in multiple counterparts which when taken together shall constitute the entire Agreement.

15.12 This Agreement shall be governed and construed in accordance with the laws of the State of Arizona.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

SPEEDFAM INTERNATIONAL, INC. an Illinois
Corporation

By: /s/ Peter Simone
    -----------------------------------
    Peter Simone
    Title: Chairman

Executive

        /s/ Richard J. Faubert           10/8/98
---------------------------------------
          Richard J. Faubert

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EXHIBIT 10.28

September 24, 2002

Mr. Robert Smith
125 Lakeview Drive

Woodside, CA 94062-1124

Dear Bob:

Congratulations on your retirement as an officer of Novellus effective September 30, 2002. While you will continue as an employee advisor to the Company over the next several years, it will not be at the hectic pace of the last five years.

As you and I discussed, you will receive a one time bonus payment of $325,000 on October 1, 2002. In addition, you will go to one half salary ($162,500 annualized) from October 1, 2002 until September 30, 2003, at which time you will further reduce to one quarter salary ($81,250 annualized) from October 1, 2003 until September 30, 2004. Beginning October 1, 2004 your salary will be reduced to $40,625 until September 30, 2006 at which time all payments from Novellus will cease.

Your participation in the Employee Stock Purchase Plan via after-tax payroll deductions will continue until September 30, 2006, unless you choose to stop your contributions and withdraw from the Plan. Your outstanding unvested stock options will immediately vest as of September 30, 2002. You may exercise your Company stock options until September 30, 2006. After September 30, 2006, all vested stock options will lapse if not exercised within ninety (90) days.

Novellus will continue to pay one hundred percent of the cost of your medical, dental, vision, life and long term disability insurance coverage and a portion for your dependents during this entire period. Your pre-tax payroll deductions for your share in the cost of dependent coverage must continue in order to maintain coverage for them. The life insurance benefit would be paid to your beneficiary at 2x the rate of your current salary. That means if your salary was $40,625 it would pay the maximum benefit allowed of $81,250. After September 30, 2006 you will be eligible to convert your life insurance coverage to an individual policy.

After September 30, 2006 you will also be eligible to convert certain benefits including your medical, dental, and vision insurance coverage under COBRA for up to 18 months, and will be provided with information describing this conversion election at that time. Except for the terms outlined in this letter, you will not be entitled to any compensation, benefits or other perquisites of employment after September 30, 2006.

It has been enjoyable working with you over the last five years. You have made many lasting contributions to the company that will always be appreciated. You have had a lasting effect on the company and the people with whom you have worked and we look forward to continuing to work with you over the next four years.

Sincerely,

NOVELLUS SYSTEMS, INC.

Richard S. Hill
Chairman and CEO

Cc: Novellus Board of Directors
Novellus Human Resources Department

EXHIBIT 10.29

SEPARATION AGREEMENT AND GENERAL RELEASE

In consideration of the commitments set forth below, Asuri S. Raghavan ("you") and Novellus Systems, Inc. ("Novellus") enter into this Separation Agreement and General Release ("Release").

1. SEVERANCE BENEFIT. Within ten (10) days after your execution of the Release, you will be eligible to receive from Novellus the benefits described in subparagraphs 1.a. and 1.b. below, which, for purposes of this Release will be defined as the "Severance Benefit."

a. Continuation of your base salary for a period of two (2) years and an annual bonus payment up to 100% of your total target bonus amount, which will be paid in accordance with Novellus' normal payroll and bonus payout procedures, respectively; and

b. Continued vesting of the Incentive Stock Option of 300,000 shares described in your January 12, 2001 offer letter with Novellus for two (2) years or until fully vested, whichever occurs first, and continued vesting for two (2) years of any stock option grants that you received in addition to the Incentive Stock Option of 300,000 shares described in your January 12, 2001 offer letter with Novellus.

c. In addition, if you properly elect to continue your benefits under COBRA, Novellus will pay your COBRA premiums from the date of termination, February 5, 2003 through March 31, 2003. Your Medical, Dental, Vision, Employee Assistance Program, insurance coverage will be uninterrupted for the duration of the severance. You will also be eligible to convert certain benefits including your Medical, Dental, Vision, Employee Assistance Program, insurance coverage under COBRA for up to 18 months, and will be provided with information describing this conversion election.

The Severance Benefit shall be less any applicable withholdings. In addition, Novellus makes no representations or warranties regarding the tax consequences of the Severance Benefit and will issue a W-2 and/or Form 1099-MISC as it deems appropriate. You will be eligible for the Severance Benefit within ten (10) days of Novellus' receipt of this Release signed by you. You acknowledge that you are not otherwise entitled to this consideration under the policies and procedures of Novellus, GaSonics, or applicable law.

2. RELEASE OF CLAIMS. In return for the Severance Benefit, you, including your representatives, heirs, successors, and assigns, completely release and forever discharge from and agree to not file, cause to be filed or pursue against GaSonics or Novellus, including their respective affiliated corporations, present and former officers, directors, agents, employees, and assigns ("Released Parties") all claims, rights, demands, actions, liabilities, causes of action, and obligations of any kind whatsoever, whether known or unknown, suspected or unsuspected, which you may now have or ever have had against the Released Parties from the beginning of time through the Effective Date (as defined below) including, but not limited to, claims for breach of contract, tort, employment discrimination (including any claims arising under Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Arizona Civil Rights Act, the Americans with Disabilities Act, the Worker Adjustment and Retraining Notification Act), and all claims otherwise arising from your employment relationship with any

of the Released Parties or termination thereof, including claims for stock grants or options, compensation, severance pay, any and all claims for violation of any federal, state, or municipal statutes or common law, and any and all claims for attorneys' fees and costs ("Released Claims").

3. AGE DISCRIMINATION CLAIMS. You also acknowledge that the release of claims under the Age Discrimination in Employment Act ("ADEA") is subject to special waiver protection. Accordingly, you specifically agree that you knowingly and voluntarily release and waive any rights or claims of discrimination under the ADEA. In particular, you represent and acknowledge that you understand the following: (a) you are not waiving rights or claims for age discrimination under the ADEA that may arise after the date you sign this Release; (b) you are waiving rights or claims for age discrimination under the ADEA in exchange for the payments described herein; (c) you have been given an opportunity to consider fully the terms of this Release for twenty-one (21) days, although you are not required to do so and have the option of signing earlier; (d) no change to the terms of this Release, whether material or immaterial, will extend the twenty-one (21) day review period; (e) you have been advised to consult with an attorney of your choosing before signing this Release; (f) you understand you have seven (7) days after you sign this Release in which to revoke only your waiver of ADEA claims in this Release by sending a certified letter to that effect to David Powell, HR Director, 3970 N. First Street, M/S 235 San Jose, CA 95134; and (g) the portion of this Release that pertains to the release of claims under the ADEA shall not become effective or enforceable until the 7-day revocation period has expired, but that all other provisions of this Release will become effective upon your execution of this Release ("Effective Date").

4. RELEASE OF UNKNOWN CLAIMS. You further agree that because this Release specifically covers known and unknown claims, you waive your rights under Section 1542 of the California Civil Code or under any other comparable law of another jurisdiction that limits a general release to claims that are known to exist at the date of this Release. Section 1542 of the California Civil Code states as follows:

A general release does not extend to claims that the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement to the debtor.

5. PROPRIETARY INFORMATION AND POST-TERMINATION OBLIGATIONS. You agree not to disclose, use or otherwise misappropriate any trade secrets or other confidential and proprietary information belonging to any of the Released Parties or acquired by you during your employment with any of the Released Parties. You also acknowledge that agreements you signed related to the proprietary, confidential, and/or trade secret information of any of the Released Parties, including but not limited to your January 11, 2001 Novellus Systems, Inc. Employee Proprietary Information and Inventions Agreement, remain in effect even following your execution of this Release. You further agree that you shall not, for yourself or any third party, directly or indirectly
(a) divert or attempt to divert from the Company any business of any kind, including without limitation the solicitation or interference with any of its customers, clients, members, business partners or suppliers, or (b) solicit or otherwise induce any person employed by Novellus to terminate his or her employment.

6. CONFIDENTIALITY. You further agree to maintain this Release and its contents in the strictest confidence and agree that you will not disclose the terms of this Release to any third party without the prior written consent of Novellus, unless otherwise required by law. You also agree not to make any disparaging statements about any of the Released Parties. Notwithstanding the foregoing, you may disclose the terms of this Release to your spouse, and for legitimate business reasons, to legal, financial, and tax advisors.

7. ARBITRATION. The parties agree that any and all disputes arising out of the terms of this Release or their interpretation, or any of the matters herein being released shall be resolved by final and binding arbitration in Santa Clara County, California before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes.

8. ENTIRE AGREEMENT. The parties also agree that this letter contains all of our agreements and understandings with respect to the subject matter of this Release and may not be contradicted by evidence of any prior contemporaneous agreement, except to the extent that the provisions of any such agreement have been expressly referred to in this Release as having continued effect. With the exception of enforceability issues related to the arbitration procedure in the preceding section, which shall be governed by the Federal Arbitration Act, it is agreed that this Release shall be governed by the laws of the State of California. If any provision of this Release or the application thereof to any person, place, or circumstance shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Release and such provision as applied to other person, places, and circumstances shall remain in full force and effect.

9. KNOWING WAIVER. Finally, you acknowledge each of the following: (a) you have read this Release or have been afforded every opportunity to do so;
(b) you are fully aware of the Release's contents and legal effect; and (c) you have chosen to enter into this Release freely, without coercion and based upon your own judgment and not in reliance upon any promises other than those contained in this Release.

/s/  Asuri S. Raghavan                   Date:    2/5/03
------------------------------------          --------------
     Asuri S. Raghavan

/s/ Alyssa Marcyes Date: 2/5/03 am 2/5/03

Alyssa Marcyes, Employee Relations Mgr.

/s/ D.S. Powell           2/5/03
Novellus Systems, Inc.

EXHIBIT 10.30

SPEEDFAM-IPEC, INC.

1995 STOCK PLAN

as amended and restated as of July 27, 2001

1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Compensation Committee or any successor thereto of the Board of Directors of the Corporation or by such other committee as shall be determined by the Board of Directors which shall administer the Plan, in accordance with Section 4 of the Plan. The Committee shall consist of not less than two members of the Board of Directors, each of whom shall qualify as a "disinterested person" to administer the Plan as contemplated by Rule 16b-3, as amended, or other applicable rules under Section 16(b) of the Securities Exchange Act of 1934, as amended.

(b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan.

(d) "Change in Control" means the occurrence of any of the following events:

(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets;

(iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" means directors who either (A) are Directors as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(g) "Common Stock" means the common stock of the Company.

(h) "Company" means Speedfam-IPEC, Inc., an Illinois corporation.

(i) "Consultant" means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such

exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

(o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(p) "Inside Director" means a Director who is an Employee.

(q) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.

(r) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement.

(s) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(t) "Option" means a stock option granted pursuant to the Plan.

(u) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(v) "Option Exchange Program" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

(w) "Optioned Stock" means the Common Stock subject to an Option or Stock Purchase Right.

(x) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(y) "Outside Director" means a Director who is not an Employee.

(z) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.

(aa) "Plan" means this 1995 Stock Plan.

(bb) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

(cc) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 1 6b-3, as in effect when discretion is being exercised with respect to the Plan.

(ee) "Section 16(b)" means Section 16(b) of the Exchange Act.

(ff) "Service Provider" means an Employee, Director or Consultant.

(gg) "Share" means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

(hh) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ii) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of
Section 14 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 5,300,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.

(ii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. -

(iii) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted;

(vii) to institute an Option Exchange Program;

(viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(x) to modify or amend each Option or Stock Purchase Right (subject to Section 16(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;

(xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator;

(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations.

(a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause.

7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total

combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

(c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which, in the case of Shares acquired directly or indirectly from the Company, (A) have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

(v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised following the Optionee's death within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's designated beneficiary, provided such beneficiary has been designated prior to Optionee's death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee's estate or by the person(s) to whom the Option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following Optionee's death. If, at the time of death, Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

11. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

(d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

12. Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate.

13. Formula Option Grants to Outside Directors. Discretionary awards can be made to Outside Directors pursuant to Section 4(b) hereof. All grants of Options to Outside Directors pursuant to this Section 13, however, shall be automatic and shall be made in accordance with the following provisions:

(a) All Options granted pursuant to this Section shall be Nonstatutory Stock Options and, except as otherwise provided herein, shall be subject to the other terms and conditions of the Plan.

(b) Each person who first becomes an Outside Director following the effective date of this Plan, as determined in accordance with
Section 7 hereof, shall be automatically granted an Option to purchase 15,000 Shares (the "First Option") or the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option.

(c) Each Outside Director shall be automatically granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the date of the annual meeting of the stockholders of the Company, if as of such date, he or she shall have served on the Board for at least the preceding six (6) months.

(d) Notwithstanding the provisions of subsections (c) and
(d) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 20 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 20 hereof.

(e) The terms of each Option granted pursuant to this
Section shall be as follows:

(i) the term of the Option -shall be ten (10) years.

(ii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option.

(iii) subject to Section 14 hereof, the First Option and the Subsequent Option shall be immediately exercisable and fully vested.

14. Adjustments Upon Changes in Capitalization, Merger or Change in Control.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, the number of Shares that may be added annually to the Plan pursuant to Section
3(i), the number of shares which may be granted pursuant to the automatic grant provisions of Section 13 and the number of shares of Common Stock as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Options granted to an Outside Director pursuant to Section 13 that are assumed or substituted for, if

following such assumption or substitution the Optionee's status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, then the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercise.

In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period.

For the purposes of this subsection (c), the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

15. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

16. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in

writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

17. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

18. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

20. Shareholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

[SpeedFam-IPEC LOGO]

Pursuant to the terms and conditions SpeedFam-IPEC, Inc.'s 1995 Employee Stock Option Plan (the "Plan"), you have been granted AN INCENTIVE STOCK OPTION to purchase shares (the "Option") of stock as outlined below.

Grant Date:

Options Granted:

Option Price per share: $ Total Cost to Exercise: $

Expiration Date:

Vesting Schedule:

Very truly yours,

SPEEDFAM-IPEC, INC.

By:

By my signature below, I hereby acknowledge receipt of this Option granted on the date shown above, which has been issued to me under the terms and conditions of the Plan. I further acknowledge receipt of the copy of the Plan and agree to conform to all of the terms and conditions of the Option and the Plan.

Signature:                                        Date:
           -------------------------------------        ----------------------



SpeedFam-IPEC, Inc.
305 North 54th Street, Chandler, AZ 85226-2416
Phone: 480.705.2100  Fax: 480.705.2122
www.sfamipec.com                                                       RJF:rms

EXHIBIT 10.31

SPEEDFAM-IPEC, INC.

2001 NONSTATUTORY STOCK OPTION PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.

I. NOTICE OF STOCK OPTION GRANT

(See Attached Cover Letter)

Exercise Schedule:

This Option shall only become exercisable, to the extent vested, on the date 30 days following the Date of Grant.

Termination Period:

This Option may be exercised for 90 days after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for such longer period as provided in the Plan. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

II. AGREEMENT

1. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

2. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Jeannine Ehrlich, Senior Treasury Analyst. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash;

(b) check;

(c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or

(d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

6. Tax Consequences. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a) Exercising the Option. The Optionee may incur regular federal income tax liability upon exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

(b) Disposition of Shares. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

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7. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Illinois.

8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By your signature and the signature of the Company's representative on the attached cover letter, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address.

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EXHIBIT A

SPEEDFAM-IPEC, INC.

2001 NONSTATUTORY STOCK OPTION PLAN

EXERCISE NOTICE

SpeedFam-IPEC, Inc.
305 North 54th Street
Chandler, Arizona 85226

Attention: Jeannine Ehrlich, Senior Treasury Analyst

1. Exercise of Option. Effective as of today, ________________, _____, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of SpeedFam-IPEC, Inc. (the "Company") under and pursuant to the 2001 Nonstatutory Stock Option Plan (the "Plan") and the Stock Option Agreement dated, _________, ___ (the "Option Agreement"). The purchase price for the Shares shall be [$_______], as required by the Option Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 12 of the Plan.

5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Illinois.

Submitted by:                                Accepted by:

PURCHASER                                    SPEEDFAM-IPEC, INC.

________________________                     ________________________
Signature                                    By

________________________                     ________________________
Print Name                                   Title

                                             ________________________
                                             Date Received

Address:                                    Address:    305 North 54th Street
              _______________________
                                                        Chandler, Arizona  85226
              _______________________

              _______________________

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SPEEDFAM-IPEC, INC.

2001 NONSTATUTORY STOCK OPTION PLAN

1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option Plan are:

- to attract and retain the best available personnel for positions of substantial responsibility,

- to provide additional incentive to Employees and Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan will be Nonstatutory Stock Options.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan.

(d) "Change in Control" means the occurrence of any of the following events:

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets;

Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(g) "Common Stock" means the Common Stock of the Company.

(h) "Company" means SpeedFam-IPEC, Inc. an Illinois corporation.

(i) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) "Employee" means any person, including Officers, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

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the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

(o) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement.

(p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(q) "Option" means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(r) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(s) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price.

(t) "Optioned Stock" means the Common Stock subject to an Option.

(u) "Optionee" means the holder of an outstanding Option granted under the Plan.

(v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.

(w) "Plan" means this 2001 Nonstatutory Stock Option Plan.

(x) "Service Provider" means an Employee including an Officer, Consultant or Director.

(y) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan.

(z) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.

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3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is three million (3,000,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated).

4. Administration of the Plan.

(a) Administration. The Plan shall be administered by (i) the Board or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws.

(i) to determine the Fair Market Value of the Common Stock;

(ii) to select the Service Providers to whom Options may be granted hereunder;

(iii) to determine whether and to what extent Options are granted hereunder;

(iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder;

(v) to approve forms of agreement for use under the Plan;

(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted;

(viii) to institute an Option Exchange Program;

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(ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(x) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

(xi) to modify or amend each Option (subject to
Section 14(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;

(xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator;

(xiii) to determine the terms and restrictions applicable to Options;

(xiv) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and

(xv) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options.

5. Eligibility. Options may be granted to Service Providers except Officers and Directors; provided, however, that Options may be granted to Officers in connection with the Officer's initial employment by the Company.

6. Limitation. Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause.

7. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement.

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9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator.

(c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

(v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or

(viii) any combination of the foregoing methods of payment.

10. Exercise of Option.

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exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or

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her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

11. Non-Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate.

12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Change in Control.

(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option shall be assumed or an

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equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation.

In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period.

For the purposes of this subsection (c), the Option shall be considered assumed if, following the merger or Change in Control, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

14. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination.

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15. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

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EXHIBIT 10.32

INTEGRATED PROCESS EQUIPMENT CORPORATION

1992 STOCK OPTION PLAN

1. Purposes of the Plan. The purposes of this Stock Plan are:

- to attract and retain the best available personnel for positions of substantial responsibility,

- to provide additional incentive to Employees and Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the legal requirements relating to the administration of stock option plans under state corporate and state securities laws and the Code.

(d) "Code" means the Internal Revenue Code of 1986, as amended.

(e) "Committee" means a Committee appointed by the Board in accordance with Section 4 of the Plan.

(f) "Common Stock" means the Common Stock of the Company, $.01 par value per Share.

(g) "Company" means Integrated Process Equipment Corporation, a Delaware corporation.

(h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services and who is compensated for such services, and any Director of the Company whether compensated for such services or not.

(i) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of

(i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock/Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(l) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

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(o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(p) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.

(q) "Notice of Grant" means a written notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement.

(r) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(s) "Option" means a stock option granted pursuant to the Plan.

(t) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(u) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price.

(v) "Optioned Stock" means the Common Stock subject to an Option or Stock Purchase Right.

(w) "Optionee" means an Employee or Consultant who holds an outstanding Option or Stock Purchase Right.

(x) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code.

(y) "Plan" means this 1992 Stock Option Plan.

(z) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 below.

(aa) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

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(cc) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended.

(dd) "Share" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(ee) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ff) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 4,050,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership.

4. Administration of the Plan:

(a) Procedure.

(i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Optionees.

(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

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(iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(n) of the Plan;

(ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, are granted hereunder;

(iv) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder;

(v) to approve forms of agreement for use under the Plan, which agreements need not be identical;

(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted;

(viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

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(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend the post-termination ? period of Options longer than is otherwise provided for in the Plan;

(xi) to authorize any person to execute on behalf of the Company any instrument ? to effect the grant of an Option or Stock Purchase Right previously granted by the administrator;

(xii) to institute an Option Exchange Program;

(xiii) to determine the terms and restrictions applicable to Options and Stock Purchase Rights and any Restricted Stock; and

(xiv) to make all other determinations deemed necessary or advisable for administering the Plan.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Option or Stock Purchase Right may be granted additional Options or Stock Purchase Rights.

6. Limitations

(a) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's employment or consulting relationship with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause.

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No Employee shall be granted, in any fiscal year of the Company, Options ? Rights to purchase more than 1,000,000 Shares.

In connection with his or her initial employment, an Employee may be ? Stock Purchase Rights to purchase up to an additional 1,000,000 Shares which ? the limit set forth in subsection (i) above.

The foregoing limitations shall be adjusted proportionately in connection ? Company's capitalization as described in Section 13.

If an Option or Stock Purchase Right is cancelled in the same fiscal year of ? it was granted (other than in connection with a transaction described in ? Option or Stock Purchase Right will be counted against the limits set forth ?
(ii) above. For this purpose, if the exercise price of an Option or Stock ?, the transaction will be treated as a cancellation of the Option or Stock ? grant of a new Option or Stock Purchase Right.

? Plan. Subject to Section 19 of the Plan, the Plan shall become effective upon ? its adoption by the Board or its approval by the stockholders of the Company ? of the Plan. It shall continue in effect for a term of ten (10) years unless ?
Section 15 of the Plan.

? Option. The term of each Option shall be stated in the Notice of Grant; ? that in the case of an Incentive Stock Option, the term shall be ten (10) years ? or such shorter term as may be provided in the Notice of Grant. Moreover, in ? Stock Option granted to an Optionee who, at the time the Incentive Stock ? owns stock representing more than ten percent (10%) of the voting power of all ? the Company or any Parent or Subsidiary, the term of the Incentive Stock Option ? from the date of grant or such shorter term as may be provided in the Notice of ?.

? Exercise Price and Consideration.

? Exercise Price. The per share exercise price for the Shares to be issued pursuant ? shall be determined by the Administrator, subject to the following:

?) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive Stock Option is ? representing more than ten percent (10%) of the voting power of all classes of ? or any Parent or Subsidiary, the per Share exercise price shall be no less than ? Value per Share on the date of grant.

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(ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date or grant.

(b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. In so doing, the Administrator may specify that an Option may not be exercised until the completion of a service period.

(i) cash;

(ii) check;

(iii) promissory note;

(v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

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(a) Procedure for Exercise; Rights as a Stockholder. Any option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 13 of the Plan.

(b) Termination of Employment or Consulting Relationship. Upon termination of an Optionee's Continuous Status as an Employee or Consultant, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. In the case of an Incentive Stock Option, such period of time for exercise shall not exceed three (3) months from the date of termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

Notwithstanding the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in such event, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three months and one day following such change of status.

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(c) Disability of Optionee. In the event that an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option at any time within twelve (12) months from the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by the Option shall revert to the Plan.

(d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

11. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer, which shall in no event exceed six (6) months from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser.

(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when

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his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.

12. Non-Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate.

13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option or Stock Purchase Right has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any Option or Stock Purchase Right shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option or Stock Purchase Right as to all or any part of the Optioned Stock, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable.

(c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the

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Optionee shall have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If an Option or Stock Purchase Right is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

14. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted). Such stockholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the applicable law, rule or regulation.

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16. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option of Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws, and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

17. Liability of Company.

(a) Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an Option or Stock Purchase Right exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional stockholder approval, such Option or Stock Purchase Right shall be void with respect to such excess Optioned Stock, unless stockholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 15(b) of the Plan.

18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

19. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under applicable federal and state law.

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EXHIBIT 10.33

SEPTEMBER 1, 1997

SPEEDFAM INTERNATIONAL, INC.

1991 EMPLOYEE INCENTIVE STOCK OPTION PLAN
AS AMENDED AND RESTATED JULY 27, 1995
AND AS FURTHER AMENDED AS OF SEPTEMBER 1, 1997

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933

The SpeedFam International, Inc. 1991 Employee Incentive Stock Option Plan (the "Plan") was approved by the Board of Directors of SpeedFam International, Inc. on July 27, 1995 and by shareholders of SpeedFam International, Inc. on July 27, 1995. This Plan is being provided to potential Plan participants, as required by certain federal securities provision. Additional information regarding the Plan may be obtained by contacting Addo C. Barrows III, 305 North 54th Street, Chandler, Arizona, 85226, phone (602) 705-2100. No reports are sent out detailing options above and exercised, but this information may be obtained by contacting Addo C. Barrows III at the phone number and address above.

Currently, SpeedFam International, Inc. intends to provide stock for the exercise of options from authorized but unissued shares of common stock. However, in order to prevent dilution, SpeedFam International, Inc. may in the future decide to satisfy options through shares of common stock purchased on the open market. The Compensation Committee of SpeedFam International, Inc. consists of three non-employee Directors who each serve for a one year term.

The purpose of the Plan is to strengthen the ability of SpeedFam International, Inc. (formerly FamTec International, Inc.), an Illinois corporation (the "Company"), to reward valued employees by furnishing them with additional incentives to continue in its service and to use their maximum efforts on its behalf.

This purpose will be effected by the granting of stock options under the Plan to purchase shares of Common Stock of the Company which will qualify as "incentive stock options" under the provisions of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").

As used herein "Board of Directors" means the Board of Directors of the Company.

(1) Shares of Stock Subject to the Plan. The total number of shares of Common Stock of the Company which may be issued and sold pursuant to options granted hereunder shall not exceed One Million Five Hundred Thousand (post July 27, 1995 stock split shares) (1,500,000) shares. Options granted hereunder shall apply to the Company's no-par value Common Stock.

(2) Eligibility. Options may be granted hereunder only to persons who are employees of the Company or of any subsidiary (as defined in Section 425 of the Code) of the Company. No person may be granted an option hereunder who possesses more than ten percent (10%) of the total combined voting power of all classes of stock of the Company at the time the option is granted unless the terms of the option comply with the special provisions of sections (3) and (4)(b) of this Plan relating to employees who own more than such percentage of stock. The Board of Directors shall determine the employee or employees to be granted options under the Plan, the number of shares subject to each option, and the period and terms and conditions of each option in accordance with the provisions of the Plan. An option granted to an employee is exercisable, during the employee's lifetime, only by the employee, and following the employee's death, only in conformance with Section (6) of the Plan.

(3) Option Price. The purchase price of the Common Stock covered by each option awarded to an Employee shall be determined by the Compensation Committee; provided, however, that the purchase price shall not be less than 100% of the fair market value of the Common Stock on the date the option is granted. Fair market value shall mean,

(a) if the Common Stock is duly listed on a national securities exchange or on the National Association of Securities Dealers Automatic Quotation System/National Market System ("NASDAQ"") ("Duly Listed"), the closing price of the Common Stock for the date on which the option is granted, or, if there are no sales on such date, on the next preceding day on which there were sales, or

(b) if the Common Stock is not Duly Listed, the fair market value of the Common Stock for the date on which the option is granted, as determined by the Compensation Committee in good faith.

(4) Restrictions.

(a) No option may be granted under the Plan after May 31, 2001.

(b) No option granted under the Plan may be exercised more than Ten
(10) years after the date on which it is granted; provided, however, when the employee to whom an option is being granted owns, at the time the option is granted, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, in no event may such option, by its terms, be exercised more than five (5) years after the date on which it is granted.

(c) The aggregate fair market value (determined as of the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year shall not exceed One Hundred Thousand Dollars ($100,000).

(d) Whenever the Board of Directors shall designate an employee to receive an option under the Plan, the employee shall be notified and given the opportunity to

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enter into an option agreement with, the Company setting forth the terms and conditions of the option in accordance with the Plan.

(e) Any option awarded hereunder to an Officer of the Company, or the shares of Common Stock into which any such option is exercised, may not be transferred or disposed of for at least six (6) months following the date of acquisition by the Officer of such option. The Compensation Committee shall take no action the effect of which would cause an Officer of the Company to be in violation of the foregoing.

(5) Non-Transferability. The right to purchase shares under any option granted under the Plan may not be sold, pledged, assigned, transferred or otherwise disposed of in any manner whatsoever; provided, however, that an option granted to an employee may be transferred upon the death of the employee by will or by the laws of descent and distribution. Upon any attempt to sell, pledge, assign, transfer (other than at death) or otherwise dispose of such right to purchase shares, or upon the levy of any attachment or similar process upon such right, such right shall immediately cease and terminate.

(6) Termination of Employment. Except as provided in Section (12), no shares may be purchased under any option granted under the Plan unless at the time of exercise thereof the optionee is an employee of the Company or a subsidiary of the company, or the optionee's employment by the Company or a subsidiary of the Company terminated no more than three (3) months prior to the purchase of shares under the option. In the event that the employment of an employee to whom an option has been granted under the Plan shall be terminated for any reason other than as set forth in Section (12), such option may, subject to the provisions of the Plan, be exercised (but only to the extent that the employee was entitled to do so at the termination of his employment) at any time within three (3) months after such termination, but in no event later than the date on which the option or right terminates.

(7) Administration and Amendment of the Plan. The ISO Plan shall be administered in all regards by the Compensation Committee or any successor thereto of the Board of Directors of the Corporation or by such other committee (the "Committee") as shall be determined by the Board of Directors. The Committee shall consist of not less than two members of the Board of Directors, each of whom shall qualify as a "disinterested person" to administer the Plan as contemplated by Rule 16b-3, as amended, or other applicable rules under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Compensation Committee may adopt rules and regulations and establish forms for carrying out the Plan. The determination, or the interpretation and construction of any provision of the Plan by the Board of Directors shall be final and conclusive. The Board of Directors may make such modifications to the Plan as it may deem proper and in the best interests of the Company; provided, however, that no such modification shall affect or impair any right to purchase shares heretofore granted under the Plan; and provided, further, that without the approval of stockholders (1) the total number of shares which may be purchased under the Plan shall not be increased (except pursuant to Section 10),
(2) the purchase price shall not be changed, and (3) the period during which shares may be purchased under any option shall not be extended. Notwithstanding the

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foregoing, the Board of Directors of the Company may amend the Plan, without stockholder approval to the extent necessary to cause Incentive Stock Options granted under the Plan to meet the requirements of Section 422A of the Code. Any provision in this Plan to the contrary notwithstanding, if any amendment to the Plan requires shareholder approval to meet the requirements of the then applicable rules under Section 16(b) of the Exchange Act, then such amendment shall be subject to the approval of the Corporation's shareholders; provided, further any action taken by the Committee or the Board of Directors pursuant to the Plan, and any provision of the Plan, is null and void if it does not comply with the requirements of Rule 16(b)-3 under the Exchange Act and would otherwise result in liability under Section 16(b) of that Act.

(8) Effective Date of the Plan. The Plan shall become effective upon its adoption by the Board of Directors, subject to ratification by the stockholders of the Company within twelve (12) months thereafter.

(9) Notification Requirement. At such time as stock is transferred pursuant to an exercise of an Incentive Stock Option hereunder the Company shall provide such optionee with a written statement containing (1) the name, address and employer identification number of the Company, (2) the date the option was granted and the stock transferred, (3) the fair market value of shares of stock at the exercise date, (4) the number of shares transferred and (5) the option price.

(10) Effect of Stock Dividends, Etc. The Board of Directors shall make appropriate adjustments in the price of the shares and the number allotted or subject to allotment if there are any changes in the Common Stock of the Company by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, mergers or consolidations.

(11) Stock Restriction and Redemption Agreement. All shares of the Common Stock of the Company transferred to an optionee upon exercise of an option granted hereunder shall be subject to the terms of the SpeedFam Corporation (now known as FamTec International, Inc.) Master Stock Restriction and Redemption Agreement (Employee Shareholder), or Master Stock Restriction and Redemption Agreement (Non-Employee Shareholder) in the case of a transfer of an option upon the death of the optionee.

(12) Eligible Retirement, Death, Disability or Change in Control Followed by Involuntary Termination. Notwithstanding anything in the Plan to the contrary, if any employee to whom an option has been granted under the Plan shall die or suffer a disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) while employed by the Company, if any employee terminates his employment pursuant to an Eligible Retirement, or at the discretion of the Compensation Committee and only if provided in the option agreement (or any supplement thereto), if within three (3) years following a Change in Control an employee's employment is terminated by an Involuntary Termination, such option may be exercised in full as set forth herein, whether or not the employee was otherwise entitled at such time to exercise such option. Subject to the restrictions otherwise set forth in the Plan, such option shall be exercisable by the employee, a legatee or legatees of the employee under the employee's last will, or by the employee's

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personal representatives or distributees, whichever is applicable, from the date of such death, disability or termination of employment and until the first to occur of:

(a) the date on which the option terminates in accordance with the terms of grant;

(b) the date three (3) months after the date of such employee's Eligible Retirement, his termination due to disability, or the Involuntary Termination of the employee within three (3) years of a Change in Control; or

For purposes of this Plan, the term "Eligible Retirement" shall mean the date upon which an employee, having attained an age of not less than sixty-two, terminates his employment with the Company and its subsidiaries, provided that such employee has been employed by the Company or any of its subsidiaries or any company of which the Company or any of its subsidiaries is the successor for a period of not less than five (5) years prior to such termination. Notwithstanding the preceding sentence, with respect to options granted on or after September 1, 1997, the term "Eligible Retirement" shall mean the date upon which an employee, having attained an age of note less than sixty-five, terminates his employment with the Company and its subsidiaries, provided that such employee has been employed by the Company or any of its subsidiaries or any company of which the Company or any of its subsidiaries is the successor for a period of not less than five (5) years prior to such termination; provided, further, that, at the discretion of the Committee, a lesser age (but not less than age sixty) may be substituted for age sixty-five.

A "Change in Control" shall be deemed to have occurred upon:

(a) a business combination, including a merger or consolidation, of the Company and the shareholders of the Company prior to the combination do not continue to own, directly or indirectly, more than fifty-one percent (51%) of the equity of the combined entity;

(b) a sale, transfer, or other disposition in one or more transactions (other than in transactions in the ordinary course of business or in the nature of a financing) of the assets or earning power aggregating more than forty-five percent (45%) of the assets or operating revenues of the Company to any person or affiliated or associated group of persons (as defined by Rule 12b-2 of the Exchange Act in effect as of the date hereof);

(d) one or more transactions which result in the acquisition by any person or associated group of persons (other than the Company, any employee benefit plan whose beneficiaries are employees of the Company or any of its subsidiaries) of the beneficial ownership (as defined in Rule 13d-3 of the Exchange Act, in effect as of the

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date hereof) of forty percent (40%) or more of the Common Stock of the Company, securities representing forty percent (40%) or more of the combined voting power of the voting securities of the Company which affiliated persons owned less than forty percent (40%) prior to such transaction or transactions; or

(e) the election or appointment, within a twelve (12) month period, of any person or affiliated or associated group, or its or their nominees, to the Board of Directors of the Company, such that such persons or nominees, when elected or appointed, constitute a majority of the Board of Directors of the Company and whose appointment or election was not approved by a majority of those persons who were directors at the beginning of such period or whose election or appointment was made at the request of an Acquiring Person.

An "Acquiring Person" is any person who, or which, together with all affiliates or associates of such person, is the beneficial owner of twenty percent (20%) or more of the Common Stock of the Company then outstanding, except that an Acquiring Person does not include the Company or any employee benefit plan of the Company or any of its subsidiaries or any person holding Common Stock of the Company for or pursuant to such plan. For the purpose of determining who is an Acquiring Person, the percentage of the outstanding shares of the Common Stock of which a person is a beneficial owner shall be calculated in accordance with Rule 13d-e of the Exchange Act.

"Involuntary Termination" shall mean any termination of the employee prior to the employee attaining age 65, which does not result from either a Termination for Cause, death or disability, and which:

(a) does not result from a resignation by the employee (other than a resignation pursuant to clause (b) of this paragraph); or

(b) results from a resignation following any Change in Duties.

"Termination for Cause" shall mean only a termination as a result of fraud, misappropriation of or intentional material damage to the property or business of the Company (including its subsidiaries), or commission of a felony by the employee.

"Change in Duties" shall mean any one or more of the following:

(a) a significant change in the nature or scope of the employee's authorities or duties from those applicable to him immediately prior to the date on which a Change in Control occurs;

(b) a material reduction in the employee's annual salary, including a material reduction in the scope of the employee's eligibility for participation in any bonus or other special incentive programs from that provided or available to him immediately prior to the date on which a Change in Control occurs;

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(c) a diminution in the employee's eligibility to participate in bonus, stock option, incentive award and other compensation plans which provide opportunities to receive compensation, from the greater of:

(i) the opportunities provided by the Company (including its subsidiaries) for executives with comparable duties; or

(ii) the employee benefits and perquisites to which he was entitled immediately prior to that date on which a Change in Control occurs;

(d) a change in the location of the Employee's principal place of employment by the Company (including its subsidiaries) by more than fifty miles from the location where he was principally employed immediately prior to the date on which a Change in Control occurs; or

(e) a reasonable determination by the Board of Directors of the Company, that as a result of a Change in Control and a change in circumstances thereafter significantly affecting employee's position, he is unable to exercise the authorities, powers, function or duties attached to his position immediately prior to the date on which a Change in Control occurs.

Tax Effects

The following is a general discussion of certain of the federal income tax consequences of the grant and exercise of options and the subsequent sale or exchange of the related Common Stock.

It is intended that options issued pursuant to the Plan will qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). If an option is an incentive stock option, an individual who is an employee for purposes of Section 3401(c) of the Code (the "participant") will not recognize income upon the grant or exercise of the option; however, an participant subject to the alternative minimum tax (the "AMT") must include in AMT income the difference between the exercise price of the option and the fair market value of the Common Stock at the time the option is exercised (the "bargain purchase element"). The sale or exchange of any Common Stock by the participant will be treated as a long-term capital gain only if such sale or exchange occurs at least two years after the grant of the option and one year after the receipt of the Common Stock by the participant pursuant to the participant's exercise of the option. If either of these holding periods prior to the disposition of the Common Stock acquired pursuant to an exercise of the option are not satisfied (a "disqualifying disposition") the participant will recognize ordinary income equal to the difference between the exercise price of the option and the lower of the fair market value of such Common Stock on the date the option is exercised or the sales price of such Common Stock. Any gain recognized by an participant on a disqualifying disposition above the ordinary income computed in the previous sentence will be a long-term capital gain. Net capital gains on the sale of assets held more than 18 months are currently subject to a maximum marginal stated tax rate of twenty percent

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(20%). However, it should be noted that legislative proposals are introduced from time to time that affect tax rates and could affect differences at which ordinary and capital gains are taxed. It is important to note that an incentive stock option may not be granted to a participant who, at the time such option is granted, is a ten percent (10%) shareholder of the Company unless certain more stringent qualification rules are satisfied.

The Company may not take a deduction for federal income tax purposes upon the grant or exercise of an incentive stock option. The Company may take a deduction in the year of such disqualifying disposition for the amount that the participant recognizes as ordinary income due to such disqualifying disposition. The Company must generally furnish a statement containing specified information to the participant who exercises an incentive stock option on or before January 31 of the year following the exercise of such option.

If the option does not qualify as an incentive stock "nonstatutory option" the participant will not recognize income upon the grant of such option; however, such participant will recognize ordinary income upon the exercise of such option by the amount of the bargain purchase element. In certain circumstances, in cases in which the Common Stock are subject to a substantial risk of forfeiture when acquired or if the participant is an officer, director or 10% shareholder of the Company, the date of taxation may be deferred unless the participant files an election with the Internal Revenue Service under
Section 83(b) of the Code. Upon the later sale or exchange of the Common Stock by the participant, any difference between the sales price and the exercise price will be treated as capital gain or loss to the extent not recognized as ordinary income as provided above, and will be long-term if the Common Stock have been held for more than one year.

The federal income tax consequences to the Company regarding whether, and to what extent, it will obtain any deduction from the grant or exercise of a nonstatutory option as well as whether any gain or loss will be triggered depends upon complex rules beyond the scope of this discussion. Income recognized by an participant of a nonstatutory option will be subject to withholding by the Company.

The foregoing discussion relates only to federal income taxes; the Company and participants may be subject to state and local taxation. The Company and participants should consult their tax advisers regarding potential state and local taxation with respect to their participation in the Plan.

Further Information

All Employees are advised that certain documents which are filed with the Securities and Exchange Commission are incorporated by reference herein and in the registration statement that has been filed pursuant to the Securities Act of 1933 which covers the Plan. Such documents are available, without charge, upon oral or written request to Addo C. Barrows III, at the address and phone number above.

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EXHIBIT 10.34

Page 1 of 9

10k Wizard; SEC Filings

SPEEDFAM-IPEC, INC.

STAND-ALONE STOCK OPTION AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

Peter Simone

61 Lehigh Road

Wellesley, MA 02482

You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement, as follows:

Date of Grant                      June 14, 2001

Vesting Commencement Date          June 18, 2001

Exercise Price per Share           $        3.65

Total Number of Shares Granted           360,000

Total Exercise Price               $   1,314,000

Term/Expiration Date:              June 13, 2004

Vesting Schedule:

This Option shall vest and may be exercised, in whole or in part, in accordance with the following schedule:

One eighteenth (1/18) of the Shares subject to this Option shall vest each month after the Vesting Commencement Date so that this Option shall be fully vested eighteen (18) months from the Date of Grant, subject to the Optionee continuing to be a Service Provider on such dates.

In the event that the Company or any successor corporation (i) terminates Optionee as a Service Provider other than for Cause following a Change of Control (as defined in Section 10(c)) or (ii) Constructively Terminates Optionee as a Service Provider following a Change of Control, all remaining unvested Shares shall vest immediately.

Termination Period

10k Wizard: SEC Filings Page 2 of 9

2 This Option may be exercised for thirty (30) days after Optionee ceases to be a Service Provider in accordance with Section 7 of this Agreement. Upon the death or Disability of the Optionee, this Option may be exercised for twelve
(12) months after the Optionee ceases to be a Service Provider in accordance with Sections 8 and 9 of this Agreement. In no event shall this Option be exercised later than the Term/Expiration Date provided.

II. AGREEMENT

1. Definitions. As used herein, the following definitions shall apply:

(a) "Agreement" means this stock option agreement between the Company and Optionee evidencing the terms and conditions of this Option.

(b) "Applicable Laws" means the requirements relating to the administration of stock options under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction that may apply to this Option.

(c) "Board" means the Board of Directors of the Company or any committee of the Board that has been designated by the Board to administer this Agreement.

(d) "Cause" means the occurrence of any one or more of the following:
(i) Optionee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent jurisdiction for any crime which constitutes a felony in the jurisdiction involved; (ii) Optionee's misappropriation of funds or commission of an act of fraud, whether prior or subsequent to the date hereof, upon the Company or any successor corporation; or (iii) negligence by Optionee in the scope of Optionee's services to the Company or any successor corporation.

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Common Stock" means the common stock of the Company.

(g) "Company" means SpeedFam-IPEC, Inc., an Illinois corporation.

(h) "Constructively Terminates" means that the Optionee is required
(i) to perform services for the Company or any successor corporation that involve responsibilities and duties substantially below the level of a senior executive officer of a publicly-traded company, (ii) to commit more than twenty-five percent (25%) of his business time and attention to the Company or any successor corporation, or (iii) to enter into any agreement that obligates him or restricts his actions substantially more than the terms set forth in the letter of employment, dated June 14, 2001.

(i) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

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3 Page 3 of 9

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

(3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.

(o) "Nonstatutory Stock Option" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(p) "Notice of Grant" means a written notice, in Part I of this Agreement, evidencing certain the terms and conditions of this Option grant. The Notice of Grant is part of the Option Agreement.

(q) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(r) "Option" means this stock option.

(s) "Optioned Stock" means the Common Stock subject to this Option.

(t) "Optionee" means the person named in the Notice of Grant or such person's successor.

(u) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.

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10k Wizard: SEC Filings Page 4 of 9

(v) "Service Provider" means an Employee, Director or Consultant to the Company or any successor corporation.

(w) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 of this Agreement.

(x) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in section 424(f) of the Code.

2. Grant of Option. The Board hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of this Agreement.

3. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company. The Exercise Notice shall be completed by the Optionee and delivered to Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

(c) Legal Compliance. No Shares shall be issued pursuant to the exercise of this Option unless each issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

4. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash or check;

(b) consideration received by the Company under a cashless exercise program implemented by the Company; or

(c) surrender of other Shares, provided Shares acquired directly from the Company, (i) have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

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10K WIZARD: SEC FILINGS Page 5 of 9

5
5. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

6. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the terms of this Agreement.

7. Termination of Relationship as a Service Provider. If the Optionee ceases to be a Service Provider (other than for death or Disability), this Option may be exercised for a period of thirty (30) days after the date of such termination (but no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a result of the Optionee's Disability, this Option may be exercised for a period of twelve (12) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

9. Death of Optionee. If the Optionee dies while a Service Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later then the expiration date of this Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate.

10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by this Option, as well as the price per share of Common Stock covered by this Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of price of shares of Common Stock subject to this Option.

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Page 6 of 9

10k Wizard: SEC Filings

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify Optionee as soon as practicable prior to the effective date of such proposed transaction. The Board in its discretion may provide for the Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed

(c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company (a "Change of Control"), the Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If the Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

11. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Company at its then current principal executive office or to such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at the address set forth beneath his signature hereto, or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.

12. Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, and local income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

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10k Wizard: SEC Filings Page 7 of 9

13. Entire Agreement; Governing Law. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes in its entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Illinois.

14. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By your signature and the signature of the Company's representative below, you and the Company agree that this Option of granted under and governed by the terms and conditions of this Agreement. Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to this Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE                                 SPEEDFAM-IPEC, INC.


-----------------------------------      ---------------------------------------
Signature                                By


-----------------------------------      ---------------------------------------
Print Name                               Title


-----------------------------------
Residence Address


-----------------------------------

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10k Wizard: SEC Filings Page 8 of 9

EXHIBIT A

SPEEDFAM-IPEC, INC.

EXERCISE NOTICE

SpeedFam-IPEC, Inc.
305 North 54th Street
Chandler, AZ 85226

Attention: Chief Financial Officer

1. Exercise of Option. Effective as of today, ________________, 20__, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of SpeedFam-IPEC. Inc. (the "Company") under and pursuant to the Stock Option Agreement dated June 14, 2001 (the "Option Agreement"). The purchase price for the Shares shall be [$______], as required by the Option Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 11 of the Option Agreement.

6. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.

Page 9 of 9

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9 7. Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Optionee or by the Company forthwith to the Board which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board shall be final and binding on all parties.

8. Entire Agreement; Governing Law. The Option Agreement is incorporated herein by reference. This Agreement, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Illinois.

Submitted by:                                Accepted by:

OPTIONEE                                SPEEDFAM-IPEC, INC.

-----------------------------           -----------------------------
Signature


-----------------------------           -----------------------------
Print Name


-----------------------------           -----------------------------
Address                                 Address

-----------------------------           -----------------------------

-----------------------------           -----------------------------

                                        Date Received:
                                                       --------------

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EXHIBIT 10.35

LEASE AGREEMENT

between

SELDIN PROPERTIES

and

INTEGRATED PROCESS EQUIPMENT CORPORATION

Dated December 26, 1996

EXHIBIT "A"

TABLE OF CONTENTS

                                                                                                    PAGE
                                                                                                    ----
 1.    Demise of Premises ......................................................................      1

 2.    Definitions .............................................................................      1

 3.    Title and Condition......................................................................      5

 4.    Use of Leased Premises; Quiet Enjoyment..................................................      7

 5.    Term  ...................................................................................      8

 6.    Rent; Security Deposit ..................................................................      9

 7.    Net Lease; Non-Terminability.............................................................     11

 8.    Payment of Impositions; Compliance with Legal Requirements and Insurance Requirements....     12

 9.    Liens; Recording and Title ..............................................................     14

10.    Indemnification .........................................................................     14

11.    Maintenance and Repair ..................................................................     15

12.    Alterations .............................................................................     16

13.    Condemnation.............................................................................     17

14.    Insurance ...............................................................................     21

16.    Subordination to Financing ..............................................................     26

17.    Assignment, Subleasing and Vacating .....................................................     27

18.    Permitted Contests.......................................................................     29

19.    Conditional Limitations; Default Provisions .............................................     30

20.    Additional Rights of Landlord  ..........................................................     33

21.    Notices .................................................................................     34

22.    Estoppel Certificates ...................................................................     35

23.    Surrender and Holding Over ..............................................................     35

24.    Risk of Loss ............................................................................     36

25.    No Merger of Title ......................................... ............................     36

TABLE OF CONTENTS
(CONTINUED)

                                                                                                    PAGE
                                                                                                    ----
26.    Landlord's Liability ....................................................................     37

27.    Hazardous Substances.....................................................................     37

28.    Entry by Landlord .......................................................................     38

29.    Financial Statements.....................................................................     39

30.    Broker  .................................................................................     39

31.    Additional Provisions Regarding Use .....................................................     39

32.    Landlord's Right to Take Action..........................................................     39

33.    Miscellaneous ...........................................................................     40

TABLE OF CONTENTS
(CONTINUED)

INDEX OF EXHIBITS AND SCHEDULES

                                                                                                    PAGE
                                                                                                    ----
Exhibit A -  Leased Premises

Exhibit B -  Permitted Encumbrances

Exhibit C -  Rent Schedule

Exhibit D -  Memorandum of Lease

Exhibit E -  Purchase Offer Computation

Schedule I - Schedule of Air Compressors

iii

THIS LEASE AGREEMENT is made this 26th day of December, 1996, by and between Seldin Properties, a Nebraska partnership ("Landlord") and Integrated Process Equipment Corporation, a Delaware corporation ("Tenant").

