Exhibit 10.6

RETAIL LEASE

between

LA CAÑADA PROPERTIES, INC.,

a California corporation,

as Landlord

and

SPORT CHALET, INC.,

a Delaware corporation,

as Tenant

La Cañada, California

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TABLE OF CONTENTS

   
Page
     
1.
Premises
2
2.
Improvements
2
3.
Term of this Lease; Options to Extend the Term
2
4.
Rent
4
5.
Taxes and Assessments
5
6.
Utilities
6
7.
Uses
6
8.
Tenant’s Alterations, Additions or Improvements
8
9.
Common Areas
9
10.
Common Area Expenses
10
11.
Maintenance
11
12.
Insurance
13
13.
Indemnity
14
14.
Damage and Destruction
14
15.
Condemnation
15
16.
Assignment and Subletting
15
17.
Subordination and Attornment
16
18.
Tenant Defaults
17
19.
Landlord Defaults
18
20.
Tenant’s Property; Surrender; Holding Over
18
21.
Agreements
19
22.
Quiet Enjoyment
19
23.
Estoppel Statements
19
24.
Force Majeure
19
25.
Signs
19
26.
Real Estate Brokers
19
27.
Memorandum of Lease
19
28.
Notices
19
29.
Attorneys’ Fees
19
30.
Waiver
19
31.
Lease Binding Upon Successors
19
32.
Interpretation
20
33.
Interest
20
34.
Invalidity
20
35.
Time of the Essence
20
36.
Governing Law
20
37.
Approvals
20
38.
Counterparts
20
39.
Expedited Dispute Resolution
20
40.
Termination of Existing Lease
20
41.
Renaming of Sport Chalet Drive
21
42.
Waiver of Consequential Damages
21

 

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43.
Entire Agreement
21

Exhibit A - Site Plan
Exhibit B - Legal Description of the Shopping Center
Exhibit C - Construction of Premises
Exhibit D - Approved Tenant Exterior Sign Specifications
Exhibit E - List of Existing Exclusives
Exhibit F - Memorandum of Lease
Exhibit G - Form of Subordination, Non-Disturbance and Attornment Agreement

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RETAIL LEASE

THIS RETAIL LEASE (this “Lease”) dated as of January 11, 2008, is entered into
by and between LA CAÑADA PROPERTIES, INC., a California corporation (“Landlord”)
and SPORT CHALET, INC., a Delaware corporation (“Tenant”).

BASIC LEASE PROVISIONS

Premises Address:
Premises at an address to be determined within the Shopping Center to be
commonly known as “La Cañada Flintridge Town Center”, located at the northeast
corner of Angeles Crest Highway and Foothill Boulevard, in La Cañada,
California.
   
Lease Term:
“Initial Term” from the “Commencement Date” (as hereinafter defined) through the
January 31 first occurring following the expiration of one hundred twenty (120)
full months after the Commencement Date, with options to extend the Term for
three (3) “Option Terms” (as hereinafter defined) of sixty (60) months each.

Minimum Rent:

Period of Term
 
Minimum Rent
Commencement Date-Month 60
 
1/12th of $18.00 per square foot of Premises Floor Area
Month 61-Expiration of Initial Term
 
1/12th of $19.80 per square foot of Premises Floor Area
First Option Term
 
1/12th of $22.74 per square foot of Premises Floor Area
Second Option Term
 
1/12th of $24.84 per square foot of Premises Floor Area
Third Option Term
 
1/12th of $27.84 per square foot of Premises Floor Area*
     
*Minimum Rent during the Third Option Term shall equal the greater of (i) $27.84
per square foot of Premises Floor Area, or (ii) the “Fair Market Rental Rate”
(as hereinafter defined) as of the commencement of the Third Option Term as
determined in accordance with Section 3(c)(ii) below.

 
Percentage Rent:
Ten percent (10%) of Tenant’s annual “Gross Sales” for any “Fiscal Year” (as
such terms are hereinafter defined) to the extent annual Gross Sales for such
Fiscal Year exceed $13,500,000.00 up to $17,000,000.00 in annual Gross Sales,
plus eight percent (8%) of annual Gross Sales for any such Fiscal Year to the
extent annual Gross Sales for such Fiscal Year exceed $17,000,000.00.
   
Security Deposit:
None
   
Permitted Use:
Display and retail sale and lease of sporting equipment and apparel as are from
time to time sold and leased in similar sized retail stores operated by Tenant
in Southern California under the trade name “Sport Chalet” and for no other use
or purpose, subject to the provisions of Sections 7 and 16 below.
   
Approximate Floor
 
Area of the Premises:
45,000 square feet exclusive of the “Mezzanine” and the “Side Yard” (as such
terms are hereinafter defined).

 
Address of Landlord:
Address of Tenant:
   
For Delivery By U.S. Mail:
Sport Chalet, Inc.
La Cañada Properties, Inc.
One Sport Chalet Drive
P.O. Box 376
La Cañada, CA 91011
La Cañada, CA 91011
Attn: Mr. Dennis Trausch

 
For Delivery Other than By U.S. Mail:
La Cañada Properties, Inc.
800 Foothill Boulevard
La Cañada, CA 91011
 
Tenant’s Trade Name:  Sport Chalet
 
Exhibits:
A
Site Plan
B
Legal Description of the Shopping Center
C
Construction of Premises

 
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D
Approved Tenant Exterior Sign Specifications
E
Presently Existing Exclusives
F
Memorandum of Lease
G
Form of Subordination, Non-Disturbance and Attornment Agreement

1. PREMISES.

(a) Landlord leases to Tenant and Tenant leases from Landlord certain premises
(the “Premises”) consisting of all or part of a building (the “Building”) either
existing or to be constructed pursuant to this Lease approximately in the area
shown on the “Site Plan” attached hereto as Exhibit A and incorporated herein by
this reference, which Building contains or shall contain approximately
forty-five thousand (45,000) square feet of “Floor Area” (as hereinafter
defined), together with certain improvements (the “Improvements”) located
therein, for the “Term” (as hereinafter defined), at the rental, and upon the
terms, conditions and provisions set forth in this Lease. The Premises is a part
of a larger “Shopping Center” located in the City of La Cañada, County of Los
Angeles, State of California, shown on Exhibit A and legally described on
Exhibit B attached hereto and incorporated herein by this reference. As used
herein, the term “Floor Area” shall mean all areas from time to time available,
or held for the exclusive use and occupancy of occupants or future occupants of
the Shopping Center (including, without limitation, mezzanines used for the
customer accessible display or sale of merchandise, provided that mezzanines
used for storage or display of merchandise which is not accessible to customers
shall not be included in Floor Area), measured from the exterior surface of
exterior walls and from the center of interior demising partitions. Floor Area
shall not include any areas used for truck parking, loading or unloading, trash
storage or sidewalk. The Premises shall be constructed with a mezzanine (the
“Mezzanine”) for storage and/or display of merchandise which is not accessible
to customers; provided, that it is acknowledged and agreed by the parties that
the Mezzanine may not be used for office use. Neither the Mezzanine nor the Side
Yard shall be deemed to constitute Floor Area under this Lease and Tenant shall
not be liable for payment of rent or additional charges with respect to the
Mezzanine or Side Yard. The parties agree and acknowledge that the Site Plan is
not yet final and Landlord shall have the right to make changes to the Site Plan
and the Shopping Center from time to time, subject to the provisions of Section
9(c) below.

(b) The Floor Area of the Premises shall be the estimated Floor Area stated in
Section 1(a) above, unless and until adjusted pursuant hereto. Either party
shall have the right to have a licensed architect measure the Floor Area of the
Premises within ninety (90) days following initial occupancy by Tenant. If
either party determines that the actual Floor Area of the Premises varies from
that set forth in Section 1(a), such party (the “Recalculating Party”) shall
give notice to the other party of the Recalculating Party’s determination of the
actual Floor Area of the Premises, together with reasonably detailed supporting
documentation for the making of such determination. The other party shall have
the right to confirm such calculation. In the event of a deviation from the
Floor Area set forth in Section 1(a) above, then such agreed upon amount of
Floor Area shall be the Floor Area of the Premises for all purposes of this
Lease and all calculations under this Lease which vary depending upon the amount
of Floor Area within the Premises (including, without limitation, monthly
Minimum Rent), shall be appropriately retroactively and prospectively adjusted,
and any appropriate adjustment payment from one party to the other based upon
such Floor Area shall be made within thirty (30) days of such agreement upon
such Floor Area and the parties shall execute an amendment to this Lease
confirming the Floor Area; provided, however, that unless specifically otherwise
hereafter approved in writing by Tenant, in no event shall the Floor Area of the
Premises for purposes of this Lease be deemed to contain more than forty-five
thousand five hundred (45,500) square feet of Floor Area.

(c) The Premises shall also include, without such space being deemed to
constitute Floor Area and without Tenant having to pay rental therefor, a side
yard area adjacent to the Building containing approximately two thousand five
hundred (2,500) square feet of area (the “Side Yard”), approximately in the area
shown on Exhibit A, which Side Yard shall contain a swimming pool (the “Pool”)
and other ancillary improvements for use as a part of the Premises consistent
with the Permitted Use under this Lease, to be constructed as shown on Schedule
1 of Exhibit C attached hereto and in accordance with the terms of Exhibit C
attached hereto.

2. IMPROVEMENTS. Landlord shall, at Landlord’s sole cost and expense, perform
certain work in connection with the construction of the Premises in accordance
with Exhibit C attached hereto and incorporated herein by this reference
(“Landlord’s Work”). Tenant shall, at Tenant’s sole cost and expense, install
all improvements, furniture, trade fixtures, equipment, personal property and
inventory in the Premises, except to the extent included in Landlord’s Work
(collectively, “Tenant’s Work”) in accordance with Exhibit C attached hereto.

3. TERM OF THIS LEASE; OPTIONS TO EXTEND THE TERM.

(a) (i) The “Term” of this Lease shall be the period commencing upon the
“Commencement Date” (as hereinafter defined) and, unless sooner terminated or
extended as herein provided, expiring on the January 31 first following the
expiration of one hundred twenty (120) full months following the Commencement
Date (such January 31 is herein referred to as the “Initial Term Expiration
Date”). As used herein, the term “Commencement Date” shall mean the date which
is the earlier to occur of (A) the date Tenant opens to the public for business
from the Premises, or (B) one hundred twenty (120) days after the “Substantial
Completion Date” (as defined in Exhibit C). Landlord’s current good faith
estimate is that the Substantial Completion Date shall occur on or about June 1,
2008.

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(ii) Landlord shall provide Tenant with written notice at least sixty (60) days
prior to the then estimated Delivery Date which notice shall specify the then
estimated Substantial Completion Date (the “Estimated Substantial Completion
Date”). Notwithstanding anything to the contrary contained in this Lease, (1) if
the actual Delivery Date is earlier than the Estimated Substantial Completion
Date, then Tenant shall have the right to defer acceptance of delivery of the
Premises until the Estimated Substantial Completion Date, in which case it shall
be deemed that the Substantial Completion Date did not occur, for all purposes
of this Lease, until such Estimated Substantial Completion Date; and (2) if the
actual Substantial Completion Date is later than the Estimated Substantial
Completion Date, then Tenant shall be entitled to one (1) day of abatement of
Minimum Rent and “Tenant’s Share of Common Area Expenses, Taxes and Insurance”
(as hereinafter defined) for each day following the Estimated Substantial
Completion Date until the actual Substantial Completion Date.

(b) Tenant and its agents, contractors and employees shall have the right,
without any obligation to pay rent or other charge, to enter the Premises for
the purpose of performance of Tenant’s Work prior to the Commencement Date and
no such entry by Tenant shall be deemed an acceptance of the Premises, provided
that any such entry prior to the Substantial Completion Date (i) shall be
subject to Landlord’s prior written approval (which approval shall not be
unreasonably withheld, conditioned or delayed) and (ii) shall be coordinated
with Landlord’s Work so as to avoid interference with Landlord’s Work. Tenant
may use such utilities as are available during the course of such entry for
fixturization purposes prior to the Commencement Date. During the course of any
entry by Tenant for fixturization purposes prior to the Commencement Date, all
terms and conditions of this Lease (but not Tenant’s obligation to make payments
in respect of rent or other charges under this Lease) shall apply.

(c) (i) Landlord hereby grants Tenant three (3) separate options (the “Options”)
to extend the Term of this Lease for three (3) separate consecutive terms (the
“Option Terms”) of five (5) years each, following expiration of the then
existing Term, upon all the terms and conditions contained in this Lease, except
for the payment of Minimum Rent which shall be as specified in the Basic Lease
Provisions with the Fair Market Rental as to the third Option Term Rate
determined in accordance with Section 3(c)(ii) below. Tenant shall give written
notice of the exercise of each Option to Landlord at least nine (9) months prior
to the expiration of the then applicable Term. References in this Lease to the
“Term” shall mean the initial Term of this Lease, as the same may be extended by
any Option Terms, as applicable.

(ii) (1) If Tenant exercises the Option to extend the Term for the third Option
Term, the Fair Market Rental Rate for the Premises as of the commencement of the
third Option Term for purposes of determining the Minimum Rent for the third
Option Term shall be determined as follows. For purposes of this Lease, the
“Fair Market Rental Rate” shall mean the fair market rental rate for the
Premises as of the commencement of the third Option Term, based on prevailing
rentals then being charged to new and renewal tenants in comparable retail
projects in the vicinity of the Shopping Center, for comparably improved space
of equivalent quality, size and location (or adjusting the rental rate as
appropriate for differences therein), taking into account the length of the
third Option Term, manner of pass-through of additional rent charges, and any
improvements or improvement allowance then being offered.