In consideration of the rents and covenants herein stipulated to be paid and performed, Landlord and Tenant hereby covenant and agree as follows:

1. Demise of Premises. Landlord hereby demises and lets to Tenant and Tenant hereby takes and leases from Landlord for the term and upon the provisions hereinafter specified the following described property (collectively, the "Leased Premises");

(a) the real property described in Exhibit "A" attached hereto and made a part hereof together with the easements, rights and appurtenances thereunto belonging (collectively the "Land"); and

(b) the buildings, structures and other improvements constructed and to be constructed on the Land (collectively, the "Improvements").

2. Definitions. For all purposes of this Lease, except as otherwise expressly provided the terms defined in this Section have the meanings assigned to them in this Section, and include the plural as well as the singular.

"Act" means the Comprehensive Environmental Response, Compensation, and Liability Act, (42. U.S.C. Section 9601 et seq.), as amended.

"Additional Rent" has the meaning given to it in Section 6(b).

"Adjoining Property" means all sidewalks and curbs adjoining any of the Leased Premises.

"Alteration" means any or all changes, additions, improvements, demolitions, reconstructions or replacements of any of the Improvements, both interior or exterior, ordinary and extraordinary.

"Assignment" means any Assignment of Rents and Landlord's Interest in Leases hereafter executed from Landlord to Lender (which may be contained in a Mortgage).

"Basic Rent" has the meaning given to it in Section 6(a).

"Basic Rent Payment Dates" has the meaning given to it in
Section 6(a).

"Commencement Date" has the meaning given to it in Section 5.

"Condemnation" means a Taking and/or a Requisition as the context requires.

"CPI" means the Consumer Price Index for All Urban Consumers, All Items, U.S. City Average (1982-1984 - 100), published by the United States Department of Labor, Bureau of Labor Statistics, together with any successor rate selected by Landlord in its reasonable discretion in the event the foregoing is no longer published.

"Default" has the meaning given to it in Section 19(d).

"Default Rate" has the meaning given to it in Section 6(b).

"Deposit Increase Date" has the meaning given to it in Section 6(c).

"Environmental Laws" means collectively the Act and any other present or future law, ordinance, rule or regulation of any local, county, state or federal authority having jurisdiction over the Leased Premises or any portion thereof or its use, including but not limited to: (a) the Federal Water Pollution Control Act (33 U.S.C. Section 1317 et seq.), as amended; (b) the Federal Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended; (c) the Toxic Substance Control Act (15 U.S.C. Section 2601 et seq.), as amended; and (d) the Clean Air Act (42 U.S.C. Section 7401 et seq.) as amended.

"Event of Default" has the meaning given to it in Section 19(a).

"Hazardous Substance" means any hazardous or toxic material or substance or waste which is defined by those or similar terms and is regulated as such under Environmental Laws.

"Improvements" has the meaning given to it in Section 1 (b).

"Insurance Requirement" means any one or more of the terms of each insurance policy required to be carried by Tenant under this Lease and the requirements of the issuer of such policy, and whenever Tenant shall be engaged in making any Alteration or Alterations, repairs or construction work of any kind (collectively "Work"), the term "Insurance Requirement" is also deemed to include a requirement that
(i) all insurance policies shall contain an endorsement referring to such Work and (ii) Tenant shall obtain or cause its contractors and subcontractors to obtain workmen's compensation insurance covering all persons respectively employed by such parties in connection with the Work, and with respect to whom death or bodily injury claims could be asserted against Landlord or the Leased Premises.

"Land" has the meaning given to it in Section 1(a).

"Law" means any constitution, statute or rule of law, whether federal, state or local.

"Lease" means this Lease Agreement, as the same may hereafter be amended, modified or extended from time to time.

"Leased Premises" has the meaning given to it in Section 1.

"Legal Requirement" means any one or more of all present and future laws, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every governmental or quasi-governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Tenant, Landlord or the Leased Premises as a result of some grandfather clause or similar provision) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to Tenant, to Landlord or to any of the Leased Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, Alteration, repair or reconstruction of any of the Leased Premises, even if compliance therewith (i) necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Leased Premises or (ii) requires Tenant to carry insurance other than as required by the provisions of this Lease.

"Lender" means an entity which makes a Loan to Landlord, secured by a Mortgage and evidenced by a Note, or such Lender's successors and assigns thereof.

"Loan" means a loan made by a Lender to Landlord secured by a Mortgage and evidenced by a Note.

"Mortgage" means a mortgage or similar security instrument hereafter executed covering the Leased Premises by Landlord in favor of Lender.

"Net Award" means the entire award payable to Landlord by reason of a Condemnation, less any expenses reasonably incurred by Landlord in collecting such award.

"Net Proceeds" means the entire proceeds of any insurance required under Section 14 less any expenses reasonably incurred by Landlord in collecting such proceeds.

"Note" means a promissory note hereafter executed from Landlord to Lender, which Note will be secured by a Mortgage and an Assignment.

"Permitted Encumbrances" means those covenants, restrictions, reservations, liens, conditions, encroachments, easements listed on Exhibit "B" attached hereto and any other matters of title existing on the Commencement Date.

"Purchase Offer" has the meaning given to it in Section 13(b).

"Purchase Price" has the meaning given to it in Section 13(d).

"Requisition" means any temporary Condemnation or confiscation of the use or occupancy of any of the Leased Premises by any governmental or quasi-governmental authority, civil or military, whether pursuant to an agreement with such governmental or quasi-governmental authority in settlement of or under threat of any such requisition or confiscation, or otherwise.

"State" means the State of Arizona, being the state in which the Leased Premises are situated.

"Taking" means any taking of any portion of the Leased Premises in or by Condemnation or other eminent domain proceedings pursuant to any Law, general or special, or by reason of any agreement with any condemnor in settlement of or under threat of any such Condemnation or other eminent domain proceedings or by any other means, or any de facto Condemnation.

"Term" has the meaning given to it in Section 5.

"Termination Date" has the meaning given to it in Section 13(b).

"Trade Fixtures" means (a) all fixtures, equipment and other items of personal property which are owned by Tenant and used in the operation of the business conducted on the Leased Premises and (b) without limiting the foregoing, (i) all kitchen fixtures, (ii) the reverse osmosis deionizers (including without limitation the three demineralizing beds and three CDI's), (iii) the nitrogen generation system, (iv) those air compressors specifically listed on Schedule 1 attached hereto and made a part hereof, (v) any and all telephone systems (except for cables and wires permanently installed), (vi) any and all computer network systems, and (vii) any and all fitness equipment.

"UCC" means the Uniform Commercial Code as enacted from time to time under the Laws of the State.

3. Title and Condition.

(a) The Leased Premises are demised and let subject to
(i) the rights of parties in possession, if any, and the existing state of title of the Leased Premises, including without limitation the Permitted Encumbrances, as of the commencement of the Term, (ii) any state of facts which an accurate survey or physical inspection of the Leased Premises might show, (iii) all Legal Requirements (including without limitation applicable building codes and zoning ordinances), Insurance Requirements and existing contracts, including without limitation any existing violation of any of the foregoing, and (iv) the condition of the Leased Premises as of the commencement of the Term, including without limitation any existing conditions relating to Hazardous Substances, without representation or warranty by Landlord; it being understood and agreed, however, that the recital of the Permitted Encumbrances herein shall not be construed as a revival of any thereof which for any reason may have expired.

(b) Tenant acknowledges that the Leased Premises are in good condition and repair at the inception of this Lease, the interior improvements thereof having been constructed on behalf of Tenant by a contractor of its choice. LANDLORD HAS NOT MADE AND WILL NOT MAKE ANY INSPECTION OF ANY OF THE LEASED PREMISES, AND LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES "AS IS", AND TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING WITHOUT LIMITATION ANY WARRANTY OR REPRESENTATION AS TO ITS SUITABILITY OR FITNESS FOR USE OR PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO THE QUALITY OF THE MATERIAL, CONSTRUCTION OR WORKMANSHIP THEREIN, LATENT OR PATENT, AS TO LANDLORD'S TITLE THERETO, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION, DURABILITY OR OPERATION, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE SOLELY BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS, AND THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT.

IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER PATENT OR LATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WHATSOEVER WITH RESPECT THERETO, INCLUDING WITHOUT LIMITATION FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION STRICT LIABILITY IN TORT) AND TENANT HEREBY RELEASES LANDLORD FROM ANY RESPONSIBILITY OR LIABILITY RELATING TO ANY CONDITIONS WHATSOEVER RESPECTING THE CONDITION OF THE LEASED PREMISES EXCEPT AS CAUSED BY LANDLORD'S NEGLIGENCE OR WILFUL MISCONDUCT. THE PROVISIONS OF THIS SECTION 3(b) HAVE BEEN NEGOTIATED, AND THE FOREGOING PROVISIONS ARE INTENDED TO BE A COMPLETE EXCLUSION, RELEASE AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE UCC OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE.

(c) Tenant represents to Landlord that Tenant has examined the title to the Leased Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for the purposes contemplated hereby and acknowledges that title is in Landlord and that Tenant has only the right of possession and use of the Leased Premises as provided in this Lease.

(d) Landlord hereby assigns, without recourse or warranty whatsoever, to Tenant, the right to enforce all warranties, guaranties and indemnities, if any, express or implied, and similar rights, if any, which Landlord may or may not have against any manufacturer, seller, engineer, contractor or builder in connection with the Leased Premises, including, but not limited to, any rights and remedies existing under contract or pursuant to the UCC. Such assignment shall remain in effect so long as no Event of Default exists hereunder or until the termination of this Lease, whereupon any interest so assigned hereunder to Tenant shall be deemed automatically reassigned to Landlord without further act or deed. Landlord shall also retain the right to enforce any such warranty, guaranty, or indemnity. Landlord hereby agrees to execute and deliver at Tenant's expense such further documents as Tenant may reasonably request (and which in the good faith judgment of Landlord, do not adversely affect Landlord), in order that Tenant may have the full benefit of the assignment effected or intended to be effected by this Section 3(d).

(e) Landlord agrees to enter into with Tenant, at Tenant's expense, such easements, covenants or restrictions for utilities, parking or other matters as necessary for operation of the Leased Premises as requested by Tenant, subject to Landlord's approval thereof, not to be unreasonably withheld.

(f) Tenant and Landlord agree that their relationship is that of Landlord and Tenant, and there is no intention by either party that this Lease Agreement be construed as a loan, partnership or joint venture. Tenant represents to Landlord that it engaged legal counsel to review this Agreement, and understands fully the rights and duties of a Tenant pursuant to this Agreement, and in this connection, Tenant, with advice of legal counsel, waives any rights to raise any defenses to an action by Landlord to enforce the terms of this Lease Agreement, that would portray (or bring an action that would assert) this Lease Agreement as a loan, partnership or joint venture or any other arrangement other than a Lease.

4. Use of Leased Premises; Quiet Enjoyment.

(a) The Leased Premises may be used (i) in the same manner as Tenant's use and purpose as of the Commencement Date, or a use related thereto, or (ii) for any other legal purpose upon Landlord's prior written consent (not to be unreasonably withheld), in either case subject to the provisions of Section 17. Tenant acknowledges and agrees that it shall be reasonable for Landlord to object to the use of the Leased Premises, or any portion thereof, if (among other things) such use (a) creates a detrimental environmental effect or increases environmental risks to the Leased Premises or liability risks to Landlord, (b) creates or requires material and adverse modifications to the physical structure of any portion of the Leased Premises,
(c) will materially lessen the fair market value of the Leased Premises, or (d) materially and adversely changes the primary character of the Leased Premises. In no event shall the Leased Premises be used for any purpose which would otherwise violate any of the provisions of this Lease, including but not limited to, Legal Requirements, Insurance Requirements or other recorded covenants, restrictions or agreements applicable to the Leased Premises.

(b) Tenant shall not permit any unlawful occupation, business or trade to be conducted on any of the Leased Premises or any use to be made thereof contrary to applicable Legal Requirements or Insurance Requirements. Tenant shall not use, occupy or permit any of the Leased Premises to be used or occupied, nor do or permit anything to be done in or on any of the Leased Premises, in a manner which

would (i) violate any certificate of occupancy or equivalent certificate affecting any of the Leased Premises, (ii) make void or voidable any Insurance then in effect with respect to any of the Leased Premises, (iii) affect in any manner the ability of Tenant to obtain fire or other Insurance which Tenant is required to furnish hereunder, (iv) cause any Injury or damage to any of (the Improvements, ordinary wear and tear excepted, or (v) constitute a public or private nuisance or waste.

(c) Subject to all of the provisions of this Lease, including but not limited to the provisions of Section 3 and Section 7(b), so long as no Event of Default exists hereunder, Landlord covenants to do no act to disturb the peaceful and quiet occupation and enjoyment of the Leased Premises by Tenant, provided that Landlord may enter upon and examine any of the Leased Premises at reasonable times (except in the case of emergencies, when Landlord may access the Leased Premises at any time) and exercise any rights and privileges granted to Landlord under the provisions of this Lease or provided by Law.

5. Term. Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term (the "Term") commencing on December 26,1996 (the "Commencement Date" and ending on December 31, 2011. Provided this Lease shall not have been terminated pursuant to any provision of this Lease, including but not limited to Section 19, Tenant shall have the option to extend the Term for two (2) renewal terms of five (5) years each, by giving written notice to Landlord in writing at least twelve (12) months, but not more than eighteen (18) months, prior to the expiration of the then-current term. Any option granted to Tenant to extend the Term hereunder for any of the two renewal terms of five (5) years each is on the condition that at the time of the exercise of the option and at the time of the commencement date of each such renewal term, no Event of Default shall exist. In the absence of giving of such notice to renew by Tenant to Landlord, the Term shall be automatically terminated at the end of the then-current Term. Any such extension or renewal of the Term (also referred to as the Term") shall be subject to and shall continue in full force and effect all the provisions of this Lease. In the event that Tenant does not exercise its option to renew or to further renew the Term as hereinabove provided, then Landlord shall have the right during the remainder of the Term then in effect to (i) advertise the availability of the Leased Premises for sale or for reletting and to erect upon the Leased Premises signs indicating such availability (provided that such signs do not unreasonably interfere with the use of the Leased Premises by Tenant), and (ii) show the Leased Premises to prospective

purchasers, lenders or tenants at such reasonable times during normal business hours as Landlord may select. If Tenant shall fail to timely give such notice of its irrevocable election to exercise any renewal option, then Tenant's right to exercise such option and all options with regard to subsequent extensions or renewals of the Term shall expire and be null and void.

Tenant shall remove all Trade Fixtures by the expiration or earlier termination of this Lease and shall repair any damage occasioned by the removal of the Trade Fixtures. If the Trade Fixtures are not removed by this time, at the option of Landlord such Trade Fixtures may be deemed abandoned and become the property of Landlord without any further action and Landlord may remove some or all of such Trade Fixtures and dispose of them as Landlord deems appropriate, all at the cost and expense of Tenant.

6. Rent; Security Deposit.

(a) Tenant shall pay to Landlord, as annual rent during the Term, the amounts determined in accordance with the schedule set forth in Exhibit "C" attached hereto made a part hereof ("Basic Rent"), commencing on the first day of the first month next following the Commencement Date and continuing on the same day of each month thereafter during the Term (the said days being called the "Basic Rent Payment Dates"), and shall pay the same at Landlord's address set forth below, or at such other place as Landlord from time to time may designate to Tenant in writing, in funds which at the time of such payment shall be legal tender for the payment of public or private debts in the United States of America. Pro rata Basic Rent shall be due for the period from the Commencement Date through the first day of the month next following the Commencement Date computed as set forth in Exhibit "C" and shall be paid in advance on the Commencement Date, but if the Commencement Date shall occur on the first day of a calendar month, full monthly installment of Basic Rent shall be paid on the Commencement Date.

(b) Tenant shall pay and discharge when the same shall become due, as additional rent, all other amounts, liabilities and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty, interest and cost which may be added for nonpayment or late payment thereof. In the event of any failure by Tenant to pay or discharge any of the foregoing, Landlord shall have all rights, powers and remedies provided herein, by Law or otherwise, in the event of nonpayment of Basic Rent. Tenant shall also pay to Landlord on demand, as additional rent, interest, at the rate of interest

equal to the "prime rate" of interest charged Wells Fargo Bank at its offices in Phoenix, Arizona (or, if unavailable, any successor rate or bank chosen by Landlord in its reasonable discretion) plus five percent (5.0%) per annum (the "Default Rate"), on all overdue installments of Basic Rent from and after the expiration of any applicable grace period(s) provided in Section 19(d) of this Lease, and on all overdue amounts of additional rent relating to obligations which Landlord shall have paid on behalf of Tenant, from the date of payment thereof, until paid in full. In addition, Tenant shall pay to Landlord, on account of each overdue installment of Basic Rent, the sum of $1,000 to compensate Landlord for its administrative and collection costs associated with such overdue installment. All the foregoing additional rent referred to in this
Section 6(b) is herein sometimes called "Additional Rent". Landlord shall comply with the requirements of Section 19(d) regarding notice and grace periods prior to the imposition of the Additional Rent charges of this Section 6(b).

(c) Tenant has deposited, and Landlord acknowledges receipt of, a security deposit (herein the "Security Deposit") in the amount of $250,000 as security for Tenant's payment and performance of its obligations hereunder. During the existence of an Event of Default, Landlord may apply the Security Deposit for the payment of any amount due Landlord hereunder and Tenant shall promptly deposit moneys with Landlord sufficient to restore said Security Deposit to the full amount required by this Lease. Until the Deposit Increase Date described below, the Security Deposit shall be held in the form of United States Treasury instruments having a maturity date of not less than one year; interest accruing thereon shall be drawn down within ninety (90) days following the end of each Lease year and promptly distributed 50.0% to Landlord and (unless an Event of Default shall have occurred and be continuing) 50.0% to Tenant. From and after the Deposit Increase Date, the Security Deposit shall not be commingled with Landlord's general funds and shall be held in a federally-insured or -guaranteed financial institution, in an interest-bearing account accruing for Landlord's benefit. On or before December 31, 2001 (the "Deposit Increase Date") Tenant shall deposit a sum sufficient to increase the Security Deposit to the amount of $350,000, and on and after that date the Security Deposit shall be deemed to mean such increased amount. Landlord shall, within ten (10) business days after the expiration or earlier termination of the Term, return to Tenant that portion of the Security Deposit not used or applied by Landlord.

7. Net Lease; Non-Terminability.

(a) This is an absolutely net Lease to Landlord. Tenant and Landlord agree that the Basic Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice or demand, and without setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense and shall be an absolutely net return to Landlord. Tenant shall pay all costs and expenses relating to the Leased Premises and the business carried on therein, unless otherwise expressly provided in this Lease. Any amount or obligation herein relating to the Leased Premises which is not expressly declared to be that of Landlord shall be deemed to be an obligation of Tenant to be performed by Tenant at Tenant's sole cost and expense.

(b) This Lease shall not terminate and Tenant shall not have any right to terminate this Lease during the Term except as otherwise expressly provided in Section 13. Tenant shall not be entitled to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease except as otherwise expressly provided in
Section 13. The obligations of Tenant under this Lease shall not be affected by any interference with Tenant's use of any of the Leased Premises for any reason, including without limitation the following: (i) any damage to or destruction of any of the Leased Premises by any cause whatsoever, (ii) any Condemnation, (iii) the prohibition, limitation or restriction of Tenant's use of any of the Leased Premises under applicable Law, (iv) any latent or other defect in, or any theft or loss of any of the Leased Premises or (v) any other cause, whether similar or dissimilar to the foregoing, including without limitation any default, breach, act or omission of Landlord (any present or future Law to the contrary notwithstanding). It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, and the Basic Rent, Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events and that all of the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to
Section 13. Notwithstanding anything to the contrary contained in this Section, Tenant retains a separate and independent right to sue Landlord for among other things any act or failure to act in connection herewith;

provided, however, any judgment in favor of Tenant shall not abate Basic Rent, Additional Rent and all other sums payable by Tenant hereunder or terminate Tenant's obligations hereunder.

(c) Tenant agrees that it shall remain obligated under this Lease in accordance with its provisions and that, except as otherwise expressly provided in Section 13, it shall not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding affecting Landlord, (ii) the exercise of any remedy, including foreclosure, under the Mortgage, or (iii) any action with respect to this Lease (including without limitation the disaffirmance hereof) which may be taken by Landlord under the Federal Bankruptcy Code or by any trustee, receiver or liquidator of Landlord or by any court under the Federal Bankruptcy Code or otherwise.

(d) Tenant waives all rights which may now or hereafter be conferred by Law (i) to quit, terminate or surrender this Lease or any of the Leased Premises, and (ii) to any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Basic Rent, Additional Rent or any other sums payable under this Lease, in either case except as otherwise expressly provided in Section 13.

(e) Notwithstanding anything to the contrary contained in this Lease, Tenant retains a separate and independent right to sue Landlord; provided, however, that any judgment in favor of Tenant shall not abate Basic Rent, Additional Rent and all other sums payable by Tenant hereunder or terminate Tenant's obligations hereunder.

8. Payment of Impositions; Compliance with Legal Requirements and Insurance Requirements.

(a) Subject to the provisions of Section 18 relating to contests, Tenant shall, before interest or penalties are due thereon, pay and discharge (i) all taxes, assessments (including without limitation assessments for benefits from public works or improvements, whether or not begun or completed prior to the commencement of the term of this Lease and whether or not to be completed within said term, if the same are due during the term of this Lease), levies, fees, water and sewer rents and charges, and all other governmental charges of every kind, general and special, ordinary and extraordinary, whether or not the same shall have been within the express contemplation of the parties hereto, together with any interest and penalties

thereon, which are, at any time, imposed or levied upon or assessed against (A) the Leased Premises or any part thereof, (B) any Basic Rent, any Additional Rent reserved or payable hereunder, (C) this Lease or the leasehold estate hereby created or which arise in respect of the operation, possession, occupancy or use of the Premises; (ii) any gross receipts or similar taxes imposed or levied upon, assessed against or measured by the Basic Rent, Additional Rent or any other sums payable by Tenant hereunder or levied upon or assessed against the Leased Premises; (iii) all sales and use taxes which may be levied or assessed against or payable by Landlord or Tenant on account of the acquisition, leasing or use of the Leased Premises or any portion thereto; and (iv) all charges for water, gas, light, heat, telephone, electricity, power and other utilities and services rendered or used on or about the Leased Premises (collectively the "Impositions"). Upon written request from Landlord, Tenant shall within thirty
(30) days thereafter furnish paid receipts or other evidence that the Impositions are not delinquent.

Nothing in this Section shall obligate Tenant to pay federal, state or local (i) franchise, capital stock or similar taxes, if any, of Landlord, (ii) income, excess profits or similar taxes, if any, of Landlord, determined on the basis of its net income, or (iii) any estate, inheritance, succession, gift, capital levy or similar tax unless the taxes referred to in clauses (i) and (ii) above are in addition to or in lieu of or a substitute for any other tax or assessment upon or with respect to any of the Leased Premises which, if such other tax or assessment were in effect at the commencement of the Term, would be payable by Tenant. In the event that any assessment against any of the Leased Premises may be paid in installments, Tenant shall have the option to pay such assessment in installments; and in such event, Tenant shall be liable only for those installments which become due and payable during or are allocable to the Term. Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions. Tenant shall deliver to Landlord, within twenty (20) days of receipt thereof, copies of all settlements and notices pertaining to the Impositions which may be issued by any governmental authority and receipts for payments of all Impositions made during each calendar year of the Term, within thirty days after payment.

(b) Tenant, at its cost and expense, shall promptly comply with and conform to and cause the Leased Premises to comply with and conform to all of the Legal Requirements and Insurance Requirements, subject to the provisions of Section 18.

9. Liens; Recording and Title.

(a) Tenant shall not, directly or indirectly, create or permit to be created or to remain, and shall promptly discharge at its expense, any lien, encumbrance or charge on any of the Leased Premises, on the Basic Rent, Additional Rent or on any other sums payable by Tenant under this Lease, other than the Mortgage, the Assignment, the Permitted Encumbrances and any mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Landlord, not resulting from a default by Tenant hereunder.
NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT, OR TO ANYONE HOLDING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES. This notice shall be included in the memorandum of this Lease to be filed pursuant to Section 33(1).

(b) Upon demand by Landlord, Tenant shall execute, deliver and record, file or register from time to time all such instruments as may be required by any present or future Law in order to evidence the respective interest of Landlord and Tenant in any of the Leased Premises, and shall cause a memorandum of this Lease, and any supplement hereto or to such other instrument, if any, as may be appropriate, to be recorded, filed or registered and re-recorded, refiled or re-registered in such manner and in such places as may be required by any present or future Law in order to give public notice and protect the validity of this Lease. In the event of any discrepancy between the provisions of said recorded memorandum of this Lease or any other recorded instrument referring to this Lease and the provisions of this Lease, the provisions of this Lease shall prevail.

(c) Nothing in this Lease and no action or inaction by Landlord shall be deemed or construed to mean that Landlord has granted to Tenant any right, power or permission to do any act or to make any agreement which may create, give rise to, or be the foundation for, any right, title, interest or lien in or upon the estate of Landlord in any of the Leased Premises.

10. Indemnification. Tenant agrees to defend, pay, protect, indemnify, save and hold harmless Landlord for, from and against any and all liabilities, losses, damages, penalties, costs, expenses (including

without limitation reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, arising from or relating to (a) any of the Leased Premises or Adjoining Property or the use, non-use, occupancy, condition, design, construction, maintenance, repair or rebuilding of any of the Leased Premises or Adjoining Property, and any injury to or death of any person or persons or any loss of or damage to any property, real or personal, in any manner arising therefrom connected therewith or occurring thereon, whether or not Landlord has or should have knowledge or notice of the defect or conditions, if any, causing or contributing to said injury, death, loss, damage or other claim, (b) any violation by Tenant of any provision of this Lease, of any contract or agreement to which Tenant is a party, including but not limited to any violation of any Insurance Requirement or Legal Requirement or Permitted Encumbrance, or (c) any other cause not resulting from the negligence or wilful misconduct of Landlord or its officers, directors, employees or others in privity of contract in connection with the Leased Premises or this Lease. In case any proceeding is brought against Landlord by reason of any such claim, Tenant covenants upon notice from Landlord to resist or defend Landlord in such action, with the expenses of such defense paid by Tenant, and Landlord will cooperate and assist in the defense of such action or proceeding if reasonably requested so to do by Tenant. The obligations of Tenant under this Section 10 shall survive any termination of this Lease.

11. Maintenance and Repair.

(a) Tenant acknowledges that it has received the Leased Premises in good condition, repair and appearance. Tenant agrees that, at its expense, Tenant shall at all times, including without limitation any Requisition period, put, keep and maintain the Leased Premises, including, without limitation, the roof, landscaping, walls and structural components of the Leased Premises, and the Adjoining Property, and any altered, rebuilt, additional or substituted buildings, structures or other improvements, in good repair and appearance, except for ordinary wear and tear, and shall promptly make all repairs and replacements (substantially equivalent in quality and workmanship to the original work) of every kind and nature, whether foreseen or unforeseen, structural or non-structural, which may be required to be made upon or in connection with any of the Leased Premises in order to keep and maintain the Leased Premises in compliance with all Legal Requirements and Insurance Requirements and in as good repair and appearance as they were originally,

except for ordinary wear and tear. Tenant shall do or cause others to do all shoring of the Leased Premises or Adjoining Property or of foundations and walls of the Improvements and every other act necessary or appropriate for preservation and safety thereof, by reason of or in connection with any excavation or other building operation upon any of the Leased Premises or Adjoining Property, whether or not Landlord shall, by reason of any Legal Requirements or Insurance Requirements, be required to take such action or be liable for failure to do so. Landlord shall not be required to make any repair, whether foreseen or unforeseen, or to maintain any of the Leased Premises or Adjoining Property in any way, and Tenant hereby expressly waives the right to make repairs at the expense of Landlord, which right may be provided for in any Law now or hereafter in effect. Tenant shall, in all events, make all repairs promptly upon written notice from Landlord, and all repairs shall be in a good, proper and workmanlike manner.

(b) In the event that any Improvement now or hereafter constructed encroaches upon any property, street or right-of-way adjoining any of the Leased Premises or Adjoining Property, violates any Legal Requirements, Insurance Requirements or the provisions of any restrictive covenant affecting any of the Leased Premises, hinders or obstructs any easement or right-of-way to which any of the Leased Premises is subject, or impairs the rights of others in, to or under any of the foregoing, then, promptly after written request of Landlord, Tenant shall either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord, Tenant or both, or (ii) take such action as shall be necessary to remove such encroachment, violation, hindrance, obstruction or impairment including, if necessary, an Alteration. Any such repair or Alteration shall be made in conformity with the applicable provisions of Section 12.

12. Alterations. Except as otherwise expressly provided in this
Section 12, Tenant shall not make any Alterations which would tend to impair the value of the Leased Premises, or the usefulness or structural integrity thereof, without Landlord's written consent, not to be unreasonably withheld. Notwithstanding the above, Tenant may make non-structural Alterations without the prior written consent of Landlord. In the event that Landlord gives its prior written consent to any Alterations, or if such consent is not required, Tenant agrees that in connection with any Alteration (a) the value of the Leased Premises shall not be lessened by any such Alteration, or its usefulness or structural integrity impaired, (b) the Alteration shall not change the general

character of the Improvements, or materially reduce the useable square footage of the Improvements, (c) all such Alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements, (d) all work done in connection with any such Alteration shall comply with all Insurance Requirements, (e) Tenant shall promptly pay all costs and expenses of any such Alteration, and shall discharge all liens filed against any of the Leased Premises arising out of the same, (f) Tenant shall procure and pay for all permits and licenses required in connection with any such Alteration, (g) all such Alterations shall be the property of Landlord and shall be subject to this Lease, (h) Alterations may only be performed if Tenant is otherwise in compliance with terms and conditions of this Lease; and (i) all Alterations shall be made (except in the case of any Alteration the estimated cost of which in any one instance does not exceed $75,000) under the supervision of an Arizona licensed architect or engineer, reasonably satisfactory to Landlord, in accordance with detailed plans and specifications approved by Landlord, approval not to be unreasonably withheld.

13. Condemnation.

(a) Subject to the rights of Tenant set forth in this
Section 13, Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant may be or become entitled with respect to the Taking of the Leased Premises or any part thereof, by Condemnation or other eminent domain proceedings pursuant to any Law, general or special, or by reason of the temporary Taking of the use or occupancy of the Leased Premises or any part thereof, by any governmental authority, civil or military, whether the same shall be paid or payable in respect of Tenant's leasehold interest hereunder or otherwise. Landlord shall be entitled to participate in any such proceeding and the expenses thereof (including without limitation reasonable attorneys' fees and expenses) shall be paid by Tenant. Nothing in this Lease shall be deemed to
(i) assign to Landlord any award or payment on account of Tenant's Trade Fixtures, or Tenant's other tangible personal property, moving expenses and similar claims, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor or (ii) impair Tenant's right to any such award or payment so long as such claim is not based upon the value of Tenant's leasehold interest.

(b) If during the term of this Lease (i) the entire Leased Premises shall be taken by or on account of any actual or threatened Condemnation or other eminent domain proceeding pursuant to any law,

general or special or (ii) if 25% or more of the Improvements or 25% or more of the Land is taken and said Taking renders the remaining Leased Premises uneconomic for the continued use or occupancy in the business of Tenant in the reasonable business judgment of Tenant's board of directors, then Tenant shall deliver a Purchase Offer (the "Purchase Offer") to Landlord specifying a termination date (the "Termination Date") occurring not less than ninety (90) nor more than one hundred eighty (180) days after the delivery of such Purchase Offer and this Lease shall continue in full force and effect without any abatement of rent, notwithstanding any Taking, until the Termination Date. The Purchase Offer shall be accompanied by Tenant's certificate stating that the conditions set forth in either clause (i) or (ii) of this Section 13(b) have been fulfilled. If the conditions set forth in clause (i) or (ii) of this
Section 13(b) are fulfilled and if Tenant shall have failed to deliver a Purchase Offer as required above, Tenant conclusively shall be presumed to have made a Purchase Offer on a date which is seventy-five (75) days after any such Taking (or such later date as is agreed to in writing by Landlord), and in the event Tenant is so presumed to have made a Purchase Offer, the Termination Date shall be deemed to be one hundred twenty (120) days after such Purchaser Offer is presumed to have been made; but nothing in this sentence shall relieve Tenant of its obligation actually to deliver such Purchase Offer.

(c) If during the Term (i) a portion of the Leased Premises shall be taken by condemnation or other eminent domain proceedings, which Taking is not sufficient to require that Tenant give a Purchase Offer or
(ii) the use or occupancy of the Leased Premises or any part thereof shall be temporarily taken by any governmental authority; then this Lease shall continue in full effect without abatement or reduction of Basic Rent, Additional Rent or other sums payable by Tenant hereunder notwithstanding such partial or temporary Taking. Tenant shall, promptly after any such temporary Taking ceases, at its expense, repair any damage caused thereby in conformity with the applicable requirements of Section 12 so that, thereafter, the Leased Premises shall be, as nearly as commercially and reasonably possible, in a condition as good as the condition thereof immediately prior to such Taking. In the event of any such partial Taking, Landlord shall make the Net Award available to Tenant to make such repair but, if such Net Award shall be in excess of $75,000, only against certificates of Tenant delivered to Landlord from time to time as such work or repair progresses, each such certificate describing the work or repair for which Tenant is requesting payment and the cost incurred

by Tenant in connection therewith and stating that Tenant has not theretofore received payment for such work. Any Net Award remaining after such repairs have been made shall be delivered to Landlord and shall not reduce Tenant's obligation to pay Basic Rent hereunder. In the event of such temporary Requisition, Tenant shall be entitled to receive the entire Net Award payable by reason of such temporary Requisition or portion of such temporary Requisition occurring during the term hereof. If the cost of any repairs required to be made by Tenant pursuant to this Section 13(c) shall exceed the amount of the Net Award, the deficiency shall be paid by Tenant. Notwithstanding anything in this Section 13 to the contrary, during any period of time when there continues to exist an Event of Default, Landlord, in the exercise of its sole and absolute discretion, shall have the right to receive any payments pursuant to this
Section 13(c) and to apply the same toward payment of any delinquent Basic Rent or Additional Rent then due and owing to Landlord under this Lease until such Event of Default is cured.

(d) Landlord may reject any Purchase Offer but must do so not later than the thirtieth (30th) day prior to the Termination Date or the purchase date specified in such Purchase Offer, whereupon this Lease shall terminate on such date (except with respect to obligations and liabilities of Tenant under this Lease, actual or contingent, which have arisen on or prior to such termination), upon payment by Tenant of the Basic Rent, Additional Rent and all other sums then due and payable hereunder to and Including the date of termination without offset or deduction for any reason. Upon a purchase of the Leased Premises pursuant to Section 13(c) and the payment to Landlord of the amount determined in accordance with Exhibit "E" attached hereto and made a part hereof (the "Purchase Price"), Landlord shall convey the Leased Premises and all its right, title and interest in and to the Net Award, (whether or not such Net Award shall have been received by Landlord) to Tenant or its designee.

(e) Any minor Condemnation or Taking of the Leased Premises for the construction or maintenance of streets or highways shall not be considered a Condemnation or Taking for purposes of this Section 13 so long as the Leased Premises shall not be materially or adversely affected, ingress and egress for the remainder of the Leased Premises shall be adequate for the business of Tenant and the provisions of any Mortgage relating thereto shall be complied with. Tenant agrees that it will notify Landlord of any such Condemnation or Taking.

(f) If the Leased Premises or any part thereof shall be purchased by Tenant pursuant to any provision of this Lease, Landlord need not transfer and convey to Tenant or its designee any better title thereto than existed on the date of the commencement of this Lease. Tenant shall accept such title, subject, to such liens, encumbrances, charges, exceptions and restrictions on, against or relating to the Leased Premises (including without limitation those arising pursuant to the terms of this Lease) and to all applicable laws, regulations and ordinances, but free of the Mortgage and all other mortgages, liens, encumbrances, charges, exceptions and restrictions which shall have been created by acts of Landlord. Notwithstanding the thirty-day time limit in Section 13(d), Landlord's inability to deliver such title in such condition on the date fixed for any such purchase shall be deemed to be Landlord's rejection of the Purchase Offer pursuant to Section 13(d) as of and effective on such date.

(g) On the date fixed for any such purchase, Tenant shall pay to Landlord, at any place within the United States of America designated by Landlord, the Purchase Price as determined pursuant to Exhibit "E". together with all installments of Basic Rent and all other sums then due under this Lease and unpaid to and including the date of purchase without offset or deduction for any reason, and Landlord shall deliver to Tenant a special warranty deed conveying title to the Leased Premises of the character described in Section 13(f) above and describing the Leased Premises or portion thereof being sold and conveying the title thereto, together with such instruments as shall be necessary to transfer to Tenant or its designee any other property then required to be transferred by Landlord pursuant to this Lease. Tenant shall pay all reasonable charges incident to such conveyance and transfer, including without limitation counsel fees, escrow fees, recording fees, title insurance premiums and all applicable federal, state and local taxes (other than any income or franchise taxes levied upon or assessed against Landlord) which may be incurred or imposed by reason of such conveyance and transfer.

(h) Upon the completion of such purchase, but not prior thereto (whether or not any delay in the compilation of, or the failure to complete such purchase shall be the fault of Landlord), this Lease and all obligations hereunder (including without limitation the obligations to pay Basic Rent and Additional Rent) shall terminate, except with respect to (i) obligations and liabilities of Tenant, actual or contingent, under this Lease which arose on or prior to such date of purchase or (ii) those obligations contained in Section 10.

14. Insurance.

(a) Tenant shall maintain, or cause to be maintained, at its sole cost and expense the following insurance on the Leased Premises:

(i) Property insurance against loss or damage to the Improvements under a so-called "all-risk" policy or policies of insurance (special form), which may contain such exclusions as may be reasonably acceptable to Landlord, in amounts to prevent Landlord or Tenant from becoming a co-insurer under the applicable policies, and in any event in amounts not less than the actual replacement cost of the Improvements (excluding footings and foundations and other parts of the Improvements which are not insurable) but not less than the full insurable replacement value of the Improvements, and as determined from time to time, but not more frequently than once in any 12-month period, by the insurer or insurers. Such policies shall contain a replacement cost endorsement. Notwithstanding anything to the contrary in this Section 14,
(i) that portion of the property insurance covering loss or damage on account of floods shall have a limit of $5,000,000, and (ii) Tenant shall not be required to obtain or maintain insurance against loss or damage on account of earthquakes.

(ii) Comprehensive general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about any of the Leased Premises or the Adjoining Property, which insurance shall be written on a so-called "occurrence basis", and shall provide minimum protection with a combined single limit in an amount not less than the greater of (x) Twenty-Five Million Dollars ($25,000,000) (or in such increased limits from time to time to reflect declines in the purchasing power of the dollar as Landlord may reasonably request) or (y) the aggregate amount of such insurance carried by Tenant, for bodily injury, death and property damage in any one occurrence. Tenant shall be required to increase its insurance limits from time to time as may be reasonably required by Lender or as may reasonably required by Landlord consistent with coverage on properties similarly constructed, occupied and maintained. In no event shall the limits of such insurance be considered as limiting the liability of Tenant under this Lease.

(iii) Workers' compensation insurance covering all persons employed in connection with any work done on or about any of the Leased Premises for which claims for death

or bodily injury could be asserted against Landlord, Tenant or the Leased Premises in compliance with statutory law and employer's liability insurance with a limit of not less than $200,000 per employee and $1,000,000 per occurrence.

(iv) Insurance against loss or damage from explosion of any steam or pressure boilers or similar apparatus located in or about the Improvements in an amount not less than Five Million Dollars ($5,000,000);

(v) Rental insurance against loss of rental income under a loss of rents insurance policy covering risk of loss due to the occurrence of any of the hazards insured against under Tenant's fire and extended insurance on the building, in an amount sufficient to prevent Landlord from becoming a co-insurer but in any event, in an amount sufficient to pay for one (1) year the rent payable under this Lease. All proceeds received by Landlord will be credited as received against the rent due.

(vi) Builders risk insurance insuring perils covered by the causes of loss special form (all risk) shall be purchased for the value of any Alteration and/or additions made to the leased Premises when the work is not insured under Tenant's property insurance policy.

(vii) Such additional and/or other insurance with respect to the Leased Premises as Landlord may, from time to time, reasonably require or which Lender may, from time to time, reasonably require, so long as such other insurance is in such amounts and of a type as at the time is customarily carried with respect to improvements similar in character, location and use to the Improvements then comprising the Leased Premises.

(b) The insurance required by this Section 14 shall be written and maintained by one or more companies having an insurance company claims paying rating equal to or stronger than "A-9" by A.M. Best Company, or a similar rating by a nationally-recognized rating agency. Insurers shall be approved by Landlord and authorized to do an insurance business in the State and domiciled in the United States. The insurance policies (i) shall be for a term of not less than one year, (ii) shall be in amounts sufficient at all times to satisfy any co-insurance requirements thereof, and (iii) shall (except for the workers' compensation insurance referred to in Section 14(a)(iii) name Landlord and any Lender as additional named insured parties and/or loss

payees, as applicable, as their respective interests may appear. If said insurance or any part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or become void or unsafe by reason of the failure or impairment of the capital of any insurer, or if for any other reasonable cause said insurance shall become unsatisfactory to Landlord, Tenant shall immediately obtain new or additional insurance satisfactory to Landlord. Insurance required under this Section 14 shall be primary and not contributing to any insurance available to Landlord and Landlord's insurance shall be in excess thereto.

(c) Each insurance policy referred to in Sections-14(a)(i),-14(a)(ii)-and-14(a)(iv) shall contain standard noncontributory mortgagee clauses in favor of any Lender. Each policy shall provide that it may not be canceled except after thirty (30) days prior written notice to Landlord and any Lender. Each policy shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Leased Premises for purposes more hazardous than permitted by the provisions of such policy or (ii) any foreclosure or other action or proceeding taken by any Lender pursuant to any provision of the Mortgage upon the happening of an event of default therein.

(d) Tenant shall pay as they become due all premiums for the insurance required by this Section 14, shall renew or replace each policy, and shall deliver to Landlord or Lender the existing policy and such renewal or replacement policy at least ten (10) days prior to the expiration date of each policy and if any such policy be delivered to Lender, Tenant shall deliver to Landlord a certificate of such policy. In the event of Tenant's failure to comply with any of the foregoing requirements of this Section 14 and following the notice and cure periods set forth in this Lease, Landlord shall be entitled to procure such insurance. Any sums expended by Landlord in procuring such insurance shall be Additional Rent and shall be immediately repaid by Tenant.

(e) Anything in this Section 14 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to
Section 14(a) may be carried under a so-called "blanket" policy or policies covering other properties or liabilities of Tenant, provided that such blanket policy or policies otherwise comply with the provisions of this Section 14. In the event any such insurance is carried under a blanket policy, Tenant shall deliver to Landlord and Lender a certified copy of those provisions of the blanket

policy that pertain to the Leased Premises to evidence the issuance and effectiveness of the policy, the amount and character of the coverage with respect to the Leased Premises and the presence in the policy of provisions of the character required in the above Sections of this Section 14.

(f) (i) Insurance claims by reason of damage to or destruction of any portion of the Leased Premises shall be adjusted by Tenant; provided, however, that although Tenant shall make the final decision with respect to any such adjustment, Tenant shall, promptly after such damage or destruction, advise Landlord and Lender of such occurrences and consult with Landlord and Lender throughout the process of adjusting any such claim, and provided further that both Landlord and Lender are fully advised as to all matters on a current basis. Landlord shall not be required to prosecute any claim against, or to contact any settlement proposed by, an insurer. Tenant may, at its expense, prosecute any such claim or contest any such settlement in the name of Landlord, Tenant or both, and Landlord will join therein at Tenant's written request upon the receipt by Landlord of an indemnity from Tenant against all reasonable costs, liabilities and expenses in connection therewith.

(ii) Subject to the provisions of Section 15, Net Proceeds shall be made available from Landlord and/or Lender to Tenant, but, if such Net Proceeds shall be in excess of $75,000, only against certificates of Tenant delivered to Landlord from time to time as such work or repair progresses, each such certificate describing the work or repair for which Tenant is requesting payment and the cost incurred by Tenant in connection therewith and stating that Tenant has not theretofore received payment for such work and has sufficient funds remaining to complete the work free of liens or claims. Any Net Proceeds remaining after Tenant has repaired the Leased Premises in conformity with the applicable requirements of Section 12 shall be delivered to Tenant.

(g) In the event Tenant does not purchase the insurance required by this Lease or keep the same in full force and effect, Landlord may, but shall not be obligated, to purchase the necessary insurance and pay the premium. Tenant shall repay to Landlord, as Additional Rent, the amount so paid promptly upon demand. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as Additional Rent, any and all expenses (including reasonable attorneys' fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance.

(h) Landlord or Lender shall not be limited in the proof of any damages which Landlord or Lender may claim against Tenant arising out of or by reason of Tenant's failure to provide and keep in force Insurance, as provided in this Section 14, to the amount of the insurance premium or premiums not paid or incurred by Tenant and which would have been payable under such insurance; but Landlord and Lender shall also be entitled to recover as damages for such breach, the uninsured amount of any loss, to the extent of any deficiency in the insurance required by this Section 14 and damages, costs and expenses of suit suffered or incurred by reason of or damage to, or destruction of, the Leased Premises, occurring during any period when Tenant may have failed or neglected to obtain the insurance required by this Section 14. Tenant shall indemnify and hold harmless Landlord and Lender for any liability incurred by Landlord or Lender arising out of any deductible for any insurance required by this Section 14.

15. Casualty.

(a) If a part of the Leased Premises shall be damaged or destroyed by casualty, and if the estimated cost of rebuilding, replacing and repairing the same shall exceed $75,000, Tenant shall promptly notify Landlord thereof; and (whether or not such estimated cost shall exceed $75,000) Tenant shall, with reasonable promptness and diligence, rebuild, replace and repair any damage or destruction to the Leased Premises, at its expense, in conformity with the requirements of Section 12 in such manner as to restore the same to the same condition, as nearly as possible, as existed prior to such casualty and there shall be no abatement of Basic Rent or Additional Rent. If the cost of any repairs required to be made by Tenant pursuant to this Section 15(a) shall exceed the amount of the Net Proceeds, the deficiency shall be paid by Tenant. Any Net Proceeds remaining after such repairs have been made shall be delivered to Tenant.

(b) Notwithstanding anything in Section 14 or this
Section 15 to the contrary, during any period of time when there continues to exist an Event of Default, Landlord, in the exercise of its sole and absolute discretion, shall have the right to receive any insurance proceeds from any casualty and to apply the same toward payment of any delinquent Basic Rent or Additional Rent then due and owing to Landlord under this Lease until such Event of Default is cured.

(c) In no event may Tenant abate payment of Basic Rent unless Landlord is receiving rental loss or other insurance payments sufficient to offset such abatement.

16. Subordination to Financing.

(a) Tenant agrees that this Lease shall at all times be subject and subordinate to the lien of any Mortgage, and Tenant agrees, upon demand, without cost, to promptly execute instruments as may be required to further effectuate or confirm such subordination, provided such instruments provide for the non-disturbance of Tenant's occupancy hereunder and Tenant's attornment, and otherwise are in form and content reasonably acceptable to Tenant. So long as Tenant shall faithfully discharge the obligations on its part to be kept and performed under the terms of this Lease, then Tenant's tenancy shall not be disturbed, nor shall this Lease be affected by any default under such Mortgage, and in the event of a foreclosure or other enforcement of any such Mortgage, or sale in lieu thereof, the purchaser at such foreclosure sale shall be bound to Tenant for the term of this Lease and any extensions thereof, the rights of Tenant hereunder shall expressly survive, and this Lease shall in all respects continue in full force and effect so long as Tenant fully performs all of its obligations hereunder. Tenant shall not be named as a party defendant in any such foreclosure suit.

(b) Notwithstanding the provisions of Section 16(a), the holder of the Mortgage to which this Lease is subject subordinate, as provided in said Section 16(a), shall have the right, at its sole option, at any time, to subordinate and subject the Mortgage, in whole or in part, to this Lease by recording a unilateral declaration to such effect.

(c) At any time prior to the expiration of the Term, Tenant agrees, at the election and upon demand of Landlord or its successors or assigns, or of the holder of the Mortgage on the Leased Premises, to attorn, from time to time, to any such owner or holder, upon the then executory terms and conditions of this Lease, for the remainder of the Term originally demised in this Lease and for any renewal Term, provided that such owner or holder as the case may be, shall then be entitled to possession of the Leased Premises subject to the provisions of this Lease. The provisions of this Section 16(c) shall inure to the benefit of any such owner or holder, shall apply notwithstanding that, as a matter of Law, this Lease may terminate upon the foreclosure of the Mortgage, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Upon demand of any such owner or holder, Tenant agrees to promptly execute, from time to time, instruments in confirmation of the foregoing provisions of this Section
16(c), satisfactory to any such owner or holder and to Tenant acknowledging such attornment

and setting forth the terms and conditions of its tenancy. Nothing contained in this Section 16(c) shall be construed to impair any right otherwise exercisable by any such owner or holder.

(d) Tenant agrees that, if requested by Landlord, Tenant shall promptly, without charge, enter into (i) a subordination, non-disturbance and attornment agreement reasonably requested by Lender and in form and content reasonably acceptable to Tenant and (ii) an agreement with any holder of the Mortgage whereby Tenant shall agree for the benefit of the holder of the Mortgage that Tenant will not, without in each case the prior written consent of such holder, (1) amend, modify, cancel or surrender the term of this Lease except as expressly permitted by Section 13 of this Lease, or enter into any agreement with Landlord so to do, or (2) pay any installment of Basic Rent more than one (1) month in advance of the due date thereof or otherwise than in the manner provided for in this Lease.

(e) Tenant agrees that it will give notice to any holder of a first Mortgage encumbering the Leased Premises, provided that Tenant has been notified in writing of the name and address of such Mortgage holder, of any defaults of Landlord or other circumstances which would entitle Tenant to terminate this Lease or abate the rental payable hereunder, specifying the nature of the default by Landlord, and thereupon the holder of the Mortgage shall have the right, but not the obligation, to cure any such default by Landlord. Tenant shall afford the Mortgage holder thirty (30) days after such notice to cure such default and a reasonable period of time in addition thereto if circumstances are such that said default cannot be reasonably cured within such 30-day period. No such Lender shall, upon assuming title to the Leased Premises, be liable for any act or omission of any prior landlord (including Landlord), be subject to any offsets or defenses which Tenant may have against any prior landlord, or be bound by any rent or additional rent paid for more than the then-current period plus one (1) additional month's Basic Rent to any prior landlord. Nothing herein shall be construed to be in conflict with the provisions of Section 7.

17. Assignment, Subleasing and Vacating. The Leased Premises may be assigned or sublet by Tenant in whole or in part only with the consent of Landlord, not to be unreasonably withheld. The bases for withholding consent include, but is not limited to: (i) an unsatisfactory credit history and/or a showing of unsatisfactory financial responsibility of the proposed transferee;
(ii) the business reputation of the proposed transferee is not in accordance with generally acceptable commercial standards; (iii) the use of the Leased

Premises would be a violation of Section 4(a); (iv) the managerial and operational skills of proposed transferee are not at least as good as those of existing Tenant; (v) the use of the Leased Premises violates any other agreements affecting the Leased Premises the Landlord, or other tenants; and
(vi) the transfer and/or the use of the Leased Premises would be contrary to public policy or statute. Within thirty (30) days after Tenant gives Landlord notice of assignment and/or sublease, said assignment shall be deemed approved by Landlord if Landlord fails to give written notice of disapproval thereof with specific reasons for such disapproval. Notwithstanding any assignment or subletting, Tenant shall continue to remain liable and responsible for the payment of the Basic Rent and Additional Rent and the performance of all its other obligations under this Lease. Any payments of rent by such subtenant or sublessee in excess of the Basic Rent payable hereunder shall be shared in the ratio of 50% to Tenant and 50% to Landlord.

Each sublease of any of the Leased Premises shall be subject and subordinate to the provisions of this Lease. No assignment or sublease made as permitted by this Section 17 or otherwise shall affect or reduce any of the obligations of Tenant hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment or sublease had been made. No assignment or sublease shall impose any obligations on Landlord under this Lease. No assignment or sublease shall be valid unless, in the case of an assignment, Tenant shall, within ten (10) days after the execution and delivery of any such assignment, deliver to Landlord (a) a duplicate original of such assignment in recordable form and (b) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall agree to assume and agree to observe and perform all of the terms and provisions of this Lease on the part of Tenant to be observed and performed, and, in the case of a sublease, Tenant shall, within ten (10) days after the execution and delivery of such sublease, deliver to Landlord a duplicate original of such sublease. Notwithstanding anything to the contrary contained herein, any change in ownership or control of Tenant shall not be deemed to be an assignment or sublet hereof.

Upon the occurrence of an Event of Default under this Lease, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Leased Premises, and Tenant hereby irrevocably and unconditionally assigns such rents and money to Landlord, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default. Tenant

shall not mortgage or pledge this Lease without Landlord's express written consent, which may not be unreasonably withheld, and any such mortgage or pledge made in violation of this Section 17 shall be void.

Landlord may from time to time freely assign its interest hereunder. Upon such assignment and following written notice to Tenant thereof, Landlord shall be discharged from any further obligation or liability hereunder; provided, however, that Landlord shall be discharged from its obligations with respect to the Security Deposit only upon the written acknowledgement by such assignee to Tenant of such assignee's actual receipt of or obligation to assume responsibility for the Security Deposit.

18. Permitted Contests. After prior written notice to Landlord, Tenant shall not be required to (a) pay any Imposition, (b) comply with any Legal Requirement, (c) discharge or remove any lien referred to in Section 9 or
Section 12, or (d) take any action with respect to any encroachment, violation, hindrance, obstruction or impairment referred to in Section 11(b), so long as Tenant shall contest, in good faith and at its expense, the existence, the amount or the validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord's liability therefor, by appropriate proceedings which shall operate during the pendency, thereof to prevent (A) the collection of, or other realization upon, the Imposition or lien so contested, (B) the sale, forfeiture or loss of any of the Leased Premises, any Basic Rent or any Additional Rent to satisfy the same or to pay any damages caused by the violation of any such Legal Requirement or by any such encroachment, violation, hindrance, obstruction or impairment, (C) any interference with the use or occupancy of any of the Leased Premises, (D) any interference with the payment of any Basic Rent or any Additional Rent, (E) the cancellation of any fire or other insurance policy, and (F) Landlord would not be in danger of civil or criminal liability or sanctions for failure so to pay or perform. Tenant shall provide Landlord security satisfactory in the sole opinion of Landlord assuring the payment, compliance, discharge, removal or other action, including without limitation all reasonable costs, attorneys' fees, interest and penalties, in the event that the contest is unsuccessful. While any such proceedings are pending and the required security is held by Landlord, Landlord shall not have the right to pay, remove or cause to be discharged the Imposition or lien thereby being contested unless any one or more of the conditions in subdivisions (A) through (F) shall not be prevented during the pendency of the contest. Tenant further agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Tenant shall, so long as all of the

conditions of the first sentence of this Section 18 are at all times complied with, have the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay and save Landlord and Lender harmless for, from and against any and all losses, judgments, decrees and costs (including without limitation all reasonable attorneys' fees and expenses) in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof.

19. Conditional Limitations; Default Provisions.

(a) The occurrence of any one or more of the following shall constitute an "Event of Default" under this Lease: (i) a failure by Tenant to make (regardless of the pendency of any bankruptcy, reorganization, receivership, insolvency or other proceedings, in law, in equity or before any administrative tribunal, which had or might have the effect of preventing Tenant from complying with the provisions of this Lease) any payment of Basic Rent, Additional Rent or other sum herein required to be paid by Tenant; (ii) a failure by Tenant to duly perform and observe, or a violation or breach of any other provision hereof; (iii) any representation or warranty made by Tenant herein which proves at any time to be incorrect, in any material respect; (iv) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or trustee for itself or for any of the Leased Premises, (C) file a petition seeking relief under the bankruptcy or other similar Laws of the United States, any state or any jurisdiction, (D) make a general assignment for the benefit of creditors, or (E) be unable to pay its debts as they mature; (v) a court shall enter an order, judgment or decree appointing, with the consent of Tenant, a receiver or trustee for it or for any of the Leased Premises or approving a petition filed against Tenant which seeks relief under the bankruptcy or other similar Laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain in force, undischarged or unstayed, sixty days after it is entered; (vi) Tenant shall be liquidated or dissolved or shall begin proceedings towards its liquidation or dissolution; or (vii) the estate or interest of Tenant in any of the Leased Premises shall be levied upon or attached in any proceeding and such estate or

interest is about to be sold or transferred or such process shall not be vacated or discharged within sixty days after such levy or attachment.

(b) If an Event of Default shall have occurred and be continuing, Landlord shall have the right at its sole option, then or at any time thereafter, to do any one or more of the following without demand upon or notice to Tenant:

(i) Landlord may give Tenant notice of Landlord's intention to terminate this Lease on a date specified in such notice. Upon the date therein specified, the Term and the estate hereby granted and all rights of Tenant hereunder shall expire and terminate as if such date were the date hereinbefore fixed for the expiration of the Term, but Tenant shall remain liable for all its obligations hereunder through such date, including its liability for Basic Rent and Additional Rent as hereinafter provided.

(ii) Landlord may, whether or not the Term of this Lease shall have been terminated pursuant to Section 19(b)(i) above, (A) give Tenant notice to surrender any of the Leased Premises to Landlord immediately or on a date specified in such notice, at which time Tenant shall surrender and deliver possession of the Leased Premises to Landlord or (B) reenter and repossess any of the Leased Premises by force, summary proceedings, ejectment or any other means or procedure. Upon or at any time after taking possession of any of the Leased Premises, Landlord may remove any persons or property therefrom. Landlord shall be under no liability for or by reason of any such entry, repossession or removal. No such entry or repossession shall be construed as an election by Landlord to terminate this Lease unless Landlord gives a written notice of such intention to Tenant pursuant to
Section 19(b)(i) above.

(iii) After repossession of any of the Leased Premises pursuant to Section 19(b)(ii) above, whether or not this Lease shall have been terminated pursuant to Section 19(b)(i) above, Landlord shall have the right to relet the Leased Premises or any part thereof to such tenant or tenants for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) for such rent, on such conditions (which, if commercially reasonable to do so, may include concessions or free rent) and for such uses as Landlord, in its

absolute discretion, may determine; and Landlord may collect and receive any rents payable by reason of such reletting, provided Landlord has made a good faith effort to mitigate its damages.

(iv) Landlord may exercise any other right or remedy now or hereafter existing by Law or in equity.

(v) To continue this Lease in effect for so long as Landlord does not terminate Tenant's right to possession of the Leased Premises and to reinforce all of Landlord's rights under this Lease and recover all Basic Rent, Additional Rent and other sums payable hereunder as the same become due.

(c) No expiration or termination of this Lease pursuant to Section 19(b)(i) or any other provision of this Lease, by operation of Law, repossession of the Leased Premises pursuant to Section 19(b)(ii) or otherwise, or reletting of any of the Leased Premises pursuant to Section 19(b)(iii), shall relieve Tenant of any liabilities and obligations hereunder, including the liability for Basic and Additional Rent, all of which shall survive such expiration, termination, repossession or reletting.

In the event of any expiration or termination of this Lease or repossession of any of the Leased Premises by reason of the occurrence of an Event of Default, Tenant shall pay to Landlord Basic Rent, Additional Rent and all other sums required to be paid by Tenant to and including the date of such expiration, termination or repossession and, thereafter, Tenant shall, until the end of what would have been the Term in the absence of such expiration, termination or repossession, and whether or not any of the Leased Premises shall have been relet, be liable to Landlord for and shall pay to Landlord as liquidated and agreed current damages (but discounted at an appropriate discount rate to its current value) (i) Basic Rent, Additional Rent and all other sums which would be payable under this Lease by Tenant in the absence of such expiration, termination or repossession, less (ii) the net proceeds, if any, of any reletting pursuant to Section 19(b)(iii), after deducting from such proceeds all of Landlord's expenses in connection with such reletting (including all repossession costs, brokerage commissions, legal expenses, attorneys' fees, employees' expenses, costs of Alterations and expenses of preparation for reletting). Tenant hereby agrees to be and remain liable for all sums aforesaid, and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages. Nothing herein contained shall

be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired by limitation had there been no such Event of Default.

(d) Before an Event of Default shall exist under Section 19 or any other Section hereof by reason of an Event of Default under Section
19(a), Landlord shall have given Tenant written notice of any failure by Tenant or occurrence of any event specified in said Section 19(a) (any such failure or occurrence being referred to in this Lease as a "Default") and Tenant shall have failed to cure the Default within the applicable grace period stated below. If the cure consists of payment of money or furnishing of insurance coverages required in Section 14, the applicable grace period shall be five business days
(5) from the date on which the notice is given. If the cure consists of something other than payment of money (except the failure to provide insurance), the applicable grace period shall be thirty (30) days from the date on which the notice is given, or such longer time as reasonably necessary to cure the Default, provided that Tenant shall commence to cure the Default within said thirty (30) day period and actively, diligently and in good faith proceed with continued curing of the Default until it shall be fully cured.

20. Additional Rights of Landlord and Tenant.

(a) No right or remedy herein conferred upon or reserved to a party hereof is intended to be exclusive of any other right or remedy and every right and remedy shall be cumulative and in addition to any other right or remedy contained in this Lease. No delay or failure by a party hereof to enforce its rights hereunder shall be construed as a waiver, modification or relinquishment thereof. In addition to the other remedies provided in this Lease, each party shall be entitled, to the extent permitted by applicable Law, to injunctive relief in case of the violation or attempted or threatened violation of any of the provisions of this Lease, or to specific performance of any of the provisions of this Lease.

(b) In the event of any action between the parties hereto by reason of an alleged breach or default of this Lease, in addition to any other rights or remedies provided by Law the prevailing party shall be entitled to recover from the other party its costs and expenses in connection thereof, including without limitation attorneys' fees, expenses and expert witness fees.

(c) Tenant hereby waives and surrenders for itself and all those claiming by, through or under it, including without limitation creditors of all kinds, (i) any right or privilege which it or any of them

may have under any present or future Law to redeem the Leased Premises or to have a continuance of this Lease for the Term hereby demised after termination of Tenant's right of occupancy or after termination of the Term of this Lease as herein provided, (ii) the benefits of any present or future Law which exempts property from liability for debt or for distress for rent.

21. Notices. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications or permitted to be given pursuant to the provisions of this Lease shall be in writing and shall be deemed to have been given for all purposes when deposited (i) with an overnight courier service, (ii) with a personal messenger or (iii) in the United States mail by registered or certified mail, return receipt requested, postage prepaid, in any case addressed to the other party at its address stated below:

Tenant:                    Integrated Process Equipment Corporation
                           4717 East Hilton Avenue
                           Phoenix, Arizona 85034
                           Attention: John S. Hodgson

with a copy to:            Quarles & Brady
                           One East Camelback Road, Suite 400
                           Phoenix, Arizona 85012-1649
                           Attention: Roger K. Spencer, Esq.

Landlord:                  Seldin Properties
                           c/o Seldin Development & Management
                           13057 West Center Road
                           Omaha, Nebraska 68144-3790
                           Attention: Millard R. Seldin & Theodore M. Seldin

with a copy to:            Santin, Poli, Ball & Simms, P.L.C.
                           2999 North 44th Street
                           Phoenix, Arizona 85018
                           Attention: Peter G. Santin, Esq.

For the purposes of this Section 21, any party may substitute its address by giving fifteen days' written notice to the other party in the manner provided above.

22. Estoppel Certificates. Landlord and Tenant shall, at any time and from time to time, upon not less than fifteen (15) days' prior written request by the other, execute, acknowledge and deliver to the other a statement in writing, executed by a duly authorized representative of Landlord or Tenant as the case may be certifying (a) that this Lease is unmodified and in full effect (or, if there have been modifications, that this Lease is in full effect as modified, setting forth such modifications), (b) the dates to which Basic Rent, payable hereunder has been paid, (c) that to the current actual knowledge of the signer of such certificate no Default by either Landlord or Tenant exists hereunder or specifying each such Default of which the signer may have knowledge; and (d) with respect to a certificate signed on behalf of Tenant, that to the knowledge of the signer of such certificate, there are no proceedings pending or threatened against Tenant before or by any court or administrative agency which if adversely decided would materially and adversely affect the financial condition and operations of Tenant or if any such proceedings are pending or threatened to said signer's knowledge, specifying and describing the same. It is intended that any such statements may be relied upon by Lender, the recipient of such statements or their assignees or by any prospective purchaser or Lender of the Leased Premises.

23. Surrender and Holding Over. Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises (except as to any portion thereof with respect to which this Lease has previously terminated) to Landlord in the same condition in which the Leased Premises were originally received from Landlord at the commencement of this Lease, except as to any repair or Alteration as permitted or required by any provision of this Lease, and except for ordinary wear and tear. Tenant shall remove from the Leased Premises on or prior to such expiration or earlier termination Tenant's Trade Fixtures and other personal property which are owned by Tenant or third parties other than Landlord, and Tenant at its expense shall, on or prior to such expiration or earlier Termination, repair any damage caused by such removal. Tenant's Trade Fixtures and other personal property not removed within fifteen (15) days following the end of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord may thereafter cause such property

to be removed from the Leased Premises. The cost of removing and disposing of such property and repairing any damage to any of the Leased Premises caused by such removal shall be borne by Tenant. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property which becomes the property of Landlord as a result of such expiration or earlier termination. Tenant shall not commit waste of the Leased Premises.

Any holding over by Tenant of the Leased Premises following the expiration or earlier termination of the Term of this Lease or any extensions thereof, with the consent of Landlord, shall operate and be construed as tenancy from month to month only, at one hundred and fifty percent (150.0%) of the Basic Rent reserved herein and otherwise upon the same terms and conditions as contained in this Lease. Notwithstanding the foregoing, any holding over shall entitle Landlord, in addition to collecting such increased Basic Rent, to all rights and remedies provided by Law or in equity, including the remedies of Section 19(b).

24. Risk of Loss. The risk of loss or enjoyment and beneficial use of any of the Leased Premises in consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosure, attachments, levies or executions (other than by Landlord and those claiming from, through or under Landlord) is assumed by Tenant, and Landlord shall in no event be answerable or accountable therefor. Except as otherwise specifically provided in Section 13 of this Lease, none of the events mentioned in this Section 24 shall entitle Tenant to any abatement of Basic Rent or Additional Rent or otherwise affect any of the obligations of Tenant hereunder.

25. No Merger of Title. There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee estate in or ownership of any of the Leased Premises by reason of the fact that the same person, corporation, firm or other entity may acquire or hold or own, directly or indirectly, (a) this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate and (b) the fee estate or ownership of any of the Leased Premises or any interest in such fee ownership. No such merger shall occur unless and until all persons, corporations, firms and other entities having any interest in (a) this Lease or the leasehold estate created by this Lease and (b) the fee estate in or ownership of the Leased Premises or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same.

26. Landlord's Liability. Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease shall be enforced only against the Leased Premises and not against any other assets, properties or funds of Landlord or any director, officer, general partner, limited partner, employee or agent of Landlord or any legal representative, heir, estate, successor or assign of any thereof.

The term "Landlord" as used in this Lease so far as covenants or obligations on the part of Landlord are concerned shall be limited to mean and include only the owner or owners of the Leased Premises or holder of the Mortgage in possession at the time in question of the Leased Premises and in the event of any transfer or transfers of the title of the Leased Premises, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer and conveyance of all personal liability as resets the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed.

27. Hazardous Substances. Tenant represents and warrants that it will not on or about the Leased Premises, make, treat, generate, store or dispose of any Hazardous Substances except in strict compliance with all Environmental Laws, and Tenant represents and warrants that it will at all times strictly comply with all Environmental Laws. To the extent required by applicable Environmental Laws, at the termination of its tenancy hereunder Tenant shall remove any Hazardous Substances whether now or hereafter existing on the Leased Premises and whether or not arising out of or in any manner connected with Tenant's occupancy of the Leased Premises during the initial Term or any additional Term hereof. Tenant shall and hereby does agree to defend, indemnify and hold Landlord, its officers, directors, shareholders and employees harmless for, from and against any and all loss, damage, expenses, fees, claims, costs, and liabilities, including, but not limited to, attorneys' fees and costs of litigation, arising out of or in any manner connected with the "release" or "threatened release" of or failure to remove, as required by this Section 27, Hazardous Substances from the Leased Premises or any portion or portions thereof, now or hereafter existing and whether or not arising out of or in any manner connected with Tenant's occupancy of the Leased Premises during the initial Term or any additional Term, except as such Hazardous Substances were introduced by or caused to be introduced by

Landlord, Lender or their respective officers, directors, employees or others in privity of contract in connection with the Leased Premises or this Lease.

At the end of the Term, Tenant shall furnish to Landlord an environmental report from an environmental consultant acceptable to Landlord in its reasonable discretion evidencing that the Leased Premises are not in violation of Environmental Laws. Such report shall be at Landlord's expense, unless Tenant shall have previously violated Environmental Laws or such report discloses a violation thereof. In addition, from time to time during the Term Landlord may conduct such investigations or studies with respect to the Leased Premises and Environmental Laws as it may reasonably desire to ascertain compliance with Environmental Laws; the cost of any such report shall be at Landlord's expense unless such report discloses a violation of Environmental Laws.

Tenant shall notify Landlord and Lender in writing of any Hazardous Substance that exists on or is discharged from or onto the Leased Premises (whether originating thereon or migrating to the Leased Premises from other property) in violation of any Environmental Law within ten (10) days after Tenant first has knowledge of such violation. In addition, on the Commencement Date, and annually thereafter, Tenant shall provide a written list of any Hazardous Substance that exists on or is discharged from or onto the Leased Premises together with relevant Material Data Safety Sheets to the extent in Tenant's possession.

Tenant's obligations and liabilities under this Section shall survive the expiration of this Lease.

28. Entry by Landlord. Landlord and its authorized representatives shall have the right to enter the Leased Premises at all reasonable times (a) for the purpose of inspecting the same or for the purpose of doing any work under Section 32, and may take all such action thereon as may be necessary or appropriate for any such purpose (but nothing contained in this Lease or otherwise shall create or imply any duty upon the part of Landlord to make any such inspection or do any such work), and (b) for the purpose of showing the Leased Premises to prospective purchasers and mortgagees and, at any time within 12 months prior to the expiration of the term of this Lease for the purpose of showing the same to prospective tenants. No such entry shall constitute an eviction of Tenant.

29. Financial Statements. Tenant shall furnish to Landlord Tenant's most recent publicly filed annual and quarterly reports within twenty
(20) days of filing thereof with the United States Securities and Exchange Commission.

30. Broker. Landlord and Tenant represent and warrant to each other that neither party negotiated with any broker in connection with this Lease and that this Lease was negotiated directly by Landlord and Tenant. Each party covenants to indemnify and hold harmless the other party for any loss caused by the breach of the foregoing representation and warranty.

31. Additional Provisions Regarding Use.

(a) Tenant shall continuously use and occupy the Leased Premises during the first five (5) years of the Term.

(b) Tenant shall be solely responsible for security at, in and on the Leased Premises and Landlord shall have no responsibility or liability for any loss or damage therefor unless the same is caused by the gross negligence or wilful misconduct of Landlord or its officers, directors, employees or others in privity of contract in connection with the Leased Premises or this Lease.

(c) Landlord shall not be liable to Tenant by reason of any interruption of utilities or other services provided to the Leased Premises unless such interruption is caused by the gross negligence or wilful misconduct of Landlord or its officers, directors, employees or others in privity of contract in connection with the Leased Premises or this Lease.

32. Landlord's Right to Take Action. Subject to Tenant's right to receive notice of such violation or default and opportunity to cure as expressly provided in this Lease, if Tenant shall have violated or be in default under any provision of this Lease, Landlord may do whatever is necessary to cure such violation or default for the account of and/or in the name of, and at the expense of, Tenant. All sums so paid by Landlord and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) so incurred, together with interest thereon at the Default Rate from the date of payment or incurring the expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

33. Miscellaneous.

(a) The Section headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease.

(b) References to a "Section" or "section" when used without further attribution refer to the particular section of this Lease.

(c) For the purpose of any Law that construes the interpretation of this Lease against the drafter thereof, neither party hereto shall be deemed to be the "drafter" of this Lease. In addition, the following words and phrases shall have the following meanings: (i) "including" shall mean "including but not limited to"; (ii) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty, agreement, liability, covenant or condition"; (v) "any of the Leased Premises" shall mean "the Leased Premises or any part thereof or interest therein"; and
(6) "any of the Improvements" shall mean "the Improvements or any part thereof or interest therein".

(d) Except as otherwise expressly set forth in this Lease, this Lease is solely for the benefit of Landlord and Tenant,; there are no other intended third party beneficiaries hereof.

(e) This Lease may be modified, amended, discharged or waived only by an agreement in writing specifically referring to this Lease and signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought.

(f) The covenants of this Lease shall run with the Land and bind Tenant and Landlord as applicable and their respective successors and assigns and all present and subsequent encumbrances and subtenants of any of the Leased Premises, and shall inure to the benefit of and bind Landlord and Tenant as applicable and their respective successors and assigns.

(g) In the event any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

(h) This Lease will be simultaneously executed in counterparts, each of which when so executed and delivered shall constitute an original, fully enforceable counterpart for all purposes.

(i) This Lease shall be governed by and construed according to the Laws of the State of Arizona.

(j) Time shall be of the essence of this Agreement and each and every term and condition hereof.

(k) The exhibits and schedules attached to this Agreement and/or described in this Lease are incorporated herein and shall be considered a part of this Lease for the purposes stated herein.

(l) A memorandum of this Lease, in form and content substantially similar to Exhibit "D", shall be recorded in the office of the Maricopa County, Arizona Recorder's Office immediately upon the execution and delivery of this Lease.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be executed as of the day and year first above written.

LANDLORD:                      TENANT:

SELDIN PROPERTIES              INTEGRATED PROCESS EQUIPMENT CORPORATION

By: /s/ Millard R. Seldin      By: /s/ John S.Hodgson
-------------------------      ----------------------------------------------
Name: Millard R. Seldin        Name: John S. Hodgson
Title: General Partner         Title: Vice President and chief Financial Officer

EXHIBIT "A" TO LEASE

Legal Description of Leased Premises

The Leased Premises are located in Maricopa County, Arizona, and is legally described as follows:

Parcel No. 1:

Lots 6, 7 and 8, RIO SALADO GATEWAY CENTER, according to Book 267 of Maps, page 34, records of Maricopa County, Arizona.

Parcel No. 2:

That portion of Lot 9, RIO SALADO GATEWAY CENTER, according to Book 267 of Maps, page 34, records of Maricopa County, Arizona, described as follows:

BEGINNING at the Northeast corner of said Lot 9;

thence South 00(degree) 14' 14" West along the East line of said Lot 9 a distance of 447.45 feet to the South line of said RIO SALADO GATEWAY CENTER;

thence North 89(degree) 45' 46" West (basis of bearings) along said South line 55.66 feet to the East right-of-way line of the proposed 47th Street roadway;

thence North 00(degree) 14' 19" East along the said East right-of-way line 427.44 feet;

thence North 45(degree) 14' 16" East"28.28 feet to the South right-of-way line of Hilton Avenue as depicted on said RIO SALADO GATEWAY CENTER;

thence South 89(degree) 45' 46" East along said South right-of-way line 35.65 feet to the Northeast corner of said Lot 9 and the POINT OF BEGINNING.

EXHIBIT "B" TO LEASE

Permitted Encumbrances

1. Reservations contained in the patent from the United States of America, reading as follows:

SUBJECT to any vested and accrued water rights for mining, agricultural, manufacturing, or other purposes, and rights to ditches and reservoirs used in connection with such water rights as may be recognized and acknowledged by the local customs, laws and decisions of courts, and also subject to the right of the proprietor of a vein or lode to extract and remove his ore therefrom, should the same be found to penetrated or intersect the premises hereby granted, as provided by law; and any other reservation as set forth in the statutes under which said patent was issued.

2. The rights of the United States of America, the State of Arizona and/or the public to any portion of the Land lying within the bed, or former bed, of any water course, as that term is defined under the Law of the State of Arizona.

3. Restrictions, conditions and regulations governing use of groundwater by reason of the inclusion of said land within Phoenix Active Management Area, pursuant to Arizona Revised Statutes Section 45-101 et seq.

4. Water rights, claims or title to water, and agreements, covenants, conditions or rights incident thereto, whether or not shown by the public records.

5. Taxes and assessments collectible by the Maricopa County Treasurer constituting a lien payable but not yet due.

6. Easement and rights incident thereto, as set forth in those certain Right of Way Easements each dated December 21, 1962, recorded with the Maricopa County Recorder in Docket 4432, Page 454 and Docket 4437, Page 427, respectively.

7. Easements, restrictions, reservations and conditions as shown on the plat recorded in Book 267 of Maps, Page 34.

8. Restrictions, conditions, covenants, reservations, including but not limited to any recitals creating easements, liabilities, obligations or party walls, omitting, if any, from the above, any restrictions based on race, color, religion or national origin contained in that certain Declaration of Restrictions for Rio Salado Gateway Center dated May 16, 1984, recorded with the Maricopa County Recorder as Document Number 84-217129, and that certain First Amendment to Declaration of Restrictions for Rio Salado Gateway Center dated May 16, 1984, recorded with the Maricopa County Recorder as Document Number 84-311463.

9. Easements as shown on the plat recorded in Book 305 of Maps, Page 28.

10. Easement and rights incident thereto, as set forth in that certain Underground Power Easement dated June 9, 1995, recorded with the Maricopa County Recorder as Document Number 95-0352382.

11. This Lease.

EXHIBIT "C" TO LEASE

Rent Schedule

The Basic Rent for the first Lease year, being the period of December 26, 1996 through December 31, 1997, shall be in the annual amount of $2,057,000, payable in monthly installments each in the amount of $171,416.67. The Basic Rent for each subsequent period of January 1 through December 31 shall be in an annual amount increasing by (a) the amount of 2.5% plus any make-up adjustment as set forth below, or (b) in the event that the percentage increase in the CPI for the preceding Lease year is less than one percent (1.0%), the amount of $20,570.00 (1.0%).

The make-up adjustment for any given year shall be averaged on a sum-of-the-years basis throughout the term of this Lease, but shall not exceed a cumulative average increase of $51,425. For example, assuming the following CPI increases:

End of first Lease year, 0.50%; End of second Lease year, 4.0%; and End of third Lease year, 4.0%;

then the increase for each Lease year would be as follows:

Basic Rent for the second Lease year would increase by 1.0%; Basic Rent for the third Lease year would increase by 4.0%; and Basic Rent for the fourth Lease year would increase by 2.50%.

Notwithstanding anything to the foregoing, all increases shall be based upon the Basic Rent for the first Lease year; accordingly, increases in the Basic Rent shall not be compounded.

Basic Rent for the first year of any period of extension or renewal of the Term shall be the market rate of rent at the time of each respective renewal or extension; provided, however, that such Basic Rent shall in no event be any less than the Basic Rent in effect for the Lease year immediately preceding such extension or renewal period. Basic Rent for each subsequent year of any period of extension or renewal shall increase pursuant to the formula set forth above and otherwise applicable during the initial Term hereof.

The schedule of Basic Rent, on an annual basis, assuming the maximum increase each year and no extension or renewal of the initial Term, is as follows:

Lease Year            Annual Basic Rent
 1                      $  2,057,000      Dec 26, 1996 - Dec 30, 1997
 2                      $  2,108,425      Jan 1, 1998 - Dec 30, 1998
 3                      $  2,159,850      Jan 1, 1999 - Dec 30, 1999
 4                      $  2,211,275      Jan 1, 2000 - Dec 30, 2000
 5           15.04      $  2,262,700      Jan 1, 2001 - Dec 30, 2001
 6           15.38      $  2,314,125      Jan 1, 2002 - Dec 30, 2002
 7           16.06      $  2,365,550      Jan 1, 2003 - Dec 30, 2003
 8                      $  2,416,975      Jan 1, 2004 - Dec 30, 2004
 9                      $  2,468,400      Jan 1, 2005 - Dec 30, 2005
10                      $  2,519,825
11                      $  2,571,250
12                      $  2,622,675
13                      $  2,674,100
14                      $  2,725,525
15                      $  2,776,950

150,420 sq. ft.

C-2

EXHIBIT "D" TO LEASE

Form of Memorandum of Lease

After recording, return to:
Peter G. Santin, Esq.
Santin, Poli, Ball & Simms, P.L.C.
2999 North 44th Street
Phoenix, Arizona 85018

MEMORANDUM OF LEASE AGREEMENT

STATE OF ARIZONA    Section
                    Section
COUNTY OF MARICOPA  Section

THIS MEMORANDUM OF LEASE is made as of December 26,1996, between SELDIN PROPERTIES, a Nebraska partnership ("Landlord"), whose address is 13057 West Center Road, Omaha, Nebraska 68144-3790, Attn: Millard R. Seldin, and INTEGRATED PROCESS EQUIPMENT CORPORATION ("Tenant"), having an address of 4717 East Hilton Avenue, Phoenix, Arizona 85034, Attn: John S. Hodgson.

WITNESSETH:

(1) Landlord as of this day hereby leases unto Tenant the land and improvements situated on that certain tract of land legally described on Exhibit "A" attached hereto (the "Premises") pursuant to the terms of that certain Lease of even date hereto (the "Lease"). The terms and conditions of the Lease are incorporated herein by reference.

(2) The Lease sets forth the above names and addresses of the parties thereto.

(3) The term of the Lease commences on the date hereof and expires at midnight on December 31, 2011.

(4) Tenant has a right to extend the term of the Lease for two (2) successive periods of five (5) years each. The maximum date to which the Lease may be extended is December 31, 2021. Tenant's rights of extension are exercisable as set forth in the Lease. Failure to exercise any of the foregoing rights to extend the term of the Lease shall render null and void the subsequent right or rights to extend the term.

(5) Notice is hereby given that Landlord shall not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding any of the Premises through or under Tenant, and that no mechanic's liens for such labor, services or materials shall attach to or affect the interest of Landlord in and to any of the Premises.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused this Memorandum of Lease to be executed by their duly authorized representatives the day and year first above written.

INTEGRATED PROCESS EQUIPMENT CORPORATION

By:______________________________________________
Name: John S. Hodgson

Title: Vice President and Chief Financial Officer

SELDIN PROPERTIES

                               By:______________________________________________
                               Name: Millard R. Seldin
                               Title: General Partner

STATE OF ARIZONA    Section
                    Section
COUNTY OF Maricopa  Section

The foregoing instrument was acknowledged before me this ___ day of December, 1996, by John S. Hodgson, Vice President and Chief Financial Officer of INTEGRATED PROCESS EQUIPMENT CORPORATION, a Delaware corporation, on behalf of said corporation.

Notary Public in and for

The State of Arizona

STATE OF___________ Section
Section

COUNTY OF__________ Section

The foregoing instrument was acknowledged before me this __ day of December, 1996, by Millard R. Seldin, general partner of SELDIN PROPERTIES, a Nebraska partnership, on behalf of said general partnership.

Notary Public in and for The State of _________

D-2

STATE OF ARIZONA    Section
                    Section
COUNTY OF Maricopa  Section

The foregoing instrument was acknowledged before me this __ day of December, 1996, by John S. Hodgson, Vice President and Chief Financial Officer of INTEGRATED PROCESS EQUIPMENT CORPORATION, a Delaware corporation, on behalf of said corporation.

Notary Public in and for

The State of Arizona

STATE OF___________ Section
Section

COUNTY OF__________ Section

The foregoing instrument was acknowledged before me this __ day of December, 1996, by Millard R. Seldin, general partner of SELDIN PROPERTIES, a Nebraska general partnership, on behalf of said general partnership.

Notary Public in and for The State of _________

D-3

STATE OF __________ Section
Section

COUNTY OF _________ Section

The foregoing instrument was acknowledged before me this __ day of December, 1996, by Theodore M. Seldin, general partner of SELDIN PROPERTIES, a Nebraska general partnership, on behalf of said general partnership.

Notary Public in and for The State of _________

STATE OF___________ Section
Section

COUNTY OF__________ Section

The foregoing instrument was acknowledged before me this __ day of December, 1996, by Stanley C. Seldin, the general partner of SELDIN PROPERTIES, a Nebraska general partnership, on behalf of said general partnership.

Notary Public in and for The State of _________

D-4

EXHIBIT "E" TO LEASE

Purchase Offer Computation

The "Purchase Price" means the fair market value of the Leased Premises (excluding Trade Fixtures) as of the date of receipt of notice of the Taking, as established by an independent appraisal prepared by an MAI-certified commercial appraiser agreed upon by Landlord and Tenant. If no such agreement can be made, each party shall select an MAI-certified commercial appraiser, and such appraisers shall select a third MAI-certified commercial appraiser who shall conduct such independent appraisal. In any event, Landlord and Tenant shall each pay one-half of the cost of such appraisal.

SCHEDULE "I"

Schedule of Air Compressors

1. 75 h.p. Sollaire Serial Number 003-74391

2. I.R. Air Dryer Serial Number 72P5766

3. 100 h.p. Sollaire Serial Number _______

4. Sollaire Air Dryer Serial Number 003-01105

5. Kaeser-SK19 Air Compressor and Dryer Serial Number 3333-1-9105-27K

EXHIBIT 10.36

PURCHASE AND SALE AGREEMENT

between

SPEEDFAM - IPEC, INC.,
AN ILLINOIS CORPORATION

and

GLEN UNA MANAGEMENT COMPANY, INC.
A CALIFORNIA CORPORATION

TABLE OF CONTENTS

                                                                                              PAGE
                                                                                              ----
ARTICLE 1         GENERAL INFORMATION..................................................         1

        1.1.   Buyer...................................................................         1

        1.2.   Buyer Tax ID. ..........................................................         1

        1.3.   Title Company. .........................................................         1

        1.4.   Effective Date..........................................................         1

        1.5.   Property................................................................         1

        1.6.   Purchase Price..........................................................         1

        1.7.   Earnest Money...........................................................         1

        1.8.   Closing Date............................................................         2

        1.9.   Due Diligence Period....................................................         2

        1.10.  Place of Closing. ......................................................         2

        1.11.  Notices, Seller. .......................................................         2

        1.12.  Notices, Buyer. ........................................................         2

ARTICLE 2         DEFINITIONS..........................................................         3

        2.1.   [Reserved.].............................................................         3

        2.2.   "Agreement".............................................................         3

        2.3.   "Broker and Consultant".................................................         3

        2.4.   "Business Days".........................................................         3

        2.5.   "Closing" or "Close"....................................................         3

        2.6.   "Contracts".............................................................         3

        2.7.   "Current Funds".........................................................         3

        2.8.   "Deed"..................................................................         3

        2.9.   "Due Diligence Period"..................................................         3

        2.10.  "Effective Date"........................................................         3

        2.11.  "Earnest Money".........................................................         3

        2.12.  "Escrow"................................................................         3

        2.13.  "Hazardous Materials"...................................................         3

        2.14.  "Lease".................................................................         3

        2.15.  "Permitted Exceptions"..................................................         3

TABLE OF CONTENTS
(CONTINUED)

                                                                                              PAGE
                                                                                              ----
        2.16.  "Property"..............................................................         3

        2.17.  "Property Inspection"...................................................         3

        2.18.  "Purchase Price"........................................................         4

        2.19.  "Title Commitment"......................................................         4

        2.20.  "Title Policy"..........................................................         4

ARTICLE 3         AGREEMENT OF PURCHASE AND SALE.......................................         4

ARTICLE 4         CONSIDERATION........................................................         4

        4.1.   Earnest Money Deposit...................................................         4

        4.2.   [Reserved.].............................................................         4

        4.3.   Payment of Purchase Price...............................................         4

        4.4.   Earnest Money...........................................................         4

ARTICLE 5         ESCROW AND ESCROW INSTRUCTIONS.......................................         4

        5.1.   Escrow..................................................................         4

        5.2.   Escrow Instructions.....................................................         5

ARTICLE 6         TITLE AND INSPECTIONS................................................         5

        6.1.   Title Commitment........................................................         5

        6.2.   Title Objections........................................................         5

        6.3.   Property Inspection.....................................................         6

ARTICLE 7         DISCLAIMER; HAZARDOUS MATERIALS......................................         7

        7.1.   Disclaimer..............................................................         7

        7.2.   Hazardous Materials.....................................................         7

ARTICLE 8         FUTURE OPERATIONS....................................................         7

        8.1.   Maintenance, Litigation.................................................         7

        8.2.   Contracts and Leasing...................................................         8

ARTICLE 9         CLOSING..............................................................         8

        9.1.   Date and Place of Closing...............................................         8

        9.2.   Escrow Hold-Back........................................................         9

        9.3.   Items to be Delivered at Closing........................................         9

        9.4.   Title Policy...........................................................          10

TABLE OF CONTENTS
(CONTINUED)

                                                                                               PAGE
                                                                                               ----
        9.5.   Conditions to Close of Escrow..........................................          10

        9.6.   Representations and Warranties.........................................          11

ARTICLE 10        CLOSING COSTS AND PRORATIONS........................................          14

        10.1.  Closing Costs..........................................................          14

        10.2.  Proration of Property Taxes............................................          14

ARTICLE 11        DEFAULTS AND REMEDIES...............................................          14

        11.1.  Seller's Default.......................................................          14

        11.2.  Buyer's Default........................................................          15

ARTICLE 12        MISCELLANEOUS PROVISIONS............................................          15

        12.1.  Broker's Commission....................................................          15

        12.2.  Assignment.............................................................          16

        12.3.  Condemnation and Casualty..............................................          16

        12.4.  Notices................................................................          17

        12.5.  Entire Agreement.......................................................          18

        12.6.  Headings...............................................................          18

        12.7.  Binding Effect.........................................................          18

        12.8.  Time of Essence........................................................          18

        12.9.  Unenforceable or Inapplicable Provisions...............................          18

        12.10. Counterparts...........................................................          18

        12.11. Applicable Law.........................................................          18

        12.12. Attorneys' Fees........................................................          18

        12.13. Authority..............................................................          19

        12.14. Further Assurances.....................................................          19

        12.15. Time Periods...........................................................          19

        12.16. No Recording...........................................................          19

        12.17. Interpretation.........................................................          19

        12.18. No Third Party Beneficiary.............................................          19

        12.19. Provisions to Survive Closing..........................................          19

        12.20. WAIVER OF JURY TRIAL...................................................          19

iii

TABLE OF CONTENTS
(CONTINUED)

                                                                                       PAGE
                                                                                       ----
12.21. Confidential Agreement.................................................          20

12.22. Relationship of the Parties............................................          20

12.23. No Transfer of Certain Rights..........................................          20

12.24. Approvals and Consents.................................................          20

12.25. Title Company..........................................................          21

EXHIBIT "A" LEGAL DESCRIPTION A-1

EXHIBIT "B" SPECIAL WARRANTY DEED B-l

EXHIBIT "C" LEASE C-l

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT is dated as of the Effective Date specified in Article 1 below by and between SPEEDFAM - IPEC, INC., AN ILLINOIS CORPORATION ("Seller"), and the Buyer identified in Article 1 below.

RECITALS:

WHEREAS, Seller is the owner of certain real property as more particularly described below; and

WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller such real property on the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE 1

GENERAL INFORMATION

The following general information is used throughout this Agreement:

1.1. BUYER. Glen Una Management Company, Inc., a California corporation, or assignee.

1.2. BUYER TAX ID. 77-0473634

1.3. TITLE COMPANY. First American Title Insurance Company 2398 East Camelback Road, Suite 160 Phoenix, Arizona 85016 Attention: Pam Swoboda Facsimile: (602) 957-4385 Escrow No.: 226-100-1409855

1.4. EFFECTIVE DATE. May ____, 2002, which is the date the Title Company acknowledges receipt of a counterpart original of this Agreement executed by both Seller and Buyer.

1.5. PROPERTY. That certain real property commonly known as 300 North 56th Street and 305 North 54th Street, Chandler, Arizona, more particularly described in Exhibit "A" to the Title Commitment attached hereto and made a part hereof, together with all buildings and improvements located thereon and appurtenances thereto.

1.6. PURCHASE PRICE. The sum of Twenty-Five Million Dollars ($25,000,000.00).

1.7. EARNEST MONEY. The sum of Five Hundred Thousand Dollars ($500,000.00), payable on the Effective Date.

Page 1 of 23

1.8.    CLOSING DATE.               That date which is no later than 5:00 p.m.,
                                    California Time, June 21, 2002; provided,
                                    however, Buyer may extend such to June 28,
                                    2002, by providing Seller with written
                                    notice of its election on or before June 20,
                                    2002.

1.9.    DUE DILIGENCE PERIOD.       The period ending at 5:00 p.m., California
                                    Time, May 31, 2002, time being of the
                                    essence.

1.10.   PLACE OF CLOSING.           At the office of the Title Company.

1.11.   NOTICES, SELLER.            SpeedFam - IPEC, Inc.
                                    305 North 54th St.
                                    Chandler, AZ  85226
                                    Facsimile:  (480) 785-4116
                                    Attn:  Mr. Michael Dodson

               with a copy to:      Robert C. Bates, Esq.
                                    Snell & Wilmer, L.L.P.
                                    One Arizona Center
                                    Facsimile:  (602) 382-6070
                                    Phoenix, Arizona 85004-0001

1.12.   NOTICES, BUYER.             Glen Una Management Company, Inc.
                                    19800 Glen Una Drive
                                    Saratoga, California 94070
                                    Attention:  Mark Levy
                                    Facsimile:  (415) 765-9973

               with a copy to:      Frank H. Maiorana
                                    Silicon Valley Law Group
                                    152 North Third Street, Suite 900
                                    San Jose, California 95112
                                    Facsimile:  (408) 286-1430

Page 2 of 23

ARTICLE 2

DEFINITIONS

The terms defined in Article 1 and this Article 2, whenever capitalized, shall have the meanings set forth below and in Article 1, whenever such terms are used in this Agreement and all Exhibits hereto, unless the context clearly indicates a different meaning:

2.1. [RESERVED.]

2.2. "AGREEMENT". This instrument, together with all exhibits, addenda, schedules, and proper amendments hereto.

2.3. "BROKER AND CONSULTANT". Shall have the meaning set forth in
Section 12.1 hereof.

2.4. "BUSINESS DAYS". Any day which is not a Saturday, Sunday or legal holiday (state or federal) in the State of Arizona or California.

2.5. "CLOSING" OR "CLOSE". The consummation of the transactions contemplated by this Agreement, including the transfer of the Property to Buyer, the receipt of the Purchase Price by Seller, and the delivery of the executed Lease by and between Seller and Buyer.

2.6. "CONTRACTS". Shall have the meaning set forth in Section 8.2 hereof.

2.7. "CURRENT FUNDS". Wire transfer of current federal funds in accordance with wiring instructions to be provided by Seller, or such other forms of immediately available funds as may be acceptable to Seller.

2.8. "DEED". The Special Warranty Deed to be delivered to Buyer at Closing in the form attached hereto as Exhibit "B" and made a part hereof.

2.9. "DUE DILIGENCE PERIOD". Shall have the meaning set forth in
Section 1.9 hereof.

2.10. "EFFECTIVE DATE". As specified in Article 1 above.

2.11. "EARNEST MONEY". As defined in Section 1.7 hereof.

2.12. "ESCROW". Shall have the meaning set forth in Section 5.1 hereof.

2.13. "HAZARDOUS MATERIALS". Shall have the meaning set forth in
Section 7.2 hereof.

2.14. "LEASE". The executed Lease to be delivered at Closing by and between Buyer, as Landlord, and Seller, as Tenant, a copy of which is attached hereto as Exhibit "C" and made a part hereof.

2.15. "PERMITTED EXCEPTIONS". Those matters subject to which title to the Property shall be conveyed to Buyer in accordance with Section 6.2 hereof.

2.16. "PROPERTY". As defined in Article 3 hereof.

2.17. "PROPERTY INSPECTION". Shall have the meaning set forth in
Section 6.3 hereof.

Page 3 of 23

2.18. "PURCHASE PRICE". The sum specified in Article 1 above, payable in the manner set forth in Article 4 hereof.

2.19. "TITLE COMMITMENT". The commitment for title insurance, including any supplements or revisions thereof, issued by the Title Company pursuant to
Section 6.1 hereof.

2.20. "TITLE POLICY". An owner's policy of title insurance to be issued to Buyer in the full amount of the Purchase Price in accordance with Section 9.3 hereof.

ARTICLE 3

AGREEMENT OF PURCHASE AND SALE

Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, transfer and assign to Buyer, and Buyer agrees to purchase and accept from Seller, good and indefeasable fee simple title to the Property.

ARTICLE 4

CONSIDERATION

4.1. EARNEST MONEY DEPOSIT. The Earnest Money will be deposited with the Title Company on the Effective Date.

4.2. [RESERVED.]

4.3. PAYMENT OF PURCHASE PRICE. The balance of the Purchase Price remaining due after the application of the Earnest Money, subject to adjustments as provided herein, shall be paid to Seller at Closing in Current Funds.

4.4. EARNEST MONEY. The Title Company is hereby instructed to deposit the Earnest Money in a separate federally-insured money market account, subject to immediate withdrawal by the Title Company, at a bank agreeable to Buyer. All references in Section 4.3 and hereafter in this Agreement to the Earnest Money shall include any interest earned thereon. All interest earned on the Earnest Money shall inure to the benefit of the Buyer. The Earnest Money shall be applied to the Purchase Price at Closing. The Earnest Money shall be fully refundable to Buyer if this Agreement is cancelled or terminated in accordance with the terms hereof at any time prior to the end of the Due Diligence Period. Notwithstanding any other term of this Agreement, after the expiration of the Due Diligence Period, the Earnest Money shall be nonrefundable to Buyer except as otherwise expressly provided in Section 9.5(b) (Buyer's Conditions to Close of Escrow), Section 11.1 (Seller's Default) and Section 12.3 (Condemnation and Casualty).

ARTICLE 5

ESCROW AND ESCROW INSTRUCTIONS

5.1. ESCROW. An escrow (the "Escrow") for this transaction shall be established with the Title Company, and the Title Company is hereby engaged to administer the Escrow.

Page 4 of 23

5.2. ESCROW INSTRUCTIONS. This Agreement constitutes escrow instructions to the Title Company and a copy shall be deposited with the Title Company for this purpose. Buyer and Seller may deliver additional escrow instructions to the Title Company which do not contradict with the terms and conditions of this Agreement. Buyer and Seller shall not be required to execute the Title Company's standard form printed escrow instructions.

ARTICLE 6

TITLE AND INSPECTIONS

6.1. TITLE COMMITMENT. Prior to the Effective Date, Seller has caused to be delivered to Buyer a title commitment issued by the Title Company, covering the Property, together with legible copies of all documents referenced therein and binding the Title Company to issue to Buyer at Closing an owner's policy of title insurance on a standard ALTA form of policy in the full amount of the Purchase Price. Seller acknowledges that Buyer will be obtaining a survey of the Property ("SURVEY") in connection with its due diligence and title review for the Property.

6.2. TITLE OBJECTIONS.

(a) During the Due Diligence Period, Buyer shall review title to the Property as disclosed by the Title Commitment and the Survey. Prior to the expiration of the Due Diligence Period or within three (3) Business Days after the receipt of any supplement or modification to the Title Commitment, but in no event prior to the expiration of the Due Diligence Period, Buyer shall deliver to Seller written notice of any items shown on the Title Commitment and/or the Survey of which Buyer disapproves (individually "BUYER DISAPPROVED EXCEPTION" and collectively, "BUYER'S DISAPPROVED EXCEPTIONS"). Buyer may not disapprove of the standard printed exceptions in the Title Commitment pursuant to this Section. If Buyer does not deliver the aforementioned written notice prior to the expiration of the time provided, Buyer shall be deemed to have disapproved of all matters shown on the Title Commitment and the Survey. Seller shall have three (3) Business Days after receipt of the aforementioned Buyer's notice, or deemed notice, to notify Buyer in writing which, if any, of Buyer's Disapproved Exceptions Seller elects to cure or bond over prior to the Closing. If Seller does not notify Buyer in a timely fashion, Seller shall be deemed to have elected not to cure or bond over any of Buyer's Disapproved Exceptions. Seller shall not be obligated to so cure or bond over Buyer's Disapproved Exceptions, except for monetary liens which Seller shall be obligated to remove at or before the Closing. Seller shall not be required to expend any effort or funds, or to commence litigation to cure a Buyer Disapproved Exception, except for monetary liens, which Seller shall be obligated to remove at or before the Closing. Seller further agrees to remove any exceptions or encumbrances to title that are created by Seller after April 11, 2002, without Buyer's prior written consent.