(2) At least two hundred forty (240) days before the commencement of the third
Option Term, Landlord shall deliver written notice to Tenant specifying
Landlord’s determination of the Fair Market Rental Rate (“Landlord’s
Determination”). Within fifteen (15) days following Tenant’s receipt of such
Landlord’s notice specifying Landlord’s Determination of the Fair Market Rental
Rate, Tenant shall deliver written notice to Landlord either agreeing with
Landlord’s Determination of the Fair Market Rental Rate or disagreeing therewith
and specifying Tenant’s determination of the Fair Market Rental Rate (“Tenant’s
Determination”). In the event Tenant so disagrees with Landlord’s Determination
of the Fair Market Rental Rate, then Landlord and Tenant shall promptly meet and
endeavor in good faith to reach agreement upon the Fair Market Rental Rate for
the third Option Term. In the event Landlord and Tenant are unable to agree upon
the Fair Market Rental Rate prior to two hundred (200) days before the
commencement of the third Option Term, Landlord and Tenant shall each appoint,
by written notice delivered to the other prior to one hundred ninety (190) days
before the commencement of the third Option Term, a real estate appraiser who is
a member of the American Institute of Real Estate Appraisers (or its equivalent)
and who has significant current experience appraising rental rates for
commercial real property in the vicinity of the Premises, to participate in the
determination of the Fair Market Rental Rate. The two appraisers so appointed
shall be instructed to appoint, within twenty (20) days thereafter, a third
appraiser who is similarly qualified. If either Landlord or Tenant fails timely
to appoint a qualified appraiser as provided above, then the determination of
Fair Market Rental Rate to be made hereunder shall be made solely by such
qualified appraiser as may have been appointed by the other party, and such
determination of the Fair Market Rental Rate by such sole appraiser shall be
binding upon both Landlord and Tenant. If the two appraisers appointed by
Landlord and Tenant cannot agree on the appointment of a third appraiser within
the time period provided, either Landlord or Tenant may seek the appointment of
the same by the presiding judge for the Superior Court with jurisdiction over
the area including the Premises. Such appraisers shall work together and share
information in their efforts to determine and agree upon the Fair Market Rental
Rate. The Fair Market Rental Rate shall be determined in accordance with the
procedure set forth below.

(3) The role of the appraisers shall be to select from Landlord’s Determination
and Tenant’s Determination which is closest to the actual Fair Market Rental
Rate as determined by the appraisers. The appraisers shall have no power to
adopt a compromise or “middle ground” between the contended Fair Market Rental
Rates submitted by the parties or to adopt any Fair Market Rental Rate other
than the contended Fair Market Rental Rate submitted by the party which is
closest to the appraisers’ determinations as to actual Fair Market Rental Rate
(and if the difference between each of the contended Fair Market Rental Rates
submitted by the parties and the Fair Market Rental Rate determined by the
appraisers is the same, the average of Landlord’s Determination and Tenant’s
Determination shall be adopted). If the appraisers do not agree upon the actual
Fair Market Rental Rate, then each appraiser shall determine which of Landlord’s
Determination or Tenant’s Determination is closest to the actual Fair Market
Rental Rate determined by such appraiser and the contended Fair Market Rental
Rate so selected by at least two of the appraisers shall be the Fair Market
Rental Rate. The Fair Market Rental Rate as so determined by the appraisers as
provided herein shall be binding upon both Landlord and Tenant as the Fair
Market Rental Rate, which rate shall be used for purposes of determination of
the Minimum Rent payable during the third Option Term.

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(4) Landlord and Tenant will use all reasonable diligence to cause their
appointed appraisers to perform in good faith and in a timely manner in order to
make the determination of the Fair Market Rental Rate on or before the
commencement of the third Option Term. In the event such appraisers do not make
such determination prior to the commencement of the third Option Term, the Lease
shall nevertheless continue in full force and effect until such determination is
made, and Tenant shall pay Minimum Rent during such period based upon
calculation of Fair Market Rental Rate using the amount asserted by Landlord to
be the Fair Market Rental Rate. Upon the determination by such appraisers of the
Fair Market Rental Rate, the excess (if any) of the amount paid to Landlord by
Tenant as provided above over the Minimum Rent as so determined hereunder
applicable to the period from the commencement of the third Option Term to the
date on which the Fair Market Rental Rate was so determined shall be credited by
Landlord against the Minimum Rent next due from Tenant. The payment by Tenant of
Minimum Rent based upon the greater of the amount specified in the Basic Lease
Provisions or the amount of the Fair Market Rental Rate as so determined shall
commence on the first day of the month following the date of such determination
(but not earlier than the commencement of the third Option Term), and in
addition to such monthly installments of Minimum Rent, Tenant shall pay to
Landlord the deficiency, if any, in the amount earlier paid by Tenant as Minimum
Rent based on Landlord’s asserted Fair Market Rental Rate in relation to the
amount ultimately determined hereunder as the Minimum Rent for the third Option
Term. Landlord and Tenant shall each bear the costs and fees of the appraiser
appointed by each of them and shall share equally the cost of the third
appraiser.

4. RENT.

(a) Tenant shall pay Landlord “Minimum Rent” during the Term in the amounts
specified in the Basic Lease Provisions.. Minimum Rent for any partial month
occurring during the Term shall be prorated based upon the number of days within
such month. Minimum Rent shall be paid in monthly installments, in advance, on
the first day of each calendar month, but if the date on which Tenant’s
obligation for the payment of Minimum Rent commences is not the first day of a
month, then that portion of such Minimum Rent which is attributable to the days
in that month from the first date for which Minimum Rent is due until the end of
that month shall be paid on the first date for which Minimum Rent is due.

(b) (i) Commencing with the Commencement Date, Tenant shall pay as “Percentage
Rent” for each fiscal year of Tenant during the Term (which fiscal year is
presently April 1 to March 31, and is herein referred to as the “Fiscal Year”),
an amount equal to ten percent (10%) of annual Gross Sales from the Premises for
any Fiscal Year to the extent annual Gross Sales for such Fiscal Year exceed
$13,500,000.00 up to $17,000,000.00 in annual Gross Sales, plus eight percent
(8%) of annual Gross Sales from the Premises for any such Fiscal Year to the
extent annual Gross Sales for such Fiscal Year exceed $17,000,000.00.

(ii) As used herein, “Gross Sales” means the total gross receipts of all
merchandise sold or leased including the charges for all services performed by
Tenant or by any subtenant, licensee or concessionaire, wholesale or retail,
cash, credit, or otherwise, including, without limitation, the value of all
consideration other than money received therefor (except for trade-ins which are
intended for resale by Tenant from the Premises): (1) where the orders
originate, in, at, from or arising out of the use of the Premises, whether
delivery or performance is made from the Premises or from some other place and
regardless of the place of bookkeeping for, payment of, or collection of any
account, and (2) which Tenant, or any subtenant, licensee or concessionaire, in
the customary course of its business, would attribute to its operations at the
Premises. Excluded from Gross Sales are: (I) any exchange or transfer of
merchandise between stores or warehouses of Tenant or any subtenant, licensee or
concessionaire made solely for the convenient operation of Tenant’s or any
subtenant’s, licensee’s or concessionaire’s business and not to consummate a
sale made in or from the Premises; (II) returns to shippers or manufacturers;
(III) cash or credit refunds to customers on transactions otherwise included in
Gross Sales; (IV) sales of fixtures and equipment, which are not stock for sale
or trade; (V) sales, luxury or excise taxes, gross receipt taxes, and other
taxes now or hereafter imposed upon the sale or value of merchandise or
services, whether added separately to the selling price of the merchandise or
services and collected from customers or included in the retail selling price;
(VI) the sums and credits received in settlement of claims for loss or damage to
merchandise; (VII) receipts from public telephones, vending machines, ticket
sales (including, without limitation, tickets to sporting or other entertainment
events and/or ski lift and/or travel package tickets) to the extent paid to a
third party operator or venue or if sold by Tenant at no or nominal profit, and
fees for fishing, hunting or other sporting licenses paid to governmental
authorities; (VIII) interest, carrying charges, or other finance charges in
respect of sales made on credit; (IX) sales to employees at a discount, not
exceeding three percent (3%) of total Gross Sales in any Fiscal Year; (X)
accounts receivable, not to exceed three percent (3%) of Gross Sales in any
Fiscal Year, which have been determined to be uncollectible for federal income
tax purposes during such Fiscal Year, provided, however, that if any such
amounts are actually collected in a later Fiscal Year, such amount so collected
shall be included in the Gross Sales for such later Fiscal Year; (XI) sublease
rents or other consideration received in connection with an assignment,
sublease, license, concession or other grant of a right of occupancy with
respect to any portion of the Premises; (XII) sales of merchandise ordered by
catalogue regardless of place of order or delivery; and (XIII) charges paid to
all credit card companies.

(iii) Tenant shall furnish Landlord within sixty (60) days after the end of each
Fiscal Year during the Term, a statement, certified by Tenant, setting forth the
Gross Sales made during such Fiscal Year including a calculation of any
Percentage Rent owing for such Fiscal Year together with a payment of the amount
of any Percentage Rent owing for such Fiscal Year.

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(iv) During the Term, Tenant shall keep at the Premises or at its home or
regional office, complete, accurate books of account and records with respect to
the business conducted in or from the Premises and shall retain such books and
records and reasonable supporting documentation for at least two (2) years from
the end of the period to which they are applicable. Landlord’s acceptance of
Percentage Rent shall be without prejudice to Landlord’s examination and audit
rights. Landlord may at any reasonable time during normal business hours, upon
ten (10) days’ prior notice to Tenant, cause a complete audit to be made of such
books, records and other materials which Tenant is required to retain
(including, without limitation, the books and records of any subtenant, licensee
or concessionaire) for all or any part of the two (2) years immediately
preceding the giving of such notice. Landlord may require Tenant to produce such
information about such books and records as is necessary for a proper
examination and audit thereof and to make such books and records available to
Landlord for examination and audit; provided, however, that nothing contained in
this Lease shall be deemed to provide Landlord with the right to review any of
Tenant’s records with respect to any other store locations other than as may be
necessary for determination of Gross Sales from the Premises. Any such audit
shall be conducted in a manner so as to minimize interference with Tenant’s
business operations. If such audit discloses any underpayment by Tenant of
Percentage Rent, Tenant shall pay to Landlord the amount of such underpayment
within thirty (30) days following Tenant’s receipt of such audit. If such audit
discloses any overpayment by Tenant of Percentage Rent, Landlord shall refund to
Tenant the amount of such overpayment together with delivery to Tenant of such
audit. If such audit discloses that Tenant’s annual statement of Gross Sales
understates Gross Sales made during the applicable Fiscal Year by three percent
(3%) or more, Tenant shall pay Landlord within thirty (30) days after demand,
Landlord’s reasonable cost in conducting such audit (as evidenced by invoices or
other reasonable supporting documents delivered to Tenant). Landlord shall not
conduct such an audit of Tenant’s records more than once in any given Fiscal
Year. Failure of Landlord to conduct such an audit within two (2) years
following submission to Landlord of the applicable annual Gross Sales statement
shall constitute the waiver by Landlord of any right to audit Gross Sales
specified within such annual Gross Sales statement. Any information obtained by
Landlord as a result of any such audit shall be held in strict confidence by
Landlord, except that such information may be disclosed by Landlord to a
proposed lender or purchaser with respect to a prospective sale or financing of
the Shopping Center or when Landlord is required to comply with lawful orders of
a court or governmental agency.

(v) Notwithstanding anything to the contrary contained in this Lease, if Tenant
during the Term of this Lease operates or causes or permits to be operated a
“Sport Chalet” store (or a store operating under such other trade name under
which the majority of current “Sport Chalet” stores are then operating) within
the city boundaries of Glendale, Eagle Rock or Pasadena (as such city boundaries
exist as of the date hereof), and the Gross Sales from the Premises are reduced
following the opening of such other store, then the Percentage Rent thereafter
payable under this Lease during such period as such other store is operating
within such city boundaries shall be the greater of (1) the amount of Percentage
Rent payable under this Lease for the year preceding the opening of such other
store, or (2) the Percentage Rent due without regard to the provisions of this
clause (v).

(c) All amounts payable by Tenant to Landlord pursuant to this Lease other than
Minimum Rent, including, without limitation, Percentage Rent and “Tenant’s Share
of Common Area Expenses, Taxes and Insurance” (as hereinafter defined), shall be
deemed to constitute “Additional Rent”. For purposes of this Lease, “Tenant’s
Share of Common Area Expenses, Taxes and Insurance” shall mean the aggregate of
(i) Tenant’s Share of Common Area Expenses, (ii) Tenant’s Share of Taxes
pursuant to Section 5 below, and (iii) Tenant’s Share of insurance costs
pursuant to Section 12(a) below. References in this Lease to “Rent” shall mean
Minimum Rent and Additional Rent.

(d) Tenant acknowledges that the late payment by Tenant to Landlord of any sums
due under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by all or any portion of the Shopping
Center. Therefore, if Tenant fails to pay any rent within ten (10) days of the
due date under this Lease for any reason, Tenant shall pay to Landlord, as
additional rent, the sum of five percent (5%) of the overdue amount as a late
charge; provided, however, that as to the initial such late payment in any
twelve (12) consecutive calendar month period during the Term, such late charge
shall not be payable unless such failure to pay when due is not cured within
five (5) days after Tenant’s receipt of written notice thereof from Landlord.
Landlord’s acceptance of any late charge shall not constitute a waiver of
Tenant’s default with respect to the overdue amount or prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease, at law or in equity.

(e) Notwithstanding anything to the contrary contained in this Lease, Landlord
hereby agrees that Tenant shall not be obligated to pay in excess of the “Cap
Amount” (as hereinafter defined) for Tenant’s Share of Common Area Expenses,
Taxes and Insurance during the Term. As used herein, the “Cap Amount” shall mean
Six Dollars ($6.00) per square foot of Premises Floor Area per annum during the
period prior to the expiration of the initial calendar year of the Term
(prorated for any partial year including the Commencement Date), and such Cap
Amount shall be increased five percent (5%) per annum (calculated on a
cumulative and compounding basis) over the prior year’s Cap Amount from and
after the expiration of the initial calendar year during the Term; except that
the Cap Amount for the initial year of the first Option Term (if the Term is
extended by the first Option Term) shall be the actual amount of Tenant’s Share
of Common Area Expenses, Taxes and Insurance during such year. Such limitation
on Tenant’s obligation for Tenant’s Share of Common Area Expenses, Taxes and
Insurance shall be calculated as if Tenant’s obligation for Tenant’s Share of
Common Area Expenses, Taxes and Insurance were paid during any period of time in
which Tenant’s obligation to make payments in respect of Tenant’s Share of
Common Area Expenses, Taxes and Insurance is suspended and/or abated pursuant to
this Lease.

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5. TAXES AND ASSESSMENTS.

(a) Landlord shall pay, on or before the due date, all taxes and assessments
levied against the Shopping Center (including, without limitation, the land
underlying the Shopping Center) during the Term.