(b) If Seller elects to cure, but is unable to cure any or all of Buyer's Disapproved Exceptions at or prior to the expiration of the Due Diligence Period, the Buyer may (i) elect to waive such uncured title matter in writing; or (ii) terminate this Agreement in which event Buyer shall, as its sole remedy, receive a refund of the Earnest Money and recover its verified out-of-pocket expenses.

(c) If Seller elects to cure none, or some, but not all, of Buyer's Disapproved Exceptions, Buyer shall have three (3) Business Days to provide Seller with written notice of Buyer's election, as its sole remedy, to either waive its disapproval of the Buyer Disapproved Exceptions which Seller has elected not to cure, or terminate this Agreement and receive a refund

Page 5 of 23

of the Earnest Money. If Buyer does not provide Seller with written notice as set forth in the preceding sentence, Buyer shall be deemed to have elected to terminate this Agreement and shall receive a refund of the Earnest Money.

(d) If the Title Company revises the Title Commitment after the expiration of the Due Diligence Period to add or modify exceptions, and if such additions or modifications are not acceptable to Buyer, in Buyer's sole and absolute discretion, and are not removed on or before the Closing, Buyer may, as its sole remedy, terminate this Agreement by written notice to Seller and the Title Company, and the Earnest Money shall be refunded to Buyer. From and after the April 11, 2002, Seller shall not place or consent to any liens or easements against the Property or take any action to alter the condition of title to the Property without first obtaining Buyer's written consent, which may be withheld in Buyer's sole and absolute discretion.

(e) The standard printed exceptions in the Title Commitment, the Lease, and all matters shown on the Title Commitment, as well as any additional matters not shown by the Title Commitment and which are not Buyer's Disapproved Exceptions that the Seller is not required to cure or bond over at or prior to the Closing pursuant to this Section 6.2, and items shown on the Survey which have not been removed as of the end of the Due Diligence Period or which Seller is not required to remove as provided above, shall constitute and are herein called "PERMITTED EXCEPTIONS".

(f) Any other term of this Agreement notwithstanding, following the expiration of the Due Diligence Period, Seller shall be deemed to have waived all objections to all exceptions and matters shown on the Title Commitment and/or the Survey, whether or not previously designated as or deemed by this Agreement to be Buyer's Disapproved Exception(s), all of which shall also be deemed Permitted Exceptions.

6.3. PROPERTY INSPECTION. Buyer at its cost shall conduct such physical inspections, environmental audits and studies of the Property as Buyer desires in its sole and absolute discretion, including without limitation the physical condition of the Property, the financial condition of Seller, and the investment opportunity involved with the ownership and leasing of the Property (collectively, the "PROPERTY INSPECTION"). Further, as part of the Property Inspection, Seller shall deliver to, or make available to, Buyer, any and all information related to the Property in Seller's possession or control. If the Closing fails to occur for any reason other than Seller's default, Buyer shall, without representation or warranty, provide Seller with a copy of each written report of such Property Inspection. Such reports shall be for informational purposes only and neither Seller, nor any successors, assigns, potential lender, lender, potential purchaser or purchaser of the Property (other than Buyer), shall be permitted to rely on such reports. Buyer agrees that the results of the Property Inspection shall remain confidential in accordance with Section 12.21 hereof. If Buyer is not satisfied, in its sole and unfettered discretion, with the results of the Property Inspection during the Due Diligence Period, Buyer shall have the right to cancel this Agreement by giving written notice of cancellation to Seller and the Title Company prior to the end of the Due Diligence Period, in which event the Earnest Money shall be returned to Buyer and neither party shall have any further rights or obligations under this Agreement except for those expressly stated to survive such cancellation. In the event Buyer wishes to approve of the Property pursuant to its due diligence investigation, Buyer shall provide Seller with written notice of such prior to the expiration of the Due Diligence Period. In the event Buyer does not provide Seller with written notice of its approval of its due diligence review or of its termination of this Agreement prior to the expiration of the Due Diligence Period, Buyer shall be deemed to have disapproved of the Property and terminated this Agreement. Except for conditions which are found to exist on the Property by Buyer, Buyer shall indemnify, defend and hold Seller harmless from and against any injury, loss, cost, liability, claim or

Page 6 of 23

expense to person or property arising out of or related to the Property Inspection, and this indemnity shall survive the Closing or the cancellation or termination of this Agreement.

ARTICLE 7

DISCLAIMER; HAZARDOUS MATERIALS

7.1. DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, IN THE LEASE AND/OR OTHER CLOSING DOCUMENTS, BUYER ACKNOWLEDGES AND AGREES THAT SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, OF, AS TO, CONCERNING OR WITH RESPECT TO THE PROPERTY, INCLUDING, WITHOUT LIMITATION, (A) THE VALUE, NATURE, QUALITY OR CONDITION OF THE PROPERTY; (B) THE WATER, SOIL AND GEOLOGY OF THE PROPERTY, (C) THE INCOME TO BE DERIVED FROM THE PROPERTY, (D) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, (E) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (F) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, (G) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY, (H) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY, OR (I) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, IN THE LEASE AND/OR OTHER CLOSING DOCUMENTS, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS, INCLUDING THE EXISTENCE IN OR ON THE PROPERTY OF HAZARDOUS MATERIALS.

7.2. HAZARDOUS MATERIALS. "Hazardous Materials" shall mean any substance which is or contains (i) any "hazardous substance" as now or hereafter defined in Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA") or any regulations promulgated under CERCLA; (ii) any "hazardous waste" as now or hereafter defined in the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) ("RCRA") or regulations promulgated under RCRA; (iii) any substance regulated by the Toxic Substances Control Act (15 U.S.C. Section2601 et seq.); (iv) gasoline, diesel fuel, or other petroleum hydrocarbons; (v) asbestos and asbestos containing materials, in any form, whether friable or non-friable; (vi) polychlorinated biphenyls; (vii) radon gas; and (viii) any additional substances or materials which are now or hereafter classified or considered to be hazardous or toxic under any federal, state or local environmental law, ordinance, rule or regulation, now or hereinafter enacted, or the common law, or any other applicable laws relating to the Property.

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ARTICLE 8

FUTURE OPERATIONS

From the date of this Agreement until the Closing or earlier termination of this Agreement:

8.1. MAINTENANCE, LITIGATION. Seller will (i) keep and maintain the Property in a first class condition throughout the term of this Agreement, subject to Section 12.3, (ii) promptly advise Buyer in writing of any litigation, arbitration, administrative hearing, condemnation action concerning the Property arising or threatened of which Seller has notice, and (iii) promptly notify Buyer in writing of any matter that occurs which would make any representation or warranty of Seller's herein untrue.

8.2. CONTRACTS AND LEASING.

(a) Prior to Closing, Seller shall neither execute any lease nor enter into any contract nor renew, modify, terminate or grant any consent with respect to any existing contract with respect to the Property which will survive Closing and bind Buyer thereunder or otherwise affect the use, operation or enjoyment of the Property after Closing without Buyer's prior written consent, which consent may be withheld in Buyer's sole and absolute discretion. Where Buyer's consent is required pursuant to this Section, it shall be deemed withheld unless Seller is otherwise notified in writing within five (5) days of Buyer's receipt of a proposed new or modified contract. Prior to the date hereof, Seller has made available to Buyer copies of all written contracts, agreements, and reports affecting the Property and/or which would become binding on Buyer after Closing (the "CONTRACTS"). Prior to Closing, Buyer shall provide Seller with written notice of the Contracts, if any, that Buyer desires to assume, which Contracts shall become the list of Service Contracts to be attached as Exhibit "C" to the Bill of Sale and Assignment of Contracts, attached hereto as Exhibit "D". Failure to give such notice to Seller shall be deemed an election by Buyer to terminate all Contracts and any Contract not listed in the aforementioned notice shall be terminated by Seller; provided, however, that Seller, as Tenant under the Lease, may continue with the performance of any of the following Contracts: (i) Contracts not directly binding Buyer after the Closing or in the event of a termination of the Lease; (ii) Contracts that satisfies a requirement of Section 8.2(b) hereof; and/or (iii) Contracts for which termination would be a breach of the Contract or for which there would be a termination fee or other expense; provided further, however, if such Contracts would become binding on the Buyer after the Closing or in the event of a termination of the Lease, such Contracts shall be terminated by Seller, at Seller's sole cost and expense, if so required by Buyer. Except for the Contracts which Seller elects to continue performance under the preceding sentence, within five (5) days after receipt of such notice, Seller shall send a notice of termination with respect to each of the Contracts. Seller shall indemnify, defend, protect and hold Buyer harmless from and against any and all claims, damages, losses, costs and expenses (including attorneys' fees and expenses) related to any Contract which is not expressly assumed by Buyer hereunder.

(b) Notwithstanding anything contained herein, at or prior to the Closing, Seller shall have entered into any and all contracts, agreements and insurance policies required to be entered into by Seller pursuant to the terms of the Lease, including, but not limited to, those set forth in Sections 9 and 19 of the Lease.

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ARTICLE 9

CLOSING

9.1. DATE AND PLACE OF CLOSING. Subject to the satisfaction or waiver of all conditions to either party's obligation to consummate the purchase and sale of the Property as set forth in Section 9.4 below, the Closing shall take place on the Closing Date through the Title Company. The Title Company, shall agree in writing with Seller and Buyer that (a) recordation of the Deed constitutes its representation that it is holding the closing documents, closing funds and closing statement and is prepared and irrevocably committed to disburse the closing funds in accordance with the closing statements; and (b) release of funds to the Seller shall irrevocably commit it to issue the Title Policy in accordance with this Agreement. Upon satisfaction or completion of the foregoing conditions and deliveries, the parties shall direct the Title Company to immediately record and deliver the documents described above to the appropriate parties and make disbursements according to the closing statements executed by Seller and Buyer and in accordance with escrow instructions by each party consistent with this Agreement.

9.2. ESCROW HOLD-BACK. Notwithstanding any other term of this Agreement, at the closing, the Title Company shall retain in the escrow account the sum of Forty Six Thousand Dollars ($46,000.00) (the "Hold-Back") to secure completion of certain repairs by Seller in accordance with the repair and maintenance provisions of the Lease, as follows: (a) parking lot pavements - repair and reseal; (b) parking lot pavements - paint parking lot striping; (c) 300 building mechanical roof - install walking pads; and (d) 300 building mechanical roof - repair leaking mechanical equipment. Upon receipt of notice of the completion of all (or a portion) of such repairs from Buyer, the Title Company shall pay all (or the portion specified in the notice) of the Hold-Back to Seller. If any of the Hold-Back remains in escrow more than ninety (90) days after the Closing, the Title Company shall pay the money to Buyer to be held by Buyer pending completion of the aforementioned repairs by Seller. Buyer shall pay any excess funds to Seller. Seller shall pay any shortfall in the amount of the Hold-Back to complete the repairs.

9.3. ITEMS TO BE DELIVERED AT CLOSING.

(a) By Seller. At or prior to Closing, Seller shall deliver or cause to be delivered to Buyer, through Escrow or directly to Buyer, each of the following items:

(i) The Deed, suitable for recording, conveying good and indefeasable, fee simple title to the Property to Buyer, subject only to the Permitted Exceptions;

(ii) The Lease;

(iii) Evidence of Seller's authority to consummate this transaction in form and substance reasonably satisfactory to Buyer;

(iv) Any reasonable and customary certificates and affidavits (including an Affidavit of Property Value) that may be required in the normal course by the Title Company, in form and substance reasonably satisfactory to Seller and Buyer, duly executed by Seller;

(v) A Non-foreign Certification of Entity Transferor from Seller or other evidence satisfying the requirements of
Section 1445 of the Internal Revenue Code;

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(vi) A bill of sale transferring good and indefeasable fee simple title, free of all liens and encumbrances, to Buyer of any and all personal property related to the Property, in the form attached hereto as Exhibit "D", but excluding Tenant's Equipment (as defined in the Lease) and those items set forth on such Exhibit "D" or other property that is to remain Tenant's property under the Lease;

(vii) A certificate or certificates executed by J. Michael Dodson or Joe Packwood, certifying that Seller's representations and warranties are true, correct and complete, as of the Closing, in all material respects;

(viii) Copies of all keys, security cards and card keys for the Property, tagged for identification;

(ix) Possession of the Property, subject to the Lease; and

(x) Copies of all contracts, agreements and insurance policies required of Seller pursuant to Sections 9 (Maintenance and Repairs) and 19 (Insurance) of the Lease;

(xi) The completed Certificate (as defined in the Lease); and

(xii) All sums due pursuant to the Lease, including, but not limited to, Base Rent (as defined in the Lease), Impositions (as defined in the Lease), if any, and Additional Rent (as defined in the Lease), each, as due for the first partial calendar month of the Lease Term (as defined in the Lease) and for the first full calendar month of the Lease Term, the Security Deposit (as defined in the Lease).

(b) By Buyer. At or prior to Closing, Buyer shall deliver or cause to be delivered to Seller, through Escrow or directly to Seller, each of the following items:

(i) The balance of the Purchase Price in Current Funds;

(ii) The Lease;

(iii) Evidence of Buyer's authority to consummate this transaction; and

(iv) Any customary certificates and affidavits (including an Affidavit of Property Value) that may be required in the normal course by the Title Company, in form and substance reasonably satisfactory to the Buyer, duly executed by Buyer.

(d) Closing Statements. At or prior to the Closing, Seller and Buyer shall deposit with the Title Company executed closing statements consistent with this Agreement in the form required by the Title Company.

9.4. TITLE POLICY. As a condition to Buyer's obligation to close, the Title Company shall be irrevocably committed to issue to Buyer the Title Policy, issued by the Title Company as of the date and time of the recording of the Deed, in the amount of the Purchase Price, insuring Buyer as owner of good

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and indefeasible fee simple title to the Property, and subject only to the Permitted Exceptions. The Title Policy may be delivered after Closing if that is customary in the locality.

9.5. CONDITIONS TO CLOSE OF ESCROW.

(a) Seller. Seller's obligation to sell the Property to Buyer shall be subject to the occurrence, satisfaction and/or waiver of the following conditions:

(i) As of the Closing, Buyer shall have performed all of the obligations required to be performed by Buyer under this Agreement; and

(ii) All representations and warranties made by Buyer to Seller in this Agreement shall be true and correct in all material respects as of the Closing.

So long as Seller is not in default hereunder, if any of the foregoing is not satisfied or waived by Seller, Seller shall provide Buyer with written notice setting forth the nature of the condition not so satisfied and shall demand satisfaction thereof. Buyer shall then have five (5) days to satisfy said condition and the Closing shall occur within five (5) days thereafter. If Buyer does not perform such that said condition is satisfied, Sellers shall have the right, as its sole and exclusive remedy, to terminate this Agreement and the Escrow created pursuant hereto, in which event the Earnest Money shall be paid to Seller and neither party shall have any further obligations hereunder other than as may be expressly and specifically stated otherwise in this Agreement. If Seller elects to proceed with Closing despite the non-satisfaction of the applicable condition, Seller shall be deemed to have waived such non-satisfaction.

(b) Buyer. Buyer's obligation to purchase the Property from Seller shall be subject to the occurrence, satisfaction and/or waiver of the following conditions:

(i) The Title Insurer is unconditionally and irrevocably prepared and committed to issue the Title Policy in accordance with Section 9.3 above;

(ii) As of the Closing, Seller shall have performed all of the obligations required to be performed by Seller under this Agreement;

(iii) All representations and warranties made by Seller to Buyer in this Agreement shall be true and correct in all material respects as of the Closing; and

(iv) There are no significant change in the Property from the expiration of the Due Diligence Period, including, but not limited to, any matter governed by Section 12.3 herein, whether considered a "substantial portion" thereunder or not.

(v) There shall be no litigation, actions or proceedings affecting or threatened against Seller or the Property, except for that certain property tax appeal filed by Seller on or about April 9, 2002.

(vi) There shall have occurred no material adverse change in the financial condition of Seller from the end of the third quarter of Seller's fiscal year ending February 28, 2002.

If any of the foregoing is not satisfied or waived by Buyer, Buyer shall provide Seller with written notice setting forth the nature of the condition not so satisfied and shall demand

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satisfaction thereof. Seller shall then have five (5) days to satisfy said condition and the Closing shall occur within five (5) days thereafter. If Seller does not perform such that said condition is satisfied and the failure of such condition is not the result of a default by Seller hereunder, Buyer shall have the right, as its sole remedy, to terminate this Agreement and the Escrow created pursuant hereto, in which event the Earnest Money shall be refunded to Buyer and neither party shall have any further obligations hereunder other than as may be expressly and specifically stated otherwise in this Agreement. If the failure of a condition of Buyer's obligation to close Escrow is due to a default by Seller, the provisions of Section 11.1 shall apply.

9.6. REPRESENTATIONS AND WARRANTIES.

(a) Buyer's Representations and Warranties. In consideration of Seller's entering into this Agreement and as an inducement to Seller to sell the Property, Buyer represents and warrants to Seller as follows:

(i) This Agreement has been, and all of the documents to be delivered by Buyer at the Closing will be, duly and validly authorized, executed and delivered by Buyer and no other action is requisite to the valid and binding execution, delivery and performance of this Agreement or the documents to be delivered at the Closing by Buyer.

(ii) Buyer has been duly organized and is validly existing as a corporation, in good standing in the State of California and is, or will be at the Closing, qualified to do business in the state in which the Property is located.

(iii) Buyer is ready, willing, and able to perform subject to and pursuant to the terms and conditions of this Agreement.

(b) Seller's Representations and Warranties. In consideration of Buyer's entering into this Agreement and as an inducement to Buyer to purchase the Property, Seller represents and warrants to Buyer as follows:

(i) This Agreement has been, and all of the documents to be delivered by Seller at the Closing will be, duly and validly authorized, executed and delivered by Seller and no other action is requisite to the valid and binding execution, delivery and performance of this Agreement or the documents to be delivered at the Closing by Seller.

(ii) There are no actions, suits or proceedings pending against, or to Seller's knowledge threatened against, Seller or the Property, and Seller has not received any written notice that there are any pending or threatened proceedings in eminent domain or otherwise which would affect the Property or any portion thereof in any material respect.

(iii) Seller has not received any written notice that there are any violations of law or governmental regulation with respect to the Property or its use including any environmental law or regulation, nor any written notice that the Property is in violation of any applicable building or zoning code or ordinance, except for any such matters which may have been previously cured by Seller.

(iv) Seller is not a "foreign person" within the meaning of Section 1445 et seq. of the Federal Code.

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(v) Seller has been duly organized and is validly existing as a corporation, in good standing in the State of Illinois and is qualified to do business in the state in which the Property is located.

(vi) No person has any title, interest or right to possession of all or any portion of the Property as lessee, sublessee, tenant or concessionaire of Seller.

(vii) The financial statements provided to Buyer by Seller were prepared by or for Seller in the ordinary course of its business in the same manner as it prepares or obtains such statements for its own use and reporting to the Securities and Exchange Commission.

(viii) To Seller's knowledge, the list of contracts, agreements and insurance policies delivered or to be delivered to Buyer pursuant to Section 9.2(a)(ix) of this Agreement is or will be true, correct, and complete as of the date of its delivery. Neither Seller nor, to Seller's knowledge, any other party is in material default under any such contract, agreement or insurance policy. To Seller's knowledge, no present dispute or fact exists which might with notice, passage of time or both, give rise to a material default under any Contract.

(ix) All books, records and other information prepared by or for Seller and provided to, or made available to, Buyer were prepared by or for Seller in the ordinary course of its business and are the same books, records and other information used and relied upon by Seller in its use, ownership, maintenance and operation of the Property.

(x) There are no unsatisfied written requests for material repairs, restorations or improvements from any insurance carrier or governmental authority. Seller has not received any written notice from any insurer of any defects or inadequacies in any part of the Property which would adversely affect its insurability, or written notice of any claims of any governmental agency to the effect that the construction, operation or use of any of the Property is in violation of any applicable law, ordinance, rule, regulation or order.

(xi) Seller has received no written notice and Seller has no knowledge of any (1) currently existing violations of federal, state, county or municipal environmental laws in respect to the Property, or (2) past, pending or threatened administrative or judicial litigation or other legal proceedings including, without limitation, any enforcement proceeding under any federal, state, county or municipal statute, ordinance, rule or regulation concerning Hazardous Materials, relating to the Property, or of any settlement thereof.

(xii) Except for tanks, retention basins, and/or vaults relating to storm water control, there are no underground storage tanks located on or below the Property.

(xiii) Seller does not, use, nor has it used any Hazardous Materials on the Property except for normal quantities of consumer products and those Hazardous Materials which are disclosed pursuant to Exhibit "C" to the Lease and as may otherwise be allowed by the Lease.

(xiv) Seller has not, and shall not have prior to the Closing (a) commenced a voluntary case, or had entered against it a petition for relief, under any federal bankruptcy

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act or any similar petition, order or decree under any Federal or State law or statue relative to bankruptcy, insolvency or other relief for debtors; (b) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of Seller's assets; or (c) made a general assignment for the benefit of its creditors.

(xv) To Seller's knowledge, Seller has disclosed to Buyer all known environmental conditions affecting the Property.

(xvi) All due diligence materials delivered or made available for inspection in furtherance of Buyer's inspection of the Property have been prepared and assembled in the ordinary course of Seller's business or were assembled at Seller's request for purposes of the transaction contemplated by this Agreement. To Seller's knowledge, the due diligence materials delivered or made available to Buyer are complete and responsive to Buyer's due diligence information request.

(xvii) Joe Packwood (Facilities Manager) is the person associated with Seller who is most knowledgeable about the Property and the matters represented and warranted herein concerning the condition of the Property and is the person responsible for the day to day operation, repair and maintenance of the Property. J. Michael Dodson is the person associated with Seller who is most knowledgeable about Seller and the matters represented and warranted herein concerning Seller.

Except as expressly herein otherwise provided, the representations and warranties of Seller set forth in this Agreement shall be true on and as of the Effective Date and as of the Closing as if those same representations and warranties were made on and as of such time. Such representations and warranties shall survive the Closing for one (1) year. As used herein, "Seller's knowledge" shall be limited to the knowledge of J. Michael Dodson and Joe Packwood, without investigation or verification. If, at any time prior to Closing, Seller shall discover that any representation or warranty contained herein has become inaccurate in any respect, Seller shall notify Buyer in writing ("CORRECTION NOTICE"), and Buyer shall have the right if the inaccuracy of such representation and warranty is not the result of a default by Seller hereunder, as its sole remedy, by written notice to Seller and the Title Company delivered not later than the latter of (i) five (5) days after receipt of the Correction Notice, or (ii) the expiration of the Due Diligence Period, to terminate this Agreement and receive a refund of the Earnest Money. If the inaccuracy in such representation and warranty is the result of a default by Seller, the provisions of Section 11.1 shall apply.

ARTICLE 10

CLOSING COSTS AND PRORATIONS

10.1. CLOSING COSTS. Seller and Buyer shall each pay one-half (1/2) of the Escrow fees and costs and one-half (1/2) of the recording fees charged on all documents required to be recorded in connection with the conveyance of the Property to Buyer; excepting therefrom, any documentary tax, transfer tax or stamp tax on said conveyance which shall be paid by Seller. Seller and Buyer each shall pay its own attorneys' and consultants' fees and expenses in connection with the negotiation and consummation of this transaction; excepting therefrom, a dispute, in which event Section 12.12 shall control. Any fees and costs incurred as a result of any financing of the Purchase Price or subsequent encumbering of the Property by Buyer shall be paid by Buyer (but not any fees of Seller as "Tenant" under the Lease for compliance with the terms of the Lease), but Buyer's obligations hereunder are not

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subject to any financing contingency. Seller shall pay for the Title Policy, but Buyer shall pay for extended coverage and any special endorsements to the Title Policy requested by Buyer (other than those to remove exceptions to title which are not Permitted Exceptions), as well as for any title insurance policy requested by Buyer insuring the interest of any lender of Buyer in connection with the Property.

10.2. PRORATION OF PROPERTY TAXES. There shall be no prorations, including, but not limited to, real property taxes and assessments, general or special or fees under the Contracts, all of which Seller shall remain responsible for under the Lease. At Closing, Seller shall pay the sums due pursuant to Section 9.2(a)(xii) above.

ARTICLE 11

DEFAULTS AND REMEDIES

11.1. SELLER'S DEFAULT. If Seller fails to consummate this Agreement in accordance with its terms (other than by reason of (i) Buyer's breach of any of its representations or warranties contained in this Agreement; (ii) Buyer's continuing default of any of its covenants hereunder after ten (10) days prior written notice of such default; (iii) a failure of any condition to Seller's obligation to sell the Property to be satisfied; (iv) a termination of this Agreement by Seller or Buyer pursuant to a right to do so expressly provided for in this Agreement, except by reason of a default by either party; or (v) failure by Buyer to deliver the items required under Section 9.2), Buyer may make written demand on Seller to so perform. If Seller fails to comply with Buyer's written demand within five (5) days after receipt of such written demand for performance, Buyer shall have the exclusive right to (i) waive such default,
(ii) seek specific performance of Seller's obligations under this Agreement and, as an alternative remedy, all damages resulting from Seller's breach; or (iii) terminate this Agreement, obtain a refund of the Earnest Money and be reimbursed by Seller for its actual, verifiable out-of-pocket expenses plus attorneys' fees and expenses incurred to obtain same. Seller agrees that the Property is unique and that damages for failure by Seller to consummate the transaction contemplated by this Agreement will be impracticable and extremely difficult to determine. Therefore, in the event that Seller fails or refuses to consummate the sale of the Property to Buyer and Buyer seeks specific performance, Seller specifically agrees that the remedies of specific performance are appropriate remedies for Buyer, and Seller waives and agrees not to assert any claim or defense that specific performance is not an appropriate remedy for Buyer. UNDER NO CIRCUMSTANCES MAY BUYER SEEK OR BE ENTITLED TO RECOVER ANY PUNITIVE DAMAGES, ALL OF WHICH BUYER SPECIFICALLY WAIVES, FROM SELLER FOR ANY BREACH BY SELLER OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR OF ANY REPRESENTATION, WARRANTY OR COVENANT OF SELLER HEREUNDER.

11.2. BUYER'S DEFAULT. If, after written demand, Buyer fails to consummate this Agreement in accordance with its terms (other than by reason of
(i) Seller's breach of any of its representations or warranties contained in this Agreement; (ii) Seller's continuing default of any of its covenants after five (5) days prior written notice of such default; (iii) a failure of any condition to Buyer's obligation to purchase the Property to be satisfied; (iv) a termination of this Agreement by Seller or Buyer pursuant to a right to do so expressly provided for in this Agreement other than as a result of a default by Seller; or (v) failure by Seller to deliver the items required under Section 9.2), Seller may, as Seller's sole and exclusive remedies, Seller waiving any other remedies available to it at law or in equity, terminate this Agreement and receive the Earnest Money as liquidated damages (and not as a penalty) for breach of this Agreement. Due to the difficulty and inconvenience of ascertaining and measuring actual damages, and the uncertainty thereof, such Earnest Money is agreed upon by and between Seller and Buyer as a reasonable estimate of just compensation for the harm caused by Buyer's default. In addition, Buyer shall, at no cost to Seller, and without representation or warranty, immediately deliver to Seller all information, data, studies and tests regarding the Property in its possession or control, including, without limitation, studies,

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tests and other results of the studies and tests prepared by or on behalf of Buyer, and all copies or reproductions of any of the foregoing. THE LIQUIDATED DAMAGES SET FORTH HEREIN IS THE SOLE AND EXCLUSIVE REMEDY OF SELLER FOR A BREACH BY BUYER OF THIS AGREEMENT AND SELLER HEREBY WAIVES ANY OTHER REMEDIES AVAILABLE TO IT AT LAW OR IN EQUITY.

ARTICLE 12

MISCELLANEOUS PROVISIONS

12.1. BROKER'S COMMISSION. Pursuant to separate agreements entered into between Seller with Lee & Associates (David Johnson), 3200 East Camelback Road, Phoenix, Arizona, as broker, and with Julian J. Studley, 3390 Peachtree Road, N.E., Suite 800, Atlanta, Georgia 30326, as consultant, (respectively, the "Broker and Consultant"), Seller solely shall be obligated for all commissions and fees owing to or claimed by the Broker and Consultant in connection with this transaction. Except for the Broker and Consultant, Buyer represents to Seller that Buyer has not authorized any broker or finder to act on Buyer's behalf in connection with this transaction, and that Buyer has not dealt with any other broker or finder purporting to act on behalf of any other party. Except for the Broker and Consultant, Buyer shall indemnify, defend and hold Seller harmless from and against any and all claims, losses, damages, costs or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by Buyer or on Buyer's behalf with any broker or finder in connection with this Agreement or the transaction contemplated hereby. Except for the Broker and Consultant, Seller represents to Buyer that Seller has not authorized any broker or finder to act on Seller's behalf in connection with the sale and purchase hereunder and that Seller has not dealt with any other broker or finder purporting to act on behalf of any other party. Seller shall indemnify, defend and hold Buyer harmless from and against any and all claims, losses, damages, costs or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by Seller or on Seller's behalf with the Broker and Consultant or any other broker or finder in connection with this Agreement, the Lease and/or the transaction contemplated hereby or in the Lease. Broker and Consultant shall have no third party rights and under no circumstances, including, but not limited to, a breach by Buyer, shall Buyer have any obligations to Broker and Consultant.

12.2. ASSIGNMENT. Buyer may assign all of Buyer's rights under this Agreement to a corporation, partnership, limited liability company or trust controlled by Glen Una Management Company, Inc., Kenneth Levy, Mark Levy and/or Wayne Levy, or any corporation, limited liability company, or trust, owned or controlled by any of them, but otherwise Buyer may not assign Buyer's rights under this Agreement without Seller's prior written consent, which may be withheld in Seller's reasonable discretion. In no event shall Buyer be released from its obligations under this Agreement.

12.3. CONDEMNATION AND CASUALTY.

(a) Condemnation. In the event that all or any portion of the Property shall be taken in condemnation or by conveyance in lieu thereof or under the right of eminent domain after the Effective Date and before the Closing Date, Seller shall immediately notify Buyer in writing ("SELLER'S CONDEMNATION NOTICE"), such writing to include all information in Seller's possession or control regarding said condemnation or conveyance in lieu thereof. In such event, either party may elect to terminate this Agreement by written notice to the other and, as Buyer's sole remedy, the Earnest Money shall be refunded to Buyer. If neither party elects to terminate within thirty (30) days of the delivery of Seller's Condemnation Notice, Buyer and Seller shall meet at a mutually agreeable place and time after the Buyer's receipt of Seller's Condemnation Notice to discuss the condemnation (or conveyance in lieu thereof), any Base Rent reduction, if any, under

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the Lease and any and all other relevant matters. The Closing shall be extended for so long as is reasonably necessary to determine the amount of any condemnation award, but in no event longer than one hundred eighty (180) days. If Buyer, in its sole and absolute discretion, is unsatisfied with the condemnation award and/or determines that it no longer desires to purchase the Property due to the effect of the condemnation or conveyance in lieu thereof, Buyer may, at its option, terminate this Agreement by written notice thereof to Seller at any time after its receipt of Seller's Condemnation Notice, but prior to the Closing (as such may have been extended), in which event the Earnest Money shall be refunded to Buyer and neither party shall have any further obligations hereunder other than as may be specifically and expressly stated otherwise in this Agreement. Provided Buyer hasn't terminated this Agreement pursuant to its rights hereunder, the Closing shall occur on such day as Buyer and Seller mutually agree, but in no event later than two hundred ten (210) days after the Closing Date. If Buyer elects to proceed with the Closing, there shall be no reduction in the Purchase Price, the Base Rent shall be as so agreed by Buyer and Seller and Seller shall assign all of its right, title and interest in and to the condemnation award to Buyer.

(b) Casualty. In the event that all or any "substantial portion" (as defined below) of the Property shall be damaged or destroyed by fire or other casualty after the Effective Date and before the Closing Date, Seller shall immediately notify Buyer in a detailed writing of such damage. In such event, either party may elect to terminate this Agreement by written notice to the other and, as Buyer's sole remedy, the Earnest Money shall be refunded to Buyer. If neither party elects to terminate within thirty (30) days of the delivery of notice of the casualty, (i) Seller shall restore, prior to Closing, the Property to its condition prior to such casualty; (ii) the Closing Date shall be extended to the date which is thirty (30) days after the issuance of a certificate of occupancy by the applicable governmental authorities for Seller's restoration of the Property pursuant to subsection (i) above, but in no event longer than two hundred ten (210) days; and (iii) such Closing shall take place with no reduction in the Purchase Price. If the casualty loss does not involve a substantial portion of the Property then, (i) Seller shall restore, prior to Closing, the Property to its condition prior to such casualty; (ii) the Closing Date shall be extended to the date which is thirty (30) days after the issuance of a certificate of occupancy by the applicable governmental authorities for Seller's restoration of the Property pursuant to subsection (i) above, but in no event longer than two hundred ten (210) days; and (iii) such Closing shall take place with no reduction in the Purchase Price. If the casualty loss involves a substantial portion of the Property and the casualty loss is not covered by Seller's insurance, Seller may terminate this Agreement by providing Buyer with written notice of such election prior to the Closing.

(c) Substantial Portion Defined. For the purposes of this
Section 12.3, a taking of or casualty loss to a "substantial portion" of the Property shall be deemed to include any casualty loss which is equal to or greater than (i) Five Hundred Thousand ($500,000.00) Dollars, or (ii) any casualty loss which would provide Seller as Tenant with the right to abate rent under the Lease or to terminate all or a portion of the Lease.

(d) Risk of Loss. Risk of loss until Closing shall be borne by Seller.

(e) Emergency Repairs. In the event the Property is damaged prior to Closing and such damage creates any emergency requiring immediate repair in order to prevent further damage to the Property, Seller shall be entitled to immediately commence such repairs, and the contractor and method of repair to be used shall be reasonably determined by Buyer and Seller. Both parties agree to cooperate to accomplish such repair in a timely manner. Casualty proceeds, if any, paid as a result of damage requiring immediate repair shall be used in paying the cost of

Page 17 of 23

such repairs. Seller shall be responsible for all costs and expenses related to such repair, maintenance and restoration.

12.4. NOTICES. All notices and other communications to be given hereunder by Buyer or Seller shall be in writing and shall be deemed to have been given upon (i) personal delivery when personally delivered; (ii) upon the earlier of receipt or the third Business Day following the date of deposit in the mail (at the addresses specified below, whether or not received by the person to whose attention notice is directed at such address) after having been mailed by first class registered or certified mail, return receipt requested, postage prepaid; (iii) the next Business Day when sent via nationally recognized overnight courier; or (iv) upon receipt of confirmation of successful transmission when sent by facsimile transmittal (with a copy sent via First Class mail) as follows:

Buyer:                                 Seller:

Glen Una Management Company, Inc.       SpeedFam - IPEC, Inc.
19800 Glen Una Drive                    305 North 54th St.
Saratoga, California 94070              Chandler, Arizona  85226
Attn:  Mark Levy                        Attn:  J. Michael Dodson
Facsimile:  (415) 765-9973              Facsimile:  (480) 785-4116

With a copy to:                        With a copy to:

Frank H. Maiorana, Esquire             Robert C. Bates, Esq.
Silicon Valley Law Group               Snell & Wilmer, L.L.P.
152 North Third Street, Suite 900      One Arizona Center
San Jose, California  95112            Phoenix, Arizona  85004-0001
Facsimile:  (408) 286-1430             Facsimile:  (602) 382-6070

12.5. ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto constitute the entire agreement between Seller and Buyer, and there are no other covenants, agreements, promises, terms, provisions, conditions, undertakings, or understandings, either oral or written, between them concerning the Property other than those herein set forth. No subsequent alteration, amendment, change, deletion or addition to this Agreement shall be binding upon Seller or Buyer unless in writing and signed by both Seller and Buyer.

12.6. HEADINGS. The headings, captions, numbering system, etc. are inserted only as a matter of convenience and may under no circumstances by considered in interpreting the provisions of this Agreement.

12.7. BINDING EFFECT. All of the provisions of this Agreement are hereby made binding upon the personal representatives, heirs, successors, and assigns of both parties hereto. Where required for proper interpretation, words in the singular shall include the plural; the masculine gender shall include the neuter and the feminine, and vice versa. The terms "heirs, executors, administrators and assigns" shall include "successors, legal representatives and assigns."

12.8. TIME OF ESSENCE. Time is of the essence in each and every provision of this Agreement.

12.9. UNENFORCEABLE OR INAPPLICABLE PROVISIONS. If any provision hereof is for any reason unenforceable or inapplicable, the other provisions hereof will remain in full force and effect in the same manner as if such unenforceable or inapplicable provision had never been contained herein, unless such unenforceable provision materially affects any material covenants set forth herein.

Page 18 of 23

12.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which will for all purposes be deemed to be an original, and all of which are identical.

12.11. APPLICABLE LAW. This Agreement shall be construed under and in accordance with the internal laws of the State of Arizona without regard to principles of conflicts of laws.

12.12. ATTORNEYS' FEES. In the event any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provision of this Agreement, the successful or prevailing party or parties shall be entitled to recover and the court is specifically empowered to award reasonable attorneys' fees, sales and use taxes, court costs, expert witness fees and expenses, and all expenses even if not taxable as court costs (including, without limitation, all such fees, taxes, costs and expenses incident to appellate, bankruptcy and post-judgment proceedings), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled. Attorneys' fees shall include, without limitation, paralegal fees, investigative fees, administrative costs, sales and use taxes and all other charges billed by the attorney to the prevailing party.

12.13. AUTHORITY. Each person executing this Agreement, by his execution hereof, represents and warrants that he is fully authorized to do so, however, the parties will cooperate in providing appropriate proof to the other party of the authority of the signing person to bind the party.

12.14. FURTHER ASSURANCES. In addition to the acts and deeds recited herein and contemplated to be performed at the Closing, Seller and Buyer agree to perform such other acts, and to execute and deliver such other instruments and documents as either Seller or Buyer, or their respective counsel, may reasonably require in order to effect the intents and purposes of this Agreement. Further, provided such do not change the obligations or liability of the applicable party, Seller and Buyer each agree to deliver to the Title Company such affidavits and other documents as may reasonably be necessary or required to enable the Title Company to issue the Title Policy as contemplated in this Agreement.

12.15. TIME PERIODS. Unless otherwise expressly provided herein, all periods for delivery or review and the like shall be determined on a "calendar" day basis. If any date for performance, approval, delivery or Closing falls on a Saturday, Sunday or legal holiday (state or federal) in the State of Arizona or the State of California, the time therefor shall be extended to the next Business Day; excepting therefrom, if the Closing Date falls on a Saturday, Sunday or legal holiday, the time therefor shall be extended two Business Days.

12.16. NO RECORDING. Seller and Buyer agree that neither this Agreement, a copy of this Agreement nor any instrument describing or referring to this Agreement (excepting therefrom a lis pendens, notice of pendency of action or similar document) shall ever be filed of record in the public records of the governmental jurisdiction in which the Property is located.

12.17. INTERPRETATION. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or in any amendments or exhibits thereto.

12.18. NO THIRD PARTY BENEFICIARY. The provisions of this Agreement are for the exclusive benefit of the Seller and Buyer hereto and no other party shall have any right or claim against the Seller and Buyer, or either of them, by reason of those provisions or be entitled to enforce any of those provisions against the Seller and Buyer hereto, or either of them.

Page 19 of 23

12.19. PROVISIONS TO SURVIVE CLOSING. Any and all of the provisions of this Agreement which require or provide for the performance or liability of either party hereto following the Closing, including without limitation the provisions of Sections 9.5(a) and (b), shall survive the Closing and the delivery of the Deed to Buyer.

12.20. WAIVER OF JURY TRIAL. EACH OF THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES THE RIGHT WHICH ANY OF THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BETWEEN ANY OF THE PARTIES HERETO, INCLUDING, BUT NOT LIMITED TO, WITH RESPECT TO ANY AND ALL CAUSE OR CAUSES OF ACTION, DEFENSES, COUNTERCLAIMS, CROSSCLAIMS, THIRD PARTY CLAIMS, AND INTERVENOR'S CLAIMS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, REGARDLESS OF THE CAUSE OR CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED OR THE RELIEF SOUGHT BY ANY PARTY, AND REGARDLESS OF WHETHER SUCH CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED OR THE RELIEF SOUGHT BY ANY PARTY, AND REGARDLESS OF WHETHER SUCH CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ARE BASED ON, OR ARISE OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER, OUT OF ANY ALLEGED CONDUCT OR COURSE OF CONDUCT, DEALING OR COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR OTHERWISE. ANY PARTY HERETO MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF ANY RIGHT THEY MAY HAVE TO TRIAL BY JURY.

12.21. CONFIDENTIAL AGREEMENT. The terms and conditions of this Agreement shall be treated as confidential by both parties, and neither any of such terms or conditions nor any copy of this Agreement shall be divulged or provided to any third party other than the parties' respective attorneys, consultants, brokers, and Buyer's lenders and financial partners if any, by either party hereto or any other person or entity assisting Buyer in evaluating or consulting on this transaction, any loan in connection herewith or otherwise, without the prior consent of the other party hereto. Buyer shall use its commercially reasonable efforts to cause Buyer's lender to retain the confidentiality required pursuant to this Section. Nothing herein shall require a party to maintain said confidentiality if required to disclose such information pursuant to applicable law or to enforce the terms of this Agreement or the Lease.

12.22. RELATIONSHIP OF THE PARTIES. The transaction contemplated by this Agreement and the Lease is a true sale with a leaseback and Buyer and Seller are neither joint venturers, general partners nor lender and borrower.

12.23. NO TRANSFER OF CERTAIN RIGHTS. Notwithstanding any term of this Agreement, the Bill of Sale and Assignment of Contracts attached hereto as Exhibit "D", or the Lease, Seller does not, shall not nor be deemed to sell, convey, transfer, set over, or assign any rights, interests, patents, copyrights, or other intellectual property related to Seller's design of the Property, including, without limitation, the Clean Room Technology and design of the clean room. As used in this Agreement, the term "Clean Room Technology" shall include ideas, concepts, architectural drawings, information, specifications, drawings, sketches, data, materials, layouts, processes, methods, apparatus diagrams, building materials, inventions (whether or not patentable), copyrights, trade secrets, know how, show how, works of authorship, software, source code, machine code, products, methods of doing business, proprietary information, confidential information, test results, reports, descriptions, construction, or operation of any of the subject matter contained in either U.S. patent application serial no. 09/391,113 (filed September 7, 1999 and entitled "Clean Room & Method"), U.S. patent application serial no. 09/975,600 (filed October 11, 2001 and entitled "Clean Room & Method"), U.S. patent application serial no. 09/993,534 (filed

Page 20 of 23

November 14, 2001 and entitled "Clean Room & Method"), or any related applications or patents issued thereon. Notwithstanding the foregoing, Buyer shall be permitted the use and enjoyment of the clean room and shall be permitted to lease the clean room to subsequent tenants of the Property; provided, however, that nothing in this sentence shall grant any license or other rights relating to the Clean Room Technology or in any manner affect or limit Seller's ability to remove Tenant's Equipment (as defined in the Lease) as provided for in the Lease.

12.24. APPROVALS AND CONSENTS. Unless a party's sole discretion is otherwise expressly provided for in a particular provision of this Agreement, all approvals and consents required of either party hereunder shall not be unreasonably withheld or delayed, regardless of whether or not the provision in question expressly so states.

12.25. TITLE COMPANY. The parties acknowledge and agree that in the event of any dispute concerning the Earnest Money, the Title Company shall have the right to interplead with the Superior Court in and for the County all or any portion of the Earnest Money received by it pursuant to this Agreement. Buyer and Seller mutually agree to indemnify, defend, and save the Title Company harmless from and against any claims, damages, losses, costs or expenses incurred by it (including reasonable attorneys' fees, paralegal and paraprofessional charges and costs) arising from the performance of its duties hereunder, except for such claims, damages, losses, costs or expenses as are incurred by The Title Company through its own acts of negligence or willful and intentional misconduct or its contractual obligations under the Title Policy. This indemnification shall survive the Closing and any termination of this Agreement. The Title Company shall have no liability with regard to any duty under this Agreement nor be responsible for loss of any monies held by it except in the event of negligence or willful and

[SIGNATURES APPEAR ON THE NEXT PAGE]

Page 21 of 23

intentional misconduct on the part of The Title Company or its contractual obligations under the Title Policy.

DATED as of the Effective Date specified in Article 1 above.

BUYER:                                        SELLER:

Glen Una Management Company, Inc.             SpeedFam - IPEC, Inc.,
a California corporation                      an Illinois corporation

By: /s/ Kenneth Levy                          By: /s/ J. Michael Dodson
---------------------                         --------------------------------
Name: Kenneth Levy                            Name:   J. Michael Dodson
---------------------                         --------------------------------
Title:  President                             Title:  Chief Financial Officer
---------------------                         --------------------------------

Page 22 of 23

JOINDER OF TITLE COMPANY

The Title Company executes this Agreement for the sole purpose of acknowledging receipt of the Earnest Money, subject to clearance, and to agree to serve as escrow agent with respect to the Earnest Money and Closing in accordance with this Agreement.

First American Title Insurance Company

By: ___________________________________
Name: __________________________________
Title: _________________________________
Date: __________________________________

Page 23 of 23

EXHIBIT "A"

LEGAL DESCRIPTION

[SEE ATTACHED]

Exhibit A

Page 1 of 1

EXHIBIT "B"

SPECIAL WARRANTY DEED

SpeedFam - IPEC, Inc., an Illinois corporation ("Grantor"), for and in consideration of the sum of Ten Dollars ($10.00) in hand paid to Grantor by ___________________________, a ___________________ corporation ("Grantee"), and other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, hereby assigns, conveys, grants, transfers and delivers to Grantee all that certain land situated in Maricopa County, Arizona, and described on Exhibit "A" attached hereto and made a part hereof for all purposes, together with all improvements attached thereto and any and all appurtenances of Grantor pertaining thereto (collectively as the "Property").

SUBJECT TO, the matters set forth on Exhibit "B" attached hereto and made a part hereof.

GRANTOR hereby binds itself and its successors and assigns to warrant and defend for the benefit of Grantee and its successors and assigns the title against all acts of Grantor, and none other, subject to the matters set forth above.

Exhibit B

Page 1 of 2

EXECUTED as of the ______ day of _____________, 2002

GRANTOR:

SPEEDFAM - IPEC, INC., an Illinois corporation

By: _____________________________________ Name: _____________________________________ Title: _____________________________________

STATE OF ARIZONA            )
                            )  ss.
County of Maricopa          )

This instrument was acknowledged before me on this the _____ day of _______________, 2002, by _________________________________________, the ___________ of SpeedFam - IPEC, Inc., an Illinois corporation, on behalf of the corporation.

Notary Public

My commission expires:

Exhibit B

Page 2 of 2

EXHIBIT "A" TO SPECIAL WARRANTY DEED

PROPERTY

Exhibit A to Special Warranty Deed

Page 1 of 1

EXHIBIT "B" TO SPECIAL WARRANTY DEED

TITLE EXCEPTIONS

[SEE ATTACHED]

Exhibit B to Special Warranty Deed

Page 1 of 1

EXHIBIT "C"

LEASE

[SEE ATTACHED]

Exhibit C

Page 1 of 1

EXHIBIT "D"

BILL OF SALE

BILL OF SALE AND ASSIGNMENT OF CONTRACTS

This instrument is executed and delivered as of the ____ day of _________, pursuant to that certain Purchase and Sale Agreement ("Agreement"), dated ____________, by and between SpeedFam-IPEC, Inc., an Illinois corporation ("Seller"), and Glen Una Management Company, Inc., a California corporation ("Buyer"), covering the real property described in Exhibit "A" attached hereto ("Real Property").

1. Sale of Personalty. For good and valuable consideration, Seller hereby sells, transfers, sets over and conveys to Buyer the following (the "Personal Property"):

(a) Tangible Personalty. All of Seller's right, title and interest in and to all fixtures, furniture, equipment, inventory and other tangible personal property, if any, owned by Seller presently located on such property, but excluding Tenant's Equipment (as defined in the Lease) and those items set forth on the attached Exhibit "B".

(b) Intangible Personalty. All the right, title and interest of Seller in and to the following, to the extent assignable: (i) licenses, and permits relating to the ownership and operation of the Property (as defined in the Agreement), (ii) if still in effect, guaranties and warranties received by Seller from any contractor, manufacturer or other person in connection with the construction or operation of the Property; and (iii) any and all claims as they relate to the Property.

2. Assignment of Contracts. For good and valuable consideration, Seller hereby assigns, transfers, sets over and conveys to Buyer, and Buyer hereby accepts such assignment of, the following (the "Assigned Property"):

(a) Files and Related Information. The files and correspondence relating to the Property, plans and specifications with respect to the Property, warranties and guaranties relating to any of the other property to be conveyed pursuant to the Agreement, licenses and permits relating to said real property, and the other property to be conveyed pursuant to the Agreement; and

(b) Service Contracts. All of the landlord's right, title and interest in and to the service contracts described in Exhibit "C" attached hereto (the "Service Contracts").

3. Assumption. Buyer hereby assumes the obligations of Seller under Service Contracts arising from and after the Closing and shall defend, indemnify and hold harmless Seller from and against any liability, damages, causes of action, expenses, and attorneys' fees incurred by Seller by reason of the failure of Buyer to fulfill, perform, discharge, and observe its obligations with respect to the Service Contracts arising on and after the Closing. Seller shall defend, indemnify and hold harmless Buyer from and against any liability, damages, causes of action, expenses, and attorneys' fees incurred by Buyer by reason of the failure of Seller to fulfill, perform, discharge, and observe its obligations with respect to the Service Contracts arising before the Closing.

4. Agreement Applies. The covenants, agreements, representations, warranties, indemnities and limitations provided in the Agreement with respect to the property conveyed hereunder (including, without limitation, the limitations of liability provided in the Agreement), are hereby incorporated herein

Exhibit D

Page 1 of 2

by this reference as if herein set out in full and shall inure to the benefit of and shall be binding upon Buyer and Seller and their respective successors and assigns.

5. Representations Regarding Encumbrances. Seller represents and warrants that the Personal Property and the Assigned Property is owned and transferred free and clear from any and all encumbrances.

6. No Transfer of Intellectual Property Rights. Notwithstanding any term of this Bill of Sale and Assignment of Contracts, the Agreement or the Lease, Seller does not, shall not nor be deemed to sell, convey, transfer, set over, or assign any rights, interests, patents, copyrights, or other intellectual property related to Seller's design of the Property, including, without limitation, the Clean Room Technology and design of the clean room. As used in this Agreement, the term "Clean Room Technology" shall include ideas, concepts, architectural drawings, information, specifications, drawings, sketches, data, materials, layouts, processes, methods, apparatus diagrams, building materials, inventions (whether or not patentable), copyrights, trade secrets, know how, show how, works of authorship, software, source code, machine code, products, methods of doing business, proprietary information, confidential information, test results, reports, descriptions, construction, or operation of any of the subject matter contained in either U.S. patent application serial no. 09/391,113 (filed September 7, 1999 and entitled "Clean Room & Method"), U.S. patent application serial no. 09/975,600 (filed October 11, 2001 and entitled "Clean Room & Method"), U.S. patent application serial no. 09/993,534 (filed November 14, 2001 and entitled "Clean Room & Method"), or any related applications or patents issued thereon. Notwithstanding the foregoing, Buyer shall be permitted the use and enjoyment of the clean room and shall be permitted to lease the clean room to subsequent tenants of the Property; provided, however, that nothing in this sentence shall grant any license or other rights relating to the Clean Room Technology or in any manner affect or limit Seller's ability to remove Tenant's Equipment (as defined in the Lease) as provided for in the Lease.

IN WITNESS WHEREOF, the undersigned have caused this Bill of Sale and Assignment of Contracts to be executed as of the date written above.

Seller:                                      Buyer:

SpeedFam-IPEC, Inc.                          Glen Una Management Company, Inc.
an Illinois corporation                      a California corporation

By: ____________________                     By: _____________________________
Name:___________________                     Name: ___________________________
Its: ___________________                     Its: ____________________________

Exhibit D

Page 1 of 2

EXHIBIT A TO BILL OF SALE

PROPERTY DESCRIPTION

Exhibit A to Bill of Sale

Page 1 of 1

EXHIBIT B TO BILL OF SALE

EXCLUDED PROPERTY

BUILDING 305:

CDA Air Compressor Equipment

Air Scrubbers
DI Water System/Equipment
Waste Treatment Equipment
Cleanroom HVAC Equipment
Chemical Distribution/Storage Equipment Cleanroom Vacuum Equipment
Cleanroom System (walls, partitions, air handlers, hepafilters, chiller, other)
50 Hertz Generators
7.5 Ton Overhead Cranes Trolley Mounted Cranes Surveillance Cameras and Security Equipment Cafeteria Equipment

BUILDING 300:

CDA Air Compressor Equipment

Cleanroom Vacuum Equipment
Air Scrubbers
Cleanroom Humidity Control Equipment (Kathobar) Roof Boilers for Kathobar Units Electrical Backup Power Generator 330KV Electrical Transfer Switch 50 Hertz Generators
DI Water System/Equipment
Waste Treatment Equipment
Chemical Distribution/Storage Equipment Cleanroom System (walls, partitions, air handlers, hepafilters, chiller, other)
Surveillance Cameras and Security Equipment Acid Fume Safety Hood
Cleanroom Safety Showers

Exhibit B to Bill of Sale

Page 1 of 1

EXHIBIT C TO BILL OF SALE

SERVICE CONTRACTS

        SERVICE PROVIDER                          SERVICE                      CONTRACT DATE
        ----------------                          -------                      -------------
Airnetics Engineering Co.         Preventive Maintenance Program - Atlas          5/25/01
                                  Copco Oil Free Compressors;
                                  Oil-Injected Rotary Air Compressors

Air Products and Chemicals, Inc.  Amendment II to the Liquid Nitrogen             11/10/98
                                  Supply Agreement between SpeedFam
                                  Corporation and Air Products and
                                  Chemicals, Inc. dated 12/17/96

Corporate Cleaning, Inc.          Janitorial Bid 300 Building                     2/26/02

McQuay Service                    HVAC Assured Maintenance Agreement               4/1/00

Otis Elevator Company             Contract Addendum SO 5525 to add unit            6/1/01
                                  to existing contract

Exhibit C to Bill of Sale

Page 1 of 1

EXHIBIT 10.37

LEASE

BETWEEN

PHOENIX INDUSTRIAL INVESTMENT PARTNERS, L.P.
AN ARIZONA LIMITED PARTNERSHIP

AS LANDLORD

AND

SPEEDFAM - IPEC, INC.,
AN ILLINOIS CORPORATION

AS TENANT

TABLE OF CONTENTS

                                                                                                           PAGE
 1.      DEFINITIONS....................................................................................     1

 2.      LEASED PREMISES................................................................................     4

 3.      TERM...........................................................................................     4

 4.      RENT...........................................................................................     4

 5.      ADDITIONAL CHARGES.............................................................................     5

 6.      LATE CHARGES AND INTEREST......................................................................     5

 7.      USE OF LAND PREMISES...........................................................................     6

 8.      TRIPLE NET LEASE...............................................................................     6

 9.      MAINTENANCE AND REPAIRS........................................................................     6

10.      TENANT'S EQUIPMENT.............................................................................     7

11.      ALTERATIONS AND ADDITIONS......................................................................     7

12.      IMPOSITIONS....................................................................................    10

13.      COMPLIANCE WITH REQUIREMENTS...................................................................    10

14.      LIENS..........................................................................................    10

15.      PERMITTED CONTESTS.............................................................................    11

16.      NO CLAIMS AGAINST LANDLORD.....................................................................    11

17.      INDEMNIFICATION BY TENANT......................................................................    11

18.      UTILITIES......................................................................................    12

19.      INSURANCE......................................................................................    12

20.      DAMAGE TO OR DESTRUCTION OF LEASED PREMISES....................................................    15

21.      EMINENT DOMAIN.................................................................................    16

22.      PERFORMANCE ON BEHALF OF TENANT................................................................    18

23.      ASSIGNMENTS AND SUBLEASE.......................................................................    18

24.      EVENTS OF DEFAULT; TERMINATION.................................................................    24

25.      ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.................................................    29

26.      SUBORDINATION AND ATTORNMENT...................................................................    31

27.      OPTIONS TO EXTEND..............................................................................    31

28.      APPRAISAL......................................................................................    32

29.      RIGHT OF ENTRY.................................................................................    33

30.      NOTICES........................................................................................    33

31.      SURRENDER......................................................................................    34

32.      BROKER.........................................................................................    34

33.      WAIVER.........................................................................................    35

34.      NO PARTNERSHIP.................................................................................    35

TABLE OF CONTENTS

                                                                                                           PAGE
35.      PARTIAL INVALIDITY ............................................................................    35

36.      RECORDING......................................................................................    35

37.      HAZARDOUS MATERIALS ...........................................................................    35

38.      HOLDING OVER...................................................................................    39

39.      AUTHORITY......................................................................................    39

40.      PARKING..... ..................................................................................    39

41.      QUIET TITLE ...................................................................................    39

42.      BENEFIT........................................................................................    39

43.      SIGNAGE........................................................................................    39

44.      TELECOMMUNICATIONS ............................................................................    39

45.      APPROVALS AND CONSENTS.........................................................................    40

46.      SECURITY DEPOSIT ..............................................................................    40

47.      MISCELLANEOUS..................................................................................    41

48.      COUNTERPART....................................................................................    41

LEASE

THIS LEASE is made and entered into as of the 21 day of June, 2002,("LEASE EXECUTION DATE") by and between Phoenix Industrial Investment Partners, L.P., an Arizona limited partnership (hereinafter called "LANDLORD"), and SpeedFam - IPEC, Inc., an Illinois corporation (hereinafter called "TENANT").

RECITALS

A. Concurrently herewith, Landlord purchased from Tenant that certain real property commonly known as 300 North 56th Street and 305 North 54th Street, Chandler, Arizona, more folly described on the attached Exhibit A ("PROPERTY").

B. As part of the aforementioned acquisition, Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord, the Leased Premises (as defined hereinafter) upon the terms and conditions hereof.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

W I T N E S S E T H:

In consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:

1. DEFINITIONS. As used in this Lease the following terms shall have the following respective meanings:

a. Additional Charges: as defined in Section 5.

b. Affiliate, Subsidiary or Successor: as defined in Section 23.

c. Alteration or Alterations: as defined in Section 11.

d. Appraisal: as defined in Section 28.

e. Base Rent: as defined in Section 4.

f. Business Days: any day which is not a Saturday, Sunday or federal, state or local holiday.

g. Capital Improvement: as defined in Section 9.

h. Cost(s) and Expenses(s): all costs, expenses and fees of every kind and nature, including without limitation reasonable attorneys' fees, court costs, experts' fees, consultants' fees and all other expenses arising from or connected with threatened or pending actions, suits, claims, demands or proceedings.

i. Default: as defined in Section 24.

j. Default Rate: the lesser of (i) four (4) points above the then prime rate of interest as announced from time to time by Bank One, Arizona, NA, a national banking association, or its successor; and (ii) the highest rate permitted by applicable law.

Page 1 of 42

k. Fair Market Rental: as defined in Section 28.

1. Hazardous Materials: as defined in Section 37.

m. Impositions: Any of the following which at any time during or in respect of the Lease Term may be charged, assessed, levied, confirmed or imposed on or be a lien upon (y) the Leased Premises or any part thereof or any Rent or other payments paid to Landlord pursuant to this Lease or subleases of the Leased Premises, or any part thereof, by anyone claiming by, through or under Tenant; or (z) any occupancy, use or possession of or activity conducted on the Leased Premises or any part thereof: all taxes including, without limitation, (i) Real Property Taxes; (ii) sales, transaction privilege, license, excise, rent or similar taxes and whether imposed on, or measured by, the Rent, Additional Charges or other payments or consideration in any form for which Tenant is obligated by reason of the privilege of renting or of Tenant's occupancy hereunder, and (iii) all new taxes imposed, levied or charged in lieu of or in addition to existing taxes by virtue of present or future law or governmental authority in connection with the ownership, use, occupancy or possession of the Leased Premises as measured by the Rents, Additional Charges or other payments herein provided to be paid by Tenant, or otherwise, assessments (including without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the term hereof, ground rents, contract payments, water, sewer, utility or similar rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees, other charges and other governmental impositions in each case, whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every kind and character (including all interest and penalties thereon). Notwithstanding anything hereinabove to the contrary, Impositions shall not include, and Tenant shall never be obligated to pay, any corporate, estate, inheritance, succession, capital, levy or transfer tax of Landlord or any income, profit or revenue tax, franchise taxes or other similarly imposed taxes of Landlord determined on the basis of general income or revenues (except to the extent a part of the sales, privilege, rent and other taxes described by (ii) of this definition of Impositions) or any interest or penalties in respect thereof.

n. Improvements: As defined in Section 2.

o. Insurance Requirements: all terms of an insurance policy covering or applicable to the Leased Premises or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting all or any part of the Leased Premises or any use or condition thereof.

p. Lease: this Lease, as at the time amended, modified or supplemented, together with all Exhibits now or hereafter attached hereto or referenced herein.

q. Lease Term: as defined in Section 3.

r. Lease Year: Except with regard to the first Lease Year, which first Lease Year shall include the first twelve (12) full calendar months and any partial month at the commencement of the Lease Term (if the Lease commences on a date other than the first of a month), each consecutive twelve (12) month period during the Lease Term, with the first Lease Year commencing simultaneously with the commencement of the Lease Term,

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and with each subsequent Lease Year commencing immediately upon the expiration of the immediately preceding Lease Year.

s. Leased Premises: as defined in Section 2.

t. Legal Requirements: all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to all or any part of the Leased Premises or any use or condition thereof.

u. Month or Monthly: each calendar month beginning or ending during the Lease Term.

v. Option or Options: as defined in Section 27.

w. Option Date: as defined in Section 27.

x. Qualified Appraiser: as defined in Section 28.

y. Real Property Taxes: all taxes, assessments, levies, and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any existing or future general or special assessments for public improvements, services or benefits, and any increases resulting from reassessments resulting from a change in ownership, new construction, or any other cause), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of all or any portion of the Leased Premises (as now constructed or as may at any time hereafter be constructed, altered or otherwise changed) or Landlord's interest therein, the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located on the Leased Premises, the gross receipts, income, or rentals from the Leased Premises, or the use of parking areas, public utilities, or energy within the Leased Premises, or Landlord's business of leasing the Leased Premises. If at any time during the Lease Term the method of taxation or assessment of the Leased Premises prevailing as of the Effective Date shall be altered so that in lieu of or in addition to any Real Property Taxes described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Leased Premises or Landlord's interest therein, or (ii) on or measured by the gross receipts, income or rentals from the Leased Premises, on Landlord's business of leasing the Leased Premises, or computed in any manner with respect to the operation of the Leased Premises, then any such tax or charge, however designated, shall be included within the meaning of the term "REAL PROPERTY TAXES" for purposes of this Lease. "Real Property Taxes" shall also include any costs and expenses incurred by Landlord in connection with appealing and/or contesting any Real Property Taxes.

z. Rent: shall mean, collectively, Base Rent, Additional Charges, Impositions, late charges and all other payments of money payable to Landlord under this Lease, whether or not such payments are specifically denominated as rent hereunder.

aa. Restoration: as defined in Section 20(b).

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bb. SNDA: as defined in Section 26.

cc. Tenant's Equipment: all personal property, furniture, furnishings, business or trade fixtures and equipment now or hereafter in or about the Leased Premises or any part thereof, which are the property of Tenant or any permitted sublessee or assignee of Tenant, the Alteration or removal of which shall be in accordance with Section 10. Without limiting the generality of the foregoing, Tenant's Equipment shall include that property listed on the attached Exhibit B.

dd. Third Appraiser: as defined in Section 28.

ee. Unavoidable Delays: delays due to strikes, acts of God, labor disputes, fire, earthquakes, floods, explosion, out of the ordinary actions of the elements, invasion, war, insurrection, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials, or supplies in the open market, failure of transportation, lockouts, actions of labor unions, laws or orders of governmental, civil, military or naval authorities, governmental restrictions, enemy action, riot, civil commotion, unavoidable casualty, or other causes (whether similar or dissimilar) beyond the control of the obligated party hereto, financial inability excepted.

2. LEASED PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Property together with all improvements, buildings, fixtures and structures ("IMPROVEMENTS") as now or hereafter existing, constructed or altered thereon and all appurtenances thereto (collectively, the "LEASED PREMISES"). Tenant acknowledges that Tenant is the prior owner of the Leased Premises, that this Lease is part of a sale-leaseback transaction and Tenant is intimately familiar with all aspects of the Leased Premises and that this Lease is on an "as is", "where is" and "with all faults" basis.

3. TERM. The term of this Lease ("LEASE TERM") shall commence on June 21, 2002, and shall end on the last day of the one hundred eightieth
(180th) full calendar month after commencement of the Lease Term, which expiration date is June 20, 2017, subject to the Options to extend hereinafter set forth or earlier termination pursuant to the terms of this Lease.

4. RENT. Tenant shall pay to Landlord as base monthly rent ("BASE RENT") for the Leased Premises as follows:

Lease Year 1               $250,000.00 per month
Lease Year 2               $255,000.00 per month
Lease Year 3               $260,100.00 per month
Lease Year 4               $265,302.00 per month
Lease Year 5               $270,608.04 per month
Lease Year 6               $276,020.20 per month
Lease Year 7               $281,540.60 per month
Lease Year 8               $287,171.42 per month
Lease Year 9               $292,914.85 per month
Lease Year 10              $298,773.14 per month
Lease Year 11              $304,748.61 per month
Lease Year 12              $310,843.58 per month
Lease Year 13              $317,060.45 per month
Lease Year 14              $323,401.66 per month
Lease Year 15              $329,869.69 per month

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Base Rent shall be payable in advance of the first day of each Month during the Lease Term; provided, however, if the Lease Term commences on a day other than the first day of a Month, Tenant shall pay to Landlord concurrently with the commencement of the Lease Term, the Base Rent for such partial Month on a pro-rated basis calculated using a thirty (30) day month. The Base Rent and all other sums payable to Landlord hereunder shall be paid by good check payable in currency of the United States of America as at the time shall be legal tender for the payment of public and private debts, at the Landlord's address specified for notices in Section 30, or at such other place as Landlord may designate in writing from time to time. Such payments shall be made without any abatement, deduction or offset whatsoever, and without any prior demand therefor. In the event that the Lease Term is terminated for any reason on a date other than the last day of a calendar month, on the first day of the last calendar month of the Lease Term Tenant shall pay to Landlord as Base Rent for the period from said first day of said last calendar month to and including the last day of the Lease Term that proportion of the monthly Base Rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). If a check of Tenant's is dishonored for insufficient funds, Landlord may require Tenant to make future payments due hereunder via electronic transfer or cashier's check.

5. ADDITIONAL CHARGES. Tenant also shall pay from time to time during the Lease Term as additional charges ("ADDITIONAL CHARGES"):

a. all amounts and obligations other than Base Rent which Tenant herein assumes or agrees to pay, including without limitation all Impositions; and

b. interest at the Default Rate on such of the foregoing amounts and obligations other than Base Rent as are payable to Landlord which are not paid on or before the fifth (5th) day after written notice by Landlord to Tenant that such amount is due, with such interest to accrue from each date that such amount was due until paid.

6. LATE CHARGES AND INTEREST. Tenant acknowledges that late payment by Tenant to Landlord of Rent under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult or impracticable to determine. Such costs include, but are not limited to, processing and accounting charges, late charges that may be imposed on Landlord by the terms of any mortgage or deed of trust secured by the Leased Premises. Therefore, if any installment of Base Rent or any payment of Additional Charges, Impositions or other rent due from Tenant is not received by Landlord in good funds by the applicable due date, Tenant shall pay to Landlord an additional sum equal to five percent (5%) of the amount overdue as a late charge. The parties acknowledge that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any Rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay any Rent due under this Lease in a timely fashion, including any right to terminate this Lease as set forth elsewhere herein. If any Base Rent remains delinquent for a period in excess of five (5) days then, in addition to such late charge, Tenant shall pay to Landlord interest on any Base Rent, Rent and/or Additional Charges that is not paid when due at the Default Rate following the date such amount became due until paid.

7. USE OF LEASED PREMISES. Tenant may use the Leased Premises for any lawful purpose permitted by applicable zoning, building and other Legal Requirements of municipal, state or

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federal authorities now in force, or which hereafter may be in force with respect to the Leased Premises. Tenant will not commit, omit or permit any act, condition or event which is contrary to any Legal Requirement or Insurance Requirement. Tenant shall not commit any waste in or about the Leased Premises, and Tenant shall keep the Leased Premises in a neat, clean, attractive and orderly condition, free of any nuisances.

8. TRIPLE NET LEASE. This Lease shall be deemed an absolute triple net lease and Tenant shall do all acts and make all payments connected with or arising out of any use or occupation of the Leased Premises, or any part thereof, whether now or hereafter existing, levied or imposed, and whether foreseen or unforeseen. Landlord shall not be obligated to perform any acts or be subject to any liabilities or to make any payments except as otherwise specifically and expressly provided in this Lease.

9. MAINTENANCE AND REPAIRS.

a. Tenant at its sole Cost and Expense will keep in good, clean, first class and operable condition the Leased Premises and every part thereof, including, but not limited to, all plumbing, heating, roof, parking lot, ventilation, air conditioning and electrical systems and equipment in, on or serving the Leased Premises, windows, doors, floors, interior walls, the roof, exterior walls, ceiling and basement which are part of the Leased Premises, and will make or cause to be made all necessary or appropriate repairs, replacements or renewals thereof, whether interior or exterior, structural or non-structural, ordinary or extraordinary, foreseen or unforeseen, capital or ordinary.

b. In addition to the foregoing, Tenant shall be required to make such repairs, maintenance and replacements at such reasonable intervals as the parties may agree, which intervals are initially designated on Exhibit D. Tenant will maintain a software package that schedules all preventative maintenance procedures with the settings consistent with those set forth on Exhibit D. Such repairs, maintenance and replacements shall be done in a good, workmanlike and first class manner. If Landlord so requires, Tenant shall obtain Landlord's consent, which shall not be unreasonably withheld, as to the selection of contractors prior to commencement of such work. Subject to Tenant's right to use internal personnel for repair, replacement and maintenance obligations, Tenant shall contract for regular maintenance and upkeep for landscaping, elevators, janitorial and the HVAC system, and shall provide Landlord with copies of such concurrently herewith and within five (5) business days after Landlord's request. If Landlord and/or a successor in interest to Tenant shall be bound by such contracts, such contracts shall include a clause that makes them terminable upon thirty (30) days written notice from Landlord. Unless Tenant has contracted for repair, replacement and maintenance obligations with a third-party, at all times during the Lease Term, Tenant shall maintain internal maintenance personnel adequate to maintain the Leased Premises in good, clean, first class and operable condition. If Tenant does not maintain such internal maintenance personnel, as Landlord shall reasonably determine, Tenant shall enter into such maintenance contracts on such terms and conditions as Landlord shall reasonably require.

c. Tenant shall also cause the Leased Premises to be inspected by a licensed contractor on an annual basis, or at such other times as Landlord shall reasonably designate, and Tenant shall perform, subject to Unavoidable Delays, within forty five (45) days after the presentation of the contractor's findings, all repairs, maintenance and replacements designated by said contractor. If Landlord so requires, Tenant shall obtain Landlord's consent, which shall not be unreasonably withheld, as to the selection of said contractor.

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Tenant shall also cause the roof, parking lot, plumbing and electrical systems to be inspected by a licensed roofing contractor, paving company, plumbing company or electrical company as applicable, on an annual basis, or at such other times as Landlord shall designate and Tenant shall perform, subject to Unavoidable Delays, within forty five (45) days after the presentation of the contractor's findings, all repairs, maintenance and replacements designated by said contractor. Tenant shall provide Landlord with a copy of any reports or findings pursuant to any inspection required hereunder within five (5) business days after Tenant's receipt thereof.

d. If Tenant does not timely perform all of its maintenance, repair and replacement obligations as required by the terms of this Lease, Landlord may, but shall have no obligation to, perform such obligations at Tenant's sole Cost and Expense. In such event, Tenant shall reimburse Landlord for all Costs and Expenses associated therewith upon demand, with interest at the Default Rate from date of payment by Landlord. Such sums shall be considered Rent for all purposes hereunder.

e. Tenant shall be required to maintain the Leased Premises in a first class condition through the Lease Term, at its sole Cost and Expense. Notwithstanding anything contained herein to the contrary, Tenant shall be solely responsible for all maintenance, repairs and replacements affecting the Leased Premises during the Lease Term and in no event shall Tenant be deemed an agent of Landlord for the purpose of conducting such maintenance, repairs, and replacements without the express written acknowledgement of agency by Landlord.

10. TENANT'S EQUIPMENT. All of Tenant's Equipment shall remain the property of Tenant, provided that:

a. Tenant shall have the right at any time during the Lease Term while not in Default to remove from the Leased Premises all or any part of Tenant's Equipment in or on the Leased Premises without regard to the manner placed on or affixed to the Leased Premises, provided that Tenant at its expense immediately will repair or be obligated for all Costs and Expenses in connection with all damage to the Leased Premises caused by the removal of Tenant's Equipment therefrom.

b. Any of Tenant's Equipment not removed by Tenant at its expense within thirty (30) days after the expiration or earlier termination of this Lease or the Lease Term shall be considered abandoned by Tenant and may be appropriated, sold, destroyed, or otherwise disposed of by Landlord without any further notice to Tenant, and without obligation to account therefor. Tenant at its expense will immediately repair or be obligated for all Costs and Expenses in connection with all damage to the Leased Premises caused by any removal of Tenant's Equipment therefrom. Landlord shall not be responsible for any loss of or damage to Tenant's Equipment, except to the extent caused by Landlord's gross negligence or willful acts.

11. ALTERATIONS AND ADDITIONS. Tenant shall have the right at any time during the Lease Term, at Tenant's sole Cost and Expense, while not in Default to make changes, alterations, additions or improvements (collectively, "ALTERATIONS", or singularly, an "ALTERATION") in or to the Leased Premises, subject to the following:

a. Tenant shall not construct any Alterations or otherwise alter the Leased Premises without Landlord's prior written approval, which approval shall not be unreasonably withheld or

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delayed, except that provided Tenant complies with each and every other term and condition applicable to Alterations, no approval by Landlord shall be required provided:

i. The cost of the Alteration in question does not cost in excess of Fifty Thousand Dollars ($50,000.00);

ii. The total cost of all Alterations for the Lease Year in which Tenant commences construction of the Alteration in question does not total more than One Hundred Thousand Dollars ($100,000.00); provided, however, that the cost of Alterations costing less than Fifty Thousand Dollars ($50,000.00) shall not apply to the total Alteration amount of One Hundred Thousand Dollars ($100,000.00) for the applicable Lease Year unless and until the total cost of all Alterations for such Lease Year costing less than Fifty Thousand Dollars ($50,000.00) each shall total at least One Hundred Thousand Dollars ($100,000.00), and then, all of such Alterations shall apply to the total Alteration amount for said Lease Year and the Tenant shall be required to obtain Landlord's consent for any and all subsequent Alterations during said Lease Year;

iii. Such Alteration does not affect the structural integrity of the Leased Premises or any base-building system; and

iv. Such Alteration does not adversely affect the future leaseability of the Leased Premises to a subsequent lessee.

Except for any Alterations permitted under this Section 1l(a) without Landlord's consent, Tenant shall not construct any Alteration until Landlord has approved in writing the plans and specifications therefor, and such Alteration shall be constructed substantially in compliance with such approved plans and specifications by a licensed contractor first approved by Landlord (who shall not unreasonably withhold, condition or delay its approval of any such contractor). All Alterations constructed by Tenant shall be constructed by a reputable licensed contractor in a good and workmanlike first class manner and using new materials of good quality, in accordance with all applicable laws and regulations.

b. Tenant shall not commence construction of any Alterations until:

i. All required governmental approvals and permits have been obtained;

ii. All requirements regarding insurance imposed by this Lease have been satisfied;

iii. Tenant has given Landlord at least ten (10) day's prior written notice of its intention to commence such construction,

iv. For any Alteration requiring Landlord's consent hereunder, Tenant has obtained contingent liability and broad form builders' risk insurance in an amount equal to the cost of the Alteration if there are any perils relating to the proposed construction not covered by insurance required to be carried pursuant to Section 19.

v. For any Alteration requiring Landlord's consent hereunder, Tenant has deposited into an escrow account an amount equal to not less than one hundred fifty

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percent (150%) of the amount of the estimated hard and soft costs of the Alteration, securing Tenant's payment and performance of its obligations related to the applicable Alteration.

c. All Alterations shall remain the property of Tenant during the Lease Term but shall not be altered or removed from the Leased Premises except in further accordance with this Section 11; provided, however, that any Alteration which involves Tenant's Equipment may be altered and removed in accordance with
Section 10. At the expiration or sooner termination of the Lease Term, all Alterations shall be surrendered to Landlord as part of the realty and shall then become Landlord's property, and Landlord shall have no obligation to reimburse Tenant for all or any portion of the value or cost thereof, provided, however, Landlord expressly reserves the right to require Tenant to remove any Alterations prior to the expiration or sooner termination of the Lease Term by providing Tenant with written notice thereof within sixty (60) days prior to the expiration of the Lease Term or within thirty (30) days after the earlier termination of the Lease Term, as applicable.

d. For any Alteration reasonably determined by Landlord to adversely affect the future leaseability of the Leased Premises, Tenant shall post a letter of credit, in form and content and with a bank reasonably acceptable to Landlord (or other security reasonably satisfactory to Landlord) in an amount equal to one hundred fifty percent (150%) of the estimated cost (as determined by a licensed contractor's bid good for reasonable period of time) to remove such Alteration and restore the Leased Premises to its state immediately prior to the commencement of construction of said Alteration. In addition to the foregoing, Tenant shall cause a licensed contractor reasonably acceptable to Landlord (if Landlord so desires to maintain acceptance of such contractor) to prepare a bid for the removal of said Alteration and restoration of the Leased Premises to its state immediately prior to the commencement of construction of said Alteration on each fifth anniversary of the completion of construction of said Alteration and shall increase the amount of the letter of credit or other security, as applicable, to the extent necessary to provide Landlord with one hundred fifty percent (150%) security for such removal and restoration. Such letter of credit or security may be drawn upon only upon Tenant's failure to act in accordance with Landlord's request under
Section 31. The foregoing notwithstanding, Tenant shall not be required to comply with the requirements of this Section 1l(d) if it obtains a minimum credit rating of at least BBB- (minimum investment grade rating).

e. Every six (6) months Tenant shall notify Landlord in writing of the nature and cost of any and all Alterations performed by Tenant hereunder, and, to the extent Landlord has not already been provided with plans, specifications, approvals, permits, the final cost and such other information as Landlord shall reasonably determine related to said Alteration, Tenant shall provide Landlord with such information concurrently therewith.

f. Tenant shall, at its sole Cost and Expense, make any Alteration of any sort to the Leased Premises when and if required by applicable current or future law, including, but not limited to, the Americans With Disabilities Act of 1990 and all applicable fire and safety codes. Tenant-shall not be required to make such Alterations solely as a result of a change in the law as to such requirements, but only at such times as are required by the applicable law or code. Tenant may take advantage of any phase in or "grandfathering" provisions in such laws and codes. Any such Alterations shall be made by Tenant in accordance with and subject to the provisions of this Section 11.

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g. In performing Alterations, Tenant shall not be deemed the agent of Landlord for any purpose without the express written acknowledgement of such agency by Landlord.

h. The provisions and conditions of Sections 13 and 14 below shall apply to any work performed by Tenant under this Section 11.

12. IMPOSITIONS. Subject to Section 15 relating to permitted contests, Tenant during the Lease Term (i) will pay when due (or such earlier date as may be required by the installment payment provisions below in this Section 12) and prior to delinquency all Real Property Taxes levied or assessed against the Leased Premises; and (ii) will pay all other Impositions; both subsections (i) and (ii), before any interest, penalty, fine or cost may be added for non-payment, and will furnish to Landlord for inspection within thirty (30) days after such payment, receipts of the appropriate taxing authority or other proof satisfactory to Landlord evidencing payment of such other Impositions. Tenant will protect, indemnify and hold Landlord harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action and Costs and Expenses imposed upon or incurred by or asserted against Landlord or the Leased Premises by reason of Tenant's failure to pay all Impositions as required herein. If Real Property Taxes or any other Impositions are payable in installments, Tenant may, at its election, make payment thereof in installments which are due and payable during the Lease Term; provided, however, Tenant shall pay Real Property Taxes in quarterly installments during each tax year; provided further, however, that Tenant shall not be required to make such quarterly payments of Real Property Taxes if it obtains a minimum credit rating of at least BBB- (minimum investment grade rating). To the extent Tenant is required to make quarterly payments of Real Property Taxes pursuant to the preceding sentence, Tenant shall make such payments directly to the relevant governmental authority if permitted by such authority; provided, however, that if the relevant taxing authority does not accept quarterly payments, Tenant shall make such payments into an interest bearing escrow account, with the escrow agent being directed to make such payments to the relevant taxing authority when directed by either Tenant or Landlord. Any Impositions relating to a fiscal period, part of which is within and part of which is subsequent to the Lease Term, whether or not such Impositions shall become due and payable or a lien upon the Leased Premises or any part thereof, or be assessed, levied, confirmed or imposed during the Lease Term, shall be adjusted and apportioned between Tenant and Landlord so that Tenant shall pay only that portion of such Impositions computed by multiplying the total amount of such Impositions relating to the fiscal period by a fraction, the numerator of which is the number of days constituting the remainder of the Lease Term and the denominator of which is the number of days constituting the entire fiscal period. The amount due from either party to the other based upon the adjustment and apportionment of such Impositions shall be paid at or promptly following expiration or termination of the Lease Term.

13. COMPLIANCE WITH REQUIREMENTS. Subject to Section 15 relating to permitted contests, Tenant during the Lease Term will:

a. comply with all Legal Requirements and Insurance Requirements; and

b. procure, maintain and comply with all permits, licenses, franchises and other authorizations required for the use of the Leased Premises or any part thereof then being made by Tenant, and for the proper erection, installation, operation and maintenance of the Improvements and Tenant's Equipment or any part thereof.

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14. LIENS. If the Leased Premises, or any part thereof shall at any time become subject to any vendor's, mechanic's, laborer's or materialmen's lien based upon Tenant's Work, any Alteration or the furnishing of material, labor or professional services to Tenant or the Leased Premises and contracted for by or on behalf of Tenant or its contractors or subcontractors, Tenant shall cause the same, at Tenant's expense, to be discharged or bonded over (pursuant to applicable state law) within twenty (20) days after notice thereof, and Tenant shall defend, indemnify, protect and hold Landlord harmless from all liability, loss, Costs and Expenses arising from such lien, Alteration, material, labor and/or professional services.

15. PERMITTED CONTESTS. Tenant at its expense, after prior written notice to Landlord and while not in Default, may contest in its own name or in the name of Landlord, or both, by appropriate action taken in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Impositions or any Legal Requirement, provided that:

a. in the case of any Impositions or Legal Requirement, Tenant shall first make all contested payments, under protest if it desires, unless Tenant's action in some manner suspends the collection of such payments or unless Tenant is not required to make such payments;

b. neither the Leased Premises nor any part thereof or interest therein could realistically under the then existing circumstances be deemed to be in danger of being sold, forfeited or lost by reason of the contest;

c. in the case of any Impositions or Legal Requirement, Tenant shall have furnished such security, if any, as may be required by governmental authority and reasonably approved by Landlord;

d. in the case of any Legal Requirement, Landlord could not realistically and under the then existing circumstances be in danger of any criminal or civil liability for failure to comply therewith; and

e. in the case of any Imposition or Legal Requirement which remains unpaid at any time during such contest, Tenant shall have furnished to Landlord such security as Landlord shall reasonably require in an amount not less than one hundred twenty five percent (125%) of the amount claimed to be owed by a governmental authority.

16. NO CLAIMS AGAINST LANDLORD. Nothing contained in this Lease shall constitute any consent (except where consent is expressly required and given under this Lease) or request by Landlord, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Leased Premises or any part thereof, or as giving Tenant any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Landlord, except as any such claim is expressly provided for by statute despite the provisions of this Section. Any labor, services or material furnished to the Leased Premises in connection with the fulfillment of Tenant's obligations hereunder shall be the sole responsibility of Tenant.

17. INDEMNIFICATION BY TENANT. Tenant will indemnify, defend, protect and hold Landlord harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, and proceedings, and all Costs and Expenses incurred in connection therewith, imposed upon or incurred by or asserted against Landlord or the Leased Premises by reason of the occurrence or existence of any matter or thing relating to this Lease or the

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Leased Premises during the Lease Term, unless resulting from the negligence or willful acts of Landlord, including but not limited to:

a. any accident, injury to or death of persons (including workers) or loss of or damage to property occurring on or about the Leased Premises or any part thereof;

b. any condition or use of the Leased Premises or any part thereof;

c. any failure on the part of Tenant to perform or comply with any of the terms of this Lease;

d. performance of any labor or services or the furnishing of any materials or other property in respect of the Leased Premises or any part thereof; and

e. all claims for loss or damage to the Leased Premises uncompensated by Tenant's insurance.

18. UTILITIES. In addition to the Rent and other payments herein provided, Tenant during the Lease Term shall pay prior to delinquency for all water, gas, light, power, telephone, sewage, refrigeration, air conditioning, heat and ventilating, janitorial, and all other materials and utilities used in connection with or supplied to the Leased Premises. To the extent not already installed, Tenant at its Cost and Expense shall have separate meters installed for power, gas, water and other utilities for which separate meters are available, and Tenant solely shall be obligated for all utility connect, disconnect and security deposit charges applicable to the Leased Premises. Landlord shall not be liable for, and Tenant shall not be entitled to any other relief, by reason of the unavailability or limited availability of the foregoing utilities and services.

19. INSURANCE.

a. Risks To Be Insured. Tenant at its Cost and Expense during the Lease Term will maintain the following insurance for the Leased Premises with reputable insurers authorized to do business in Arizona and rated at least A-IV by A.M. Best Company:

i. primary coverage insurance with respect to the Improvements against loss or damage by fire and other risks from time to time in so-called "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and Alterations within the Leased Premises and the Leased Premises for the full replacement value thereof, as determined from time to time by the insurer, and in any event in an amount sufficient to prevent Landlord from becoming a co-insurer of any such loss or damage;

ii. commercial general liability insurance, together with host liquor liability insurance, and together with excess liability insurance coverage, insuring against, liability for personal injury, bodily injury, death and damage to property occurring in or about, or resulting from an occurrence in or about, the Leased Premises with combined single limit coverage on a per occurrence basis of not less than a minimum amount of Five Million Dollars ($5,000,000.00) and an aggregate limit of not less than a minimum amount of Five Million Dollars
($5,000,000.00), which insurance shall contain (1) a "contractual liability" endorsement insuring Tenant's performance of Tenant's obligation to indemnify Landlord for losses

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related to personal injury, bodily injury, death and damage to property, as contained in Section 17; and (2) a cross liability endorsement;

iii. appropriate worker's compensation or other insurance against liability arising from claims of workmen in respect of and during the period of any work on or about the Leased Premises; and

iv. pollution legal liability insurance, together with new conditions coverage, insuring against, liability for environmental contamination, releases, disposal or pollution to property occurring in, on, under or about, or resulting from an occurrence in or about, the Leased Premises with combined single limit coverage on a per occurrence basis of not less than a minimum amount of Five Million Dollars ($5,000,000.00), as such amount may be increased at the reasonable request of Landlord, with a deductible not to exceed One Hundred Thousand Dollars ($100,000.00). Notwithstanding anything contained herein to the contrary, such coverage shall be with either AIG or Zurich or such other similarly rated insurance companies.

v. Such other insurance that from time to time is reasonably required by any lender of Landlord.

b. Policy Provisions.

i. All insurance maintained by Tenant pursuant to
Section 19(a)(i) (Property Insurance), shall:

1. name Landlord, Tenant, and such other parties as Landlord shall reasonably designate as insureds, as their respective interests may appear, and, if reasonably commercially available, shall include an effective waiver by the issuer of all rights of subrogation against any insured or such insured's interest in the Leased Premises or any income derived therefrom as provided in
Section I9(d);

2. provide that all insurance proceeds, if any, from losses shall be adjusted with Landlord and Tenant.

ii. All insurance maintained by Tenant pursuant to
Section 19(a)(ii) (Liability Insurance), shall name Landlord and such other parties as Landlord shall reasonably, designate as additional insureds and, if reasonably commercially available, shall include an effective waiver by the issuer of all rights of subrogation against any additional insured or such additional insured's interest in the Leased Premises or any income derived therefrom as provided in Section 19(d).

iii. All insurance maintained by Tenant pursuant to
Section 19(a), shall:

1. not have a "deductible" in excess of One Hundred Thousand Dollars ($100,000.00), or such greater amount as is approved by Landlord;

2. if reasonably commercially available, pay any losses notwithstanding any act or failure to act or negligence of Landlord or Tenant or any other

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person or entity relating to any act, omission or other event causing such losses;

3. provide that no cancellation, lapse, reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days (or ten (10) days in the case of non payment of premium) after receipt by Landlord and Tenant of written notice thereof;

4. be primary insurance which provides that the insurer shall be liable for the full amount of the loss up to and including the total amount of liability set forth in the declarations without the right of contribution from any other insurance coverage of Landlord;

5. be in a form reasonably satisfactory to Landlord; and

6. contain a "severability" clause.

c. Delivery of Evidence of Insurance.

i. After written request by Landlord and/or not less than thirty (30) days prior to the expiration date of any policy to be obtained by Tenant pursuant to this Section 19, Tenant will deliver to Landlord a certificate of insurance as to the issuance and effectiveness of such policy and the amount of coverage afforded thereby. Landlord may, at any time, and from time to time, inspect and/or copy any and all insurance policies required to be procured by Tenant pursuant to this Section 19. Notwithstanding the foregoing, with regard to the insurance required of Tenant pursuant to Section 19(a)(iv) above, Tenant shall provide Landlord with a copy of the entire policy within five (5) business days after the issuance thereof.

ii. Tenant shall pay all premiums due for insurance required to be carried by Tenant hereunder (excepting worker's compensation insurance as specified in Section 19(a)(iii)), one year in advance.

d. Waiver of Subrogation Rights.

i. To the extent permitted by Landlord's insurer, if any, Landlord hereby releases and waives any and all rights of subrogation against Tenant, and against the officers, employees, agents and representatives of Tenant, which, in the absence of this Section 19(d)(i), would arise in favor of any insurance company insuring Landlord against loss by fire or casualty and loss of any other type resulting from damage to or destruction of the Improvements or any portion thereof, or in damage to or destruction of the property of Landlord or the property of others under Landlord's control on the Leased Premises, and to the extent permitted by Landlord's insurer, if any, Landlord hereby releases and waives its right of recovery against Tenant for loss or damage resulting from damage to or destruction of the Improvements or any part thereof, or in damage to or destruction of the property of Landlord on the Leased Premises caused by fire, or other hazards insured against by extended coverage or casualty insurance as provided in this Lease, to the extent mat Landlord is compensated for such loss or damage by actual receipt of proceeds from insurance policies covering such loss or damage or portions thereof, it being expressly understood and agreed that

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this release and waiver shall not constitute a release and waiver by Landlord of any right of recovery against Tenant for loss or damage, whether arising in connection with the same claim or separate claims, in excess of insurance proceeds actually received by Landlord.

ii. To the extent permitted by Tenant's insurer, if any, Tenant hereby releases and waives any and all rights of subrogation against Landlord, and against the officers, employees, agents and representatives of Landlord, which, in the absence of this Section
19(d), would arise in favor of any insurance company insuring Tenant against loss by fire or casualty and loss of any other type resulting from damage to or destruction of the Improvements or any portion thereof, or in damage to or destruction of the Leased Premises of Tenant or the property of others under Tenant's control on the Leased Premises, and, to the extent permitted by Tenant's insurer, if any, Tenant hereby releases and waives its right of recovery against Landlord for loss or damage resulting from damage to or destruction of the Improvements or any part thereof, or in damage to or destruction of the Leased Premises of Tenant on the Leased Premises caused by fire, or other hazards insured against by extended coverage or casualty insurance as provided in this Lease, to the extent that Tenant is compensated for such loss or damage by actual receipt of proceeds from insurance policies covering such loss or damage or portions thereof, it being expressly understood and agreed that this release and waiver shall not constitute a release and waiver by Tenant of any right of recovery against Landlord for loss or damage, whether arising in connection with the same claim or separate claims, in excess of insurance proceeds actually received by Tenant.

iii. The foregoing releases and waivers of subrogation rights and releases and waivers of the rights of the Landlord and of the Tenant respectively are expressly conditioned upon the Landlord and the Tenant each being able to obtain in present and future policies required under this Lease of fire, extended coverage, casualty and similar insurance, clauses or endorsements at a commercially reasonable cost which permit the insured to release and waive the insurance company's right of subrogation against third parties responsible for loss, and in the event either the Landlord or the Tenant at any time is unable to obtain policies containing such subrogation waiver clauses or endorsements at a commercially reasonable cost, then and in that event such party may give to the other party written notice thereof and from and after the giving of such notice the releases and waivers herein set forth and each and all of them shall be considered withdrawn and shall in no wise be effective as to loss or damage arising from risks covered by such policies.

iv. Notwithstanding anything contained in Sections
19(d)(i)-(iii), the insurance required to be carried by Tenant hereunder shall be primary in nature and any insurance carried by Landlord, if any, shall be secondary in nature. Further, Landlord shal1 have no obligation whatsoever to carry insurance insuring the Leased Premises, Improvements, Alterations or personal property located within the Leased Premises.

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20. DAMAGE TO OR DESTRUCTION OF LEASED PREMISES.

a. Tenant To Give Notice. In case of any material damage to or destruction of the Leased Premises or any part thereof, Tenant will promptly (and in no event later than the tenth (10th) day after such occurrence) give written notice thereof to Landlord generally describing the nature, extent and cause of such damage or destruction.

b. Restoration. In case of any damage to or destruction of the Improvements or any part thereof at any time during the Lease Term, subject to the terms of Section 20(e), Tenant shall, at its Cost and Expense, promptly commence and complete, subject to Unavoidable Delays, the restoration, replacement or rebuilding of the Improvements as nearly as possible to its value, condition and character immediately prior to such damage or destruction (such restoration, replacement and rebuilding, together with any temporary repairs and property protection pending completion of the work, being herein called "RESTORATION ").

c. Application Of Insurance Proceeds. All insurance proceeds received by Landlord or Tenant on account of any damage to or destruction of the Improvements or any part thereof (less the Costs and Expenses incurred by the Landlord and Tenant in the collection thereof, including, without limitation, adjusters fees and expenses) shall be paid only for the Restoration, subject to Sections 20(d) and (e) below.

d. Abatement. During any period when Tenant's use of the Leased Premises is prevented in whole or part by reason of total or partial damage to or destruction of the Improvements, or by reason of such restoration, the Rent shall be temporarily abated in proportion to the degree that Tenant's use of the Leased Premises is so prevented, but only to the extent of any business interruption or loss of income insurance proceeds actually received by Landlord from Tenant's insurance described in Section 19.

e. Limited Termination. Except as set forth below, in case of any damage or destruction occurring, during the Lease Term, whether or not insurance proceeds are available for the purpose of Restoration, this Lease shall remain in full force and effect without any abatement, suspension, deferment, diminution or reduction. If twenty percent (20%) or more of the then replacement value of the Improvements is damaged by fire or other casualty occurring during the final two (2) Lease Years of the then running initial or extended Lease Term and Landlord receives insurance proceeds sufficient to cover any Rent loss due to such termination, Tenant may terminate this Lease by written notice to Landlord within thirty (30) days after the date of the fire or other casualty, effective as of the date set forth in such termination notice, which shall in no event be earlier than the thirtieth (30th) day after the date of said termination notice, with Tenant to be responsible for the payment of all Rent and Additional Charges becoming due hereunder until the date of such termination; provided, that Tenant shall pay or assign its right to receive insurance proceeds from such damage or destruction over to Landlord, with Tenant to also pay Landlord contemporaneously with such termination the insurance deductible amount, if any, applicable to such damage or destruction.

21. EMINENT DOMAIN.

a. Whole or Substantial Taking. If all or substantially all of the Leased Premises shall be lawfully taken by condemnation or other eminent domain proceedings pursuant to any law, general or special, this Lease shall terminate on the date of such taking. All Rent

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and Additional Charges required to be paid by Tenant under this Lease shall be paid up to the date of such termination and upon such termination this Lease shall be of no further force and effect, except that any obligation or liability of either party, actual or contingent, under this Lease which has accrued on or prior to such termination date shall survive and any prepayment of Rent and Additional Charges shall be prorated between the parties. For purposes of this Section "substantially all of the Leased Premises" shall be deemed to mean such portion of the Leased Premises as, when so taken, would leave remaining a balance of the Leased Premises which, due either to the area so taken or the location of the part so taken, in relation to the part not so taken, would not under economic conditions, applicable zoning laws, building regulations then existing or prevailing, reasonably accommodate Tenant's business as conducted at the date of such taking and after performance of all covenants, agreements, terms and provisions herein and by law provided to be performed and paid by Tenant. Tenant, in cooperation with Landlord, shall have the right to participate in any condemnation proceedings and be represented by legal counsel for the purpose of protecting its interests hereunder.

b. Partial Taking. If only a portion of the Leased Premises shall be so taken and Section 21(a) does not apply, this Lease shall be unaffected by such taking, except that Rent payable by Tenant pursuant to the provisions of this Lease shall be equitably reduced by Landlord to a just and appropriate amount according to the nature and extent of the taking.

c. Award. No award for any partial or total taking shall be apportioned, it being agreed and understood that Landlord shall be entitled to the entire award for any partial or entire taking. Tenant assigns to Landlord its interest in any award which may be made in such taking or condemnation, together with any and all rights of Tenant arising in or to the same or any part thereof. Nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any separate award made to Tenant for the taking of Tenant's Equipment, for the interruption of Tenant's business or its moving costs or for the loss of goodwill. Nothing herein contained shall prohibit Tenant from making a separate claim, to the extent permitted by law, for the value of Tenant's Equipment, moving expenses or relocation benefits.

d. Temporary Taking. If the temporary use or occupancy of all or any part of the Leased Premises shall be lawfully taken for not more than one hundred eighty (180) days by condemnation or in any other manner for any public or quasi-public use or purpose during the Lease Term, Tenant shall be entitled to receive that portion of the award for such taking which represents compensation for the taking of Tenant's Equipment, moving expenses or relocation benefits, and that portion which represents reimbursement for the cost of Restoration pursuant to Section 21(e). This Lease shall be and remain unaffected by such taking and Tenant shall be responsible for all obligations hereunder not affected by such taking and shall continue to pay in full when due the Rent, Additional Charges and all other sums, required to be paid by Tenant pursuant to the provisions of this Lease. If the period of temporary use or occupancy shall extend beyond the end of the Lease Term, that part of the award which represents compensation for the use or occupancy of the Leased Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive so much thereof as represents the period to and including the end of the Lease Term, and Landlord shall receive so much as represents the period subsequent to the end of the Lease Term.