(b) Tenant shall pay to Landlord, as additional rent, “Tenant’s Share” (as
hereinafter defined) of the real estate taxes, general and special assessments
and other governmental charges (collectively, “Taxes”) levied upon and assessed
against the Shopping Center, for each tax year of the Term from and after the
Commencement Date; provided, however, impact or development fees in connection
with development of the Shopping Center shall not be included within the
definition of Taxes. Such taxes shall be payable by the later to occur of (i)
thirty (30) days following Tenant’s receipt from Landlord of the applicable Tax
bill together with a calculation of the amount of such Tax owing by Tenant in
accordance with this Section 6, and (ii) fourteen (14) days prior to
delinquency. Following written request from Tenant, Landlord shall furnish
Tenant with proof of payment of Taxes. In the event of assessments which may be
paid in installments by reason of bonding or otherwise, Landlord may elect to
make payment under the installment plan. In any event, Tenant’s payment
obligations under this Section shall be as if Landlord made payment over the
longest period of time permitted by the assessment and Tenant shall bear no
liability as to installments which are not due during the Term of this Lease.

(c) For purposes of this Section 5, “Tenant’s Share” is defined as a fraction,
the numerator of which is the Floor Area within the Premises and the denominator
of which is the Floor Area within the Shopping Center (provided that, except as
set forth in this subparagraph (c), in no event shall such denominator be less
than the amount of Floor Area shown within the building areas of the Shopping
Center on the Site Plan). Such computation shall be made separately for each tax
year.

(d) Should the first or final tax year occurring during the Term include a
period of time prior to or following the Term, as applicable, Tenant shall be
responsible to Landlord for a pro rata portion of its tax obligation as
described herein, based on the portion of such tax year included in the Term of
this Lease. This Section includes Tenant’s total responsibility for Taxes for
the Shopping Center, including, without limitation, for the Common Areas
thereof.

(e) There shall be excluded from the tax bill to which Tenant contributes for
the purposes of computing Tenant’s Share (i) income, excess profits, estate,
business, inheritance, succession, documentary transfer, franchise, capital, or
similar taxes or assessments upon Landlord (as opposed to the Shopping Center or
portions thereof); (ii) special taxes and assessments to pay for the initial
construction of the Shopping Center or of off-site improvements (including,
without limitation, sewer and/or street improvements) that serve the Shopping
Center and are required as a condition to the development of the Shopping
Center; and (iii) any increase in Taxes resulting from the second (2nd) or any
subsequent “change in ownership” (as defined in Division 1, Part 0.5, Chapter 2
of the California Revenue and Taxation Code) of all or any part of the Shopping
Center occurring during any of (1) the initial five (5) years of the Term, (2)
the remainder of the Initial Term after the expiration of the initial five (5)
years of the Term, and/or (3) any Option Term.

(f) Any rebates, refunds, or abatements of Taxes received by Landlord (net of
Landlord’s reasonable costs to obtain the same) subsequent to payment of the
applicable Taxes by Tenant shall, to the extent attributable to Tenant’s Share
of any such Taxes previously paid by Tenant, be refunded to Tenant on a pro rata
basis within thirty (30) days of receipt thereof by Landlord or credited against
Tenant’s next payment of Taxes if such credit will be applied within such thirty
(30)-day period. Any such rebate, refund or abatement realized by Landlord (net
of Landlord’s reasonable costs to obtain the same) prior to payment by Tenant
shall result in an immediate reduction in the Taxes upon which Tenant’s Share is
calculated.

(g) Tenant shall have such rights to contest in good faith the validity or
amount of Taxes as are permitted by law, either in its own name or in the name
of Landlord (if required by the taxing authority), in either case with
Landlord’s reasonable cooperation (but at no cost or expense to Landlord),
subject to obtaining Landlord’s prior written consent therefor, which consent
shall not be unreasonably withheld, conditioned or delayed. Any resultant
refund, rebate or reduction shall be used first to repay the reasonable expenses
of obtaining such relief. Landlord shall provide Tenant with government notices
of assessment (or reassessment) in time sufficient to reasonably permit Tenant,
at Tenant’s election, to make contest. The term “contest” as used in this
Section 5(g) means contest, appeal, abatement or other proceeding, prescribed by
applicable law to obtain tax reduction or tax refund, howsoever denominated.

(h) Tenant shall pay prior to delinquency all taxes, assessments, fees and
charges imposed on its furniture, trade fixtures, equipment, inventory and other
personal property (collectively, “Tenant’s Personal Property”) in the Premises.
If any such Tenant’s Personal Property is assessed jointly with the property of
Landlord, such assessment shall be reasonably and equitably allocated between
Landlord and Tenant.

6. UTILITIES. Landlord shall provide to the Premises at all times necessary
utilities services including electric, water, gas, telephone and other necessary
utility lines and sewerage lines capable of adequately providing for Tenant’s
needs, but in no event of less capacity than specified in Exhibit C attached
hereto. Landlord shall cause all such utilities to be separately metered for the
Premises and shall be responsible for any utilities hook-up, connection,
installation, development, impact or similar fees with respect to the Premises.
Tenant shall pay applicable use charges for all such utilities serving the
Premises during the Term directly to the applicable utility provider. Landlord
shall not be liable for any interruption in utilities service to the Premises
due to any cause (other than the gross negligence or willful misconduct of
Landlord or any of Landlord’s employees, agents or contractors), but Landlord
shall reasonably cooperate with Tenant to endeavor to avoid any such
interruption in utilities service to the Premises.

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7. USES.

(a) Promptly following the completion of Tenant’s Work, Tenant shall open for
business from the Premises for one (1) day for the Permitted Use set forth in
the Basic Lease Provisions under the trade name of “Sport Chalet” or such other
trade name as is then being used by the majority of Tenant's current “Sport
Chalet” stores. Landlord hereby represents and warrants to Tenant that the
operation for business from the Premises for the retail sale and/or lease of
sporting equipment (including, without limitation, ski, snowboard and diving
equipment), sporting goods, sports apparel and active wear (including, without
limitation, ski and/or snowboard apparel), and/or athletic footwear will not
violate any agreements respecting exclusive use rights or restrictions on use
within the Shopping Center or any portion thereof. In the operation of business
from the Premises, Tenant shall not permit any waste of the Premises or any
objectionable noises, odors or nuisances.

(b) Following such initial opening for business from the Premises, the trade
name under which the Premises is operated for business may be changed to an
alternate trade name used by the majority of Tenant’s store locations or such
other trade name as may be approved in writing by Landlord (which approval shall
not be unreasonably withheld, conditioned or delayed), and the use of the
Premises may be changed to an alternate lawful retail use with the prior written
consent of Landlord (which consent shall not be unreasonably withheld,
conditioned or delayed); provided, however, that use of the Premises shall not
be changed to a use which violates a restriction or covenant of Landlord then in
effect respecting exclusivity of use set forth in any lease, occupancy agreement
or other agreement setting forth easements, covenants, conditions, restrictions
and/or matters of record with respect to all or any other part of the Shopping
Center entered into prior to the date of this Lease and which are specified on
Exhibit E attached hereto and incorporated herein by this reference (provided
that Landlord shall deliver to Tenant, promptly following any request by Tenant,
a list of such then effective restrictions and covenants).

(c) Tenant will be open for business from the Premises during such days and
hours as it deems reasonable and practicable in its sole business judgment for
the operation of its business. In entering into this Lease, Landlord is not
relying upon Tenant’s operation of its business from the Premises for in excess
of such one (1) day period. Nothing in this Lease shall be construed to require
a business to be continuously operated in the Premises or to require the
Premises to be continuously occupied. However, in the event that following such
initial opening, the Premises ceases to be operated for a period in excess of
one hundred twenty (120) consecutive days or for more than one hundred fifty
(150) days in any period of twelve (12) consecutive months (other than any
cessation of operations resulting from a casualty, condemnation or other “Force
Majeure Event”, as hereinafter defined), Landlord shall thereafter prior to
re-opening of the Premises for business have the right to terminate this Lease
effective upon sixty (60) days prior written notice to Tenant; provided,
however, that in the event Tenant or a Transferee commences operation for
business with the general public from the Premises during such sixty (60) day
period, then Landlord's election to terminate shall be nullified and this Lease
shall continue in full force and effect.

(d) Notwithstanding anything to the contrary contained in this Lease, Landlord
agrees that no other portion of the Shopping Center or any adjacent or
contiguous property owned by Landlord or any entity controlling, controlled by,
or under common control with, Landlord (collectively, any “Adjacent Property”)
shall be operated for the primary purpose of, and no other Shopping Center or
Adjacent Property occupant shall devote in excess of the lesser of (i) five
percent (5%) of the Floor Area within its store, or (ii) one thousand (1,000)
square feet of Floor Area within its store, to the sale or lease of sporting
equipment or sporting goods (including, without limitation, ski, snowboard and
diving equipment), or sports apparel (including, without limitation, ski and/or
snowboard apparel) and/or athletic footwear, and Landlord shall use commercially
reasonable efforts to enforce compliance with the agreements of Landlord set
forth in this sentence. The covenants contained in this Section shall terminate
if, after the initial opening of the Premises for business pursuant to this
Lease, the Premises is not used for the primary purpose of the retail sale of
sporting equipment or sporting goods (including, without limitation, ski,
snowboard and diving equipment), or sports apparel (including, without
limitation, ski and/or snowboard apparel) and/or athletic footwear for a
continuous period of one hundred twenty (120) days, unless because of a
casualty, condemnation or other Force Majeure Event.

(e) Landlord covenants and agrees that the Shopping Center shall be constructed,
leased, operated, maintained and managed as a first class shopping center and
that no premises (and no portion of any premises) in the Shopping Center
(excluding any existing uses as of the date hereof) shall be used or occupied
for any of the following: any unlawful use; funeral establishment; automobile
sale, leasing, repair or display establishment or used car lot, including body
repair facilities; auction or bankruptcy sale; pawn shop; outdoor circus,
carnival or amusement park, or other entertainment facility; bowling alley;
primarily pool or billiard establishment; shooting gallery; refinery; adult
bookstore or facility selling, renting or displaying pornographic or adult
books, literature, or videotapes (materials shall be considered “adult” or
“pornographic” for such purpose if the same are not available for sale or rental
to children under 18 years old because they explicitly deal with or depict human
sexuality), provided that sale, rental or display of such items as an incidental
part of a permitted business (from not more than ten percent (10%) of the sales
area of such business and so as to constitute less than ten percent (10%) of the
gross sales of such business) shall be permitted; massage parlor; any
residential use, including but not limited to living quarters, sleeping
apartments or lodging rooms; theater; auditorium, meeting hall, ballroom, school
or other place of public assembly; unemployment agency; gymnasium, health club,
exercise or dance studio; dance hall; cocktail lounge or bar (except as an
incident to a permitted restaurant), disco or night club; bingo or similar games
of chance, but lottery tickets and other items commonly sold in retail
establishments may be sold as an incidental part of business; video game or
amusement arcade, except as an incidental part of another primary business:
skating or roller rink; car wash, car repair; second hand store, auction house,
or flea market; sit-down, full service restaurant in the Shopping Center and
located within one hundred feet (100’) of the Premises; or non-retail use (which
shall not prohibit in the Shopping Center office use incident to a permitted
retail operation or such uses commonly referred to as “quasi-retail” or “service
retail” such as by way of example and without limitation, a travel agency, real
estate office, insurance agency or accounting service, so long as same do not
exceed ten percent (10%) of the Floor Area of the Shopping Center). Tenant shall
not use the Premises for any of the foregoing prohibited uses.

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(f) Provided Tenant obtains Landlord’s prior written consent, which consent
shall not be unreasonably withheld, conditioned or delayed, Tenant shall have a
right to use the roof of the Building for any antennae or other communications
equipment or other roof-top mounted equipment as Tenant may deem desirable for
the operation of its business; provided, however, that no roof penetrations
shall be made without obtaining Landlord’s consent, which consent shall not be
unreasonably withheld, conditioned or delayed and may be conditioned on Tenant’s
use of Landlord’s designated roofing contractor so long as the fee charged is
commercially reasonable for the work performed, and Tenant shall, at its own
expense, promptly repair any damage or wear to the roof resulting from such use
of Tenant’s equipment and remove such roof-mounted communications equipment at
the expiration of the Term or earlier termination of this Lease and repair any
damage resulting from such removal. Tenant shall coordinate any such roof work
with Landlord so as not to impair any roof warranty then in effect.

(g) Landlord shall disclose to Tenant any information Landlord has regarding
present and future zoning affecting the Premises and regarding the condition of
the Premises, including, structural, mechanical and environmental conditions. If
not heretofore provided to Tenant, Landlord shall promptly hereafter deliver to
Tenant a copy of the “Phase I” environmental study of the Shopping Center
completed on or about November 1, 2006, and a copy of the “Phase II”
environmental study of the Shopping Center completed on or about June 17, 1998.
Any further invasive testing desired by Tenant with respect to the Shopping
Center shall be performed at Tenant’s cost, subject to Landlord’s prior written
approval, which approval shall not be unreasonably withheld, conditioned or
delayed. Landlord covenants, represents and warrants that as of the delivery of
possession of the Premises to Tenant, the Premises shall not contain any
“Hazardous Substances” (as hereinafter defined), and no other part of the
Shopping Center shall contain any Hazardous Substances in such quantity as would
constitute a violation of applicable federal, state or local governmental laws,
statutes, rules, regulations, ordinances, codes, orders or other requirements
(collectively, any “Laws”) or would adversely affect Tenant’s use or occupancy
of the Premises, operation of business from the Premises, or access to or
parking serving the Premises. Landlord shall not incorporate or permit or suffer
to be incorporated, knowingly or unknowingly, any material containing any
Hazardous Substances into the Premises. Landlord shall use commercially
reasonable efforts to prevent any action by any person other than Tenant and/or
any of Tenant’s employees, agents and/or contractors that would cause the
Premises to be in violation of applicable Laws relating to Hazardous Substances,
or would subject the Premises to any remedial obligations under such Laws. In
the event Hazardous Substances are or become located in, upon, under or about
the Premises and/or any other portion of the Shopping Center, other than as a
result of the acts or omissions of Tenant and/or any of Tenant’s employees,
agents and/or contractors, Landlord shall, to the extent required by applicable
governmental authorities, remediate such contamination, at no cost to Tenant,
upon discovery of such contamination. Each party shall immediately notify the
other party in reasonable detail of any existing, pending or threatened
regulatory action, third party claims, and/or contamination relating to
Hazardous Substances with respect to the Shopping Center of which such notifying
party becomes aware (other than by notice from the other party). Landlord shall
indemnify, defend and hold harmless Tenant from and against any and all damages,
claims, actions, penalties, demands, losses, liabilities, costs and/or expenses
(including, without limitation, reasonable attorneys’ fees and expenses),
arising out of or in connection with the presence of Hazardous Substances in,
upon, under or about the Premises and/or any other portion of the Shopping
Center which are not caused to be so present as a result of the acts or
omissions of Tenant and/or any of Tenant’s employees, agents and/or contractors.
The obligations of Landlord pursuant to the provisions of the immediately
preceding sentence shall survive the expiration of the Term or earlier
termination of this Lease. As used in this Lease, the term “Hazardous Substance”
means any asbestos, petroleum product or by-product or hazardous or toxic
substance, material or waste which is or becomes regulated by any local
government authority, the State of California or the United States.