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e. Restoration. In the event of any taking of the Leased Premises which does not result in a termination of this Lease, or in the event of a taking for a temporary use or occupancy of all or any part of the Leased Premises, Tenant at its expense shall proceed with reasonable diligence with the Restoration of the remaining parts of the Leased Premises to substantially the condition existing immediately prior to the date of taking to the extent that the same may be feasible to constitute a complete and tenantable Leased Premises. Landlord shall reimburse Tenant for the reasonable costs of the Restoration of the Leased Premises in an amount not to exceed the amount of the condemnation award specifically allocated to the restoration of the Leased Premises; provided, however, that Landlord shall use commercially reasonable efforts to seek recovery of the reasonable costs of such Restoration as part of the condemnation award and a specific allocation of such costs in the award. If the condemnation award does not specifically allocate any portion thereof for the restoration of the Leased Premises, the Landlord shall reimburse Tenant for the reasonable costs of the Restoration of the Leased Premises in an amount not to exceed the amount of the condemnation award in excess of the portion of the award allocable to the real property taken, as Landlord shall reasonably determine.

22. PERFORMANCE ON BEHALF OF TENANT. If Tenant shall fail to make any payment or perform any act required hereunder to be made or performed by Tenant, and provided Landlord has given Tenant ten (10) days written notice of its intent to do so and Tenant has failed during said period to make such payment or perform the act required to be performed by Tenant, subject to Unavoidable Delays, then Landlord may, but shall be under no obligation to, make such payment or perform such act with the same effect as if made or performed by Tenant. Notwithstanding, the immediately preceding sentence, Landlord may proceed immediately in the event of an emergency without any notice to Tenant other than bona fide attempts to contact by telephone as soon as reasonably possible under the circumstances either of Tenants' two (2) representatives (whom Tenant may change from time to time by providing written notice thereof) whose names and telephone numbers Tenant has furnished in writing to Landlord prior to such emergency. Entry by Landlord upon the Leased Premises for such purpose shall not waive or release Tenant from any obligation or an Event of Default hereunder. Tenant shall reimburse Landlord for all reasonable sums so paid by Landlord and all reasonable Costs and Expenses incurred by Landlord in connection with Landlord's payment or performance under this Section with interest at the Default Rate from the date of such payment by Landlord, and no such payment or performance by Landlord pursuant hereto, shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due or payable, nor limit any right of Landlord or relieve Tenant from any Default hereunder.

23. ASSIGNMENTS AND SUBLEASES.

a. Tenant shall not do any of the following (collectively referred to herein as a "TRANSFER"). whether voluntarily, involuntarily or by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed:

i. sublet all or any part of the Leased Premises or allow it to be sublet, occupied or used by any person or entity other than Tenant; or

ii. assign its interest in this Lease

In no event shall Tenant mortgage or encumber the Lease (or otherwise use the Lease as a security device) in any manner. Tenant shall reimburse Landlord for all reasonable costs

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and attorneys' and consultants' fees incurred by Landlord in connection with the evaluation, processing and/or documentation of any requested Transfer whether or not Landlord's consent is granted. Any Transfer so approved by Landlord shall not be effective until Tenant has delivered to Landlord an executed counterpart of the document evidencing the Transfer which: (x) is in a form reasonably approved by Landlord; (y) contains the same terms and conditions as stated in Tenant's notice given to Landlord pursuant to Section 23
(b); and (z) in the case of an assignment of the Lease, contains the agreement of the proposed transferee to assume all obligations of Tenant under this Lease arising after the effective date of such Transfer and to remain jointly and severally liable therefor with Tenant. Any Transfer without Landlord's consent, where such consent is required, shall, at Landlord's election in its sole and absolute discretion, constitute a Default by Tenant and shall be voidable at Landlord's option. Landlord's consent to any one Transfer shall not constitute a waiver of the provisions of this
Section 23(a) as to any subsequent Transfer or a consent to any subsequent Transfer. No Transfer, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay the Rent and Additional Charges and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease nor to be a consent to any Transfer.

Subject to the following, any Transfer shall be upon then fair market value. Tenant shall provide Landlord with a certified appraisal performed by a Qualified Appraiser (as defined hereinafter) justifying the proposed rent and terms of the proposed Transfer ("TRANSFER APPRAISAL"). Tenant hereby agrees that it shall not be unreasonable for the Landlord to withhold its consent to a proposed Transfer if it is not on such terms and conditions at least as beneficial to the Landlord as set forth in the Transfer Appraisal; provided, however, that if Tenant is unable to consummate a sublease or assignment after two hundred seventy (270) days of marketing the property or negotiating the sublease at fair market value as determined by the Transfer Appraisal, Tenant enter into a Transfer upon such terms as reasonably become available from potential subtenants and/or assignees.

b. At least thirty (30) days before a proposed Transfer is to become effective, Tenant shall give Landlord written notice of the proposed terms of such Transfer and request Landlord's approval, which notice shall include the following:

i. the name and legal composition of the proposed transferee;

ii. a current financial statement of the transferee, financial statements of the transferee covering the preceding three (3) years if the same exist, and (if available) an audited financial statement of the transferee for a period ending not more than one year prior to the proposed effective date of the Transfer, all of which statements are prepared in accordance with generally accepted accounting principles;

iii. the nature of the proposed transferee's business to be carried out in the Leased Premises;

iv. all consideration to be given on account of the Transfer;

v. the proposed use of the proposed transferee;

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vi. the nature of any proposed tenant improvements or Alterations;

vii. a copy of the Transfer Appraisal; and

viii. a current financial statement of Tenant (except that such financial statement shall not be required if Tenant is current in all filings required by the Securities and Exchange Commission).

c. If Landlord consents to a Transfer proposed by Tenant, Tenant may enter into such Transfer, and if Tenant does so, the following shall apply:

i. Tenant shall not be released of its liability for the performance of all of its obligations under this Lease.

ii. If Tenant assigns its interest in this Lease, then Tenant shall pay to Landlord two-thirds (2/3) of all Transfer Consideration (as defined hereinafter) received by Tenant over and above the assignee's agreement to assume the obligations of Tenant under this Lease.

iii. If Tenant sublets any part of the Leased Premises, then with respect to the space so subleased, Tenant shall pay to Landlord two-thirds (2/3) of the positive difference, if any, between all Transfer Consideration paid by the subtenant to Tenant, less Base Rent, allocable to the space sublet. Landlord shall reasonably determine the Base Rent fairly allocable to the portion so subleased. Such amount shall be paid to Landlord on the same basis and at the same time, whether periodic or in lump sum, that such Transfer Consideration is paid to Tenant by its subtenant.

iv. Tenant's obligations under this .Section 23(c) shall survive any Transfer, and Tenant's failure to perform its obligations hereunder shall be an Event of Tenant's Default. Landlord shall have the right at reasonable intervals to inspect Tenant's books and records relating to the payments due hereunder. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based. Landlord may condition its approval of any Transfer upon obtaining a certification from both Tenant and the proposed transferee of all Transfer Consideration and other amounts that are to be paid to Tenant in connection with such Transfer.

v. As used in this Section 23(c), the term "TRANSFER CONSIDERATION" shall mean the positive difference, if any of: (i) any consideration of any kind received, or to be received, by Tenant as a result of the Transfer, if such, sums are related to Tenant's interest in this Lease or in the Leased Premises; minus (ii) all Costs and Expenses reasonably related to the Transfer, including, without limitation, brokerage fees and commissions, legal fees, and Costs and Expenses of Alterations and tenant improvements related to the Transfer. The Costs and Expenses set forth in
Section 23(c)(v)(ii) shall not exceed two (2) months base rent under the applicable sublease or assignment.

vi. Tenant shall conditionally assign and transfer to Landlord its interests in the sublease and all rentals and income arising therefrom. Unless and until Tenant Defaults in performing any of its obligations under this Lease, Tenant may

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receive, collect, and enjoy the rents accruing under the sublease. The condition to the assignment shall be that if Tenant Defaults in any performing any of its obligations under this Lease, Landlord may, at its option (which may be exercised in Landlord's sole and absolute discretion) by notice to Tenant and the sublessee, do either of the following:

1. in pursuit of Landlord's remedies hereunder, terminate the sublease in conjunction with a termination of this Lease; or

2. elect to receive and collect, directly from the sublessee, all rent and any other sums owing and to be owed under the sublease, as further set forth in
Section 23(c)(vii) below.

If the Landlord elects to receive and collect rent and other sums owing under the sublease, such shall not limit the Tenant's right to receive any Transfer Consideration it is entitled to pursuant to Section 23(c)(ii) or (iii), as applicable; provided, however, the Landlord may receive and collect such Transfer Consideration on behalf of Tenant and apply such to remedy any Default of Tenant and/or apply such to the Security Deposit.

vii. Landlord will not, as a result of the sublease, or as a result of the collection of rents or any other sums from the sublessee under Section 23(c)(vi) above, be liable to the sublessee for any failure of Tenant, as sublessor, to perform any obligation of Tenant, as sublessor, under the sublease. Amongst such other provisions as the Landlord shall reasonably require, the sublease document and/or the consent to sublease document shall contain the following provisions:

1. Tenant shall irrevocably authorize and direct the sublessee, on receipt of any written notices from Landlord stating that a Default exists in the performance of any of Tenant's obligations under this Lease, to pay to Landlord the rents and any other sums due and to become due under the sublease.

2. Tenant shall agree that the sublessee has the right to rely on any such statement from Landlord, and that the sublessee will pay those rents and other sums to Landlord without any obligation or right to inquire as to whether a default exists and despite any notice or claim from Tenant to the contrary.

3. Tenant will not have any right or claim against the sublessee for those rents or other sums paid by the sublessee to Landlord. Landlord will credit Tenant with any rent actually received by Landlord under this assignment, but the acceptance of any payment on account of rent from the sublessee as the result of a default by Tenant will not:

a. be an attornment by Landlord to the sublessee or by the sublessee to Landlord;

b. be a waiver by Landlord of any provision of the Lease; or

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c. release the Tenant from any liability under the terms, agreements or conditions of the Lease;

No payment of rent by the sublessee directly to Landlord, regardless of the circumstance or reasons for that payment, will be deemed an attornment to Landlord by the sublessee in the absence of a specific written agreement signed by Landlord to that effect.

4. In the event the Lease is terminated prior to the expiration of the term of the sublease, Landlord shall have the right, at Landlord's option (which may be exercised in Landlord's sole and absolute discretion), pursuant to notice to the sublessee, to succeed to Tenant's interest as sublessor in the sublease and cause the sublessee to attorn to Landlord on the terms and conditions of the sublease. Within ten
(10) days of Landlord's request, the sublessee shall execute and deliver to Landlord an attornment agreement in such form and with such content as Landlord may reasonably require. If Landlord exercises its option, Landlord will so assume the obligations of Tenant, as sublessor, under the sublease from the time of the exercise of the option, but Landlord will not be:

a. liable for any rent paid by the sublessee to Tenant more than one month in advance, or for any security deposit paid by the sublessee to Tenant (unless actually received by Landlord);

b. liable for any act or omission of the Tenant under the Lease or for any default of Tenant, as sublessor, under the sublease which occurred prior to Landlord's assumption;

c. subject to any defenses or offsets that the sublessee may have against Tenant, as sublessor, which arose prior to Landlord's assumption; or

d. bound by any changes or modifications made to the sublease without the prior written consent of Landlord.

If Landlord does not elect to assume Tenant's interest as sublessor in the sublease, the sublease shall terminate concurrently with the termination of this Lease.

5. The sublease shall not be subject to amendment or modification without the prior written consent of Landlord, which consent shall not be unreasonably withheld.

6. The sublessee shall not be permitted to terminate the sublease without first providing written notice to the Landlord and providing Landlord with a reasonable period of time (of not less than thirty (30) days) to cure Tenant's default, as sublessor, under the Sublease. Such notice shall specify the nature of the default giving rise to the sublessee's right to terminate the Lease. Under no circumstances shall the Landlord be required to cure such default and may do so in its sole and absolute discretion.

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d. The sale of all or substantially all of Tenant's assets (other than bulk sales in the ordinary course of business), any dissolution of Tenant, or, the transfer, assignment and/or hypothecation of any stock in Tenant, in the aggregate in excess of twenty-five percent (25%) during the Lease Term; excepting therefrom transfers in the aggregate in excess of twenty-five percent (25%) during the Lease Term, but not more than fifty percent (50%) during the Lease Term, where no change in the controlling interests of Tenant occurs as a result thereof, shall be deemed an assignment within the meaning and provisions of this Section 23.

e. Notwithstanding anything contained herein to the contrary, Tenant may, without Landlord's consent or participation, transfer this Lease or sublease all or a portion of the Leased Premises to:

i. any corporation or other legal entity which directly or indirectly controls or is controlled by or is under common control with Tenant ("AFFILIATE");

ii. any corporation or other legal entity not less than fifty percent (50%) of whose outstanding stock or beneficial interest shall, at the time, be owned directly or indirectly by Tenant ("SUBSIDIARY"); or

iii. a corporation or other legal entity in which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation, if any, provided that by operation of law or by effective provisions contained in the instruments of merger or consolidation, the liabilities of the entities participating in such merger or consolidation are assumed by the corporation or other legal entity surviving such merger or created by such consolidation ("SUCCESSOR").

For purposes of this Section 23(e), "CONTROL" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation or other legal entity, whether through the ownership of voting securities or by contract or otherwise. If Tenant assigns its interest in this. Lease or subleases all or a portion the Leased Premises to an Affiliate, Subsidiary or Successor, Tenant shall, within ten (10) days after the effective date of such Transfer, provide Landlord with an assignment and assumption agreement or sublease, as applicable, in substance and form reasonably acceptable to Landlord.

f. Notwithstanding anything contained in this Section 23 to the contrary, in the event that Tenant requests Landlord's consent to a Transfer, Landlord shall have the following rights:

i. The right to terminate this Lease; or

ii. In the case of a sublease of less than fifty percent (50%) of the Leased Premises, terminate this Lease as to that part of the Leased Premises requested to be sublet; or

iii. In the case of a sublease of greater than fifty percent (50%) of the Leased Premises, terminate this Lease in full or as to that part of the Leased Premises requested to be so sublet, as Landlord shall determine in its sole and absolute discretion, either;

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1. On the condition that the proposed transferee immediately enter into a direct lease of the Leased Premises with Landlord (or, in the case of a partial sublease, a lease for the portion requested to be so sublet) on the same terms and conditions contained in the requested sublease or such other terms and conditions as Landlord may reasonably designate; or

2. So that Landlord is thereafter free to lease the Leased Premises (or, in the case of a partial sublease, the portion requested to be so sublet) to whomever (including, without limitation, the proposed transferee) it pleases on whatever terms are acceptable to Landlord in its sole and absolute discretion.

iv. In the event Landlord elects to so terminate this Lease as set forth above, then:

1. If such termination is conditioned upon the execution of a lease between Landlord and the proposed transferee, Tenant's obligations under this Lease shall not be terminated until such transferee executes a new lease with Landlord, enters into possession and commences the payment of rent; and

2. If Landlord elects simply to terminate this Lease (or, in the case of a partial sublease, terminate this Lease as to the portion requested to be so sublet), the Lease shall so terminate in its entirety (or as to the space requested to be so sublet) fifteen (15) days after Landlord has notified Tenant in writing of such election.

3. Upon such termination, Tenant shall be released from any further obligation under this Lease if it is terminated in its entirety (or shall be released from any further obligation under the Lease with respect to the space requested to be so sublet in the case of requested partial sublease), except that the foregoing release shall not apply to, and Tenant shall not be released from:

a. Any obligations under this Lease accruing prior to such termination;

b. Any obligations under
Section 31 below relating to the surrender of the Leased Premises or such space requested to be so sublet, as applicable; and

c. Any obligations which, by their terms, are to survive the expiration or sooner termination of this Lease.

4. In the case of a partial termination of the Lease, Landlord shall equitably adjust, as Landlord shall reasonably determine, the Base Rent and allocate costs and expenses related to common area maintenance and Impositions to the Tenant based upon the value of the Leased Premises not so terminated.

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5. Upon Landlord's request, Tenant shall execute a separate termination agreement evidencing any termination of this Lease and/or amendment to this Lease evidencing the matters set forth herein.

24. EVENTS OF DEFAULT; TERMINATION.

a. Events of Default. Any one or more of the following specified events shall be a "DEFAULT":

i. if Tenant shall fail to pay any Base Rent when the same becomes due and payable, and if such failure continues for more than five (5) days after written notice of non-payment of Rent has been given by Landlord to Tenant. If so stated in the notice of default, the notice of default shall also constitute a demand for possession under the forcible entry and detainer statutes; or

ii. if Tenant shall fail to pay, when the same becomes due and payable, any Additional Charges or other Rent and such failure shall continue for more than five (5) days after written notice of such non-payment has been given by Landlord to Tenant; or

iii. if Tenant shall fail to perform or comply with any other obligation of Tenant under this Lease, and such failure shall continue for more than thirty
(30) days after notice thereof has been given by Landlord to Tenant, and Tenant shall not, subject to Unavoidable Delays, within such thirty (30) day period commence with due diligence the curing of such default, or, having so commenced, shall thereafter fail or neglect, for reasons other than Unavoidable Delays, to diligently pursue or complete the curing of such default, such extended period not to exceed one hundred eighty (180) days after notice thereof from Landlord; or

iv. if Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation due to its bankrupt or insolvent financial status;

v. if, as a result of any proceeding against Tenant, a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Tenant or of or relating to all or substantially all of its property, or for the winding-up or liquidation of its affairs or for the supervision of the business or affairs of Tenant, shall have been entered, and such decree or order shall have remained in force undischarged or unstayed for a period of more than sixty (60) days;

vi. Tenant shall have sublet the Leased Premises or assigned its interest in this Lease in violation of the provisions contained in Section 23;

vii. Tenant shall have abandoned the Leased Premises or left the Leased Premises substantially vacant;

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viii. Tenant shall have failed to deliver documents required of it pursuant to Sections 25(a) or (b) within the time periods specified therein;

ix. Tenant shall have defaulted beyond applicable cure periods under any loan, security agreement, security instrument, promissory note, or other obligation whatsoever under which Tenant is required to perform in any manner whatsoever; or

x. Chronic delinquency by Tenant in the payment of any Rent. For purposes of this Lease, "CHRONIC DELINQUENCY" shall mean failure by Tenant to pay within five (5) days of the due date any Rent for any two (2) months (consecutive or non-consecutive) during any Lease Year. This section shall in no way limit, nor be construed as a waiver of the rights and remedies of Landlord provided hereunder or by law in the event of even one (1) instance of delinquency in the payment of Rent by Tenant. In the event of chronic delinquency, at Landlord's option, Landlord shall have the right, in addition to all other rights under this Lease and at law, to require that Tenant pay all Rent on a quarterly basis, in advance, and make all Rent payments via electronic transfer of funds.

b. Remedies.

i. In the event of any default and breach by Tenant of any of its obligations under this Lease and notwithstanding the vacation or abandonment of the Leased Premises by Tenant, this Lease shall continue in effect so long as Landlord does not expressly terminate Tenant's right to possession in any of the manners specified in this paragraph and Landlord may, at Landlord's option and without limiting Landlord in the exercise of any other rights or remedies which it may have by reason of such default and breach, exercise all of its rights and remedies hereunder, including, without limitation:

1. The right to declare the Lease Term ended and to reenter the Leased Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim in or to the Leased Premises or under this Lease; or

2. The right without declaring this Lease ended to reenter the Leased Premises, take possession thereof, remove all persons therefrom and occupy or lease the whole or any part thereof for and on account of Tenant and upon such terms and conditions and for such rent as Landlord may deem proper and to collect such rent or any other rent that may hereafter become payable and apply the same as provided in Section
24(b)(ii); or

3. The right, even though Landlord may have relet the Leased Premises or brought an action to collect Rent and other charges without terminating this Lease, to thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Leased Premises; or

4. The right, without terminating this Lease, to bring an action or actions to collect Rent and other charges hereunder which are from time to time past due and unpaid or to enforce any other provisions of this Lease

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imposing obligations on Tenant, it being understood that the bringing of any such action or actions shall not terminate this Lease unless written notice of termination is given.

ii. Should Landlord relet the Leased Premises under the provisions of Section 24(b)(i)(2), Landlord may execute any lease either in its own name or in the name of Tenant, but Tenant hereunder shall have no right or authority whatever to collect any rent from the new tenant. The proceeds of any such reletting shall first be applied to the payment of the costs and expenses of reletting the Leased Premises, including without limitation, reasonable brokerage commissions and alterations and repairs which Landlord, in its sole and absolute discretion, deems necessary and advisable and to the payment of reasonable attorneys' fees and costs incurred by Landlord in connection with Tenant's default, the retaking of the Leased Premises and such reletting and, second, to the payment of any indebtedness, other than Rent, due hereunder, including, without limitation, storage charges owing from Tenant to Landlord. When such costs and expenses of reletting have been paid, and if there is no such indebtedness or such indebtedness has been paid, Tenant shall be entitled to a credit for the net amount of rental received from such reletting each month during the unexpired balance of the Lease Term, and Tenant shall pay Landlord monthly on the first day of each month as specified herein such sums as may be required to make up the rentals provided for in this Lease. Nothing contained herein shall be construed as obligating Landlord to relet the whole or any part of the Leased Premises.

iii. Should Landlord elect to terminate this Lease under the provisions of Section 24(b)(i)(1) or (3) above, Landlord shall be entitled to recover immediately from Tenant (in addition to any other amounts recoverable by Landlord as provided by law), the following amounts:

1. The worth at the time of award of the unpaid rent which had been earned at the time of termination;

2. The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;

3. The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and

4. Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom.

For purposes of computing "the worth at the time of the award" of the amount specified in Section 24(b)(iii)(3) above, such amount shall be discounted at the discount rate of the Federal Reserve Bank of San Francisco at the time of award. For purposes of computing "the worth at the time of the award" under

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Section 24(b)(iii)(l) or (2) above, an interest rate of ten percent (10%) per annum shall be utilized.

iv. If Landlord shall elect to reenter the Leased Premises as provided above, Landlord shall not be liable for damages by reason of any reentry. Tenant hereby waives all claims and demands against Landlord for damages or loss arising out of or in connection with any reentering and taking possession of the Leased Premises and waives all claims for damages or loss arising out of or in connection with any destruction of or damage to the Leased Premises, or for any loss of property belonging to Tenant or to any other person, firm or corporation which may be in or upon the Leased Premises at the time of such reentry.

v. Landlord shall not be deemed to have terminated this Lease, Tenant's right to possession of the Leased Premises or the liability of Tenant to pay Rent thereafter to accrue or its liability for damages under any of the provisions hereof by any reentry hereunder or by any action in unlawful detainer or otherwise to obtain possession of the Leased Premises, unless Landlord shall notify Tenant in writing that Landlord has so elected to terminate this Lease. Tenant agrees that the service by Landlord of any notice pursuant to the unlawful detainer statutes or comparable statutes of the state or locality in which the Leased Premises are located and the surrender of possession pursuant to such notice shall not (unless Landlord elects to the contrary at the time of or at any time subsequent to the service of such notice and such election shall be evidenced by a written notice to Tenant) be deemed to be a termination of this Lease or of Tenant's obligations hereunder. No reentry or reletting under this paragraph shall be deemed to constitute a surrender or termination of this Lease, or of any of the rights, options, elections, powers and remedies reserved by Landlord hereunder, or a release of Tenant from any of its obligations hereunder, unless Landlord shall specifically notify Tenant, in writing, to that effect. No such reletting shall preclude Landlord from thereafter at any time terminating this Lease as herein provided.

vi. All fixtures, furnishings, goods, equipment, chattels or other personal property of Tenant remaining on the Leased Premises at the time that Landlord takes possession thereof may at Landlord's election be stored at Tenant's expense or sold or otherwise disposed of by Landlord in any manner permitted by applicable law.

vii. In the event of the exercise by Landlord of any one or more of its rights and remedies hereunder, Tenant hereby expressly waives any and all rights of redemption, if any, granted by or under any present or future laws.

c. Cumulative Remedies. Each right, option, power, election and remedy of Landlord provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall be, cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the rights, powers or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not prejudice, preclude or impair the simultaneous or later exercise by Landlord of any or all such other rights, options, powers, elections or remedies Landlord may have upon a

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breach and default under this Lease and shall not be deemed to be a waiver of Landlord's rights or remedies thereupon or to be a release of Tenant from Tenant's obligations thereon unless such waiver or release is expressed in writing and signed by Landlord.

d. Recovery of Costs and Expenses. If any action, whether at law or equity, is instituted by either party for default by the other under this Lease, the prevailing party shall be awarded all Costs and Expenses incident thereto.

e. Limitation of Landlord Liability. Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease shall be barred unless Tenant commences an action thereon within twelve (12) months after the date that Tenant discovers or, in the exercise of reasonable diligence, should have discovered, the act, omission, event or default upon which the claim, demand or right in question arises, has occurred. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged breach or default hereunder by Landlord:

i. the sole and exclusive remedy and source of recovery for any judgment or award shall be against Landlord's interest in the Leased Premises;

ii. no limited partner, member, shareholder or other owner of Landlord (excepting general partners) (collectively, "LANDLORD OWNER") shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership);

iii. no service of process shall be made against any Landlord Owner (except as may be necessary to secure jurisdiction of Landlord);

iv. no Landlord Owner shall be required to answer or otherwise plead to any service of process;

v. no judgment will be taken against any Landlord Owner;

vi. any judgment taken against any Landlord Owner may be vacated and set aside at any time without hearing;

vii. no writ of execution will ever be levied against the assets of any Landlord Owner;

viii. in no event shall Landlord be liable to Tenant for punitive, special, indirect or consequential damages; and

ix. these covenants and agreements are enforceable both by Landlord and also by any Landlord Owner.

Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law.

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25. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

a. Estoppel Certificate by Tenant. Tenant, any sublessee or assignee or all of any portion of Tenant's interest under this Lease, will execute, acknowledge and deliver to Landlord, within fifteen (15) days of Landlord's written request, a certificate certifying:

i. this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect, as modified, and stating the modifications);

ii. the dates, if any, to which Rent, Additional Charges and other sums payable hereunder have been paid;

iii. no notice has been received by Tenant of any Default which has not been cured, except as otherwise specified in such certificate, or, if there is an uncured Default, specifying the nature of such;

iv. Landlord is not in default hereunder and no event which, with the passing of time, giving of notice, or both, would constitute a default by Landlord hereunder; and

v. certifying such other information about the status of the Lease and the Leased Premises as may be required by Landlord.

A failure to deliver an estoppel certificate within fifteen
(15) days after delivery of a request therefor shall be a conclusive admission that, as of the date of the request for such statement: (w) this Lease is unmodified except as may be represented by Landlord in said request and is in full force and effect, (x) there are no uncured defaults in Landlord's performance, (y) no rent has been paid more than thirty (30) days in advance; and (z) the information regarding the status of the Lease, as represented by Landlord in said request, is true and correct. Any such certificate may be relied upon by any permitted prospective transferee, deed of trust beneficiary or mortgagee of Landlord's interest under this Lease.

b. Tenant's Financial Statements. At any time during the Lease Term, Tenant shall, upon ten (10) days' prior written notice from Landlord, provide Tenant's most recent financial statement and financial statements covering the twenty-four
(24) month period prior to the date of such most recent financial statement to any lender of Landlord, any potential lender of Landlord or potential buyer of the Leased Premises. Such statements shall be prepared in accordance with generally accepted accounting principles and shall be certified by Tenant's chief financial officer as true and correct in all material respects or, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Notwithstanding the foregoing, Tenant shall not be obligated to provide Landlord with financial information as set forth in this Section 25(b) for so long as Tenant is required to, and does, file such information with the Securities and Exchange Commission.

c. Estoppel Certificate by Landlord. Landlord will execute, acknowledge and deliver to Tenant, within fifteen (15) days of Tenant's written request, a certificate certifying:

i. that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the modifications);

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ii. the dates, if any, to which Rent, Additional Charges and other sums payable hereunder have been paid; and

iii. whether or not, to the knowledge of Landlord, there then exists any Default under this Lease (and if so, specifying the same).

A failure to deliver an estoppel certificate within fifteen
(15) days after delivery of a request therefor shall be a conclusive admission that, as of the date of the request for such statement: (w) this Lease is unmodified except as may be represented by Landlord in said request and is in full force and effect, (x) there are no uncured defaults in Tenant's performance, (y) no rent has been paid more than thirty (30) days in advance; and (z) the information regarding the status of the Lease, as represented by Tenant in said request, is true and correct. Any such certificate may be relied upon by any permitted prospective assignee, sublessee or other transferee of all or part of Tenant's interest under this Lease.

26. SUBORDINATION AND ATTORNMENT. This Lease, at Landlord's option, shall be subordinate to any mortgage or deed of trust which may be placed against the Leased Premises and to any and all advances made or to be made pursuant to any such mortgage or deed of trust, and to all renewals, replacements and extensions of any such mortgage or deed of trust; provided that each such subordination shall be on the condition that the mortgagee or deed of trust beneficiary and trustee shall execute and deliver to Tenant an agreement ("SNDA") to the effect that, so long as a Default caused by Tenant is not occurring hereunder, such mortgagee, beneficiary or trustee will recognize this Lease and not disturb or otherwise interfere with Tenant's leasehold and other rights under this Lease. The form and substance of such document shall be in form and content as may reasonably be required by Landlord's lender or potential lender, as the case may be. Tenant shall execute and deliver the SNDA within fifteen (15) days after written request by Landlord.

27. OPTIONS TO EXTEND. Subject to the provisions of Section 24(a)(ix) above and provided that no Default shall have occurred and be continuing at the time this Option is exercised, Landlord hereby grants to Tenant three (3) successive options (collectively, the "OPTIONS", and each an "OPTION") to extend the Lease Term of this Lease for three (3) successive periods of five (5) consecutive Lease Years each. Tenant may exercise each Option only by giving Landlord written notice thereof not less than twelve (12) months, no more than eighteen (18) months prior to the expiration of the then running initial or extended Lease Term, as the case may be. The covenants, terms and conditions between Landlord and Tenant during each such extended term shall be the same as contained in this Lease for the initial Lease Term, except that Tenant shall have no further right to extend the Lease Term, and the Base Rent payable during each such extended term for which Tenant exercises this Option shall be adjusted for the first Lease Year of the applicable Option to equal the greater of:

a. one hundred and two percent (102%) of the Base Rent due for the preceding Lease Year; and

b. Fair Market Rental of the Leased Premises as of the beginning of the extended term ("OPTION DATE") as hereinafter set forth:
'

i. Between the three hundred sixty-fifth (365th) and one hundred eightieth (180th) day prior to the Option Date, Landlord and Tenant shall attempt to agree by a written and signed addendum to this Lease on the Fair Market Rental to be payable during such extended term. If Landlord and Tenant are unable to agree

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on such Fair Market Rental or fail to execute the addendum by the one hundred eightieth (180th) day preceding the Option Date, then, within thirty
(30) days thereafter Landlord and Tenant shall each select a Qualified Appraiser and use the appraisal mechanism set forth in Section 28 to determine the Fair Market Rental.

ii. If for any reason the Fair Market Rental has not been determined as of the Option Date, Tenant shall continue to pay Base Rent to Landlord in an amount of Landlord's lowest proposal during the negotiations set forth in Section 27(b)(i) above, and, when the Fair Market Rental for the extended term is determined, Tenant within thirty (30) days following Landlord's notice thereof, shall pay to Landlord the amount of any increase for each month during which Tenant paid a lower monthly installment of Base Rent, or, if Tenant has over paid Base Rent, Tenant shall receive a credit for such amounts against Base Rent next coming due.

c. Further, the Base Rent for each Lease Year during an Option after the first Lease Year during said Option shall be increased by two percent (2%) over the preceding Lease Year.

d. The exercise of all preceding Option(s) is a condition precedent to the exercise of any subsequent Option(s).

e. Any references in this Lease to the Lease Term shall mean the initial Lease Term as extended pursuant to this Section.

28. APPRAISAL. Any appraisal of the Fair Market Rental of the Leased Premises required or permitted hereunder shall be made by either Landlord or Tenant selecting and notifying the other party hereto of the name and address of an appraiser who is duly licensed in the state where the Leased Premises are located, who is a member of the American Institute of Real Estate Appraisers ("M.A.I") and who is knowledgeable concerning the sale and rental values of properties similar to and located in the same State and County as the Leased Premises (a "QUALIFIED APPRAISER"). Within fifteen (15) days after being notified of the name and address of a Qualified Appraiser, such other party hereto shall select and notify Landlord or Tenant (as the case may be) of the name and address of a second Qualified Appraiser. Within ten (10) days after the expiration of the aforesaid fifteen (15) day period, the two Qualified Appraisers shall select and notify Landlord and Tenant of the name and address of a third Qualified Appraiser ("THIRD APPRAISER"). The first two Qualified Appraisers selected by Landlord and Tenant each shall make an independent and separate appraisal ("APPRAISAL") of the Fair Market Rental of the Leased Premises, and shall furnish copies of each such Appraisal to each other, to the Third Appraiser, and to Landlord and Tenant within thirty (30) days after the expiration of the aforesaid fifteen (15) day period. Within fifteen (15) days after the expiration of the aforesaid thirty (30) day period, the Third Appraiser will notify Landlord and Tenant of which Appraisal the Third Appraiser has selected as the closer to the Fair Market Rental of the Leased Premises. For the purposes hereof, the term "FAIR MARKET RENTAL" means the rental during the applicable term that a willing tenant would pay a willing landlord, neither of whom is compelled to rent. In no event shall the Fair Market Rental during the extended term under Section 27 be less than one hundred two percent (102%) of the Base Rent payable by Tenant for the Lease Year immediately prior to the Option Date for such extended term. If either Landlord or Tenant fails to appoint its Qualified Appraiser and send notice thereof to the other party as required herein, the one appointed Qualified

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Appraiser promptly shall appoint a second Qualified Appraiser and the Third Appraiser shall be selected as set forth hereinabove. If Landlord and Tenant each shall appoint a Qualified Appraiser, but such two Qualified Appraisers are unable to agree within the required time upon the selection of a Third Appraiser, the Third Appraiser shall be selected by the mutual agreement of the Landlord and Tenant, if the Landlord and Tenant are unable to so agree within ten (10) days, the Third Appraiser shall be selected by the then presiding civil judge of the Superior Court of Arizona in and for Maricopa County. The determination of the Fair Market Rental in accordance with the foregoing procedures shall be final and binding upon Landlord and Tenant and enforceable by any court of competent jurisdiction. All appraisal fees and expenses of the Qualified Appraiser selected by Landlord shall be paid by Landlord, of the Qualified Appraiser selected by Tenant shall be paid by Tenant, and of the Third Appraiser shall be paid equally by Landlord and Tenant.

Notwithstanding the foregoing, if the Fair Market Rental as determined by the Third Appraiser pursuant to the foregoing procedures is greater than the lowest proposal of Landlord during the negotiation period, the Tenant shall pay one hundred percent (100%) of the fees and expenses of both Qualified Appraisers and the Third Appraiser. However, if the Fair Market Rental as determined by the Third Appraiser pursuant to the foregoing procedures is lower than the highest proposal of Tenant during the negotiation period, the Landlord shall pay one hundred percent (100%) of the fees and expenses of both Qualified Appraisers and the Third Appraiser. If the Fair Market Rental as determined by the Third Appraiser pursuant to the foregoing procedures is between Landlord's lowest proposal during the negotiation period and Tenant's highest proposal during the negotiation period, each of the parties shall bear the fees and expenses of their respectively appointed Qualified Appraiser and shall split the fees and expenses of the Third Appraiser.

29. RIGHT OF ENTRY. Provided that Landlord has given Tenant at least twenty-four (24) hours prior notice (except in the event of an emergency in which case no advance notice is required), and subject to reasonable security precautions of Tenant, Landlord may, at all reasonable times and during usual business hours, enter upon the Leased Premises for the purpose of inspecting, repairing or preserving the same, or to show the Leased Premises to prospective purchasers, and in addition may, at any time within the last eighteen (18) months of the then running Lease Term show the Leased Premises to prospective tenants. Any entry into the Leased Premises obtained by Landlord in accordance with this Section 29 shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction, actual or constructive, of Tenant from the Leased Premises. Tenant hereby waives any claims for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Leased Premises, and any other loss occasioned thereby.

30. NOTICES. All notices and other communications to be given hereunder by Landlord or Tenant shall be in writing and shall be deemed to have been given upon (i) personal delivery when personally delivered; (ii) upon the earlier of receipt or the third Business Day following the date of deposit in the mail (at the addresses specified below, whether or not received by the person to whose attention notice is directed at such address) after having been mailed by first class registered or certified mail, return receipt requested, postage prepaid; (iii) the next business day when sent via nationally, recognized overnight courier; or (iv) upon receipt of confirmation of successful transmission when sent by facsimile transmittal (with a copy sent via First Class mail) as follows:

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Landlord:                              Tenant:
Phoenix Industrial Investment
Partners, L.P.                         SpeedFam-IPEC, Inc.
19800 Glen Una Drive                   305 North 54th St.
Saratoga, California 95070             Chandler, AZ 85226
Attn: Kenneth Levy                     Attn: J. Michael Dodson
Facsimile: 408-875-4714                Facsimile: (480) 785-4116

With a copy to:                        With a copy to:

Frank H. Maiorana, Esquire             Robert C. Bates, Esq.
Silicon Valley Law Group               Snell & Wilmer, L.L.P.
152 North Third Street, Suite 900      One Arizona Center
San Jose, California 95112             Phoenix, Arizona 85004-0001
Facsimile: (408) 286-1430              Facsimile: (602)382-6070

The parties hereto may change the address for delivery by providing ten (10) days written notice to the other parties in the manner set forth herein. The copies of notices sent to Frank H. Maiorana and Robert C. Bates are informational and are not required in order for the notices given to Landlord and Tenant to be effective.

31. SURRENDER. Upon the expiration of the Lease Term, or upon the earlier termination of this Lease, Tenant shall vacate and surrender the Leased Premises to Landlord in first class condition and repair and in full compliance with the maintenance, repair and replacement provisions of this Lease. In any event, Tenant shall cause the following to be done prior to the expiration or the sooner termination of this Lease:

a. all interior walls shall be painted or cleaned so that they appear freshly painted;

b. all non-carpeted floor coverings shall be cleaned and waxed to the extent they are in first class condition;

c. to the extent non-carpeted floor coverings are not in first class condition, said floor coverings shall be repaired or replaced, as necessary;

d. all carpets not in first class condition shall be cleaned and shampooed to the extent necessary to place them in first class condition as reasonably determined by Landlord;

e. to the extent cleaning and shampooing does not place the carpets in first class condition as reasonably determined by Landlord, such carpets shall be replaced, to the extent necessary, with neutral carpets of equal or better quality;

f. all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced; and

g. all windows shall be washed.

If Landlord so requests, Tenant shall, prior to the expiration or sooner termination of this Lease, remove any Alterations which Tenant is required to remove pursuant to Section 11 and repair all damage caused by such removal.

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If the Leased Premises are not so surrendered upon the expiration or sooner termination of this Lease, Tenant shall be liable to Landlord for all costs incurred by Landlord in conforming the Leased Premises to the required condition, plus interest on all such costs at the Default Rate. Tenant shall indemnify Landlord against loss or liability to the extent resulting from delay by Tenant in so surrendering the Leased Premises, including, without limitation, any claims made by any succeeding tenant to the extent related to such delay.

32. NO BROKER. Landlord and Tenant each represents to the other that there are no broker's commissions in connection with this Lease and each party shall indemnify, defend, protect and hold the other harmless from and against any and all Costs and Expenses related to a claim of commission owing by and through the applicable party.

33. WAIVER. Any waiver by Landlord of any Default, breach or failure by Tenant shall not constitute a waiver of any other Default, breach or failure by Tenant hereunder. The subsequent acceptance of Base Rent, Rent or Additional Charges hereunder by Landlord shall not be deemed to be a waiver of any preceding Default or breach by Tenant of this Lease, other than a failure of Tenant to pay the particular Base Rent, Rent or Additional Charges so accepted. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing by Landlord.

34. NO PARTNERSHIP. The relationship of the parties hereto as solely that of landlord and tenant, and under no circumstances shall the parties hereto be considered as partners, joint venturers or lender and borrower. Tenant represents, warrants and acknowledges that the transaction by which the Landlord acquired title to the Leased Premises and the subsequent lease of the Leased Premises hereunder are separate and distinct transactions and the Tenant has no rights of first refusal or options to purchase the Leased Premises.

35. PARTIAL INVALIDITY. The invalidity or unenforceability of any covenant, term or condition of this Lease shall not affect any other covenant, term or condition of this Lease.

36. RECORDING. Neither Landlord nor Tenant shall record this Lease without the prior written consent of the other, which consent may be withheld in the other party's sole and absolute discretion. Either party, however, may record a memorandum hereof and, in the event of a request to execute such memorandum by one party, the other party shall execute and deliver to the requesting party within ten (10) days after the request therefor, such memorandum to be in a form reasonably acceptable to both parties. If either party requests a memorandum of this Lease be executed and recorded, concurrently with the execution and delivery of said memorandum, Tenant shall execute and deliver to Landlord a Quitclaim Deed in such form and content as Landlord shall require. Such Quitclaim Deed shall be held by Landlord unrecorded unless and until this Lease has expired or been terminated. Tenant hereby irrevocably authorizes and directs Landlord to record said Quitclaim Deed upon the expiration or earlier termination of this Lease; provided, however, Landlord shall provide Tenant with notice of Landlord's intent to record the Quitclaim Deed at least five (5) business days prior to such recording.

37. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with respect to the existence or use of Hazardous Materials in, on or about the Leased Premises:

a. Except as otherwise permitted pursuant to Section 37(c) below, any handling, transportation, storage, treatment, disposal or use of Hazardous Materials by Tenant and Tenant's agents, employees, contractors, or invitees (collectively "AGENTS") after the

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Effective Date in or about the Leased Premises is strictly prohibited. Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord and hold harmless Landlord from and against any liabilities, losses, claims, damages, lost profits, consequential damages, interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court costs, remediation costs, investigation costs, and other expenses which result from or arise in any manner whatsoever out of the use, storage, treatment, transportation, release, or disposal of any Hazardous Materials on or about the Leased Premises caused or permitted by Tenant or Tenant's Agents.

b. If the presence of Hazardous Materials in, on or about the Leased Premises caused or permitted by Tenant or Tenant's Agents results in contamination or deterioration of water or soil resulting in a level of contamination greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination, then Tenant shall promptly take any and all action necessary to investigate and remediate such contamination if required by Law or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of me Leased Premises or any part thereof.

c. Landlord acknowledges that Tenant uses numerous chemicals classified as Hazardous Materials in the operation of its business and that Tenant shall be permitted to do so provided that Tenant does so in a manner consistent with the requirements of this Section 37(c) and provided that Tenant discloses the use of such materials to Landlord as required by
Section 37(k). In addition, Tenant may use reasonable quantities of household chemicals such as adhesives, lubricants and cleaning fluids in order to conduct its business at the Leased Premises. Tenant agrees that during its use and occupancy of the Leased Premises it will: (1) not (A) permit Hazardous Materials to be present on or about the Leased Premises except in a manner and quantity necessary for the ordinary performance of Tenant's business or (B) release, discharge or dispose of any Hazardous Materials on, in, at, under, or emanating from, the Leased Premises; (2) comply with all Hazardous Materials Laws relating to the Leased Premises and the use of Hazardous Materials on or about the Leased Premises and not engage in or permit others to engage in any activity at the Leased Premises in violation of any Hazardous Materials Laws; and (3) immediately notify Landlord of (A) any inquiry, test, investigation or enforcement proceeding by any governmental agency or authority against Tenant, Landlord or the Leased Premises relating to any Hazardous Materials or under any Hazardous Materials Laws; (B) any contamination of the Leased Premises by Hazardous Materials which constitutes a violation of any Hazardous Materials Laws; or (C) the occurrence of any event or existence of any condition that would cause a breach of any of the covenants set forth in this
Section 37.

d. Upon reasonable notice to Tenant, Landlord may inspect the Leased Premises and surrounding areas for the purpose of determining whether there exists on or about the Leased Premises any Hazardous Material or other condition or activity that is in violation of the requirements of this Lease or of any Hazardous Materials Laws. Such inspections may include, but are not limited to, entering the Leased Premises or adjacent property with drill rigs or other machinery for the purpose of obtaining laboratory samples. Landlord shall not be limited in the number of such inspections during the Lease Term. In the event (i) such inspections reveal the presence of any such Hazardous Material or other condition or activity in violation of the requirements of this Lease or of any Hazardous Materials Laws, or (ii) Tenant or its Agents contribute or knowingly consent to the presence of any Hazardous Materials in, on, under, through or about the Leased

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Premises or exacerbate the condition of or the conditions caused by any Hazardous Materials in, on, under, through or about the Leased Premises, Tenant shall reimburse Landlord for the cost of such inspections within ten (10) days of receipt of a written statement therefor. Tenant will supply to Landlord such historical and operational information regarding the Leased Premises and surrounding areas as may be reasonably requested to facilitate any such inspection and will make available for meetings appropriate personnel having knowledge of such matters. Tenant agrees to give Landlord at least sixty
(60) days prior notice of its intention to vacate the Leased Premises so that Landlord will have an opportunity to perform such an inspection prior to such vacation. The right granted to Landlord herein to perform inspections shall not create a duty on Landlord's part to inspect the Leased Premises, or liability on the part of Landlord for Tenant's use, storage, manufacture, treatment or disposal of Hazardous Materials, it being understood that Tenant shall be solely responsible for all liability in connection with the use, storage, manufacture, treatment or disposal of Hazardous Materials by Tenant or Tenant's Agents.

e. As used herein, the term "HAZARDOUS MATERIALS" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Arizona or the United States government. The term "HAZARDOUS MATERIALS" includes, without limitation, petroleum products, asbestos, PCB's, and any material or substance which is (i) listed under, or defined as hazardous or extremely hazardous pursuant to The Arizona Environmental Quality Act of 1986, A.R.S. Section 49-101, et. seq., (ii) deemed as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903) ("RCRA"), (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601) ("CERCLA") or any regulations promulgated under CERCLA; (iv) any substance now or hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C. Section 2601 et seq.) or any regulations promulgated under TSCA; (v) petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum hydrocarbons; (vi) asbestos and asbestos-containing material, in any form, whether friable or non-friable; (vii) polychlorinated biphenyls; (viii) lead and lead-containing materials; or (ix) any additional substance, material or waste. As used herein, the term "HAZARDOUS MATERIAL LAW(S)" shall mean any statute, law, ordinance, or regulation of any governmental body or agency (including the U.S. Environmental Protection Agency, the Arizona Department of Environmental Quality which regulates the use, storage, release or disposal of any Hazardous Materials.

f. If Tenant's use of Hazardous Materials on or about the Leased Premises results in a release, discharge or disposal of Hazardous Materials on, in, at, under, or emanating from, the Leased Premises, Tenant agrees to investigate, clean up, remove or remediate such Hazardous Materials in full compliance with: (i) the requirements of (A) all Hazardous Materials Laws and (B) any governmental agency or authority responsible for the enforcement of any Hazardous Materials Laws; and (ii) any additional requirements of Landlord that are reasonably necessary to protect the value of the Leased Premises.

g. Landlord shall have the right, but not the obligation, prior or subsequent to Tenant's Default, without in any way limiting Landlord's other rights and remedies under this Lease, to enter upon the Leased Premises, or to take such other actions as it deems reasonably necessary or advisable, to investigate, clean up, remove or remediate any Hazardous Materials or contamination by Hazardous Materials present on, in, at, under,

Page 37 of 42

or emanating from, the Leased Premises in violation of Tenant's obligations under this Lease or under any Hazardous Materials Laws. Notwithstanding any other provision of this Lease, Landlord shall also have the right, at its election, in its own name or as Tenant's agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action taken or order issued by any governmental agency or authority with regard to any such Hazardous Materials or contamination by Hazardous Materials. The reasonable Costs and Expenses paid or incurred by Landlord in the exercise of the rights set forth in this Section 37 shall be payable by Tenant upon demand.

h. Notwithstanding any provision contained herein to the contrary, Tenant shall surrender the Leased Premises to Landlord upon the expiration or earlier termination of this Lease free of debris, waste or Hazardous Materials placed on, about or near the Leased Premises by Tenant or Tenant's Agents, and, with respect to any contamination or other conditions resulting from the actions or inaction of Tenant or Tenant's Agents, in a condition which complies with all Hazardous Materials Laws and any additional requirements of Landlord that are reasonably necessary to protect the value of the Leased Premises, including, without limitation, the obtaining of any closure permits or other governmental permits or approvals related to Tenant's use of Hazardous Materials in or about the Leased Premises. If it is determined by Landlord that the condition of all or any portion of the Leased Premises is not in compliance with the provisions of this Lease with respect to Hazardous Materials, including, without limitation, all Hazardous Materials Laws, at the expiration or earlier termination of this Lease, then at Landlord's sole option, Landlord may require Tenant to hold over possession of the Leased Premises until Tenant can surrender the Leased Premises to Landlord in the condition in which the Leased Premises existed on the Effective Date and in any case prior to the appearance of such Hazardous Materials, including, without limitation, the conduct or performance of any closures as required by any Hazardous Materials Laws. Any such holdover by Tenant will be with Landlord's consent, will not be terminable by Tenant in any event or circumstance and will otherwise be subject to the provisions of Section 38 of this Lease.

i. Tenant agrees to indemnify and hold harmless Landlord from and against any and all claims, losses (including, without limitation, loss in value of the Leased Premises), liabilities and expenses (including attorneys' fees) sustained by Landlord attributable to (i) any Hazardous Materials placed on or about the Leased Premises by Tenant or Tenant's Agents, or (ii) Tenant's breach of any provision of this Section 37.

j. The obligations of Tenant under this Section 37 shall survive the expiration or earlier termination of the Lease Term. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Section 37. In the event of any inconsistency between any other part of this Lease and this
Section 37, the terms of this Section 37 shall control.

k. Prior to the execution of this Lease, Tenant has completed, executed and delivered to Landlord a Hazardous Materials Disclosure Certificate ("CERTIFICATE") in form and content attached hereto as Exhibit C. Tenant covenants, represents and warrants to Landlord that the information in the Certificate is true and correct and accurately describes the Hazardous Materials that will be manufactured, treated, used or stored on or about the Leased Premises by Tenant or Tenant's Agents. Tenant shall (a) on each six (6) month anniversary of the commencement date of this Lease; and (b) at such other times as Landlord reasonably requests, complete, execute and deliver to Landlord an updated Hazardous Materials Disclosure Certificate (each, an "UPDATED CERTIFICATE") describing

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Tenant's then current and known proposed future uses of Hazardous Materials on or about the Leased Premises, which Updated Certificates shall be in the same format as that which is set forth in Exhibit C or in such updated format as Landlord may reasonably require from time to time. Landlord shall have the right to approve or disapprove such new or additional Hazardous Materials in its sole and absolute discretion; provided, however, that this requirement shall not apply to Hazardous Materials manufactured, treated, used or stored by Tenant in connection with Tenant's business, which Hazardous Materials may be used in accordance with this
Section 37. Tenant shall make no use of Hazardous Materials on or about the Leased Premises except as described in the Certificate, an Updated Certificate or as otherwise approved by Landlord in writing in accordance with this Section 37; provided, however, that Landlord shall have no right to approve or disapprove of Hazardous Materials manufactured, treated, used or stored by Tenant in connection with Tenant's business, which Hazardous Materials may be used in accordance with this Section 37; provided further, however, that Tenant shall not be required to provide Landlord prior notice of a new or different chemical which is classified as a Hazardous Material which is used in connection with Tenant's business. The Certificate and each Updated Certificate shall be completed and signed by Tenant's environmental risk manager.