(h) Tenant shall not incorporate or permit any material containing any Hazardous
Substances to be incorporated into the Premises, provided that nothing contained
herein shall be deemed to prohibit Tenant's use within the Premises of items in
customary amounts customarily used in the operation of a store for the permitted
use under this Lease but constituting Hazardous Substances as defined herein
(including, by way of example and without limitation, customary cleaning fluids
and/or lead diving weights). Tenant shall prevent any action by Tenant and/or
any of Tenant’s employees, agents and/or contractors that will cause the
Premises to be in violation of applicable Laws relating to Hazardous Substances,
or would subject the Premises to any remedial obligations under such Laws. In
the event Hazardous Substances are or become located in, upon, under or about
the Premises and/or any other portion of the Shopping Center, as a result of the
acts or omissions of Tenant and/or any of Tenant’s employees, agents and/or
contractors, Tenant shall remediate such contamination, at no cost to Landlord,
upon discovery of such contamination. Tenant agrees to immediately notify
Landlord in reasonable detail of any existing, pending or threatened regulatory
action, third party claims, and/or contamination relating to Hazardous
Substances with respect to the Shopping Center resulting from the acts or
omissions of Tenant and/or any of Tenant’s employees, agents and/or contractors.
Tenant shall indemnify, defend and hold harmless Landlord from and against any
and all damages, claims, actions, penalties, demands, losses, liabilities, costs
and/or expenses (including, without limitation, reasonable attorneys’ fees and
expenses), arising out of or in connection with the presence or release of
Hazardous Substances in, upon, under or about the Premises and/or any other
portion of the Shopping Center which are caused to be so present or released as
a result of the acts or omissions of Tenant and/or any of Tenant’s employees,
agents and/or contractors. The obligations of Tenant pursuant to the immediately
preceding sentence shall survive the expiration of the Term or earlier
termination of this Lease.

8. TENANT’S ALTERATIONS, ADDITIONS OR IMPROVEMENTS.

(a) Tenant may make non-structural alterations and improvements to the interior
of the Premises costing not more than $50,000 per work of alterations and/or
improvements, without the prior approval of Landlord. Tenant shall not make any
alterations to any structural or exterior portions of the Premises without first
obtaining the prior written approval of Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed, and shall be deemed granted if
Tenant is not notified in writing of a reasonable basis for Landlord’s
withholding of such approval within fifteen (15) days of Tenant’s request
therefor. Upon the expiration of the Term or sooner termination of this Lease,
Tenant may remove its furniture, fixtures and equipment so long as Tenant
promptly repairs any damage resulting from such removal. Tenant’s alterations
and improvements to the Premises (except Tenant’s trade fixtures, equipment and
personal property), shall become Landlord’s property upon expiration of the Term
or earlier termination of this Lease, and Landlord will accept the Premises as
altered without any obligation upon Tenant to restore the Premises to its former
condition; except, however, that Landlord may require removal upon the
expiration of the Term or earlier termination of this Lease of alterations or
improvements made subsequent to performance of Landlord’s Work provided that
Landlord may only so require removal of items which Landlord notified Tenant at
the time of Landlord’s approval of the installation thereof (or within ten (10)
days of Landlord’s first learning of the installation thereof if not requiring
Landlord’s approval for installation) that such items would be subject to such
requirement for removal, and provided further that in no event shall Tenant be
required to remove any of the Tenant’s Work (or any repair or replacement
thereof) prior to, upon or after the expiration of the Term or earlier
termination of this Lease. Tenant shall be responsible for all damage resulting
from any construction, alterations or additions in or to the Premises during the
Term made by Tenant (collectively, any “Tenant Construction Work”), whether or
not Landlord’s consent therefor is necessary or was obtained. All Tenant
Construction Work shall be performed in accordance with all necessary
governmental approvals and permits, which Tenant shall obtain at its sole
expense and in accordance with all applicable Laws. All Tenant Construction Work
shall be performed in a good and workmanlike manner and diligently prosecuted to
completion.

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(b) Tenant shall provide Landlord with at least ten (10) days prior written
notice of any alterations or improvements work to be performed by Tenant during
the Term. During the pendency of any work of construction which may result in
the imposition of a mechanic’s or materialman’s lien upon the Premises, Landlord
may post in the Premises in a reasonable manner and/or record notices of
non-responsibility in accordance with applicable Laws. The provisions of this
Section 8(b) shall apply to Tenant’s Work and to work in the Premises by or on
behalf of Tenant during the Term.

(c) Neither Tenant nor Landlord shall permit any mechanic’s, materialman’s or
other lien against the Premises or the Shopping Center in connection with any
labor, materials or services furnished or claimed to have been furnished by or
on behalf of such party. If any such lien shall be filed against the Premises or
Shopping Center, the party charged with causing the lien shall cause the same to
be discharged within thirty (30) days after notice, provided, however, that
either party may contest any such lien, so long as the enforcement thereof is
stayed. Each party shall indemnify, defend and hold harmless the other from and
against any and all costs, losses, liabilities, claims, demands and expenses
(including, without limitation, reasonable attorneys’ fees and expenses) arising
as a result of any mechanic’s, materialman’s or other lien filed against the
Premises or the Shopping Center in connection with any labor, materials or
services furnished or claimed to have been furnished on behalf of the
indemnifying party.

9. COMMON AREAS.

(a) As used in this Lease, the term “Common Areas” shall mean those portions of,
and facilities within, the Shopping Center which are intended for the common
non-exclusive use of the occupants, their customers, agents and employees
including, without limitation, parking areas, driveways, malls, walkways,
loading zones and landscaping. Prior to the Commencement Date, Landlord shall
construct the Common Areas of the Shopping Center substantially as shown on
Exhibit A attached hereto (other than any Common Areas adjacent to any
undeveloped pad sites not reasonably required for the operation of Tenant’s
business from the Premises).

(b) Tenant, as well as its agents, employees and customers shall have and are
granted nonexclusive access to, and use of all Common Areas. Tenant’s use of the
Common Areas shall be subject to such reasonable non-discriminatory rules and
regulations as Landlord deems necessary or advisable for proper and efficient
use, operation and maintenance of the Common Areas, provided that in no event
shall such rules and regulations increase the monetary obligations owing from
Tenant to Landlord under this Lease or otherwise materially increase the
obligations or diminish the rights of Tenant under this Lease. In no event shall
there ever be a charge for use of the parking facilities within the Shopping
Center. Landlord may from time to time establish, subject to Tenant’s prior
written approval (which approval shall not be unreasonably withheld, conditioned
or delayed), such employee parking systems and/or employee parking areas
reasonably designated by Landlord (which shall be free of any charge to Tenant
or its employees) as are not unreasonably burdensome to the operation of
Tenant’s business, and provide sufficient means of transportation and security
for access to and use of such employee parking. Landlord shall use commercially
reasonable efforts to prevent use of the Common Areas by other than Shopping
Center tenants, occupants and their customers. Landlord shall cause the Common
Areas to be maintained and operated in a first-class, professional manner and
condition as is customary and appropriate for the operation of first-class
retail centers comparable to the Shopping Center in the vicinity of the Shopping
Center. So long as access, parking and other essential services are reasonably
available so as to avoid any material adverse affect upon the operation of
Tenant’s business from the Premises, Landlord may at any time temporarily close
any of the Common Areas to make repairs or to such extent as may, in Landlord’s
reasonable opinion, be necessary to prevent a dedication thereof or the accrual
of rights to any person or to the public therein, and perform such other acts in
and to the Common Areas as, in Landlord’s good business judgment, are advisable
to improve the use thereof by occupants and tenants, their employees and
invitees, so long as the same is effected in a manner to minimize interference
with the operation of business of the occupants of the Shopping Center
including, without limitation, Tenant. Subject to compliance with applicable
governmental requirements and restrictions, including without limitation, the
conditions of approval affecting the Shopping Center, Landlord shall maintain
the Common Areas well lighted until at least thirty (30) minutes after Tenant’s
normal business hours (but until at least 11:00 P.M. every day, and until
midnight during the month of December). If lighting is required after such time
in excess of customary security lighting, expenses in connection with
electricity to service such additional after-hours lighting shall be prorated
between the occupants of the Shopping Center who remain open during such
after-hours lighting period. In operation of business from the Premises, Tenant
shall comply with any governmentally required carpooling requirements as to
Tenant’s employees. Notwithstanding anything to the contrary contained in this
Lease, Landlord shall not allocate more square footage of the Shopping Center to
the food service category than is stated in the existing conditions of approval
heretofore granted with respect to the Shopping Center by the City of La Cañada
in the existing Conditional Use Permit issued for the Shopping Center.

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(c) Landlord shall have the right, from time to time, to make changes to the
Common Areas from as depicted on the Site Plan, provided that, (i) Landlord
shall not make changes to the area designated as “Primary Common Areas” on the
Site Plan (the “Primary Common Areas”) unless the prior written consent of
Tenant is first obtained, which consent may be granted or withheld, in Tenant’s
sole and absolute discretion, and (ii) Landlord shall not make changes to the
other portions of the Common Areas unless the prior written consent of Tenant is
first obtained, which consent shall not be unreasonably withheld, conditioned or
delayed. Landlord shall not change the dimensions or location of the Premises.
Notwithstanding anything to the contrary contained in this Lease, Landlord
hereby agrees that (A) in no event shall the number of parking spaces contained
within the entire Shopping Center be less than the greater of that required by
applicable Laws or five (5) parking spaces per each one thousand (1,000) square
feet of Floor Area within the Shopping Center, (B) in no event shall Landlord
change the size, configuration or number of parking spaces within the Primary
Common Areas, unless the prior written consent of Tenant is first obtained,
which consent may be granted or withheld, in Tenant’s sole and absolute
discretion, and (C) in no event shall any kiosks be located within the Primary
Common Areas, unless the prior written consent of Tenant is first obtained,
which consent may be granted or withheld, in Tenant’s sole and absolute
discretion,.

(d) Tenant shall have the right during the Term to use the sidewalk area in
front of the Premises storefront for purposes of the display and/or sale of
Tenant's merchandise therefrom, provided that any such sales activity (as
opposed to displays) shall require the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed, and any such
display and/or sale shall be conducted in a professional manner, so as not to
materially and adversely affect pedestrian or vehicular traffic within the
Shopping Center, and Tenant shall be responsible for the clean up of any trash
in the adjacent Common Areas resulting from such sidewalk use.

10. COMMON AREA EXPENSES.

(a) As used in this Lease, the term “Common Area Expenses” shall mean all costs
actually incurred by Landlord for the operation, maintenance and repair of the
Common Areas, including, without limitation, maintenance and repair (and, during
any of the Option Terms, resurfacing) of the parking areas (except that the cost
of such resurfacing during the Option Terms shall be amortized over its useful
life and only the yearly amortization included in Common Area Expenses);
cleaning, sweeping, repainting and restriping the parking areas; maintenance of
refuse receptacles, landscaping, common utility lines serving all tenants of the
Shopping Center, directional signs and other markers; Common Area utility costs;
costs of Landlord’s policies of all risk and commercial general liability
insurance for the Common Areas maintained pursuant to Section 12(b) below; and a
reasonable fee (the “Management Fee”) for management, supervision and
administration of the Shopping Center not to exceed ten percent (10%) of the
total of other items of Common Area Expenses exclusive of such insurance costs.
In no event shall Common Area Expenses include any of the following: (1) any
structural repairs or any other expenditures which, in accordance with generally
accepted accounting principles, are not fully chargeable to current account in
the year the expenditure is incurred, except that any capital expenditures (w)
required for parking area resurfacing in the Option Terms, (x) in the nature of
other repairs or replacements to the Common Areas reasonably required to keep
the Common Areas in the condition required under this Lease, (y) intended to
result in costs savings, or (z) required to comply with applicable governmental
requirements for the Common Areas not in effect as of the Commencement Date,
shall be amortized over their respective reasonably anticipated useful lives and
to the extent that such useful life occurs during the Term of this Lease, then
annual amortization of such cost may be included in Common Area Expenses during
the applicable year of the Term; (2) except for the Management Fee, fees, costs
or expenses relating to management, administration or supervision of all or any
part of the Shopping Center (including, without limitation, individual
compensation or other expenses with respect to officers, executives or on- or
off-site management or administrative personnel of Landlord, or third parties
engaged by Landlord to provide such services, or any other costs or expenses
relating to administrative, bookkeeping, accounting, management or similar
services or functions with respect to the Shopping Center); (3) rent or other
amounts payable under any ground lease or master lease, or interest,
amortization or other repayment of indebtedness or costs, fees, points or other
expenses in connection with any financing or refinancing of all or any part of
the Shopping Center; (4) cost of correcting defects in the initial design or
construction of the Shopping Center or any expansion thereof; (5) costs of
correcting any non-compliance of the Shopping Center or any part thereof with
applicable Laws as of the Commencement Date; (6) any costs relating to removal
or remediation of Hazardous Substances, except routine parking lot maintenance;
(7) cost for which Landlord is reimbursed, receives a credit or is otherwise
compensated (other than tenant reimbursements for Common Area Expenses); (8)
costs of repair or restoration required due to casualty damage or condemnation,
other than the commercially reasonable deductible amount of any insured loss,
but earthquake insurance deductibles shall not be includable in Common Area
Expenses; (9) reserves for anticipated future expenses beyond the current year;
(10) legal and other professional fees, or advertising or promotional expenses
(including, but not limited to, those relating to Christmas or other seasonal
decorations or promotional events); (11) interest or penalties incurred as a
result of Landlord’s failure to pay any bill as it shall become due or costs
resulting from the negligence or wilful misconduct of Landlord, its employees,
agents and/or contractors; (12) costs of leasing any item which if purchased,
rather than leased, would be excluded from Common Area Expenses pursuant hereto;
(13) any amount paid to any corporation or other entity related to Landlord or
to the managing agent of Landlord which is in excess of the amount which would
have been paid in the absence of such relationship; (14) costs related to the
operation of Landlord as an entity rather than the operating of the Shopping
Center (including, without limitation, costs of formation of the entity,
internal accounting, legal matters and/or preparation of tax returns) or costs
associated with marketing or selling Shopping Center or any interest therein, or
converting the Shopping Center to a different form of ownership; (15) leasing
commissions, attorneys’ fees, costs and disbursements, and other expenses
(including, without limitation, advertising) incurred in connection with
leasing, renovating, or improving space for tenants or other occupants or
prospective tenants or occupants of the Shopping Center or development of other
properties, or costs (including, without limitation, permit, license, and
inspection fees) incurred in renovating or otherwise improving or decorating,
painting or redecorating space for tenants or other occupants or vacant space;
(16) costs of any services sold to tenants or other occupants for which Landlord
is entitled to be reimbursed by such tenants or other occupants as an additional
charge or rental over and above the basic rent and escalations payable under the
lease with such tenant or other occupant, and costs associated with valet
parking (including, without limitation, wages and other expenses); (17) any
depreciation or amortization of the Building or other buildings and improvements
within the Shopping Center; (18) expenses in connection with goods, services or
other benefits of a type provided to some tenants but not available to Tenant
(such as, by way of illustration and not in limitation, special services
provided to food service tenants) or which Tenant is required to separately pay
for or provide pursuant to this Lease (such as, by way of illustration and not
in limitation, HVAC maintenance for other occupants’ premises if Tenant is
maintaining the HVAC system serving the Premises at Tenant’s expense); and (19)
repairs and/or maintenance of any pylon or other sign which does not include any
Tenant signage but does include signage of other tenants or occupants of the
Shopping Center.

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(b) From and after the Commencement Date during the Term, Tenant shall pay as
additional rent “Tenant’s Share” (as hereinafter defined) of the Common Area
Expenses. As used herein, “Tenant’s Share” of Common Area Expenses is defined as
that fraction of the Common Area Expenses, the numerator of which is the Floor
Area within the Premises and denominator of which is the Floor Area within the
Shopping Center (provided that in no event shall such denominator be less than
the amount of Floor Area shown within the building areas of the Shopping Center
on Exhibit A, provided, however, if any tenant or occupant separately maintains
portions of the Common Area, then such costs shall be excluded from Common Area
Expenses and the denominator shall not include the Floor Area of such tenants or
occupants; provided further, that if any undeveloped pad building areas are
excluded from such denominator, then Common Area Expenses shall not include
costs allocable to an equitable share of Common Area surrounding such
undeveloped pad buildings). Tenant’s payment under the provisions of this
Section 10(b) shall be due and payable not sooner than thirty (30) days
following receipt by Tenant of an itemized billing from Landlord, which billing
shall be no more frequently than monthly, nor less frequently than annually
during the Term; provided, however, that Landlord shall have the right to
estimate Common Area Expenses and Tenant’s Share thereof, based on Landlord’s
reasonable good faith estimate of Common Area Expenses for the coming year.
Beginning with the first full calendar month following thirty (30) days after
Tenant’s receipt of Landlord’s written estimate, Tenant shall include
one-twelfth (1/12th) of its annual obligation for Tenant’s Share of Common Area
Expenses based upon such estimate with each payment of Minimum Rent thereafter
until actual expenditures are thereafter computed by Landlord. Within ninety
(90) days following the close of each calendar year, Landlord shall calculate
actual expenditures for Common Area Expenses for such calendar year and Tenant’s
Share thereof and provide such accounting to Tenant (the “Annual Statement”). If
the Annual Statement shows that Tenant’s payments of estimated Tenant’s Share of
Common Area Expenses exceeds actual Tenant’s Share of Common Area Expenses for
such calendar year, Landlord shall accompany said Annual Statement with a
payment to Tenant of the amount of such excess. If the Annual Statement shows
that Tenant’s payments of estimated Tenant’s Share of Common Area Expenses were
less than actual Tenant’s Share of Common Area Expenses for such calendar year,
Tenant shall pay such difference to Landlord within thirty (30) days of Tenant’s
receipt of the Annual Statement.

(c) Landlord shall keep at the Shopping Center or at another location in
Southern California, complete, accurate books of account and records with
respect to the Common Area Expenses, and shall retain such books and records and
reasonable supporting documentation for at least two (2) years from the date
Landlord submits its Annual Statement for such year. Tenant’s payment of
Tenant’s Share of Common Area Expenses shall be without prejudice to Tenant’s
examination and audit rights. Tenant may at any reasonable time during normal
business hours, upon ten (10) days’ prior notice to Landlord, cause a complete
audit to be made of such books, records and other materials which Landlord is
required to retain for any year occurring wholly or in part during the Term
within two (2) years following Tenant’s receipt of the Annual Statement for such
year, provided that if Tenant discovers any errors made in any year of the Term,
then Tenant may audit and inspect Landlord’s books and records for all prior
years of the Term as to the applicable line item(s) of expenses for which such
error was found, and any overpayment with respect to such prior year(s) shall be
refunded by Landlord as provided herein. No such audit or examination shall be
conducted by an auditor being paid on a contingency basis or based upon a
percentage of any recovery by Tenant. Tenant may require Landlord to produce
such information about such books and records as is necessary for a proper
examination and audit thereof and to make such books and records available to
Tenant for examination and audit. Any such audit shall be conducted in a manner
so as to minimize interference with Landlord’s business operations. If such
audit discloses any overpayment by Tenant of Tenant’s Share of Common Area
Expenses, Landlord shall refund to Tenant the amount of such overpayment within
thirty (30) days following Landlord’s receipt of such audit. If such audit
discloses any underpayment by Tenant of Tenant’s Share of Common Area Expenses,
Tenant shall pay the amount of such deficiency to Landlord together with
delivery to Landlord of such audit. If such audit discloses an overpayment by
Tenant of Tenant’s Share of Common Area Expenses by three percent (3%) or more,
Landlord shall pay to Tenant within thirty (30) days after demand, Tenant’s
reasonable cost in conducting such audit (as evidenced by invoices or other
reasonable supporting documents delivered to Landlord).

11. MAINTENANCE.

(a) Tenant will, at its sole cost and expense, keep, maintain, repair and
replace (when necessary) the interior portions of the Premises (which Landlord
is not obligated to repair in accordance with Section 11(b) below) in
first-class condition and make all needed repairs thereto, including plate
glass, doors, windows, exposed interior utility lines, meters, pipes, conduits,
fixtures and other equipment and systems (including, without limitation, HVAC
equipment) serving exclusively the Premises and equipment and personal property
of Tenant within the Premises, the Pool and elevators exclusively serving the
Premises. Tenant shall permit no waste, damage or injury to the Premises. Tenant
shall perform all necessary repairs, alterations and improvements to cause the
Premises to comply with all applicable Laws, except that Landlord (and not
Tenant) shall be responsible for making any capital repairs, alterations or
improvements to the Premises required to cause the Premises to comply with
applicable Laws to the extent that such compliance is not required as a result
of Tenant’s particular use of the Premises or Tenant's particular Alterations to
the Premises, but the cost of such capital item may be includable in Common Area
Expenses on an amortized basis as provided in Section 10(a) above.
Notwithstanding anything to the contrary contained in this Lease, if at any time
during the Term of this Lease, Tenant is required to make any replacements to
the HVAC equipment serving the Premises or other mechanical or utility systems
serving the Premises having a useful life extending beyond the expiration of the
Term of this Lease, then Landlord shall reimburse Tenant for a fraction of the
costs of the applicable replacement item, the numerator of which is the number
of months in the reasonably anticipated useful life of the applicable
replacement item beyond the expiration of the Term of this Lease and the
denominator of which is the total number of months in the reasonably anticipated
useful life of the applicable replacement item, which reimbursement shall be
made by Landlord to Tenant within thirty (30) days following Tenant’s submission
to Landlord of request therefor accompanied by reasonable evidence of the costs
of such replacement item.

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(b) Landlord will, at its sole cost and expense, keep, maintain, repair and
replace in first-class and professional manner and repair consistent with the
standards of first-class shopping centers comparable to the Shopping Center
located in the vicinity of the Shopping Center, and (subject to Tenant’s
obligation to perform necessary repairs, alterations or improvements to the
Premises to comply with applicable Laws where such compliance is required as a
result of Tenant’s particular use of, or alterations to, the Premises) perform
any repairs, improvements or alterations required by applicable Laws to, the
foundation, footings, roof, roof membrane, exterior walls (provided that Common
Area Expenses may include (i) graffiti removal from and touch-up painting of
exterior walls, and (ii) complete painting of exterior walls not more often than
once per each five (5) year period during the Term, provided that the cost of
such complete painting shall be amortized over a five (5) year period and Common
Area Expenses shall only include one-fifth (1/5th) of the cost thereof during
each year of such amortization) and structural portions of, the Premises
(excluding front doors, windows, and plate glass), utility lines, meters, pipes,
conduits, fixtures and other equipment and systems (except if exposed within the
Premises and serving exclusively the Premises), exterior sprinkler systems,
gutters and downspouts, plus all Common Areas of the Shopping Center. Tenant may
give Landlord notice of such repairs as may be required under the terms of this
Section, and Landlord shall proceed forthwith to effect the same with reasonable
diligence, but in no event later than thirty (30) days after having received
notice (or such greater period of time as is reasonably necessary to complete
such repairs in the event such repairs are not reasonably susceptible of
completion within thirty (30) days, provided Landlord shall, following receipt
of such notice from Tenant, promptly commence such repairs and diligently
prosecute the same to completion). In event of an “emergency” (which, as used in
this Lease, shall mean a situation posing an imminent risk of material property
damage, injury to persons or interruption of business operations in the
Premises), Tenant shall have the right, but not the obligation, to undertake
immediate repairs of such nature as would normally be Landlord’s responsibility,
and notify Landlord promptly after such repairs have been undertaken (including,
without limitation, notice by telephone, to the extent reasonably practicable).
If Landlord fails to repair any portion of the Premises which is Landlord’s
responsibility, within the thirty (30) day period set forth above (or such
greater period of time as is reasonably necessary to complete such repairs in
the event such repairs are not reasonably susceptible of completion within
thirty (30) days, provided that following receipt of such notice from Tenant,
Landlord promptly commences such repairs and diligently prosecutes the same to
completion) and upon delivery of an additional notice to Landlord, or in the
case of any emergency as above stated, Tenant may without notice perform the
repairs or maintenance and Landlord shall reimburse Tenant for the reasonable
cost of such repairs within thirty (30) days following Landlord’s receipt from
Tenant of invoices and/or other reasonable evidence of the amount of such costs;
provided, however, that in the event Landlord in good faith disputes whether
Tenant properly performed an obligation of Landlord hereunder or the cost of
such performance, Landlord shall have the right to dispute the same by
institution of a reference proceeding in accordance with the provisions of
Section 39 below. If it is determined pursuant to such proceeding that Tenant
did not properly perform an obligation of Landlord in accordance herewith or
that the cost of such performance was unreasonable, then Tenant shall not have
any right to reimbursement for the cost of performance as herein provided (or,
as to a determination of unreasonable cost, Tenant shall not be entitled to
reimbursement of the portion of the cost of such performance determined to be
unreasonable). If it is determined pursuant to such proceeding that Tenant
properly performed an obligation of Landlord hereunder, then Landlord shall
within thirty (30) days following such determination, reimburse Tenant for the
reasonable cost of such performance as determined pursuant to such action, plus
interest thereon at the “Interest Rate” (as hereinafter defined) from the date
of Tenant’s expenditure until Landlord’s reimbursement. Should Landlord fail to
pay such amount as is owing in accordance herewith (A) within thirty (30) days
of receipt of invoice and/or other reasonable evidence of the amount of such
costs (if Landlord does not institute an action within such thirty (30) day
period to in good faith dispute as herein provided), or (B) within thirty (30)
days after such determination by such action, as applicable, Tenant may deduct
and offset such amount (including interest at the Interest Rate from the time
such expenditure was made by Tenant until paid by Landlord) from Minimum Rent,
Percentage Rent, Tenant’s Share of Common Area Expenses, Taxes and Insurance and
other monetary obligations of Tenant owing to Landlord hereunder, provided that
in no event shall such deduction or offset exceed twenty-five percent (25%) of
Minimum Rent for the applicable month, or such greater percentage as is
necessary to allow Tenant full recovery of the amount owing over the remainder
of the Term.

(c) Landlord and its authorized representatives may enter the Premises during
usual business hours, upon not less than twenty-four (24) hours’ prior written
notice to Tenant to (i) inspect the same; and (ii) show the same to prospective
mortgagees, buyers and, in the final six (6) months of the Term, tenants.
Landlord may, upon reasonable prior notice to Tenant (except that no such prior
notice shall be required in an emergency situation of imminent personal injury
or material property damage where notice is not reasonably practicable under the
circumstances), enter the Premises to make additions, alterations or repairs to
the Premises as Landlord is required to make in accordance with this Lease or in
order to comply with applicable Laws, provided, however, that all such
additions, alterations and/or repairs shall be performed in a manner so as to
minimize interference with the operation of Tenant’s business from the Premises.
In addition, in event of an emergency, Landlord shall have the right, but not
the obligation, to undertake immediate repairs of such nature as would normally
be Tenant’s responsibility, and notify Tenant promptly after such repairs have
been undertaken (including, without limitation, notice by telephone, to the
extent reasonably practicable). If Tenant fails to repair any portion of the
Premises which is Tenant’s responsibility, within thirty (30) days after notice
from Landlord of the necessity for such repair (or such greater period of time
as is reasonably necessary to complete such repairs in the event such repairs
are not susceptible of completion within thirty (30) days, provided that
following receipt of such notice from Landlord, Tenant promptly commences such
repairs and diligently prosecutes the same to completion), or in the case of any
emergency as above stated, Landlord may perform the repairs or maintenance and
Tenant shall reimburse Landlord for the reasonable cost of such repairs within
thirty (30) days following Tenant’s receipt from Landlord of invoices or other
reasonable evidence of the amount of such costs; provided, however, that in the
event Tenant in good faith disputes whether Landlord properly performed an
obligation of Tenant hereunder or that the cost of such performance was
unreasonable, Tenant shall have the right to dispute the same by institution of
a reference proceeding in accordance with the provisions of Section 39 below. If
it is determined pursuant to such proceeding that Landlord did not properly
perform an obligation of Tenant in accordance herewith or that the cost of such
performance was unreasonable, then Landlord shall not have any right to
reimbursement for the cost of performance as herein provided (or, as to a
determination of unreasonable cost, Landlord shall not be entitled to
reimbursement of the portion of the cost of such performance determined to be
unreasonable). If it is determined pursuant to such proceeding that Landlord
properly performed an obligation of Tenant hereunder, then Tenant shall within
thirty (30) days following such determination, reimburse Landlord for the
reasonable cost of such performance as determined pursuant to such action, plus
interest thereon at the Interest Rate from the date of Landlord’s expenditure
until Tenant’s reimbursement.