38. HOLDING OVER. No holding over by Tenant of the Leased Premises after the expiration of the Lease Term shall operate to extend the Lease Term or this Lease, and Tenant shall indemnify, defend and hold Landlord harmless from all Costs and Expenses and claims for damages by any other tenant to whom Landlord may have leased to Leased Premises effective upon the expiration of the Lease Term or termination of this Lease. Any such holding over shall be deemed a tenancy at sufferance, subject to all conditions, provisions and obligations of this Lease insofar as the same are applicable to a tenancy at sufferance, except that the Base Rent shall be an amount equal to one hundred ten percent (110%) of the greater of (i) Base Rent that was applicable at the expiration of the Lease; and (ii) the fair market rental value as reasonably determined by Landlord.

39. AUTHORITY. The person or persons executing this Lease on behalf of Landlord and Tenant each hereby represent and warrant to the other party (Landlord or Tenant, as the case may be) that authority for the same was duly given as evidenced by the certified copy of resolution(s) of their respective Boards of Directors.

40. PARKING. Tenant, its officers, directors, employees, agents, contractors, vendors, licensees and other authorized persons, shall be entitled to use throughout the Lease Term all vehicular parking spaces, free of charge on and about the Leased Premises.

41. QUIET TITLE. Provided that Tenant is not in Default under this Lease, Landlord covenants that, subject to the terms and conditions of this Lease, from and after the commencement of the Lease Term, Tenant shall not be disturbed or hindered in Tenant's enjoyment of the Leased Premises and that Landlord shall not interfere with Tenant's business activities involving the Leased Premises.

42. BENEFIT. The covenants, terms and conditions of this Lease shall inure to the benefit of and be binding upon the parties hereto and, subject to Section 23, their respective successors and assigns.

43. SIGNAGE. Tenant shall be permitted to place such signage on and about the Leased Premises as are permitted by applicable law; provided, however, prior to the expiration or

Page 39 of 42

earlier termination of this Lease, Tenant shall remove such signage from the Leased Premises and restore the Leased Premises to its condition immediately preceding the installation of such signage.

44. TELECOMMUNICATIONS. Tenant's use of the Leased Premises shall not include using the Leased Premises to provide telecommunications services (including, without limitation, Internet connections) to third parties, it being intended that Tenant's telecommunications activities within the Leased Premises be strictly limited to such activities as are incidental to general office use.

45. APPROVALS AND CONSENTS. Unless a party's sole discretion is otherwise expressly provided for in a particular provision of this Lease, all approvals and consents required of either party hereunder shall not be unreasonably withheld or delayed, regardless of whether or not the provision in question expressly so states.

46. SECURITY DEPOSIT. Concurrently herewith, Tenant shall deposit with Landlord the sum of Six Hundred Fifty Thousand Dollars ($650,000.00), as security for the performance by Tenant of its obligations under this Lease, and not as prepayment of Rent (the "SECURITY DEPOSIT"). Landlord may from time to time apply such portion of the Security Deposit as is necessary for the following purposes:

a. to remedy any default by Tenant in the payment of Rent;

b. to repair damage to the Leased Premises caused by Tenant;

c. to clean the Leased Premises upon the expiration or sooner termination of the Lease; and/or

d. to remedy any other default of Tenant to the extent permitted by applicable law, including, without limitation, on account of damages owing to Landlord under Section 24(b), and, in this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be put, if any.

In the event the Security Deposit or any portion thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an amount in cash sufficient to restore the Security Deposit to the full original amount. Landlord shall not be deemed a trustee of the Security Deposit, may use the Security Deposit in business, and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Leased Premises during the Lease Term, Landlord shall pay the Security Deposit to any transferee of Landlord's interest, in which event the transferring Landlord will be released from all liability for the return of the Security Deposit. If Tenant performs every provision of this Lease to be performed by Tenant, the unused portion of the Security Deposit shall be returned to Tenant (or, at Tenant's direction, the last assignee of Tenant's interest under this Lease), to the extent not applied, within fifteen (15) days following the expiration or sooner termination of this Lease and the surrender of the Leased Premises by Tenant to Landlord in accordance with the terms of this Lease. If this Lease is terminated following Tenant's Default, the unpaid portion of the Security Deposit, if any, shall be returned to Tenant two (2) weeks after final determination of all damages due Landlord. If a Default by Tenant occurs hereunder, Landlord may require that Tenant deposit with it such additional amount (either in cash or in a letter of credit) as Landlord reasonably determines, to be added to and held as a portion of the Security Deposit.

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47. MISCELLANEOUS. This Lease constitutes the entire agreement of the parties with respect to the subject matter hereof and may be amended, waived or discharged only by an instrument in writing signed by the party against which enforcement of such amendment, waiver or discharge is sought. This Lease shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties. The headings in this Lease are for purposes of reference only and shall not control, limit or define the meaning or construction of any provision hereof. Time is of the essence of this Lease. The parties acknowledge that each party and its counsel have reviewed and revised this Lease and that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or in any amendments or exhibits hereto. This Lease shall be construed in accordance with and governed by the laws of the State of Arizona.

48. COUNTERPARTS. This Lease may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be one and the same document.

(SIGNATURES TO FOLLOW ON SUCCEEDING PAGE)

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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written.

Phoenix Industrial Investment Partners, L.P.         SpeedFam - IPEC, Inc.,
An Arizona limited partnership                       an Illinois corporation

By:  Glen Una Management Company,
     a California corporation
Its: General Partner                                 By:  /s/ [ILLEGIBLE]
                                                          ----------------------
                                                     Name:  [ILLEGIBLE]
                                                     Title: CFO

     By: /s/ [ILLEGIBLE]
        --------------------
     Name: [ILLEGIBLE]
          ------------------
     Title: President
           -----------------

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EXHIBIT A

LEGAL DESCRIPTION OF LEASED PREMISES

Lot 1 of SPEEDFAM INTERNATIONAL, INC., according to the plat of record in the office of the County Recorder of Maricopa County, Arizona, recorded in Book 439 of Maps, Page 41.

Exhibit A

Page 1 of 1

EXHIBIT B

TENANT'S EQUIPMENT

The following property shall be included in the definition of Tenant's Equipment:

BUILDING 305:

CDA Air Compressor Equipment
Air Scrubbers
Dl Water System/Equipment
Waste Treatment Equipment
Cleanroom HVAC Equipment
Chemical Distribution/Storage Equipment Cleanroom Vacuum Equipment
Cleanroom System (walls, partitions, air handlers, hepafilters, chiller, other)
50 Hertz Generators
7.5 Ton Overhead Cranes Trolley Mounted Cranes Surveillance Cameras and Security Equipment Cafeteria Equipment

BUILDING 300:

CDA Air Compressor Equipment
Cleanroom Vacuum Equipment
Air Scrubbers
Cleanroom Humidity Control Equipment (Kathobar) Roof Boilers for Kathobar Units
Electrical Backup Power Generator
330KV Electrical Transfer Switch
50 Hertz Generators
Dl Water System/Equipment
Waste Treatment Equipment
Chemical Distribution/Storage Equipment Cleanroom System (walls, partitions, air handlers, hepafilters, chiller, other)
Surveillance Cameras and Security Equipment Acid Fume Safety Hood
Cleanroom Safety Showers

Exhibit B

Page 1 of 1

EXHIBIT C

HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE

Your cooperation in this matter is appreciated. Initially, the information provided by you in this Hazardous Materials Disclosure Certificate is necessary for Landlord to evaluate your proposed uses of the Leased Premises. On an annual basis and at such other times as set forth in Section 37 of the Lease, you are to provide an update to the information initially provided by you in this certificate. Any questions regarding this certificate should be directed to, and when completed, the certificate should be delivered to the Landlord as provided in the Lease.

GENERAL INFORMATION:

Describe the proposed operations to take place in, on, or about the Leased Premises, including, without limitation, principal products processed, manufactured or assembled, and services and activities to be provided or otherwise conducted. Existing tenants should describe any proposed changes to on-going operations.

1. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS

1.1 Will any Hazardous Materials (as hereinafter defined) be used, generated, treated, stored or disposed of in, on or about the Leased Premises? Existing tenants should describe any Hazardous Materials which continue to be used, generated, treated, stored or disposed of in, on or about the Leased

Premises.

Wastes                     Yes [X]  No [ ]

Chemical Products          Yes [X]  No [ ]

Other                      Yes [ ]  No [ ]

If Yes is marked, please explain: Hazardous materials are used stored, treated and disposed of in supporting CMP (chemical, mechanical planerization) tools used for Research & development.

1.2 If Yes is marked in Section 1.1, attach a list of any Hazardous Materials to be used, generated, treated, stored or disposed of in, on or about the Leased Premises, including the applicable hazard class and an estimate of the quantities of such Hazardous Materials to be present on or about the Leased Premises at any given time; estimated annual throughput; the proposed location(s) and method of storage (excluding nominal amounts of ordinary household cleaners and janitorial supplies which are not regulated by any Environmental Laws, as hereinafter defined); and the proposed location(s) and method(s) of treatment or disposal for each Hazardous Material, including the estimated frequency, and the proposed contractors or subcontractors. Existing tenants should attach a list setting forth the information requested above and such list should include actual data from on-going operations and the identification of any variations in such information from the prior year's certificate.

Exhibit C

Page 1 of 6

2. STORAGE TANKS AND SUMPS. Is any above or below ground storage or treatment of gasoline, diesel, petroleum, or other Hazardous Materials in tanks or sumps proposed in, on or about the Leased Premises? Existing tenants should describe any such actual or proposed activities.

Yes [X] No [ ]

If yes, please explain: Waste treatment area stores and treats waste hydrofluoric acid along with sulfuric acid and sodium hydroxide day storage tanks for waste neutralization. See attached diagram. Ammonium hydroxide is stored in 330 gallon totes located in corrosive chemical storage room.

3. WASTE MANAGEMENT

3.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number? Existing tenants should describe any additional identification numbers issued since the previous certificate.

Yes [X] No [ ]

3.2 Has your company filed a biennial or quarterly reports as a hazardous waste generator? Existing tenants should describe any new reports filed.

Yes [X] No [ ]

If yes, attach a copy of the most recent report filed.

4. WASTEWATER TREATMENT AND DISCHARGE

4.1 Will your company discharge wastewater or other wastes to:

____storm drain? X sewer? ____surface water? ______no wastewater or other wastes discharged.

Existing tenants should indicate any actual discharges. If so, describe the nature of any proposed or actual discharge(s). Average of 60,000 gallons/day of industrial effluent is dischared to the city of Chandler waste water system.

4.2 Will any such wastewater or waste be treated before discharge?

Yes [X] No [ ]

Exhibit C

Page 2 of 6

If yes, describe the type of treatment proposed to be conducted. Existing tenants should describe the actual treatment conducted. Waste CMP slurries and metal bearing waste streams are treated through a gravity clarifier. Hydrofluoric are batch precipitated for fluoride removal. All other waste go through pH neutralization before discharge.

5. AIR DISCHARGES

5.1 Do you plan for any air filtration systems or stacks to be used in your company's operations in, on or about the Leased Premises that will discharge into the air; and will such air emissions be monitored? Existing tenants should indicate whether or not there are any such air filtration systems or stacks in use in, on or about the Leased Premises which discharge into the air and whether such air emissions are being monitored.

Yes [X] No [ ]

If yes, please describe: All air abatement equipment are monitored and maintained by onsite personnel.

5.2 Do you propose to operate any of the following types of equipment, or any other equipment requiring an air emissions permit? Existing tenants should specify any such equipment being operated in, on or about the Leased Premises.

_____Spray booth(s)          _____Incinerator(s)
_____Dip tank(s)               X  Other (Please describe)
_____Drying oven(s)          _____No Equipment Requiring Air
                                  Permits

If yes, please describe: Currently speed Fam/IPEC operates 3 liquid air scrubbers. Please refer to attached air permit in
Section 5.5.3 for more detail.

5.3 Please describe (and submit copies of with this Hazardous Materials Disclosure Certificate) any reports you have filed in the past [thirty-six] months with any governmental or quasi-governmental agencies or authorities related to air discharges or clean air requirements and any such reports which have been issued during such period by any such agencies or authorities with respect to you or your business operations.

Exhibit C

Page 3 of 6

6. HAZARDOUS MATERIALS DISCLOSURES

6.1 Has your company prepared or will it be required to prepare a Hazardous Materials management plan ("MANAGEMENT PLAN") or Hazardous Materials Business Plan and Inventory ("BUSINESS PLAN") pursuant to Fire Department or other governmental or regulatory agencies' requirements? Existing tenants should indicate whether or not a Management Plan is required and has been prepared.

Yes [X] No [ ]

If yes, attach a copy of the Management Plan or Business Plan. Existing tenants should attach a copy of any required updates to the Management Plan or Business Plan.

6.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to be used in your operations in, on or about the Leased Premises listed or regulated under Proposition 65? Existing tenants should indicate whether or not there are any new Hazardous Materials being so used which are listed or regulated under Proposition 65.

Yes [X] No [ ]

If yes, please explain:______________________________________

7. ENFORCEMENT ACTIONS AND COMPLAINTS

7.1 With respect to Hazardous Materials or Environmental Laws, has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees or has your company received requests for information, notice or demand letters, or any other inquiries regarding its operations? Existing tenants should indicate whether or not any such actions, orders or decrees have been, or are in the process of being, undertaken or if any such requests have been received.

Yes [X] No [ ]

If Yes, describe the actions, orders or decrees and any continuing compliance obligation imposed as a result of these actions, orders or decrees and also describe any requests, notices or demands, and attach a copy of all such documents. Existing tenants should describe and attach a copy of any new actions, orders, decrees, requests, notices or demands not already delivered to Landlord pursuant to the provisions of Article 7 of the Lease Agreement. Attached in Section 7.7.1 is a complianse notification from maricopa county environmental services department. Notice is for the submittal of an O&M plan for our equipment. County last our original maintenance plan that was submitted. Attached is copy of new O&M plan that was submitted.

Exhibit C

Page 4 of 6

7.2 Have there ever been, or are there now pending, any lawsuits against your company regarding any environmental or health and safety concerns?

Yes [ ] No [X]

If yes, describe any such lawsuits and attach copies of the complaint(s), cross-complaint(s), pleadings and other documents related thereto as requested by Landlord. Existing tenants should describe and attach a copy of any new complaint(s), cross-complaint(s), pleadings and other related documents not already delivered to Landlord pursuant to the provisions of Article 7 of the Lease Agreement. ______________

7.3 Have there been any problems or complaints from adjacent tenants, owners or other neighbors at your company's current facility with regard to environmental or health and safety concerns? Existing tenants should indicate whether or not there have been any such problems or complaints from adjacent tenants, owners or other neighbors at, about or near the Leased Premises and the current status of any such problems or complaints.

Yes [ ] No [X]

If yes, please describe. Existing tenants should describe any such problems or complaints not already disclosed to Landlord under the provisions of the signed Lease Agreement and the current status of any such problems or complaints. ___________

8. PERMITS AND LICENSES. Attach copies of all permits and licenses issued to your company its proposed operations in, on or about the Leased Premises, including, without limitation, any Hazardous Materials permits, wastewater discharge permits, air emissions permits, and use permits or approvals. Existing tenants should attach copies of any new permits and licenses as well as any renewals of permits or licenses previously issued.

As used herein, the term "HAZARDOUS MATERIALS" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Arizona or the United States government. The term "HAZARDOUS MATERIALS" includes, without limitation, petroleum products, asbestos, PCB's, and any material or substance which is (i) listed under, or defined as hazardous or extremely hazardous pursuant to The Arizona Environmental Quality Act of 1986, A.R.S. Section 49-101, et. seq., (ii) deemed as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903) ("RCRA'"). (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601) ("CERCLA") or

Exhibit C

Page 5 of 6

any regulations promulgated under CERCLA; (iv) any substance now or hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C.
Section 2601 et seq.) or any regulations promulgated under TSCA; (v) petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum hydrocarbons;
(vi) asbestos and asbestos-containing material, in any form, whether friable or non-friable; (vii) polychlorinated biphenyls; (viii) lead and lead-containing materials; or (ix) any additional substance, material or waste. As used herein, the term "HAZARDOUS MATERIAL LAW(S)" shall mean any statute, law, ordinance, or regulation of any governmental body or agency (including the U.S. Environmental Protection Agency, the Arizona Department of Environmental Quality which regulates the use, storage, release or disposal of any Hazardous Materials.

The undersigned hereby acknowledges and agrees that this Hazardous Materials Disclosure Certificate is being delivered to Landlord in connection with the evaluation of a Lease and, if such Lease is executed, will be attached thereto as an exhibit. The undersigned further acknowledges and agrees that if such Lease is executed, this Hazardous Materials Disclosure Certificate will be updated from time to time in accordance with Section 37 of the Lease. The undersigned further acknowledges and agrees that Landlord and its partners, lenders and representatives may, and will, rely upon the statements, representations, warranties, and certifications made herein and the truthfulness thereof in entering into the Lease and the continuance thereof throughout the term, and any renewals thereof, of the Lease. I, the undersigned, acting with full authority to bind the Tenant and on behalf of the Tenant, certify, represent and warrant that the information contained in this certificate is true and correct.

Speedfam-IPEC, Inc.
an Illinois corporation

By:   /s/ Tod Thurber
      -------------------------------
Name: Tod Thurber
      -------------------------------
Its:  Environmental Compliance Mgr.

Date: May 1, 2002

Exhibit C

Page 6 of 6

EXHIBIT D

SOFTWARE MAINTENANCE SCHEDULE

[SEE ATTACHED]

Exhibit D

Page 1 of 1

SPEEDFAM - EQUIPMENT LIST / PM SCHEDULES

-------------------------------------------------------------------------------------------------------------------------

TAGNUMBER             PM #                EQUIPMENT DESCRIPTION             CALENDAR FREQUENCY          WEEK       SYSTEM

-------------------------------------------------------------------------------------------------------------------------
INS_EYE/SH      NS_EYE/SHOWR_M300       INSPECT EYEWASH/SHOWERS           Calendar period - monthly       1          INS
-------------------------------------------------------------------------------------------------------------------------
INS_OFF_M         INS_SEC_W                                               Calendar period - monthly       1          INS
-------------------------------------------------------------------------------------------------------------------------
RM_107_300         ELDIST_A                  ELECTRICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
RM_153_300         ELDIST_A                  MECHANICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
RM_154_300         ELDIST_A                  ELECTRICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
RM_206_300         ELDIST_A                  ELECTRICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
RM_246_300         ELDIST_A                  ELECTRICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
RM_210_300         ELDIST_A                  ELECTRICAL ROOM                   Special event              0          RM
-------------------------------------------------------------------------------------------------------------------------
INS_7406G_       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        41         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_7406_EL        ELDIST_A             ANNUAL INFRA-RED INSPECTI        Calendar period - annual        40         ELEC
-------------------------------------------------------------------------------------------------------------------------
RM_2026            ELDIST_A                  ELECTRICAL ROOM             Calendar period - annual        40          RM
-------------------------------------------------------------------------------------------------------------------------
INS_7406_EL      ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        37         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_2C_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        33         ELEC
-------------------------------------------------------------------------------------------------------------------------
RM_1039            ELDIST_A             ELECTRICAL ROOM NEAR MFG.        Calendar period - annual        30          RM
-------------------------------------------------------------------------------------------------------------------------
INS_2B_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        29         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_ELSFTY       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT             Selected weeks              0         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_2A_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        25         ELEC
-------------------------------------------------------------------------------------------------------------------------
AD_2_631         AIRDRYERS_A                 ZEKS AIR DRYER              Calendar period - annual        21        PLUMB
-------------------------------------------------------------------------------------------------------------------------
AD_RAF1_63       AIRDRYERS_A                 ZEKS AIR DRYER              Calendar period - annual        21        PLUMB
-------------------------------------------------------------------------------------------------------------------------
AD_1_630         AIRDRYERS_A                 ZEKS AIR DRYER              Calendar period - annual        21        PLUMB
-------------------------------------------------------------------------------------------------------------------------
INS_2B_BFIX        BFIX_BM              BATTERY FIXTURE INSPECT          Calendar period - annual        21         INS
-------------------------------------------------------------------------------------------------------------------------
INS_1F_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        21         ELEC
-------------------------------------------------------------------------------------------------------------------------
RM_1051            ELDIST_A                  ELECTRICAL ROOM             Calendar period - annual        20          RM
-------------------------------------------------------------------------------------------------------------------------
INS_2A_BFIX        BFIX_BM              BATTERY FIXTURE INSPECT          Calendar period - annual        17         INS
-------------------------------------------------------------------------------------------------------------------------
INS_1E_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        17         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_1D_BFIX        BFIX_BM              BATTERY FIXTURE INSPECT          Calendar period - annual        13         INS
-------------------------------------------------------------------------------------------------------------------------
INS_1D_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual        13         ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_10K_Q           CLASS 10,000 HEPA INSPECT        Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_10K_Q           CLASS 10,000 HEPA INSPECT        Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_10Q               CLASS 10 HEPA INSPECT          Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_10Q               CLASS 10 HEPA INSPECT          Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_1K_Q             CLASS 1,000 HEPA INSPECT        Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_HEPA_1         HEPA_1K_Q             CLASS 1,000 HEPA INSPECT        Calendar period - quarterly     12         INS
-------------------------------------------------------------------------------------------------------------------------
INS_1C_BFIX        BFIX_BM               BATTERY FIXTURE INSPECT         Calendar period - annual         9         INS
-------------------------------------------------------------------------------------------------------------------------
INS_1C_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT        Calendar period - annual         9         ELEC
-------------------------------------------------------------------------------------------------------------------------
EF2_300             EF_M                  IN-LINE CABINET FAN            Calendar period - quarterly      9         HVAC
-------------------------------------------------------------------------------------------------------------------------
EF9_300             EF_M                  IN-LINE CABINET FAN            Calendar period - quarterly      9         HVAC
-------------------------------------------------------------------------------------------------------------------------
EF1_300             EF_M                      UTILITY FAN                Calendar period - quarterly      9         HVAC
-------------------------------------------------------------------------------------------------------------------------
EF5_300             EF_M                     ROOF EXHAUSTER              Calendar period - quarterly      9         HVAC
-------------------------------------------------------------------------------------------------------------------------

PAGE 1 22-MAY-02

--------------------------------------------------------------------------------------------------------------------------

TAGNUMBER             PM #                EQUIPMENT DESCRIPTION             CALENDAR FREQUENCY          WEEK        SYSTEM

--------------------------------------------------------------------------------------------------------------------------
EF3_300               EF_M                    ROOF EXHAUSTER             Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF6_300               EF_M                 IN-LINE CABINET FAN           Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF2_2C_653            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF8_300               EF_M                    ROOF EXHAUSTER             Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF4_300               EF_M                    ROOF EXHAUSTER             Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF1_2C_652            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF3_2C_654            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF4_2C_655            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF5_2C_656            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF6_2C_657            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF7_2C_658            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF8_2C_659            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF9_2C_660            EF_M                GREENCHECK EXHAUST FAN         Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
EF7_300               EF_M                    ROOF EXHAUSTER             Calendar period - quarterly      9          HVAC
--------------------------------------------------------------------------------------------------------------------------
RM_1114             ELDIST_A             CHILLER/MECHANICAL ROOM           Calendar period - annual       8           RM
--------------------------------------------------------------------------------------------------------------------------
COMP2_300          AIRCOMPS_S             AIR COMP. W/AFTER COOL         Calendar period - semiannual     7          HVAC
--------------------------------------------------------------------------------------------------------------------------
COMP1_300          AIRCOMPS_S             AIR COMP. W/AFTER COOL         Calendar period - semiannual     7          HVAC
--------------------------------------------------------------------------------------------------------------------------
COMP1_637          AIRCOMPS_S                  APLAS COPCO               Calendar period - semiannual     7         PLUMB
--------------------------------------------------------------------------------------------------------------------------
FCU2-24_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-14_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-17_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-19_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-20_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-21_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-12_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-23_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-33_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-13_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-16_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-34_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-25_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-26_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-27_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-28_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-29_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-30_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-31_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-32_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
FCU2-22_2B_        FANCOIL_S               TRANE FAN COIL UNIT           Calendar period - semiannual     6          HVAC
--------------------------------------------------------------------------------------------------------------------------
PMP_CWPC1           PUMPS_Q              CLEAN ROOM CHILLED WATER        Calendar period - quarterly      6          HVAC
--------------------------------------------------------------------------------------------------------------------------
INS_1B_BFIX         BFIX_BM               BATTERY FIXTURE INSPECT          Calendar period - annual       5          INS
--------------------------------------------------------------------------------------------------------------------------
INS_1B_ELS       ELECSAFETY_M           ELECTRICAL SAFETY INSPECT          Calendar period - annual       5          ELEC
--------------------------------------------------------------------------------------------------------------------------

PAGE 2 22-MAY-02

-----------------------------------------------------------------------------------------------------------------------------

TAGNUMBER           PM #                EQUIPMENT DESCRIPTION            CALENDAR FREQUENCY              WEEK          SYSTEM

-----------------------------------------------------------------------------------------------------------------------------
CT2_300            EVAP_S                   COOLING TOWER2            Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CT1_1B_642         EVAP_S                EVAPCO COOLING TOWER         Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CT1_300            EVAP_S                  COOLING TOWER 1            Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-2_2A_5       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-5_2A_6       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-6A_2A        FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-1_2A_5       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-11_2A_       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-4B_2A        FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-4A_2A        FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-6B_2A_       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-10_2A_       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-9_2A_6       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-8_2A_6       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-7_2A_6       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU2-3_2A_6       FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_10         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_10         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_10         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_10         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_11         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP1_300          EVAP_BM               EVAPORATIVE COLLER 1          Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP_2C_11         EVAP_BM                   EVAP COOLERS              Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
EVAP2_300          EVAP_BM              EVAPORATIVE COOLER 2           Calendar period - bimonthly         5            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_CHP-1          PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_SCHP-          PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
PMP_CWPC1          PUMPS_Q             CLEAN ROOM CHILLED WATER        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_CTP-2_         PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_CHP-2          PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_SCHP-          PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CWP_CTP-1_         PUMPS_Q             BELL & GOSSETT C.W. PUMP        Calendar period - quarterly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
CT2_1B_643         EVAP_BM               EVAPCO COOLING TOWER          Calendar period - bimonthly         4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
HWH_2_617         H20HTRS_M             A O SMITH WATER HEATER          Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HWH_4_619         H20HTRS_M             A O SMITH WATER HEATER          Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HWH_1_616         H20HTRS_M             A O SMITH WATER HEATER          Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HWH_3_618         H20HTRS_M             A O SMITH WATER HEATER          Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HWH2_300          H20HTRS_M               HOT WATER HEATER 2            Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HWH1_300          H20HTRS_M               HOT WATER HEATER 1            Calendar period - monthly          4           PLUMB
-----------------------------------------------------------------------------------------------------------------------------
HE1_300           HEXCHG_M             HEAT X - PLATE AND FRAME         Calendar period - monthly          4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
HEX1_1B_64        HEXCHG_M             ALFA LEVEL HEAT EXCHANGER        Calendar period - monthly          4            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU1-21_1C        FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         3            HVAC
-----------------------------------------------------------------------------------------------------------------------------
FCU1-26A_1        FANCOIL_S              TRANE FAN COIL UNIT          Calendar period - semiannual         3            HVAC
-----------------------------------------------------------------------------------------------------------------------------

PAGE 3 22-MAY-02

------------------------------------------------------------------------------------------------------------------

TAGNUMBER             PM #           EQUIPMENT DESCRIPTION            CALENDER FREQUENCY          WEEK      SYSTEM

------------------------------------------------------------------------------------------------------------------
FCU1-18_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-20_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-38_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-23_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-17_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-24A_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-28_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-37B_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-22_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-30_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-29_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-24B_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-40_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-26B_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-27_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-16_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-25_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-19_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-37A_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-39_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-15_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-14_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-13_1C         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      3        HVAC
------------------------------------------------------------------------------------------------------------------
INS_HTRS_Q       INS_HEATERS_Q          PLENUM HEATERS            Calender period - quarterly       3        ELEC
------------------------------------------------------------------------------------------------------------------
INS_RES_BM        INS_RES_BM       RESTROOM ZONE INSPECTION       Calender period - bimonthly       3         INS
------------------------------------------------------------------------------------------------------------------
INS_RES_BM      INS_RES_BM_300           RESTROOM INSP            Calender period - bimonthly       3         INS
------------------------------------------------------------------------------------------------------------------
TM_715               TU_SA                ICE MACHINE             Calender period - bimonthly       3        HVAC
------------------------------------------------------------------------------------------------------------------
INS_GRNDS_        INS_GRNDS_M         GROUNDS INSPECTION          Calender period - monthly         3         INS
------------------------------------------------------------------------------------------------------------------
INS_VEH_M          INS_VECH_M         CHECK RENTAL VEHICLES       Calender period - monthly         3         INS
------------------------------------------------------------------------------------------------------------------
MN_1107              MON_M              REFRIG MONITOR            Calender period - monthly         3        HVAC
------------------------------------------------------------------------------------------------------------------
ELEC_1A_53         PORTGEN_M          HONDA 5KW GENERATOR         Calender period - monthly         3        ELEC
------------------------------------------------------------------------------------------------------------------
RM_1116            ELDIST_A          MAIN ELECTRICAL ROOM         Calender period - annual          2         RM
------------------------------------------------------------------------------------------------------------------
CT2_1B_643          EVAP_S           EVAPCO COOLING TOWER         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-31A_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-34_1B_        FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-33_1B_        FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-36_1B_        FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-35_1B_        FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
FCU1-31B_1         FANCOIL_S          TRANE FAN COIL UNIT         Calender period - semiannual      2        HVAC
------------------------------------------------------------------------------------------------------------------
AHU7_300           AHROOF_BI              AIR HANDLER             Calender period - bimonthly       2        HVAC
------------------------------------------------------------------------------------------------------------------
AHU8_2C_66         AHROOF_BI          McQUAY AIR HANDLER          Calender period - bimonthly       2        HVAC
------------------------------------------------------------------------------------------------------------------
AHU6_2C_66         AHROOF_BI          McQUAY AIR HANDLER          Calender period - bimonthly       2        HVAC
------------------------------------------------------------------------------------------------------------------

PAGE 4 22-MAY-02

----------------------------------------------------------------------------------------------------------------------------

TAGNUMBER               PM #           EQUIPMENT DESCRIPTION               CALENDAR FREQUENCY            WEEK         SYSTEM

----------------------------------------------------------------------------------------------------------------------------
AHU9_2C_66            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU1_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHUC1_IN_6            AHROOF_BI         HEATCRAFT AIR HANDLER          Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHUCMU1_I             AHROOF_BI         HEATCRAFT AIR HANDLER          Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU5_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHUC2_IN_6            AHROOF_BI         HEATCRAFT AIR HANDLER          Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU4_2C_66            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU1_2C_66            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU2_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU2_2C_66            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU6_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU3_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU3_2C_66            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU4_300              AHROOF_BI              AIR HANDLER               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHUC3_IN_6            AHROOF_BI         HEATCRAFT AIR HANDLER          Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
AHU10_2C_6            AHROOF_BI          McQUAY AIR HANDLER            Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
EDHC1_IN_6             EDH_BM           ELECTRIC DUCT HEATER           Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
EDHC2_IN_6             EDH_BM           ELECTRIC DUCT HEATER           Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
EDHC3_IN_6             EDH_BM           ELECTRIC DUCT HEATER           Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
EDHC4_IN_6             EDH_BM           ELECTRIC DUCT HEATER           Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
EDHUC1_IN_             EDHU_BM        ELECTRIC DUCT HUMIDIFIER         Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
TM_716                  TU_SA                ICE MACHINE               Calendar period - bimonthly         2           HVAC
----------------------------------------------------------------------------------------------------------------------------
CHLR2_300              CHILL_M           CENTRIFUGAL CHILLER           Calendar period - monthly           2           HVAC
----------------------------------------------------------------------------------------------------------------------------
CHLR1_300              CHILL_M           CENTRIFUGAL CHILLER           Calendar period - monthly           2           HVAC
----------------------------------------------------------------------------------------------------------------------------
CH2_1B_641             CHILL_M             McQUAY CHILLER              Calendar period - monthly           2           HVAC
----------------------------------------------------------------------------------------------------------------------------
CH1_1B_640             CHILL_M             McQUAY CHILLER              Calendar period - monthly           2           HVAC
----------------------------------------------------------------------------------------------------------------------------
INS_CUB_M             INS_CUB_M          CUBICAL INSPECTION            Calendar period - monthly           2           INS
----------------------------------------------------------------------------------------------------------------------------
INS_DOOR_            INS_DOORS_M           DOOR INSPECTION             Calendar period - monthly           2           INS
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q          P104X-FER PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q          PAD SUMP PUMP              Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q         P107 PRESS PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q         P106 X-FER PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q         P102 X-FER PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q         P103 X-FER PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q         P105 X-FER PUMP             Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8         PUMP_DI_WILDEN_Q          PT SUMP PUMP               Calendar period - monthly           2            DI
----------------------------------------------------------------------------------------------------------------------------
SC_2C_711              SCRUB_M                SCRUBBER                 Calendar period - monthly           2           HVAC
----------------------------------------------------------------------------------------------------------------------------
VAC_VP1_63           VACPUMPS_M           NASH VACCUM PUMP             Calendar period - monthly           2          PLUMB
----------------------------------------------------------------------------------------------------------------------------
INS_OUT_M3            INS_OUT_M                                        Calendar period - monthly           1           INS
----------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8          PUMP_DI_PUMPS_M             HF PUMP                 Calendar period - monthly           1            DI
----------------------------------------------------------------------------------------------------------------------------
INS_CONF_          INS_CONF_M 7406                                     Calendar period - monthly           1           INS
----------------------------------------------------------------------------------------------------------------------------
INS_ROOF_            INS_ROOF_M                                        Calendar period - monthly           1           INS
----------------------------------------------------------------------------------------------------------------------------

PAGE 5 22-MAY-02

-----------------------------------------------------------------------------------------------------------------------------------

TAGNUMBER                   PM #                  EQUIPMENT DESCRIPTION             CALENDER FREQUENCY          WEEK        SYSTEM

-----------------------------------------------------------------------------------------------------------------------------------
INS_COR_W                INS_COR_W                                             Calender period - weekly          1           INS
-----------------------------------------------------------------------------------------------------------------------------------
INS_OUTSID           INS_OUTSIDE_W 7406                                        Calender period - weekly          1           INS
-----------------------------------------------------------------------------------------------------------------------------------
INS_REST_               INS_REST_W                                             Calender period - weekly          1           INS
-----------------------------------------------------------------------------------------------------------------------------------
CH1_1B_640               ACHILL_A                    McQUAY CHILLER            Calender period - annual          1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CHLR2_300                 CHILL_A                 CENTRIFUGAL CHILLER          Calender period - annual          1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CHLR1_301                 CHILL_A                 CENTRIFUGAL CHILLER          Calender period - annual          1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CH2_1B_641                CHILL_A                    McQUAY CHILLER            Calender period - annual          1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
INS_COPIER               COPIERS_M                      COPIERS                Calender period - annual          1           RM
-----------------------------------------------------------------------------------------------------------------------------------
INS_1A_ELS              ELECSAFETY_M            ELECTRICAL SAFETY INSPECT      Calender period - annual          1          ELEC
-----------------------------------------------------------------------------------------------------------------------------------
INS_ELSFTY              ELECSAFETY_M            ELECTRICAL SAFETY INSPECT             Selected weeks             0          ELEC
-----------------------------------------------------------------------------------------------------------------------------------
CHLR1_300                 ACHILL_S                 CENTRIFUGAL CHILLER         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CH1_1B_640                ACHILL_S                    McQUAY CHILLER           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CHLR2_300                 ACHILL_S                 CENTRIFUGAL CHILLER         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
CH2_1B_641                ACHILL_S                    McQUAY CHILLER           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU40_300                FANCOIL_S                  FAN COIL UNIT 40           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU31_300                FANCOIL_S                  FAN COIL UNIT 31           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU49_300                FANCOIL_S                  FAN COIL UNIT 49           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU51_300                FANCOIL_S                  FAN COIL UNIT 51           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU44_300                FANCOIL_S                  FAN COIL UNIT 44           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU43_300                FANCOIL_S                  FAN COIL UNIT 43           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU42_300                FANCOIL_S                  FAN COIL UNIT 42           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU45_300                FANCOIL_S                  FAN COIL UNIT 45           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU46_300                FANCOIL_S                  FAN COIL UNIT 46           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU48_300                FANCOIL_S                  FAN COIL UNIT 48           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU10_300                FANCOIL_S                  FAN COIL UNIT 10           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU4_300                 FANCOIL_S                  FAN COIL UNIT 4            Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU39_300                FANCOIL_S                  FAN COIL UNIT 39           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU50_300                FANCOIL_S                  FAN COIL UNIT 50           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-7A_1A               FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU47_300                FANCOIL_S                  FAN COIL UNIT 47           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-5_1A_5              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU20_300                FANCOIL_S                  FAN COIL UNIT 20           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU25_300                FANCOIL_S                  FAN COIL UNIT 25           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-10_1A_              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-11_1A_              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-2_1A_5              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-1_1A_5              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-4_1A_5              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU38_300                FANCOIL_S                  FAN COIL UNIT 38           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU1-6_1A_5              FANCOIL_S                 TRANE FAN COIL UNIT         Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU41_300                FANCOIL_S                  FAN COIL UNIT 41           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------
FCU32_300                FANCOIL_S                  FAN COIL UNIT 32           Calender period - Semiannual      1          HVAC
-----------------------------------------------------------------------------------------------------------------------------------

PAGE 6 22-MAY-02

---------------------------------------------------------------------------------------------------------------------------

TAGNUMBER               PM #         EQUIPMENT DESCRIPTION            CALENDAR FREQUENCY                WEEK        SYSTEM

---------------------------------------------------------------------------------------------------------------------------
FCU28_300             FANCOIL_S         FAN COIL UNIT 28            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU34_300             FANCOIL_S         FAN COIL UNIT 34            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU35_300             FANCOIL_S         FAN COIL UNIT 35            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU36_300             FANCOIL_S         FAN COIL UNIT 36            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU37_300             FANCOIL_S         FAN COIL UNIT 37            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU1-3_1A_5           FANCOIL_S        TRANE FAN COIL UNIT          Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU6_300              FANCOIL_S         FAN COIL UNIT 6             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU5_300              FANCOIL_S         FAN COIL UNIT 5             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU52_300             FANCOIL_S         FAN COIL UNIT 52            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU7_300              FANCOIL_S         FAN COIL UNIT 7             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU53_300             FANCOIL_S         FAN COIL UNIT 53            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU55_300             FANCOIL_S         FAN COIL UNIT 55            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU57_300             FANCOIL_S         FAN COIL UNIT 57            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU19_300             FANCOIL_S         FAN COIL UNIT 19            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU59_300             FANCOIL_S         FAN COIL UNIT 59            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU54_300             FANCOIL_S         FAN COIL UNIT 54            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU61_300             FANCOIL_S         FAN COIL UNIT 61            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU8_300              FANCOIL_S         FAN COIL UNIT 8             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU9_300              FANCOIL_S         FAN COIL UNIT 9             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU60_300             FANCOIL_S         FAN COIL UNIT 60            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU11_300             FANCOIL_S         FAN COIL UNIT 11            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU1-9_1A_5           FANCOIL_S        TRANE FAN COIL UNIT          Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU23_300             FANCOIL_S         FAN COIL UNIT 23            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU1_300              FANCOIL_S         FAN COIL UNIT 1             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU3_300              FANCOIL_S         FAN COIL UNIT 3             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU58_300             FANCOIL_S         FAN COIL UNIT 58            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU18_300             FANCOIL_S         FAN COIL UNIT 18            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU26_300             FANCOIL_S         FAN COIL UNIT 26            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU24_300             FANCOIL_S         FAN COIL UNIT 24            Calendar period - semiannual           1          HVAC
--------------------------------------------------------------------------------------------------------- -----------------
FCU1-7B_1A            FANCOIL_S        TRANE FAN COIL UNIT          Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU22_300             FANCOIL_S         FAN COIL UNIT 22            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU21_300             FANCOIL_S         FAN COIL UNIT 21            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU27_300             FANCOIL_S         FAN COIL UNIT 27            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU2_300              FANCOIL_S         FAN COIL UNIT 2             Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU33_300             FANCOIL_S         FAN COIL UNIT 33            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU56_300             FANCOIL_S         FAN COIL UNIT 56            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU17_300             FANCOIL_S         FAN COIL UNIT 17            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU16_300             FANCOIL_S         FAN COIL UNIT 16            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU15_300             FANCOIL_S         FAN COIL UNIT 15            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU14_300             FANCOIL_S         FAN COIL UNIT 14            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU13_300             FANCOIL_S         FAN COIL UNIT 13            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------
FCU12_300             FANCOIL_S         FAN COIL UNIT 12            Calendar period - semiannual           1          HVAC
---------------------------------------------------------------------------------------------------------------------------

PAGE 7 22-MAY-02

----------------------------------------------------------------------------------------------------------------------------

TAGNUMBER              PM #               EQUIPMENT DESCRIPTION              CALENDAR FREQUENCY          WEEK         SYSTEM

----------------------------------------------------------------------------------------------------------------------------
FCU30_300           FANCOIL_S               FAN COIL UNIT 30             Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
FCU29_300           FANCOIL_S               FAN COIL UNIT 29             Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
KATH2_300          KATH_300_SA                  KATHABAR                 Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
KATH5_300          KATH_300_SA                  KATHABAR                 Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
KATH4_300          KATH_300_SA                  KATHABAR                 Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
KATH1_300          KATH_300_SA                  KATHABAR                 Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
KATH3_300          KATH_300_SA                  KATHABAR                 Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-1_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU10-3_1D_6           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-4_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU10-1_1D_6           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-2_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU7-1_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU6-4_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU9-3_1D_68           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU6-3_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU6-2_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU10-4_1D_6           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-6_1D_68           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-7_1D_68           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU9-4_1D_68           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU10-2_1D_6           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-3_1D_67           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
TU8-5_1D_68           TU_SA                   TRANE VAV BOX              Calendar period - semiannual      1           HVAC
----------------------------------------------------------------------------------------------------------------------------
CH1_1B_640          ACHILL_Q                McQUAY CHILLER               Calendar period - quarterly       1           HVAC
----------------------------------------------------------------------------------------------------------------------------
CHLR2_300           CHILL_Q               CENTRIFUGAL CHILLER            Calendar period - quarterly       1           HVAC
----------------------------------------------------------------------------------------------------------------------------
CHLR1_300           CHILL_Q               CENTRIFUGAL CHILLER            Calendar period - quarterly       1           HVAC
----------------------------------------------------------------------------------------------------------------------------
CH2_1B_641          CHILL_Q                 McQUAY CHILLER               Calendar period - quarterly       1           HVAC
----------------------------------------------------------------------------------------------------------------------------
INS_MCC_Q           ELEC_MCC_Q             QUARTERLY MCC INSP            Calendar period - quarterly       1           ELEC
----------------------------------------------------------------------------------------------------------------------------
FA_1C_532             FAI_Q                 FIRE ALARM PANEL             Calendar period - quarterly       1           FIRE
----------------------------------------------------------------------------------------------------------------------------
FA_1_300              FAI_Q                 FIRE ALARM PANEL             Calendar period - quarterly       1           FIRE
----------------------------------------------------------------------------------------------------------------------------
FCU2-31A_2          FANCOIL_M              TRANE FAN COIL UNIT                 Selected weeks              0           HVAC
----------------------------------------------------------------------------------------------------------------------------
INS_CONF_Q          INS_CONF_Q            CONFERENCE ROOM ZONE           Calendar period - quarterly       1            INS
----------------------------------------------------------------------------------------------------------------------------
PMP_IE_819       PUMP_DI_PUMPS_M                   UV                    Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q           SLURRY WASTE PUMP            Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q           SLURRY WASTE PUMP            Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_85       PUMP_DI_WILDEN_Q       BM CALCIUM CHLORIDE PUMP         Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q         CLARIFIER SLUDGE PUMP          Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_87       PUMP_DI_WILDEN_Q       ALUM. WASTE LIFT STA PUMP        Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_87       PUMP_DI_WILDEN_Q       ALUM. WASTE LIFT STA PUMP        Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q            BM DECANT. PUMP             Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q          ALUMINUM WASTE PUMP           Calendar period - quarterly       1            DI
----------------------------------------------------------------------------------------------------------------------------

PAGE 8 22-MAY-02

--------------------------------------------------------------------------------------------------------------------

TAGNUMBER              PM #            EQUIPMENT DESCRIPTION         CALENDAR FREQUENCY            WEEK        SYSTEM

--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q          BM POLYMER PUMP       Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_85       PUMP_DI_WILDEN_Q            BM PAC PUMP         Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q         METALS WASTE PUMP      Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q         SLUDGE PRESS PUMP      Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q           PIT SUMP PUMP        Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_86       PUMP_DI_WILDEN_Q           WT SUMP PUMP         Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q         CENTRAL SUMP PUMP      Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q       CLARIFIER SLUDGE PUMP    Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q          SAT DECANT. PUMP      Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_84       PUMP_DI_WILDEN_Q          BM SLUDGE PUMP        Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
PMP_300_85       PUMP_DI_WILDEN_Q           BM NaOH PUMP         Calendar period - quarterly        1            DI
--------------------------------------------------------------------------------------------------------------------
SCHWP1_30             PUMPS_Q          SEC. CHILLED WATER PUMP   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PCHWP4_30             PUMPS_Q         PRIM. CHILLED WATER PUMP   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
SCHWP2_30             PUMPS_Q          SEC. CHILLED WATER PUMP   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PMP_CWP1_             PUMPS_Q           CONDENSER WATER PUMP 1   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PMP_CWP2_             PUMPS_Q           CONDENSER WATER PUMP 2   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PMP_VP1_30            PUMPS_Q               VACUUM PUMP 1        Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PMP_VP2_30            PUMPS_Q               VACUUM PUMP 2        Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
PCHWP3_30             PUMPS_Q          PRIM.CHILLED WATER PUMP   Calendar period - quarterly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
INS_UPS_Q              UPS_Q              BATTERY BACK-UPS       Calendar period - quarterly        1           ELEC
--------------------------------------------------------------------------------------------------------------------
RAH5_300             AHROOF_BI          RECIRC AIR HANDLER LH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH8_300             AHROOF_BI          RECIRC AIR HANDLER LH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH2_300             AHROOF_BI          RECIRC AIR HANDLER RH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH6_300             AHROOF_BI          RECIRC AIR HANDLER RH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH4_300             AHROOF_BI          RECIRC AIR HANDLER LH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH3_300             AHROOF_BI          RECIRC AIR HANDLER RH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH1_300             AHROOF_BI          RECIRC AIR HANDLER LH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
RAH7_300             AHROOF_BI          RECIRC AIR HANDLER LH    Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE7_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE6_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE4_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE3_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE5_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE2_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
EDHE1_300             EDH_BM            ELECTRIC DUCT HEATER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
CT1_300               EVAP_BM              COOLING TOWER 1       Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
CT2_300               EVAP_BM              COOLING TOWER 2       Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
CT1_IB_642            EVAP_BM           EVAPCO COOLING TOWER     Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
KATH1_300           KATH_300_BM               KATHABAR           Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
KATH3_300           KATH_300_BM               KATHABAR           Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
KATH5_300           KATH_300_BM               KATHABAR           Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------
KATH4_300           KATH_300_BM               KATHABAR           Calendar period - bimonthly        1           HVAC
--------------------------------------------------------------------------------------------------------------------

PAGE 9 22-MAY-02

--------------------------------------------------------------------------------------------------------------------------

TAGNUMBER                 PM #                 EQUIPMENT DESCRIPTION             CALENDAR FREQUENCY      WEEK      SYSTEM

--------------------------------------------------------------------------------------------------------------------------
KATH2_300             KATH_300_BM                    KATHABAR                Calendar period - bimonthly   1         HVAC
--------------------------------------------------------------------------------------------------------------------------
CHC1_2C_69             ACHILL_M                  CHANDLER CHILLER            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
AIR_COMPR             AIRCOMPS_M                    15HP_KAESER              Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
COMP2_300             AIRCOMPS_M              AIR COMP. W/ AFTER COOL        Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
COMP1_300             AIRCOMPS_M              AIR COMP. W/ AFTER COOL        Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
COMP1_638             AIRCOMPS_M                    APLAS COPCO              Calendar period - monthly     1         PLUMB
--------------------------------------------------------------------------------------------------------------------------
COMP1_637             AIRCOMPS_M                    APLAS COPCO              Calendar period - monthly     1         PLUMB
--------------------------------------------------------------------------------------------------------------------------
COMP1_639             AIRCOMPS_M                    APLAS COPCO              Calendar period - monthly     1         PLUMB
--------------------------------------------------------------------------------------------------------------------------
AC_UNIT_30            AIRCOND_BM              EATPUMP_FOR_SERVER_ROOM        Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
A\C_UNIT_30            AIRCOND_M              EATPUMP_FOR_SERVER_ROOM        Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
INS_1B_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_1A_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_1C_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_2A_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_2B_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_1D_BFIX             BFIX_M                BATTERY FIXTURE INSPECT        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
ELEV2_300               ELEV_M                  ELEVATOR PASSENGER           Calendar period - monthly     1         ELEC
--------------------------------------------------------------------------------------------------------------------------
ELEV_1C_53              ELEV_M                     OTIS ELEVATOR             Calendar period - monthly     1         ELEC
--------------------------------------------------------------------------------------------------------------------------
ELEVF_300               ELEV_M                   ELEVATOR FREIGHT            Calendar period - monthly     1         ELEC
--------------------------------------------------------------------------------------------------------------------------
ELEV1_300               elev_m                  ELEVATOR PASSANGER           Calendar period - monthly     1         ELEC
--------------------------------------------------------------------------------------------------------------------------
ELEV_MS                 ELEV_MS                  SERVICE ELEVATOR            Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
ammonia exh             EXFAN_M                   ammonia exhaust            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
CF2_300                FILTCK_M                 COELESCING FILTER 2          Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
FF2_300                FILTCK_M                    FINAL FILTER 2            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
CF1_300                FILTCK_M                 COELESCING FILTER 1          Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
FF1_300                FILTCK_M                    FINAL FILTER 1            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
AF1_300                FILTCK_M                    AFTER FILTER 1            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
PF2_300                FILTCK_M                     PRE FILTER               Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
AF2_300                FILTCK_M                    AFTER FILTER 2            Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
PF1_300                FILTCK_M                     PRE FILTER               Calendar period - monthly     1         HVAC
--------------------------------------------------------------------------------------------------------------------------
INS_CEIL_M            INS_CEIL_M                CEILING INSPECTION           Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_COR_M              INS_COR_M                   CORRIDOR ZONE             Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_COR_M_             INS_COR_M                   CORRIDOR INSP             Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_ENTR_M            INS_ENTR_M                                             Calendar period - monthly     1          GR
--------------------------------------------------------------------------------------------------------------------------
INS_EYE/SH         INS_EYE/SHOWER_M           INSPECT EYEWASH/SHOWERS        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_EYE/SH         INS_EYE/SHOWER_M           INSPECT EYEWASH/SHOWERS        Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_FDOOR            INS_FDOORS_M                   FIRE DOORS               Calendar period - monthly     1         ELEC
--------------------------------------------------------------------------------------------------------------------------
INS_FIRE_30          INS_FIREXT_M              FIRE EXTINGUISHER INSP        Calendar period - monthly     1         FIRE
--------------------------------------------------------------------------------------------------------------------------
INS_FIRE             INS_FIREXT_M                                            Calendar period - monthly     1         FIRE
--------------------------------------------------------------------------------------------------------------------------
INS_M_TRAP            INS_M_TRAPS            INSPEC TRAPS IN RESTROOMS       Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_OUT_M3             INS_OUT_M                                             Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------
INS_OUT_M3             INS_OUT_M                                             Calendar period - monthly     1          INS
--------------------------------------------------------------------------------------------------------------------------

PAGE 10 22-MAY-02

-------------------------------------------------------------------------------------------------------------------------

TAGNUMBER               PM #                EQUIPMENT DESCRIPTION            CALENDAR FREQUENCY       WEEK         SYSTEM

-------------------------------------------------------------------------------------------------------------------------
INS_ROOF_            INS_ROOF_M                INSPECTION ROOF           Calendar period - monthly      1           INS
-------------------------------------------------------------------------------------------------------------------------
INS_SEC_30          INS_SEC_300M           SECURITY ZONE GEN. EQUIP      Calendar period - monthly      1           INS
-------------------------------------------------------------------------------------------------------------------------
INS_SEC_M             INS_SEC_M            SECURITY ZONE GEN. EQUIP      Calendar period - monthly      1           INS
-------------------------------------------------------------------------------------------------------------------------
KATH4_300            KATH_300_M                    KATHABAR              Calendar period - monthly      1           HVAC
-------------------------------------------------------------------------------------------------------------------------
KATH1_300            KATH_300_M                    KATHABAR              Calendar period - monthly      1           HVAC
-------------------------------------------------------------------------------------------------------------------------
KATH2_300            KATH_300_M                    KATHABAR              Calendar period - monthly      1           HVAC
-------------------------------------------------------------------------------------------------------------------------
KATH3_300            KATH_300_M                    KATHABAR              Calendar period - monthly      1           HVAC
-------------------------------------------------------------------------------------------------------------------------
KATH5_300            KATH_300_M                    KATHABAR              Calendar period - monthly      1           HVAC
-------------------------------------------------------------------------------------------------------------------------
INS_TIMER1         LIGHTS,TIMER_M           OUTSIDE LIGHTING TIMER       Calendar period - monthly      1           ELEC
-------------------------------------------------------------------------------------------------------------------------
INS_1A_TIM         LIGHTS,TIMER_M           OUTSIDE LIGHTING TIMER       Calendar period - monthly      1           ELEC
-------------------------------------------------------------------------------------------------------------------------
PMP_1E_820            PMP_UV_M                        UV                 Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_87         PUMP_DI_PUMPS_M         RECLAIM LIFT STATION PMP      Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_87         PUMP_DI_PUMPS_M         RECLAIM LIFT STATION PMP      Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_87         PUMP_DI_PUMPS_M           HF LIFT STATION PMP         Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_88         PUMP_DI_PUMPS_M        METALS WASTE LIFT STA PMP      Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_86         PUMP_DI_PUMPS_M           INDUSTRIAL WASTE PUMP       Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
DI_300_868         PUMP_DI_PUMPS_M            HARDNESS ANALYZER          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_82         PUMP_DI_PUMPS_M                BRINE PUMP             Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_87         PUMP_DI_PUMPS_M        SLURRY WASTE LIFT STA PMP      Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_82         PUMP_DI_PUMPS_M             R O BOOSTER PUMP          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M          SODIUM BISULFITE PUMP        Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
DI_300_869         PUMP_DI_PUMPS_M             SILICA ANALYZER           Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M            R.O. PRESSURE PUMP         Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_88         PUMP_DI_PUMPS_M            EAST SUBLOOP PUMP          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8          PUMP_DI_PUMPS_M             P101B X-FER PUMP          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_1E_807         PUMP_DI_PUMPS_M          SM DI LOOP/W DIST PUMP       Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M            R.O. PRESSURE PUMP         Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M                  TOC UV               Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_85         PUMP_DI_PUMPS_M               HMR NAOH PUMP           Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_82         PUMP_DI_PUMPS_M              R.O. FEED PUMP           Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_85         PUMP_DI_PUMPS_M               HMR PAC PUMP            Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_1E_801         PUMP_DI_PUMPS_M            R.O. PRESSURE PUMP         Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_87         PUMP_DI_PUMPS_M           HF LIFT STATION PMP         Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_WTP_8          PUMP_DI_PUMPS_M             P101A X-FER PUMP          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M                  TOC UV               Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_82         PUMP_DI_PUMPS_M           DI DISTRIBUTION PUMP        Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_83         PUMP_DI_PUMPS_M             UV DISINFECTION           Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_1E_808         PUMP_DI_PUMPS_M         LG DI LOOP/SE PUMP DIST       Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_85         PUMP_DI_PUMPS_M               NS NAOH PUMP            Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_88         PUMP_DI_PUMPS_M        METALS WASTE LIFT STA PMP      Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_88         PUMP_DI_PUMPS_M             NE SUBLOOP PUMP           Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------
PMP_300_88         PUMP_DI_PUMPS_M            MAIN SUBLOOP PUMP          Calendar period - monthly      1            DI
-------------------------------------------------------------------------------------------------------------------------

PAGE 11 22-MAY-02

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TAGNUMBER               PM #               EQUIPMENT DESCRIPTION              CALENDAR FREQUENCY            WEEK       SYSTEM

-----------------------------------------------------------------------------------------------------------------------------
PMP_300_85        PUMP_DI_PUMPS_M            NS SULFURIC PUMP              Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_85        PUMP_DI_PUMPS_M        HMR SODIUM BISULFIT PUMP          Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_83        PUMP_DI_PUMPS_M            ANTI SCALANT PUMP             Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_87        PUMP_DI_PUMPS_M        SLURRY WASTE LIFT STA PMP         Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_86        PUMP_DI_PUMPS_M              HF WASTE PUMP               Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_84        PUMP_DI_PUMPS_M              CAUSTIC PUMP                Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_85        PUMP_DI_PUMPS_M         CLARIFIER POLYMER PUMP           Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_85        PUMP_DI_PUMPS_M            HMR SULFURIC PUMP             Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_87        PUMP_DI_PUMPS_M        IND. WASTE LIFT STAT PUMP         Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_87        PUMP_DI_PUMPS_M        IND. WASTE LIFT STAT PUMP         Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_83        PUMP_DI_PUMPS_M              CAUSTIC PUMP                Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_1E_806        PUMP_DI_PUMPS_M       MAIN DI DISTRIBUTION PUMP          Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_84        PUMP_DI_PUMPS_M             CLEAR WELL PUMP              Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_83        PUMP_DI_PUMPS_M          SODIUM BISULFITE PUMP           Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_1E_804        PUMP_DI_PUMPS_M          SMALL DI/NE DIST LOOP           Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_1E_805        PUMP_DI_PUMPS_M          D.I. DISTRIBUTION PUMP          Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_1E_803        PUMP_DI_PUMPS_M              R.O. FEED PUMP              Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_1E_802        PUMP_DI_PUMPS_M              R.O. FEED PUMP              Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_82        PUMP_DI_PUMPS_M          DI DISTRIBUTION PUMP            Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
PMP_300_83        PUMP_DI_PUMPS_M            ANTI SCALANT PUMP             Calendar period - monthly         1            DI
-----------------------------------------------------------------------------------------------------------------------------
SOL.SCRUB_            SCRUB_M               CATALYTIC OXIDIZER             Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
AM.SCRUBB             SCRUB_M                 AMMONIA SCRUBBER             Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
SCR1_300              SCRUB_M               SCRUBBER#6 AMMONIA             Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
SCR3_300              SCRUB_M                SCRUBBER#4 ACID               Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
SCR2_300              SCRUB_M               SCRUBBER#5 AMMONIA             Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
SCR1_651              SCRUB_M                 VIRON SCRUBBER               Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
TM_714                 TU_SA                TRUE REFRIGERATOR              Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
TM_713                 TU_SA                   TRANE MAKEUP                Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
FTU9-3_1D_6            TU_SA              TRANE FAN TERMINAL UNIT          Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
FTU10-1_1D_            TU_SA              TRANE FAN TERMINAL UNIT          Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
TM_712                 TU_SA                   TRANE MAKEUP                Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
FTU10-3_1D_            TU_SA              TRANE FAN TERMINAL UNIT          Calendar period - monthly         1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
INS_COR_B           INS_COR_BW                 CORRIDOR ZONE               Calendar period - biweekly        1            INS
-----------------------------------------------------------------------------------------------------------------------------
INS_COR_B           INS_COR_BW                 CORRIDOR INSP               Calendar period - biweekly        1            INS
-----------------------------------------------------------------------------------------------------------------------------
AD_RAF1_63          AIRDRYERS_W               ZEKS AIR DRYER               Calendar period - weekly          1          PLUMB
-----------------------------------------------------------------------------------------------------------------------------
AD_2_631            AIRDRYERS_W               ZEKS AIR DRYER               Calendar period - weekly          1          PLUMB
-----------------------------------------------------------------------------------------------------------------------------
AD_1_630            AIRDRYERS_W               ZEKS AIR DRYER               Calendar period - weekly          1          PLUMB
-----------------------------------------------------------------------------------------------------------------------------
AL_1103              ALERTON_W                    ALERTON                  Calendar period - weekly          1           HVAC
-----------------------------------------------------------------------------------------------------------------------------
CARD_7406_            CARD_W              CARD ACCESS SYSTEM 7406          Calendar period - weekly          1           ELEC
-----------------------------------------------------------------------------------------------------------------------------
CARD_1_300            CARD_W                 CARD ACCESS SYSTEM            Calendar period - weekly          1           ELEC
-----------------------------------------------------------------------------------------------------------------------------
CARD_1C_53            CARD_W                 CARD ACCESS SYSTEM            Calendar period - weekly          1           ELEC
-----------------------------------------------------------------------------------------------------------------------------
CH1_1B_640           CHILL_WS                 McQUAY CHILLER               Calendar period - weekly          1           HVAC
---------------------------------------------------------------------------------------------------------------------------

PAGE 12 22-MAY-02

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TAGNUMBER              PM #                 EQUIPMENT DESCRIPTION           CALENDAR FREQUENCY           WEEK            SYSTEM

-------------------------------------------------------------------------------------------------------------------------------
CHLR1_300           CHILL_WS                 CENTRIFUGAL CHILLER          Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
CH2_1B_641          CHILL_WS                    McQUAY CHILLER            Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
CHLR2_300           CHILL_WS                 CENTRIFUGAL CHILLER          Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
CWLAB_1E            CWTEST_W                    CITY WATER LAB            Calendar period - weekly        1                DI
-------------------------------------------------------------------------------------------------------------------------------
POND_1F_82          DI_POND_W                    BUILDING PONE            Calendar period - weekly        1                DI
-------------------------------------------------------------------------------------------------------------------------------
SOFTNER_1           DI_SOFTNER_W                 WATER SOFTNER            Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
ELEC_GEN_            ELECGEN                CATERPILLAR GENERATOR         Calendar period - weekly        1               ELEC
-------------------------------------------------------------------------------------------------------------------------------
GENIE_1A           GENIE_1A_W                GENIE PERSONNEL LIFT         Calendar period - weekly        1               ELEC
-------------------------------------------------------------------------------------------------------------------------------
HZ_1105               HZ_M                          HAZMAT                Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
INS_BREAK_         INS_BREAK_W                 BREAKROOMS INSP            Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_BREAK_         INS_BREAK_W              BREAKROOM ZONE INSP.          Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_CONF_          INS_CONF_W                CONF ROOM INSPECTION         Calendar period - weekly        1                RM
-------------------------------------------------------------------------------------------------------------------------------
INS_CONF_          INS_CONF_W                CONFERENCE ROOM INSP         Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_GRDS_          INS_GRND_W                     INSPECTION              Calendar period - weekly        1                GR
-------------------------------------------------------------------------------------------------------------------------------
INS_GRDS_          INS_GRND_W                     INSPECTION              Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_GRNDS_        INS_GRNDS_W             WEEKLY GROUNDS ZONE INSP.       Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_LIFT_D         INS_LIFT_D                   LIFTS, CRANES             Calendar period - weekly        1               LIFT
-------------------------------------------------------------------------------------------------------------------------------
INS_PLANTS        INS_PLANTS_W                      PLANTS                Calendar period - weekly        1                DI
-------------------------------------------------------------------------------------------------------------------------------
WA_305_110          INS_SCBA                   WATER TREATMENT            Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
SCBA                INS_SCBA                 UNIT 1-4 and CYL1-7          Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_SEC_30        INS_SEC_300W            SECURITY ZONE - CAMERAS         Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
INS_SEC_W           INS_SEC_W             SECURITY ZONE - CAMERAS         Calendar period - weekly        1               INS
-------------------------------------------------------------------------------------------------------------------------------
JC_1106               JC_W                     JOHNSON CONTROLS           Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
NIT_1050           NITROGEN_W                  NITROGEN SYSTEM            Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
INS_POWER            PLINK_W              SQUARE D POWERLINK PANEL        Calendar period - weekly        1               ELEC
-------------------------------------------------------------------------------------------------------------------------------
RO3_1E_824          ROTEST_W                          RO                  Calendar period - weekly        1                DI
-------------------------------------------------------------------------------------------------------------------------------
RO2_1E_801          ROTEST_W                         R.O.                 Calendar period - weekly        1                DI
-------------------------------------------------------------------------------------------------------------------------------
TM_717                TU_SA                      VACUUM PUMP              Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------
WA_305_110            WT_W                     WATER TREATMENT            Calendar period - weekly        1               HVAC
-------------------------------------------------------------------------------------------------------------------------------

PAGE 13 22-MAY-02

EXHIBIT 10.38

FIRST AMENDMENT TO LEASE AGREEMENT

This First Amendment to Lease Agreement (the "First Amendment") is made and entered into as of this 21st day of January, 2003, by and between Phoenix Industrial Investment Partners, L.P., an Arizona limited partnership ("Landlord") and SpeedFam - IPEC, Inc., an Illinois corporation ("Tenant").

RECITALS

A. Landlord and Tenant entered into that certain Lease Agreement dated June 21, 2002 (the "Lease"), pursuant to which Landlord agreed to lease to Tenant and Tenant agreed to lease from Landlord, certain premises located at 300 North 56th Street and 305 North 54th Street, Chandler, Arizona, as more particularly described in the Lease ("Leased Premises"), on all of the terms and conditions set forth therein.

B. On or about December 6, 2002, all of Tenant's outstanding capital stock was acquired by Novellus Systems, Inc., a California corporation ("Novellus") pursuant to a reverse triangular merger which resulted in Tenant becoming a wholly owned subsidiary of Novellus ("Merger").

C. Tenant and Landlord now desire to amend the Lease on the terms and conditions set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the promises, terms and conditions contained herein and such other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Tenant and Landlord hereby agree as follows:

1. Defined Terms and Recitals. Except as otherwise defined herein, all capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in the Lease.

2. Modifications to Lease. Landlord and Tenant hereby agree that from and after the date of this First Amendment, the Lease shall be modified as follows:

a Section 25(b) of the Lease Agreement is hereby amended to provide that in every instance where Tenant is required to provide financial statements pursuant to Section 25(b) of the Lease Agreement, Tenant may provide, in lieu thereof, consolidated financial statements of Tenant and Novellus Systems, Inc., the parent company of Tenant.

b Although Landlord acknowledges that Landlord's consent is not required under Section 23 of the Lease, Landlord hereby consents to the Merger. Landlord further acknowledges that Landlord has no right, title or interest in and to any "Transfer Consideration" in connection with the Merger.

c Concurrently herewith Novellus will enter into a Lease Guaranty for the benefit of Landlord wherein Novellus guarantees the full and prompt performance of Tenant's obligations under the Lease. The Lease Guaranty will be substantially in the form attached hereto as Exhibit A.

d Section 30 of the Lease Agreement is hereby amended to provide that in every instance a notice is to be provided to Tenant under the Lease such notice shall be provided to Tenant at SpeedFam-IPEC, Inc., c/o Novellus Systems, Inc., 4000 North First Street, San Jose, California

95134, Attention: Kevin S. Royal, with a copy to Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, California 94304, Attention: Richard Scudellari.

3. Governing Law. This First Amendment shall be governed by, construed and enforced in accordance with, the laws of the State of Arizona.

4. Counterparts. This First Amendment may be executed in two or more counterparts, which when taken together shall constitute one and the same instrument. The parties contemplate that they may be executing counterparts of the First Amendment transmitted by facsimile and agree and intend that a signature by facsimile machine shall bind the party so signing with the same effect as though the signature were an original signature.

5. Reaffirmation of Lease. Landlord and Tenant hereby acknowledge and agree that the Lease, as modified by this First Amendment, is hereby reaffirmed, ratified, and confirmed in its entirety. Except as set forth herein, the Lease remains unmodified and in full force and effect. In the event of any inconsistency between the provisions of the Lease and this First Amendment, the terms of this First Amendment shall control.

IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed as of the day and year first written above.

LANDLORD:   PHOENIX INDUSTRIAL INVESTMENT PARTNERS, L.P.
            an Arizona limited partnership

            By:   Glen Una Management Company,
                  a California corporation
                  its General Partner

                  By: /s/ Kenneth Levy
                  Name: Kenneth Levy
                  Its: President


TENANT:     SPEEDFAM - IPEC, INC.,
            an Illinois corporation

            By: /s/ Kevin Royal
            Name: Kevin Royal
            Its: President

EXHIBIT 10.39

LEASE GUARANTY

IN CONSIDERATION of and as an inducement for the granting, execution and delivery by Phoenix Industrial Investment Partners, L.P., an Arizona limited partnership, as lessor ("Lessor"), of the First Amendment to Lease Agreement dated January 21st, 2003 with SpeedFam - IPEC, Inc., an Illinois corporation, as the lessee ("Lessee"), relating to the Lease Agreement dated June 21, 2002 between the parties (as amended, the "Lease"), pursuant to which Lessor and Lessee agreed to the leasing and use of those certain premises located at 300 North 56th Street and 305 North 54th Street, Chandler, Arizona, as more particularly described in the Lease (the "Premises"), the undersigned, Novellus Systems, Inc., a California corporation ("Guarantor"), hereby covenants and agrees as follows:

1. Guarantor unconditionally and irrevocably guarantees to Lessor the full and prompt payment of Rent (as such term is defined in the Lease) and any and all other sums and charges payable by Lessee under the Lease, and hereby unconditionally and irrevocably guarantees the full, faithful and timely performance and observance of all the covenants, terms, conditions and agreements required to be performed and observed by Lessee under the Lease and any amendment, modification or renewal thereof.

2. Guarantor hereby covenants and agrees to and with Lessor that if a default shall at any time be made by Lessee in the payment of any such Rent or other such sums and charges payable by Lessee under the Lease, or if Lessee should default in the performance and observance of any of the terms, covenants, provisions or conditions contained in the Lease or, should Rent or other sums and charges not be paid or terms, covenants, provisions and conditions not be performed in the event of a Financial Proceeding (as defined in Paragraph 7 below), Guarantor shall, after the expiration of any and all applicable notice and cure periods contained in the Lease, immediately pay such Rent and other such sums and charges and any arrears thereof (including, without limitation, damages, interest, costs, fees, reasonable attorneys' fees and expenses) (collectively, the "Lease Amounts"), and shall, immediately after the expiration of any and all applicable notice and cure periods contained in the Lease, pay all Lease Amounts that (a) may arise in connection with or otherwise relate to any default by Lessee under the Lease and/or any enforcement of this Guaranty, or (b) would have accrued under the Lease but for the commencement of a Financial Proceeding.

3. The provisions of the Lease may not be changed (which according to terms and conditions contained therein, may only be changed by an amendment in writing) between Lessor and Lessee without the written consent of Guarantor. The Lease may not be assigned by Lessee, and the Premises, or a portion thereof, may not be sublet by Lessee, without the written consent of Guarantor, which consent will not be withheld where Lessor is required by the terms of the Lease or applicable law to grant its consent to such assignment or sublease. With respect to any change to the Lease between Lessor and Lessee which increases Guarantor's liability thereunder, without Guarantor's consent, Guarantor's liability shall be limited to those obligations set forth in the Lease and those modifications and amendments to which the Guarantor has consented.

4. Guarantor's liability hereunder shall continue until all sums due and owing Lessor under the Lease have been paid and all obligations of Lessee to be performed under the Lease have been performed, all in accordance with the terms of the Lease.

5. Lessor may, and Guarantor waives any right to require that Lessor, proceed against Guarantor for payment and/or performance of any of the obligations guaranteed hereunder following a default by Lessee under the Lease without first proceeding against

Lessee and without previous notice to or demand upon either Lessee or Guarantor. Guarantor waives any and all benefits under Arizona Revised Statutes Sections 12-1641 through and including 12-1646 and Rule 7(f) Arizona Rules of Civil Procedure.

6. Guarantor hereby consents to, waives notice of, and agrees that it shall not be discharged, released or exonerated from its liability hereunder, by reason of any or all of the following (a) any and all consents and approvals of any kind given by Lessor under the Lease (subject to Paragraph 3 above); and (b) any and all alterations, impairments, suspensions, terminations and expirations of the remedies or rights of Lessor against Lessee or any other person in respect of any of Guarantor's obligations hereunder.

7. The obligations of Guarantor under this Guaranty shall remain in full force and effect and Guarantor shall not be discharged by any of the following events with respect to Lessee or Guarantor: (a) insolvency, bankruptcy, reorganization arrangement, adjustment, composition, assignment for the benefit of creditors, liquidation, winding up or dissolution (each, a "Financial Proceeding"); (b) any merger, acquisition, consolidation or change in entity structure, or any sale, lease, transfer, or other disposition of any entity's assets, or any sale or other transfer of interests in the entity (each, an "Event of Reorganization"); or (c) any sale, exchange, assignment, hypothecation or other transfer, in whole or in part, of Lessor's interest in the Premises or the Lease. Nothing in this Paragraph 7 shall diminish the effect of any subsequent written agreement between Guarantor and Lessor.

8. The term "Lease" whenever used in this Guaranty shall be deemed, and interpreted so as, to also include any renewals or extensions of the initial or renewal term(s), as the case may be, and any holdover periods thereunder, subject to Paragraph 3 above.

9. All demands, notices and other communications under or pursuant to this Guaranty shall be in writing, and shall be deemed to have been duly given when personally delivered, or three (3) days after the date deposited in the United States Postal Service, first-class postage prepaid, certified with return receipt requested, the delivery date designated for overnight courier services (e.g. Federal Express), or upon receipt of confirmation of successful transmittal when sent via facsimile (with a copy sent via United States Postal Service, first-class postage prepaid) addressed to the party at the address set forth below, or at such other address as may be hereafter designated in writing by either party to the other.

LESSOR:

Phoenix Industrial Investment Partners, L.P., 19800 Glen Una Drive
Saratoga, California 95070
Attention: Kenneth Levy
Facsimile: (408) 875-4714

With a copy to:

Frank Maiorana
Silicon Valley Law Group
152 North Third Street, Suite 900 San Jose, California 95112
Facsimile: (408) 286-1430

GUARANTOR:

Novellus Systems, Inc.
4000 North First Street, MS 245 San Jose, CA 95134
Attention: Kevin Royal, CFO Fax: (408) 943-3448

10. Guarantor hereby represents and warrants that this Guaranty is binding on Guarantor in accordance with its terms; and that the terms and provisions of this Guaranty are intended to be valid and enforceable in accordance with its terms. Guarantor further represents and warrants that it has the full legal right and authority to enter into this Guaranty and that this Guaranty has been authorized and approved by all necessary corporate powers.

11. Without the prior written consent of Guarantor, which shall not be unreasonably withheld, Lessor may not assign or transfer this Guaranty unless such assignment or transfer is made in conjunction with the assignment or transfer of all or a portion of Lessor's interest in the Lease. Lessor must first give notice of any such assignment or transfer to Guarantor in writing, and any such assignment or transfer shall not affect, or otherwise relieve, Guarantor from its obligations or liability hereunder. Guarantor may not assign or otherwise delegate any of its rights or obligations hereunder without first obtaining Lessor's written consent thereto, which consent may be withheld in Lessor's sole and absolute discretion. The terms and provisions of this Guaranty shall inure to the benefit of Lessor and Lessor's partners, lenders, representatives, successors and assigns. Notwithstanding anything to the contrary contained in this Guaranty, this Guaranty shall automatically terminate in the event Lessee's entire interest in the Lease is transferred to Guarantor, provided that the Guarantor assumes all of Lessee's interests and obligations under the Lease.

12. This Guaranty shall be governed by and construed in accordance with the laws of the State of Arizona, irrespective of its conflict of law rules. Guarantor hereby consents to the jurisdiction of the courts of the State of Arizona. This Guaranty shall be subject to all valid applicable laws and official orders, rules and regulations, and, in the event this Guaranty or any portion thereof is found to be inconsistent with or contrary to any such laws or official orders, rules or regulations, the latter shall be deemed to control, and this Guaranty shall be regarded as modified and shall continue in full force and effect; provided, however, that nothing herein contained shall be construed as a waiver of any right to question or contest any such law, order, rule or regulation in any forum having jurisdiction in the Premises.

13. This Guaranty and any exhibits hereto constitute the entire agreement between the parties with respect to the matters covered herein and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof.

14. In the event Guarantor fails to perform any of its obligations under this Guaranty or in the event a dispute arises concerning the meaning or interpretation of any provision of this Guaranty, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs, expert fees, and reasonable attorneys' fees.

15. Lessor and Guarantor hereby waives any right to trial by jury with respect to any action or proceeding relating to any action or proceeding brought by either party or any other party, relating to this Guaranty and/or any understandings or prior dealings between the parties.

Lessor and Guarantor hereby agree that this Guaranty constitutes a written consent to waiver of trial by jury pursuant to the provisions of Arizona law.

16. If a dispute arises out of or relating to this Guaranty, or the breach thereof, and if said dispute cannot be settled through direct discussions (between representatives from each party duly authorized to bind the respective party), the parties agree that any action to enforce or interpret this Agreement, or to resolve disputes with respect to this Agreement shall be determined by arbitration by a single arbitrator who shall be agreed upon by the parties. Such single arbitrator shall then try all issues, whether of fact or law, and report in writing a finding and judgement thereon. Judgement may be entered upon any such final decision in accordance with applicable law in any court having jurisdiction thereof.

LESSOR: GUARANTOR:

17. Time is of the essence of this Guaranty.

18. This Guaranty may be executed in two or more counterparts, which when taken together shall constitute one and the same instrument.

[INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, Guarantor has signed this Guaranty as of the date set forth below.

Guarantor:

Date: 1/13/03                 NOVELLUS SYSTEMS, INC.
                              A California corporation

                              By: /s/ Kevin Royal
                              Its: Chief Financial Officer


Lessor:


Date: 1/21/03                 PHOENIX INDUSTRIAL INVESTMENT PARTNERS, L.P.
                              an Arizona limited partnership

                              By:   Glen Una Management Company,
                                    a California corporation
                                    its General Partner

                                    By:  /s/ Kenneth Levy
                                    Name: Kenneth Levy
                                    Its: President

EXHIBIT 12.1

RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)

The ratio of earnings to fixed charges for each of the five most recent fiscal years was as follows:

                      YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
   2002            2001          2000          1999           1998
------------    ----------    ----------    ----------     ----------
   2.69           13.41         16.30          6.95           6.33

The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings before income taxes and before the cumulative effect of a change in accounting principle plus fixed charges. Fixed charges consist of interest expense and that portion of net rental expense deemed representative of interest.

.
.

EXHIBIT 21.1

SUBSIDIARIES OF NOVELLUS

Novellus Systems International, Inc.        Novellus Systems Japan
Novellus Systems Export, Inc.               GaSonics International KK Japan
4000 N. First St.                           KSP Bldg., R&D C-10F,
San Jose, CA  95134 USA                     3-2-1 Sakado, Takatsu-ku, Kawasaki-shi
T 408.943.9700                              Kanagawa-ken 213-0012, Japan
F 408.943.3422                              T 81.44.850.1777
                                            F 81.44.850.1778
Novellus Systems UK Ltd.
The Forum                                   Novellus Systems Korea Co. Ltd.
Callander Business Park                     SpeedFam-IPEC Korea Ltd.
Callander Road                              2F, DaeWoo Engineering Building
Falkirk                                     9-3 SuNae-Dong, BunDang-Ku,
FK1 1XR                                     SungNam City
T 44. 01324 639 988                         Kyungki-Do, 463-020, Korea
F 44. 01324 612 069                         T 82.31.738.1114
                                            F 82.31.714.9921
Novellus Systems BV
148 Dillenburgstraat 5B                     Novellus Systems (H.K.) Ltd., Taiwan
5652 AM Eindhoven                           9F, No. 6, Lane 99
The Netherlands                             Pu-Ting Road
T 31.40.2918010                             Hsinchu City, Taiwan 300 R.O.C.
F 31.40.2573590                             T 886.3.5730550
                                            F 886.3.5730553
Novellus Systems SARL
Parc de la Julienne, Bat. D, 1er etage,     Novellus Systems Semiconductor
91830 Le Coudray Montceaux                  Equipment (Shanghai) Co. Ltd.
France                                      Unit 10 SOHO Building
T 33.1.64.93.7070                           439 Chun Xiao Road, Pudong New Area,
F 33.1.64.93.8787                           Shanghai 201203, P.R.China
                                            T 86.21.50802056
Novellus Systems SARL                       F 86.21.50802103
1(degree) etage
Parc Technologique des Fontaines            Novellus Systems International
Chemin des Fontaines                        Trading (Shanghai) Co. Ltd.
38190 Bernin                                Rm. 237, No. 2, Tai Zhong South Road,
France                                      Waigaoqiao Free Trade Zone, Pudong New Area
T 33 476 08 00 00                           Shanghai 200131, P.R. China
F 33 476 08 76 67                           T 86.21.50802056
                                            F 86.21.50802103
Novellus Systems GmbH
Moritzburger Weg 67, Entrance E 1st Floor   Novellus Singapore Pte. Ltd.
01109 Dresden,                              SpeedFam-IPEC S.E. Asia Private Limited
Germany                                     101 Thomson Road
T 49.351.8838.3200                          #24-03/05 United Square
F 49.351.8838.3299                          Singapore 307591
                                            T  65.6.353.9288
                                            F  65.6.353.6833

                                            Novellus Systems (Malaysia) Sdn. Bhd.
Novellus Systems Ireland Ltd.               SpeedFam-IPEC (Malaysia) Sdn Bhd
GaSonics International Ireland Ltd          Suite B3-1 Ground Floor
Mill Street                                 Kulim Hi-Tech Park,
Maynooth, County Kildare                    09000 Kulim
Ireland                                     Kedah Darul Amam
T 353.1.629.3270                            T 604.403.3368
F 353.1.601.6584                            F 604.403.3378

Novellus Systems Israel Ltd.                Novellus Systems (India) Pvt. Ltd.
GaSonics International Israel Ltd           Le Parc Richmonde, 2nd Fl.
2 Tzoran St. (LC2-3S)                       51 Richmond Road
The New Industrial Zone                     Bangalore, India 560025
Qiryat-Gat, 82109                           T 91.80.2296146
T 972.7.666.2743                            F 91.80.2296145
F 972.7.666.6677
                                            SpeedFam-IPEC Limited
SpeedFam-IPEC, Inc.                         Brindley Road, Dodwells Bridge
Headquarters                                Industrial Estates
300 N. 56th Street                          Hinckley Leicestershire
Chandler, Arizona 85226                     LE10 3BY England
                                            Tel: 44.1455.631707
SpeedFam-IPEC GmbH                          Fax: 44.1455.611360
Schlosstrasse 5
D-74653 Ingelfingen                         SpeedFam-IPEC K.K.
Germany                                     2754-8 Hayakawa, Ayase-shi
Tel: 49.7940.58402                          Kanagawa-ken, 252-1123, Japan
Fax: 49.7940.57611                          Tel: 467.76.3138
                                            Fax: 467.76.3343

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-11825, 33-88156, 33-51056, 33-36787, 33-25897, 33-62807, 333-35487, 333-65567, 333-80453, 333-54056, 333-54058, 333-70146, 333-89742, 333-101730, 333-102784) pertaining to the Novellus Systems, Inc. Amended and Restated 1984 Stock Option Plan, the Novellus Systems, Inc. Amended and Restated 1992 Employee Stock Purchase Plan, the Novellus Systems, Inc. Amended and Restated 1992 Stock Option Plan, the GaSonics International Corporation 1994 Stock Option/Stock Issuance Plan, the Gamma Precision Technology 1998 Stock Option Plan, the GaSonics International Corporation 2000 Supplemental Stock Option Plan, the Novellus Systems, Inc. 2001 Non-Qualified Stock Option Plan, as amended, the Novellus Systems, Inc. 2001 Stock Incentive Plan, the SpeedFam, Inc. 1991 Employee Incentive Stock Option Plan, as amended, the SpeedFam-IPEC, Inc. 1992 Stock Option Plan, as amended, the 1995 Stock Plan for Employees and Directors of SpeedFam-IPEC International, Inc., as amended, the 2001 Nonstatutory Stock Option Plan of SpeedFam-IPEC, Inc., and the Stand-Alone Nonstatutory Stock Option Agreement of SpeedFam-IPEC, Inc., dated June 14, 2001, of our report dated January 20, 2003, with respect to the consolidated financial statements and schedule of Novellus Systems, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002.

                                             /s/ Ernst & Young LLP

San Jose, California
February 27, 2003

EXHIBIT 99.1

NOVELLUS SYSTEMS, INC.

CERTIFICATION

In connection with the periodic report of Novellus Systems, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Richard S. Hill, Chairman of the Board of Directors and Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 5, 2003                 By:  /s/ Richard S. Hill
                                         ________________________________
                                          Richard S. Hill
                                          Chairman of the Board of Directors
                                          and Chief Executive Officer

EXHIBIT 99.2

NOVELLUS SYSTEMS, INC.

CERTIFICATION

In connection with the periodic report of Novellus Systems, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Kevin S. Royal, Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: March 5, 2003                 By:  /s/ Kevin S. Royal
                                          ___________________________________
                                          Kevin S. Royal
                                          Vice President and
                                          Chief Financial Officer

EXHIBIT 99.3

NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP

Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if any part of a registration statement at the time such part becomes effective contains an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant.

Arthur Andersen LLP has not consented to the incorporation by reference into this Form 10-K of their report dated October 30, 2000 with respect to the consolidated financial statements of GaSonics International Corporation that are included in the GaSonics Form 10-K filed on December 26, 2000, and included as an exhibit to the Novellus Systems, Inc. Form 10-K for the year ended December 31, 2001, which is incorporated by reference into this Form 10-K. Novellus has dispensed with the requirement to file their consent in reliance upon Rule 437(a) of the Securities Act. Because Arthur Andersen LLP has not consented to the inclusion of their report in this Form 10-K, Arthur Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act for any purchases of securities under this Form 10-K. To the extent provided in Section 11(b)(3)(C) of the Securities Act, however, other persons who are liable under Section 11(a) of the Securities Act, including Novellus' officers and directors, may still rely on Arthur Andersen's original audit reports as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act.

•		Statements about the growth of the semiconductor industry; market size, share and demand; product performance; our expectations, objectives, anticipations, intentions and strategies regarding the future; expected operating results, revenues and earnings; and current and potential litigation, which statements are subject to various uncertainties, including, without limitation, those discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors”;

•		The statements under the heading “Item 1. Business” concerning (1) the semiconductor industry’s migration to the use of copper and low-k dielectrics and (2) the growing importance of the surface preparation and CMP manufacturing steps, which statements are subject to various risks and uncertainties, including, without limitation, the failure of our expectations regarding the future direction of the semiconductor industry and our failure to combine the recently-acquired product offerings of GaSonics International Corporation and SpeedFam-IPEC, Inc. with our offerings;

•		The statements under the heading “Item 1. Business – Industry Background” regarding our beliefs that (1) unit demand for semiconductor devices will continue to increase; (2) the next generation of chips will likely see line widths as small as 90 nanometer and below; (3) there will be a transition from aluminum to copper conductive material; (4) there will be a transition from silicon oxide films to low-k dielectric insulators; and (5) there is a trend toward larger wafer sizes, which statements are subject to various risks and uncertainties, including, without limitation, periodic downturns in the semiconductor industry, slowdowns in the rate of capital investment by semiconductor manufacturers, shifts in demand from expensive, high-performance products to lower priced, conventional products, and the failure of our expectations regarding the future direction of the semiconductor industry;

•		The statements under the heading “Item 1. Business – Strategy,” concerning (1) our objective to increase our market share in the interconnect manufacturing market and strengthen our position as a leading supplier of semiconductor processing equipment; (2) our emphasis on high-productivity systems; (3) our focus on reducing customer costs; (4) our service differentiation philosophy; (5) our goal to lead in our target markets; (6) our goal to broaden our interconnect offerings; (7) our focus on major semiconductor manufacturers; (8) our intention to expand our market presence in Asia; and (9) our intention to leverage our low manufacturing cost structure, which statements are subject to various risks and uncertainties, including, without limitation, shifts in demand from expensive, high-performance products to lower priced, conventional products, resulting in reduced profit for semiconductor manufacturers, the current and other periodic downturns in the semiconductor industry and the economy in general, slowdowns in the rate of capital investment by semiconductor manufacturers and future product developments, introductions by competitors, increased competition in the

		providing the flexibility to increase capacity as needed and allows us to focus on product differentiation through system design and quality control; (2) our belief that the use of manufacturing specialists for our subsystems incorporate the most advanced technologies in robotics, gas panels and microcomputers; (3) our goal to work with suppliers to achieve mutual cost reduction through joint design efforts; and (4) our goal of reduced dependence on limited suppliers for certain key parts, which statements are subject to various risks and uncertainties, including, without limitation, the possible occurrence of a disruption or termination of certain limited source suppliers, our prolonged inability to obtain certain components, our failure to work efficiently with suppliers, and our inability to establish relationships with alternative suppliers of key parts;

•		The statement under the heading “Item 1. Business – Competition” regarding our belief as to our favorable competitiveness in our market segments, which statement is subject to various risks and uncertainties, including, among others, the greater financial, marketing, technical or other resources, broader product lines, greater customer service capabilities and larger and more established sales organizations and customer bases that some of our competitors possess, future competition from new market entrants from overseas and domestic sources, our competitors’ improvement of the design and performance of their products that may offer superior price or performance features as compared to our products, and our success in selecting, developing, manufacturing and marketing our new products or enhancing our existing products;

•		The statements under the heading “Item 1. Business – Patents and Proprietary Rights” regarding our beliefs and intentions (1) to pursue the legal protection of our technology primarily through patent and trade secret protection; (2) to file additional patent applications; (3) to vigorously protect our intellectual property rights; (4) that the outcomes of current litigation will not have a material impact on our business; and (5) that in the future, litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others, which statements are subject to various risks and uncertainties, including, without limitation, the absence of assurance that patents will be issued from any of our pending applications or that any claims allowed from existing or pending patents will be sufficiently broad to protect our technology, the fact that litigation could result in substantial cost and diversion of our effort and the fact that adverse litigation determinations could result in a loss of our proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products;

•		The statements under the heading “Item 1. Business – Employees” that our success depends upon (1) our ability to recruit and retain engineers and technicians, marketing, sales, service and other key personnel and (2) the retention of a limited number of key employees and other members of our senior management, which statements are subject to risks and uncertainties, including, among others, our inability to successfully retain or recruit key personnel and our inability to effectively manage growth;

•		The statement under the heading “Item 1. Business – Environmental Matters” that neither compliance with federal, state and local provisions regulating discharge of materials into the environment nor remedial agreements or other environmental actions is expected to have a material affect on our capital expenditures, financial condition, results of operations or competitive position, which statement is subject to various risks and uncertainties, including, among others, that we have inaccurately assessed the compliance requirements of environmental provisions;

•		The statement under the heading “Item 2. Properties” of our belief that our current properties will be sufficient to meet our requirements for the foreseeable future is subject to various risks and uncertainties, including, without limitation, growth in net sales placing unexpected strains on our resources and properties;

•		The statements under the headings “Item 3. Legal Proceedings” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 11. Litigation” of our beliefs (1) that there are meritorious defenses in the Applied Materials, Inc., Semitool, Inc., Plasma Physics Corporation, Solar Physics Corporation and Linear Technology Corporation litigation matters, and

		(2) regarding the impact and outcome of the Applied, Semitool, Plasma Physics, Solar Physics and Linear Technology litigation matters, which statements are subject to various uncertainties, including, without limitation, our inability to accurately predict the determination of complex issues of fact and law;

•		The statements under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” regarding calculation of allowances, reserves, and other estimates that are based on historical experience, the judgment of management, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, our beliefs about critical accounting policies, and the significant judgments and estimates used in the preparation of our consolidated financial statements, which statements are subject to certain risks, including, among others, the inaccuracy of our beliefs regarding critical accounting policies and that actual product failure rates, material usage, installation costs, customer reserves or other estimates may be different from our estimates, requiring revisions to our estimated allowance for doubtful accounts, additional inventory write-downs, restructuring charges, litigation, warranty, and other reserves;

•		The statements under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” of our strategies, beliefs, plans, expectations, anticipations and hopes with respect to Net Sales, Gross Profit, Selling, General and Administrative, Research and Development, Acquired In-Process Research and Development, Restructuring and Other Charges, Bad Debt (Recovery) Write-off, Other Income, net, Provision for Income Taxes, Deferred Tax Assets, Foreign Currency Accounting and Foreign Exchange Contracts including, without limitation, (1) our plan to continue our R&D commitment to improvement of new and existing technologies; (2) our belief that substantial investment in R&D is required to remain competitive; (3) management’s beliefs regarding the realization of deferred tax assets; and (4) the belief that our forward foreign exchange contracts do not subject us to speculative risk that would otherwise result from changes in currency exchange rates; and our strategies, beliefs, plans, expectations, anticipations and hopes with respect to Liquidity and Capital Resources set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” including, without limitation, (1) our beliefs regarding the impact of the adoption of SFAS Nos. 143, 145 and 146; (2) our intention to continue our participation in synthetic leases in 2003; (3) our beliefs regarding our exposure in connection with the residual value guarantees related to our synthetic leases; (4) our belief that the fair market value of each of the properties subject to the synthetic leases exceeds the purchase option price for each property; (5) our beliefs regarding the impact to liquidity if we must purchase the properties subject to the synthetic leases; (6) our expectations regarding our actions if the lessor under the synthetic leases is deemed to be a voting interest entity versus a variable interest entity; (7) our belief that the additional taxes, losses and expenses associated with our maximum loss exposure on the synthetic leases would be immaterial; and (8) our belief that our current cash position, cash generated through operations and equity offerings, and available borrowings will be sufficient to meet our needs through at least the next twelve months, which statements are subject to numerous risks and uncertainties, including, without limitation, our inability to allocate substantial resources to R&D programs, the inaccuracy of our beliefs regarding taxes, foreign exchange contracts, the impact of certain accounting standards and our synthetic leases, that the semiconductor industry will continue to experience this or another periodic downturn, which could have a material adverse effect on the semiconductor industry’s demand for semiconductor processing equipment, including equipment we manufacture and market, and our success in selecting, developing, manufacturing and marketing our new products, or enhancing our existing products;

•		The statement under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” that we believe that an immediate change to interest rates to variable short-term borrowings will not have a material effect on our results is subject to the risk, among other risks, that we have inaccurately assessed our future borrowing needs; and


(2)	We recorded pre-tax charges totaling $84.5 million for the year ended December 31, 2001 associated with restructuring and acquisition activities, other than temporary decline in value of an investment and write-off of a bad debt.
(3)	We adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” or SFAS No. 142, in the first quarter of 2002. As a result of its adoption, we no longer amortize goodwill, which resulted in an increase in net income of $3.6 million for the year ended December 31, 2002. Retroactive application of SFAS No. 142 would have resulted in an increase in net income for the year ended December 31, 2001 of $3.5 million, or $0.02 per diluted share. Amortization of goodwill was not material in all years shown prior to 2001.
(4)	We recorded pre-tax charges totaling $32.5 million for the year ended December 31, 2002 associated with restructuring and severance activities of $6.5 million, write-off of debt issuance costs of $17.0 million and acquired in-process research and development charge relating to the acquisition of SpeedFam-IPEC of $9.0 million. Additionally, we recorded a pre-tax benefit of $12.3 million for the year ended December 31, 2002 associated with the recovery of a receivable previously written off of $7.7 million and a gain on the sale of an equity investment of $4.6 million.

•		Tariffs and other trade barriers;

•		Challenges in staffing and managing foreign subsidiary operations;

•		Difficulties in managing foreign distributors;

•		Potentially adverse tax consequences;

•		Imposition of legislation and regulations relating to the import or export of semiconductor products, either by the United States or other countries;

•		Periodic economic downturns;

•		Political instability; and

•		Fluctuations in interest and foreign currency exchange rates, creating the need to enter into forward foreign exchange contracts to hedge against the short-term impact of foreign currency fluctuations, specifically yen-denominated transactions.

•		Building our systems according to forecast, and not using limited backlog information, which hinders our ability to plan production and inventory levels;

•		Failure to receive anticipated orders in time to permit shipment during that quarter;

•		Customers rescheduling or canceling shipments;

•		Manufacturing difficulties;

•		Customers deferring orders of our existing products due to new product announcements by us and/or our competitors; and

•		Difficulties in integrating the operations, technologies, products and personnel of acquired companies;

•		Lack of synergies or the inability to realize expected synergies;

•		Difficulties in managing geographically dispersed operations;

•		The potential loss of key employees, customers and strategic partners of acquired companies;

•		Diversion of management’s attention from normal daily operations of the business; and

•		The impairment of acquired intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies.

(1)		Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2002.

(2)		Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(3)		Incorporated by reference to exhibit with the corresponding exhibit number in Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2002.

(4)		Incorporated by reference to the exhibit with the corresponding exhibit number in Novellus’ Registration Statement on Form S-3 filed with the Securities and Exchange Commission on September 25, 2001.

(5)		Incorporated by reference to Exhibit 2.3 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(6)		Incorporated by reference to Exhibit 2.4 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(7)		Incorporated by reference to Exhibit 2.6 to Novellus’ Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 1997.

(8)		Incorporated by reference to Exhibit 10.1 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on August 11, 1997.

(9)		Incorporated by reference to Exhibit 10.30 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(10)		Incorporated by reference to Exhibit 10.21 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(11)		Incorporated by reference to Exhibit 10.31 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(12)		Incorporated by reference to Exhibit 10.1 filed with Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2002.

(13)		Incorporated by reference to Exhibit 10.34 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993.

(14)		Incorporated by reference to Exhibit 10.41 filed with Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 1994.

(15)		Incorporated by reference to Exhibit 10.27 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 1999.

(16)		Incorporated by reference to Exhibit 10.27 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000.

(17)		Incorporated by reference to Exhibit 10.30 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(18)		Incorporated by reference to Exhibit 10.31 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(19)		Incorporated by reference to Exhibit 10.32 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(20)		Incorporated by reference to Exhibit 10.33 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(21)		Incorporated by reference to Exhibit 10.34 to Novellus’ Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2001.

(22)		Incorporated by reference to Exhibit 10.6 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001.

(23)		Incorporated by reference to Exhibit 10.7 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001.

(24)		Incorporated by reference to Exhibit 10.1 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on November 13, 2001.

(25)		Incorporated by reference to Exhibit 10.2 to Novellus’ Report on Form 10-Q filed with the Securities and Exchange Commission on November 13, 2001.

(b)		Reports on Form 8-K:

		On December 9, 2002, Novellus filed a report on Form 8-K relating to the acquisition of SpeedFam- IPEC, Inc.

1.		I have reviewed this annual report on Form 10-K of Novellus Systems, Inc.;

2.		Based on my knowledge, this annual 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 annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.		The registrant’s other certifying officers 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 annual 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 annual report (the “Evaluation Date”); and

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

	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