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12. INSURANCE.

(a) (i) Landlord shall maintain at all times during the Term an “All Risk
Policy” (as hereinafter defined) insuring against damage to any portion of the
Premises, and appurtenances thereto. Such insurance shall be in the full amount
of replacement cost (subject only to reasonable deductible amounts and exclusive
of footings, foundation and excavation), without deduction for physical
depreciation and shall provide that the proceeds of any loss shall be payable in
the manner provided for in this Lease. Such policy shall be obtained from an
insurer licensed to do business within the State of California having a policy
holder’s rating of at least A- and a financial rating of not less than VIII in
the most recently published Best’s Insurance Guide. Landlord shall, within ten
(10) days following receipt of written request therefor from Tenant (but not
more often than annually), provide Tenant with a certification of such insurance
coverage, which certificate shall indicate, among other things, that Tenant is a
certificate holder along with Landlord and that the Premises and all the
improvements and Landlord’s fixtures appurtenant thereto, have been insured to
their full replacement value, without deduction for physical depreciation. As
used herein, the term “All Risk Policy” shall mean a policy of fire and other
property insurance in the form commonly referred to in the industry as “all
risk” with extended endorsement (false arrest, libel, slander, invasion of
privacy, theft, vandalism and malicious mischief coverage) and including such
other coverage as Landlord reasonably deems appropriate or as required by
Landlord’s lender; provided that although Landlord may elect to obtain coverage
for flood and earthquake in addition to such policy, Tenant shall not be
required to pay any part of the premium allocable to such coverages.

(ii) From and after the Commencement Date during the Term, Tenant shall
reimburse Landlord for “Tenant’s Share” (as hereinafter defined) of the premium
costs of the insurance described in Section 12(a)(i) above. Tenant’s schedule of
payments for reimbursement shall be established in the same manner as described
in Section 5 above, for Tenant’s Share of Taxes. “Tenant’s Share” for purposes
of this Section 12(a)(ii) shall be a fraction, the numerator of which is the
Floor Area within the Premises and the denominator of which is the Floor Area of
the improvements covered by the insurance policy which is the subject of the
premium.

(iii) From the date of delivery of the Premises to Tenant, Tenant will maintain
or cause to be maintained (which may be, without limitation, by self-insurance),
at its sole cost, an All Risk Policy insuring against damage to Tenant’s
improvements and any personal property or equipment in the Premises. Such
insurance shall be in the full amount of replacement cost (subject only to
reasonable deductible amounts), without deduction for physical depreciation.

(b) (i) From the date of delivery of the Premises to Tenant, Tenant will
maintain at its sole cost commercial general liability insurance covering the
Premises and Tenant’s use thereof against claims from personal injury, bodily
injury, death and property damage occurring in or about the Premises, such
insurance in each case to afford protection to a combined single limit of at
least Five Million Dollars ($5,000,000.00) (such insurance extending to any
liability of Tenant arising out of the indemnities provided for in Section 13
below), and naming Landlord as an additional insured thereunder. In addition,
from the date of delivery of the Premises to Tenant and thereafter during the
Term, Tenant shall maintain worker’s compensation insurance as required by
applicable Laws and a commercially reasonable policy of employer’s liability
insurance coverage.

(ii) From the date of delivery of the Premises to Tenant, Landlord will
maintain, as a Common Area Expense, commercial general liability insurance
covering the Common Areas against claims from personal injury, bodily injury,
death and property damage occurring in or about the Common Areas, such insurance
in each case to afford protection to a combined single limit of at least Five
Million Dollars ($5,000,000.00) (such insurance extending to any liability of
Landlord arising out of the indemnities provided for in Section 13 below), and
naming Tenant as an additional insured thereunder.

(iii) The policies maintained by Landlord and Tenant pursuant to this Section
12(b) shall each (1) include a cross-liability endorsement (or equivalent)
providing that Landlord and Tenant, although insureds, may recover on account of
the negligence of the other, and (2) provide that such insurance is not
contributory with the coverage which the other party may carry and is primary
insurance coverage and not excess insurance coverage or overage insurance
coverage.

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(c) (i) The policies of insurance maintained by Landlord and Tenant pursuant to
this Lease shall (1) provide that the insurer will give at least thirty (30)
days’ written notice of any cancellation, reduction in coverage, lapse or
failure to renew, to the insured party or parties thereunder, and (2) be
obtained from an insurer with a policy holder’s rating of at least A- and a
financial rating of not less than VIII in the most recently published Best’s
Insurance Guide and is subject to increase in accordance with customary industry
practice for comparable tenants of comparable premises for a comparable use.
Landlord and Tenant agree to deliver to the other certificates of insurance
evidencing the existence in force of the policies of insurance described in this
Lease. Each of such certificates shall provide that such insurance shall not be
canceled, reduced in coverage, lapse or materially amended unless thirty (30)
days’ prior written notice of such cancellation, reduction in coverage, lapse or
amendment is given to the party designated on such certificate as the holder
thereof.

(ii) Any insurance required by this Section 12 may be satisfied by blanket,
umbrella and/or excess liability insurance, covering additional items or
locations or insureds, so long as the coverage afforded (including, without
limitation, coverage as to additional insureds) will not be reduced or
diminished by reason of the use of such blanket, umbrella and/or excess
liability policy of insurance.

(d) Landlord and Tenant waive any rights each may have against the other on
account of any loss or damage caused to Landlord or Tenant, as the case may be,
their respective property, the Premises or its contents or to the other portions
of the Shopping Center, arising from any risk generally covered by all-risk
insurance if such waiver does not invalidate such policies or prohibit recovery
thereunder. The parties each, for their respective insurance, waive any right of
subrogation that any insurer may have against Landlord or Tenant. Landlord and
Tenant shall use their respective reasonable good faith efforts to obtain such
waiver.

13. INDEMNITY. 

(a) Tenant shall indemnify, defend and hold harmless Landlord, and Landlord’s
members, partners, shareholders, officers, directors, employees, agents,
successors and assigns (collectively, the “Landlord Indemnified Parties”), from
and against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs (collectively, “Tenant
Covered Claims”), which Tenant Covered Claims shall include, without limitation,
reasonable attorneys’ fees and expenses, to the extent arising or resulting from
(i) the negligence or wilful misconduct of Tenant or Tenant’s agents, employees
and/or contractors; and/or (ii) Tenant’s use of the Premises including, without
limitation, any occurrence within the Premises following delivery of possession
of the Premises to Tenant and prior to the expiration of the Term or earlier
termination of this Lease except to the extent resulting from the negligence or
wilful misconduct of Landlord or Landlord’s agents, employees and/or
contractors. In case any action or proceeding is brought against Landlord or any
Landlord Indemnified Parties by reason of any such Tenant Covered Claims,
Tenant, upon notice from Landlord, agrees to promptly defend the same at
Tenant’s sole cost and expense by counsel approved in writing by Landlord, which
approval shall not be unreasonably withheld, conditioned or delayed.

(b) Landlord shall indemnify, defend and hold harmless Tenant and Tenant’s
members, partners, shareholders, officers, directors, employees, agents,
successors and assigns (collectively, the “Tenant Indemnified Parties”), from
and against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs (collectively,
“Landlord Covered Claims”), which Landlord Covered Claims shall include, without
limitation, reasonable attorneys’ fees and expenses, to the extent arising or
resulting from (i) the negligence or wilful misconduct of Landlord or Landlord’s
agents, employees and/or contractors; and/or (ii) any occurrence within the
Common Areas except to the extent resulting from the negligence or wilful
misconduct of Tenant or Tenant’s agents, employees and/or contractors. In case
any action or proceeding is brought against Tenant or any Tenant Indemnified
Parties by reason of any such Landlord Covered Claims, Landlord, upon notice
from Tenant, agrees to promptly defend the same at Landlord’s sole cost and
expense by counsel approved in writing by Tenant, which approval shall not be
unreasonably withheld, conditioned or delayed.

(c) The obligations of the parties pursuant to this Section 13 shall survive the
expiration of the Term or sooner termination of this Lease.

14. DAMAGE AND DESTRUCTION

(a) If the Premises is damaged or destroyed by fire or other casualty required
to be covered by the All Risk Policy referred to in Section 12(a)(i) or to the
extent of ten percent (10%) or less of the then Premises replacement cost by a
casualty not required to be covered by the All Risk Policy, then, unless either
party terminates this Lease pursuant to this Section 14, Landlord shall promptly
commence to repair and/or reconstruct the Premises to substantially its prior
condition (the parties hereby agreeing that Landlord shall not be obligated for
the repair and/or restoration of any items of Tenant’s Work or alterations made
by Tenant not covered by the insurance maintained by Landlord pursuant to this
Lease).

(b) In the event the Premises is damaged or destroyed to the extent of more than
ten percent (10%) of their then replacement cost by a casualty not required to
be covered by the All Risk Policy, then Landlord shall elect, by written notice
to Tenant delivered within sixty (60) days following the occurrence of such
casualty damage either (i) to repair and reconstruct the Premises, in which
event, Landlord shall promptly commence and diligently perform such work in
accordance with Section 14(a) above, or (ii) to terminate this Lease, provided
that Tenant shall have the right to nullify any such election to terminate by
Landlord by agreeing in written notice to Landlord delivered within ten (10)
business days following Tenant’s receipt of such termination notice, to pay for
the costs of repair and reconstruction of the Premises to the extent in excess
of ten percent (10%) of the then Premises replacement cost, in which event
Tenant shall be responsible for such excess costs and shall pay such excess
costs pursuant to a construction disbursement procedure reasonably acceptable to
the parties and Landlord shall promptly commence and diligently perform such
work in accordance with Section 14(a) above.

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(c) Following any casualty to the Premises and/or the Shopping Center which
materially adversely affects the operation of Tenant’s business from the
Premises or access thereto or parking therefor, Landlord shall within sixty (60)
days following such casualty, deliver written notice to Tenant reasonably
estimating in good faith the time necessary to complete the repair and/or
restoration necessitated by such casualty. In the event the time estimated for
completion of such repair exceeds three hundred (300) days following the
occurrence of such casualty, then Tenant shall have the right to terminate this
Lease by written notice delivered to Landlord within fifteen (15) days following
Tenant’s receipt of such estimate notice. In addition, in the event that Tenant
does not terminate this Lease pursuant to the previous sentence and such repair
in fact is not completed within three hundred (300) days following the
occurrence of the casualty (or such longer period as may have been estimated by
Landlord in such notice), Tenant shall have the right to terminate this Lease
upon thirty (30) days prior written notice to Landlord, provided that if such
repair is completed within such thirty (30) day period, such termination shall
be nullified and this Lease shall continue in full force and effect. In addition
to the foregoing, in the event of any casualty to the Premises occurring during
the final eighteen (18) months of the Term, requiring in excess of ninety (90)
days to repair, either party may terminate this Lease by written notice to the
other within thirty (30) days of the occurrence of the casualty, except that if
Landlord so elects to terminate this Lease and Tenant has an available Option to
extend the Term remaining, then Tenant may nullify such election to terminate by
exercising such Option to extend the Term within thirty (30) days following
receipt of such termination notice from Landlord, in which event such casualty
shall be treated in the manner of casualties occurring other than during the
final eighteen (18) months of the Term. Unless this Lease is so terminated in
accordance with this Section 14(c), this Lease shall continue in full force, and
Landlord shall perform its repair obligation under the other provisions of this
Section 14. Upon any termination of this Lease under this Article 14, the
Minimum Rent, Percentage Rent, and Tenant’s Share of Common Area Expenses, Taxes
and Insurance and any other amounts owing from Tenant to Landlord pursuant to
this Lease shall be adjusted as of the date of such termination and the parties
shall be released without further obligation to the other coincident with the
surrender of possession of the Premises to Landlord, except for items which have
accrued and are unpaid.

(d) If neither party terminates this Lease pursuant to foregoing provisions of
this Section 14, and if the operation of Tenant’s business from the Premises or
parking therefor or access thereto is interfered with as a result of any damage
or destruction, Tenant’s obligation for the payment of Minimum Rent, Percentage
Rent, Tenant’s Share of Common Area Expenses, Taxes and Insurance and any other
amounts owing from Tenant to Landlord pursuant to this Lease during the period
the Premises are so rendered unfit shall be equitably abated from the date of
the casualty based upon the extent of the interference resulting from such
casualty (or shall be fully abated for such period if the operation of Tenant’s
business from the remaining portion of the Premises is not reasonably
practicable) and Tenant shall resume full payment upon the date which is sixty
(60) days following completion of the restoration work by Landlord (or such
earlier date upon which Tenant reopens for business to the general public from
the Premises).

(e) The parties waive such rights of termination as may be granted to them in
the event of casualty damage to the Premises by the laws of the State of
California, it being their agreement that the rights of termination set forth in
this Lease shall be exclusive.

15. CONDEMNATION.

(a) If during the Term, all or any portion of the Premises is taken by right of
eminent domain or condemnation by a competent governmental authority or by
conveyance in lieu thereof (collectively, any “Taking”), or if such a portion of
the Shopping Center is so Taken as Tenant reasonably determines shall have a
material adverse effect upon the operation of Tenant’s business from the
Premises (including, without limitation, material impairment of parking therefor
or access thereto), Tenant may terminate this Lease upon written notice to the
Landlord within thirty (30) days following the date of such Taking. In the event
Tenant does not so terminate this Lease, Landlord shall promptly and diligently
restore the Premises, Common Areas and/or other portions of the Shopping Center
as are so Taken, as the case may be, to as near their condition as existed prior
to such Taking as is reasonably possible. In the event of a Taking which does
not result in the termination of this Lease, Tenant’s obligations for Minimum
Rent, Percentage Rent, Tenant’s Share of Common Area Expenses, Taxes and
Insurance and any other amounts owing from Tenant to Landlord under this Lease
shall be equitably abated following such Taking based upon the extent of the
interference with the operation of Tenant’s business from the Premises and
Tenant shall resume full payment upon the date which is sixty (60) days
following the completion of the restoration work by Landlord (or such earlier
date upon which Tenant reopens for business to the general public from the
Premises). In the event of a temporary Taking not extending beyond the Term, but
which adversely affects Tenant’s operation from its Premises, Tenant shall have
the right to elect either to terminate this Lease in accordance herewith or to
not terminate this Lease and receive all compensation awarded by the condemning
authority with respect to such temporary Taking of the Premises relating to the
use thereof during the Term of this Lease but not in excess of the Rent due
hereunder and not beyond the Term of this Lease.

(b) Landlord shall be entitled to that portion of the award payable in
connection with any such Taking attributable to the diminution in value of
Landlord’s reversionary interest in the Premises and Tenant shall be entitled to
that portion of the award payable in connection with such Taking attributable to
diminution in value of Tenant’s leasehold, damage to Tenant’s business and loss
of goodwill and Tenant’s relocation costs.

(c) The parties waive such rights of termination as may be granted to them in
the event of condemnation of the Premises by the laws of the State of
California, it being their agreement that the rights of termination set forth in
this Lease shall be exclusive.

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16. ASSIGNMENT AND SUBLETTING.

(a) Except as otherwise specifically provided herein, Tenant shall not assign
Tenant’s interest in this Lease or sublet any portion of the Premises
(collectively, “Transfer”) without obtaining in each instance the prior consent
of Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed. Landlord’s consent to any Transfer shall not constitute a waiver of the
necessity for such consent to any subsequent Transfer. Notwithstanding a
Permitted Transfer or other Transfer consented to by Landlord, Tenant shall
remain liable for the full performance of every obligation under this Lease to
be performed by Tenant. Any permitted assignee or subtenant pursuant to this
Section 16 may change the trade name under which the business operating from the
Premises is operated and/or the use of the Premises in accordance with the
provisions of Section 7(b) above, including, without limitation, the requirement
that Landlord’s consent thereto is first obtained, which consent shall not be
unreasonably withheld, conditioned or delayed. The acceptance by Landlord of
rent or any other sum due hereunder from any person or entity other than Tenant
shall not be deemed to be a waiver of any provision contained herein or a
consent to any assignment or sublease. Tenant shall reimburse Landlord for its
costs and expenses (including, without limitation, reasonable attorneys’ fees
and expenses) incurred in connection with any proposed assignment or subletting
(whether or not Landlord consent is granted), other than a Permitted Transfer,
within thirty (30) days following receipt of request for reimbursement
accompanied by reasonable supporting documentation with respect thereto, but not
to exceed a maximum reimbursement of One Thousand Dollars ($1,000.00).

(b) Notwithstanding anything to the contrary contained herein, in the event of
any proposed Transfer (other than a Permitted Transfer) which is an assignment
of this Lease or a sublet of all or substantially all of the Premises for all or
substantially all of the remaining Term of this Lease, Landlord shall have the
right, exercisable by written notice to Tenant delivered within fifteen (15)
days following receipt of Tenant’s request for Landlord’s consent to the
proposed Transfer, to terminate this Lease effective as of the proposed Transfer
effective date, subject to Landlord’s payment to Tenant on or before such
termination effective date an amount equal to the unamortized cost (as of the
termination effective date, based upon monthly straight line amortization over
the Initial Term of this Lease) of Tenant’s Work, as such cost shall be
reasonably evidenced by documentation provided by Tenant to Landlord. However,
Tenant shall have the right to nullify any such election to terminate by
Landlord by agreeing, in written notice delivered to Landlord within fifteen
(15) days following receipt of such termination notice from Landlord, to
withdraw Tenant’s request for consent to such proposed Transfer, in which event
this Lease shall continue in full force and effect as if Tenant had never
submitted such request for Landlord’s consent to such proposed Transfer.

(c) In the event of any Transfer (other than a Permitted Transfer), Tenant shall
pay to Landlord fifty percent (50%) of any “Excess Consideration” received by
Tenant from such Transfer, as and when received. As used herein, “Excess
Consideration” means the total rent and other consideration of any kind or
nature payable by the Transferee (other than for sale or use of trade fixtures
and other personal property items) less the total amount of rent payable by the
Tenant under this Lease from and after the effective date of the Transfer after
Tenant’s recapture from the rent payable by such Transferee of Tenant’s actual
out-of-pocket costs reasonably incurred in connection with the applicable
Transfer, including, without limitation, reasonable attorneys’ fees, reasonable
brokerage commissions, costs of improvements made for the benefit of the
Transferee, allowances granted to the Transferee or other monetary concessions
granted to any such Transferee.

(d) Notwithstanding anything to the contrary contained in this Section 16 above,
Tenant may, without Landlord’s consent (but upon reasonable prior notice to
Landlord) at any time (i) assign this Lease or sublease the whole or any part of
the Premises to any entity controlled by, controlling or under common control
with Tenant or to any entity resulting from the consolidation or merger of
Tenant into or with such other entity or the acquisition of substantially all of
the assets of Tenant by such entity, or (ii) license, grant a concession of or
otherwise permit the use of one or more portions of the Premises which are not
separately demised and do not exceed an aggregate of twenty-five percent (25%)
of the Floor Area of the Premises to licensees, concessionaires or users which
are not inconsistent with Tenant’s permitted use of the Premises (including,
without limitation, any licensee selling ski and/or other sports-oriented
vacation tours or packages). Any such assignment or subletting, licensing, or
granting of permission for use pursuant to the immediately preceding sentence is
referred to in this Lease as a “Permitted Transfer” and any assignee, subtenant,
licensee or other user under a Permitted Transfer is referred to in this Lease
as a “Permitted Transferee”. In addition, the sale or transfer of all or any
part of Tenant’s stock or other equity interests shall not constitute an
assignment or other transfer requiring Landlord’s consent.

(e) In the event of any transfer of Landlord’s interest in the Premises,
following the assumption of Landlord’s remaining obligations under this Lease by
such transferee, Landlord shall be automatically relieved of any and all
obligations and liabilities accruing with respect to the period from and after
the date of such transfer and assumption.

17. SUBORDINATION AND ATTORNMENT.

(a) Upon notice by Landlord, Tenant shall subordinate its rights under this
Lease to any lease(s) wherein Landlord is the lessee and to the lien of any
mortgage(s) or deed(s) of trust (collectively, “Instrument”), regardless of
whether such Instrument now exists or is hereafter created, to all advances
thereunder, to any interest thereon, and to all modifications, consolidations,
renewals, replacements and extensions thereof, provided the lessors, mortgagees
or beneficiaries agree to provide Tenant with an agreement of non-disturbance in
a commercially reasonable form reasonably acceptable to Tenant and Landlord,
agreeing to recognize this Lease and Tenant’s rights hereunder in the event of
termination or foreclosure under the Instrument so long as Tenant is not in
default under this Lease beyond the expiration of any applicable notice and cure
periods. Tenant agrees to execute any agreement evidencing such subordination
and non-disturbance in the form attached hereto as Exhibit G and incorporated
herein by this reference or such other commercially reasonable form as is
reasonably acceptable to Tenant, at Landlord’s request. Any such lessor,
mortgagee or beneficiary may elect to have this Lease prior to its instrument,
and in the event of such election and upon notification by such lessee,
mortgagee or beneficiary to Tenant, this Lease shall be deemed prior to said
Instrument, whether this Lease is dated prior or subsequent to said Instrument.
Notwithstanding anything to the contrary contained in this Lease, it shall be a
condition precedent to the performance of each of Tenant’s obligations under
this Lease (including, without limitation, Tenant’s obligation for the payment
of Minimum Rent, Percentage Rent and Tenant’s Share of Common Area Expenses,
Taxes and Insurance), that Tenant obtain from each lessor, mortgagee or
beneficiary under an Instrument presently encumbering the Shopping Center, an
agreement of non-disturbance in the form attached hereto as Exhibit G or in
other commercially reasonable form reasonably acceptable to Tenant and Landlord.

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(b) If Landlord’s interest in the Premises is transferred (except in a
sale-leaseback financing transaction), or if any proceedings are brought for the
foreclosure of, or in the event of the exercise of the power of sale under, any
Instrument, or if any lease in a sale-leaseback transaction wherein Landlord is
the lessee is terminated, Tenant shall attorn to and recognize such purchaser,
assignee, mortgagee or beneficiary as Landlord under this Lease, provided such
purchaser, assignee, mortgagee or beneficiary has executed or agrees to execute
an agreement of subordination, non-disturbance and attornment in the form
attached hereto as Exhibit G or in other commercially reasonable form reasonably
acceptable to Tenant and Landlord, recognizing this Lease and Tenant’s rights
hereunder.

18. TENANT DEFAULTS.

(a) The occurrence of either of the following shall constitute a default by
Tenant pursuant to this Lease: (i) Tenant’s failure to pay rent when due under
this Lease, where such failure continues for five (5) days after notice that
such payment is due; and (ii) Tenant’s failure to observe or perform any
covenant, term or condition of this Lease (other than the payment of rent) where
such failure continues for thirty (30) days after notice thereof from Landlord
to Tenant; provided that if such failure cannot reasonably be cured within such
thirty (30) day period, Tenant shall not be in default hereunder so long as
Tenant commences such cure within such thirty (30) day period and thereafter
diligently prosecutes such cure to completion.

(b) In the event of any default by Tenant pursuant to Section 18(a) above, in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all rights
of Tenant hereunder by giving written notice of such intention to terminate. In
the event that Landlord shall elect so to terminate this Lease, then Landlord
may recover from Tenant:

(i) The worth at the time of award of any unpaid rent which had been earned at
the time of such termination; plus

(ii) 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 Tenant proves could have been reasonably avoided;
plus

(iii) 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 have been reasonably avoided; plus

(iv) Any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant’s failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom.

The term “rent” as used in Section 18(b) shall be deemed to mean Minimum Rent
only. As used in Sections 18(b)(i) and (ii) above, the “worth at the time of
award” is computed by allowing interest at the Interest Rate. As used in Section
18(b)(iii) above, the “worth at the time of award” is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%).

(c) In the event of any default by Tenant pursuant to Section 18(a) above and
Tenant’s abandonment of the Premises, (i) Landlord shall also have the right to
reenter the Premises and remove all persons and property therefrom by summary
proceedings or otherwise; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant or disposed
of in a reasonable manner by Landlord, and/or (ii) Landlord shall have the
remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee’s breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign, subject only to reasonable
limitations).

(d) In the event Landlord shall elect to reenter as provided in Section 18(c)
above, or shall take possession of the Premises pursuant to legal proceedings or
pursuant to any notice provided by law, and if Landlord does not elect to
terminate this Lease, then Landlord may from time to time, without terminating
this Lease, either recover all rental as it becomes due or relet the Premises or
any part thereof for such term or terms and at such rental or rentals and upon
such other terms and conditions as Landlord in its reasonable discretion may
deem advisable. In the event that Landlord shall elect to relet, then rentals
received by Landlord from such reletting shall be applied to the payment of any
indebtedness owed by Tenant to Landlord and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied to the payment of rent hereunder,
be less than the rent payable during that month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any
costs and expenses reasonably incurred by Landlord in such reletting. No reentry
or taking possession of the Premises by Landlord pursuant to this Section 18,
shall be construed as an election to terminate this Lease unless a written
notice of such intention be given by Landlord to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction. Landlord
may at any time after such reletting elect to terminate this Lease for any such
default by Tenant.

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(e) All rights, options and remedies of Landlord contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Landlord shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law, whether or
not stated in this Lease. Landlord’s failure to insist upon strict performance
of any term, covenant or condition of this Lease or to exercise any right or
remedy it has shall not be deemed a waiver or relinquishment for the future of
such performance, right or remedy unless in writing signed by Landlord. No
waiver by Landlord shall constitute a waiver of any subsequent breach.

(f) Landlord waives such liens, if any, to which it may have a right with
respect to the merchandise, furniture, trade fixtures and other personal
property of Tenant located on or about the Premises and shall from time to time
execute such documents as Tenant may reasonably request to acknowledge such
waiver.

19. LANDLORD DEFAULTS.

(a) Except as otherwise expressly provided in this Lease, Landlord shall be in
default under this Lease if Landlord fails to perform any of its obligations
hereunder and said failure continues for a period of thirty (30) days after
Tenant gives Landlord notice thereof (unless such failure cannot reasonably be
cured within thirty (30) days) and Landlord shall have commenced to cure within
said thirty (30) days and continues diligently to pursue the curing of the
same). Tenant shall give to any holder of indebtedness secured by a first lien
upon the Premises whose address has previously been provided to Tenant, a copy
of any notice of default served upon the Landlord. Tenant further agrees that
any such holder of indebtedness shall have the right to cure any Landlord
default within the time period provided for such cure by Landlord pursuant to
this Lease. If such default is not cured within the specified time period,
Tenant may exercise any right or remedy available to it at law or in equity or
under this Lease. Tenant shall have the right to cure any such default upon
written notice to Landlord (but no such additional notice shall be required in
an emergency situation) and Landlord shall reimburse Tenant for the reasonable
cost thereof within thirty (30) days following receipt from Tenant of invoices
or other reasonable evidence of the amount of such costs; provided, however, in
the event Landlord in good faith disputes whether Tenant properly performed an
obligation of Landlord, Landlord may dispute the same by institution of a
reference proceeding pursuant to Section 39 below within thirty (30) days
following Tenant’s request for reimbursement. If it is determined pursuant to
such proceeding that Tenant’s cure was proper, Landlord shall, within ten (10)
days following such determination, reimburse Tenant for the cost of such cure
(plus interest at the Interest Rate from the date of Tenant’s expenditure until
reimbursement). Should Landlord fail to pay Tenant any amount due Tenant (a)
within thirty (30) days following receipt of Tenant’s invoices or other evidence
(if Landlord does not institute a reference proceeding disputing such cure), or
(b) within ten (10) days after determination by reference, Tenant may,
notwithstanding anything to the contrary contained in this Lease, deduct and
offset such amount (including, without limitation, interest at the Interest Rate
from the time of Tenant’s expenditure until repaid) from any monetary obligation
of Tenant owing Landlord hereunder, provided that in no event shall such
deduction or offset exceed twenty-five percent (25%) of Minimum Rent for the
applicable month, or such greater percentage as is necessary to allow Tenant
full recovery of the amount owing over the remainder of the Term.
Notwithstanding anything to the contrary contained in this Lease, Tenant shall
have the right to offset any unpaid reference or court award from any monetary
obligation due under this Lease. Any amount due from Landlord to Tenant shall
bear interest at the Interest Rate from the date due until paid. All rights,
options and remedies of Tenant contained in this Lease shall be construed and
held to be cumulative, and no one of them shall be exclusive of the other, and
Tenant shall have the right to pursue any one or all of such remedies or any
other remedy or relief which may be provided by law, whether or not stated in
this Lease. Tenant’s failure to insist upon strict performance of any term,
covenant or condition of this Lease or to exercise any right or remedy it has
shall not be deemed a waiver or relinquishment for the future of such
performance, right or remedy unless in writing signed by Tenant. No waiver by
Tenant shall constitute a waiver of any subsequent breach.

(b) In the event that Landlord shall be liable to Tenant for damages sustained
by Tenant as a result of Landlord’s breach of this Lease, it is expressly
understood and agreed that any money judgment resulting from any default or
other claim arising under this Lease shall be satisfied only out of Landlord’s
interest in the Shopping Center, the proceeds thereof and therefrom and the rent
payable under this Lease, and no other real, personal or mixed property of
Landlord, wherever situated, shall be subject to levy on any such judgment
obtained against Landlord and if such interest is insufficient for the payment
of such judgment, Tenant will not institute any further action, suit, claim or
demand, in law or in equity, against Landlord for or on account of such
deficiency. Tenant hereby waives, to the extent waivable under law, any right to
satisfy such money judgment against Landlord except from Landlord’s interest in
the Shopping Center, the proceeds thereof and therefrom and the rent payable
under this Lease.

20. TENANT’S PROPERTY; SURRENDER; HOLDING OVER.

(a) Any furniture, trade fixtures and other equipment and personal property of
Tenant not permanently affixed to the Premises shall be Tenant’s property.
Tenant may remove its personal property which it has stored or placed in the
Premises. Tenant, at its sole expense, shall immediately repair any damage to
the Premises caused by installation or removal of any personal property unless
such damage is caused by the negligence or wilful misconduct of Landlord and/or
any of Landlord’s employees, agents, representatives and/or contractors. Any
personal property of Tenant not removed from the Premises within thirty (30)
days following the expiration of the Term or any earlier termination of this
Lease shall become Landlord’s property.

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(b) Tenant shall surrender possession of the Premises upon the expiration of the
Term or earlier termination of this Lease, broom clean, free of debris, in good
order and state of repair (excepting Landlord’s obligations under this Lease and
ordinary wear and tear), and deliver the keys as Landlord designates. In the
event Tenant holds over in the Premises following the expiration of the Term or
earlier termination of this Lease, Tenant’s occupancy shall be considered a
tenancy from month to month (terminable upon thirty (30) days’ notice by either
party) on all terms and conditions of this Lease, except that Tenant’s
obligation for monthly Minimum Rent during such holdover shall equal (i) during
the initial month of such holding over, one hundred twenty-five percent (125%)
of the monthly Minimum Rent in effect immediately preceding the expiration of
the Term or earlier termination of the Lease, and (ii) from and after the
expiration of the initial month of such holding over, one hundred fifty percent
(150%) of the monthly Minimum Rent in effect immediately preceding the
expiration of the Term or earlier termination of the Lease. If Tenant fails to
surrender the Premises upon the expiration of the Term or earlier termination of
this Lease despite demand to do so by Landlord notifying Tenant of a successor
tenant, Tenant shall indemnify, defend and hold harmless Landlord from and
against any and all claims, demands, losses, liabilities, costs and/or expenses
(including, without limitation, reasonable attorneys’ fees and expenses) arising
as a result thereof, including, without limitation, any claim made by any
succeeding tenant founded on or resulting from such failure to surrender.

21. AGREEMENTS. The parties hereby acknowledge that this Lease shall be
subordinate to existing matters of record (the “Agreements”), subject to Section
7(a) above. This Lease shall not be subordinate to any new Agreement or any
amendment or supplement to the existing Agreements, which is not first approved
by Tenant in writing, which approval shall not be unreasonably withheld,
conditioned or delayed.

22. QUIET ENJOYMENT. Upon payment by Tenant of the rent and the observance and
performance of all of the agreements, covenants, terms and conditions on
Tenant’s part to be observed and performed, Tenant shall quietly enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject to the terms of this Lease.

23. ESTOPPEL STATEMENTS. Within twenty (20) days after each written request from
either party in connection with a sale, financing, assignment or other transfer
of such party’s interest in this Lease, the non-requesting party shall execute
and deliver to the requesting party or its designee (and the requesting party
and each designee may rely thereon) an estoppel certificate certifying that this
Lease is unmodified (except for any amendments specifically stated) and in full
force and effect, setting forth the date through which Minimum Rent has been
paid, and acknowledging that there are not, to such party’s actual knowledge,
any uncured defaults on the part of the other party hereunder or specifying such
defaults if any are claimed, and certifying, to such party’s actual knowledge,
as to such other factual matters as may be reasonably requested.

24. FORCE MAJEURE. If either party is delayed or hindered in or prevented from
the performance of any act required hereunder because of strikes, lockouts,
inability to procure labor or materials, failure of power, restrictive Laws,
riots, insurrection, war, fire or other casualty or other reason of a similar or
dissimilar nature beyond the reasonable control of the party delayed, financial
inability excepted (any “Force Majeure Event”), performance of such act shall be
excused for the period of the Force Majeure Event, and the period for the
performance of such act shall be extended for an equivalent period. Delays or
failures to perform resulting from lack of funds shall not be Force Majeure
Events.

25. SIGNS. Tenant shall be entitled to the maximum lawful Building signage
(including, without limitation, the right to identification on at least two (2)
sides of the Building), and monument/pylon signage within the Shopping Center in
accordance with Exhibit D attached hereto and incorporated herein by this
reference.

26. REAL ESTATE BROKERS. Landlord and Tenant agree and acknowledge that The
Clover Company has acted as broker in connection with this Lease (the “Broker”)
and Landlord agrees that Landlord shall pay the commission due such Broker in
connection herewith and indemnify, defend, and hold Tenant harmless from any
commission claims of such Broker. Other than the Broker, Tenant warrants that it
has not dealt with a broker regarding this Lease, and shall indemnify, defend
and save Landlord harmless from all claims, actions, damages, expenses and
liability whatsoever, including, without limitation, reasonable attorneys’ fees
and expenses, arising from any claim for commission or finder’s fee regarding
this Lease. Other than the Broker, Landlord warrants that it has not dealt with
a broker regarding this Lease, and shall indemnify, defend and save Tenant
harmless from all claims, actions, damages, expenses and liability whatsoever,
including, without limitation, reasonable attorneys’ fees and expenses, arising
from any claim for commission or finder’s fee regarding this Lease.

27. MEMORANDUM OF LEASE. This Lease shall not be recorded. However, a memorandum
hereof in the form attached hereto as Exhibit F shall be executed, in recordable
form, by both parties concurrently herewith and recorded by Landlord, at
Landlord’s expense, with the official charged with recordation duties for the
county in which the Shopping Center is located. Tenant shall execute a
termination of such memorandum of this Lease in form and substance reasonably
acceptable to Landlord, which termination instrument Landlord may record upon
the expiration of the Term or earlier termination of this Lease.

28. NOTICES. Any notice, demand, request, approval, consent or other instrument
which is, or is required to be, given under this Lease shall be in writing and
shall be deemed to have been given (a) two (2) days after when mailed by United
States registered or certified mail return receipt requested, postage prepaid,
or (b) when received, if sent by overnight courier or delivery service,
addressed to Landlord or Tenant at the respective addresses set forth in the
Basic Lease Provisions or such other address or addresses as either party may
designate by notice to the other in accordance with this Section 28.

29. ATTORNEYS’ FEES. In the event either party shall institute any action or
proceeding against the other party relating to this Lease, the unsuccessful
party in such action or proceeding shall reimburse the successful party for its
disbursements incurred in connection therewith and for its reasonable attorneys’
fees as fixed by the court. In addition to the foregoing award of attorneys’
fees to the successful party, the successful party in any lawsuit on this Lease
shall be entitled to its attorneys’ fees incurred in any post-judgment
proceedings to collect or enforce the judgment. This provision is separate and
several and shall survive the merger of this Lease into any judgment on this
Lease.

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30. WAIVER. No waiver of any breach of any of the terms, covenants, agreements,
restrictions or conditions of this Lease shall be valid unless in writing and
signed by the party to be charged with such waiver, nor shall any waiver be
construed as a waiver of any succeeding breach of any of the same or other
covenants, agreements, restrictions, or conditions hereof.

31. LEASE BINDING UPON SUCCESSORS. Subject to the provisions of Section 16
above, each of the terms, covenants and conditions of this Lease shall extend to
and be binding upon and shall inure to the benefit of not only Landlord and
Tenant, but each of their respective heirs, administrators, legal
representatives, successors and assigns. Whenever in this Lease reference is
made to either Landlord or Tenant, the reference shall be deemed to include,
wherever applicable, the heirs, legal representatives and administrators,
successors and assigns, as if such parties were named in every case.

32. INTERPRETATION. Captions of the sections or parts of this Lease are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation or construction. The words “Landlord” and “Tenant”
when used herein shall be applicable to one or more persons as the case may be,
and the singular shall include the plural, and the neuter shall include the
masculine and feminine, and if there be more than one, the obligations hereof
shall be joint and several. The word “persons” wherever used shall include
individuals, firms, associations and corporations. The language in all parts of
this Lease shall in all cases be construed as a whole and in accordance with its
fair meaning and shall not be construed strictly for or against Landlord or
Tenant.

33. INTEREST. Any amount owing from one party to the other under this Lease
which is not paid within ten (10) days of the date when due shall thereafter
bear interest at the Interest Rate. As used herein, the term “Interest Rate”
means a per annum rate of interest equal to the lesser of (1) two percent (2%)
per annum over the then most recent annual prime or reference rate of interest
announced by Bank of America N.A. (or in the event Bank of America N.A. ceases
to publish a prime or reference rate, the prime rate of a comparable national
banking institution reasonably agreed upon by the parties), or (2) the maximum
rate permitted by applicable law.

34. INVALIDITY. If any provision of this Lease shall prove to be invalid, void
or illegal, it shall in no way affect, impair or invalidate any other provision
hereof.

35. TIME OF THE ESSENCE. Time is expressly declared to be “of the essence” in
this Lease and in each and every provision hereof wherein time for performance
is a factor.

36. GOVERNING LAW. This Lease shall be governed by, and construed in accordance
with, the laws of the State of California.

37. APPROVALS. Except to the extent specifically otherwise provided in this
Lease, whenever the approval or consent of either of the parties hereto is
required under this Lease, such approval or consent shall not be unreasonably
withheld, conditioned or delayed.

38. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which, taken together, shall
constitute one and the same instrument.

39. EXPEDITED DISPUTE RESOLUTION. At the election of either Landlord or Tenant,
any dispute with respect to the subject matter of this Lease (except an unlawful
detainer action by Landlord) shall be resolved by a referee pursuant to the
provisions of California Code of Civil Procedure Section 638 et seq., for a
determination to be made which shall be binding upon the parties as if tried
before a court or jury. The parties agree specifically as to the following:

(a) Within five (5) business days after service of a demand by a party hereto,
the parties shall agree upon a single referee who shall then try all issues,
whether of fact or law, and then report a finding or judgment thereon. If the
parties are unable to agree upon a referee either party may seek to have one
appointed, pursuant to California Code of Civil Procedure Section 640, by the
presiding judge of the County Superior Court where the Shopping Center is
located.

(b) The compensation of the referee shall be such charge as is customarily
charged by the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing party in such
proceedings shall be entitled, in addition to all other costs, to recover its
contribution for the cost of the reference as an item of damages and/or
recoverable costs.

(c) If a reporter is requested by either party, then a reporter shall be present
at all proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable costs. Only
a party shall be authorized to request a reporter.

(d) The referee shall apply all California Rules of Procedure and Evidence and
shall apply the substantive law of California in deciding the issues to be
heard. Notice of any motions before the referee shall be given, and all matters
shall be set at the convenience of the referee.

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(e) The referee’s decision under California Code of Civil Procedure Section 644,
shall stand as the judgment of the court, subject to appellate review as
provided by the laws of the State of California.

(f) The parties agree that they shall in good faith endeavor to cause any such
dispute to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee.

(g) The referee shall have the power to award damages and all other relief.

40. TERMINATION OF EXISTING LEASE. THE PARTIES ACKNOWLEDGE THAT LANDLORD
CURRENTLY LEASES TO TENANT CERTAIN EXISTING PREMISES OCCUPIED BY TENANT LOCATED
ACROSS FOOTHILL BOULEVARD FROM THE SHOPPING CENTER (THE “EXISTING PREMISES”)
PURSUANT TO AN EXISTING LEASE (THE “EXISTING LEASE”). TENANT’S EXISTING LEASE
FOR THE EXISTING PREMISES SHALL TERMINATE THIRTY (30) DAYS FOLLOWING THE OPENING
OF THE PREMISES FOR BUSINESS UNDER THIS LEASE. TENANT SHALL NOT BE LIABLE FOR
RENT OR OTHER CHARGES UNDER THE EXISTING LEASE DURING SUCH THIRTY (30) DAY
PERIOD FOLLOWING THE OPENING OF THE PREMISES FOR BUSINESS UNDER THIS LEASE.
TENANT SHALL SURRENDER POSSESSION OF THE EXISTING PREMISES IN THE CONDITION
REQUIRED FOR SURRENDER UNDER THE EXISTING LEASE ON OR BEFORE SUCH EFFECTIVE DATE
OF THE TERMINATION OF THE EXISTING LEASE. HOWEVER, IF TENANT FAILS TO SO
SURRENDER POSSESSION OF THE EXISTING PREMISES BY THE TERMINATION EFFECTIVE DATE
OF THE EXISTING LEASE, THEN TENANT’S CONTINUED OCCUPANCY OF THE EXISTING
PREMISES SHALL THEREAFTER CONSTITUTE A HOLDING OVER UNDER THE EXISTING LEASE.

41. RENAMING OF SPORT CHALET DRIVE. Landlord agrees to reasonably cooperate with
Tenant in attempting to cause the City Council of La Cañada and any other
applicable governmental authorities whose consent therefor is required, to
rename the street which is so identified on Exhibit A as “Sport Chalet Drive”,
provided that Tenant shall be solely responsible for all costs and expenses of
attempting to cause such renaming and in no event shall this Lease be contingent
upon such renaming.

42. WAIVER OF CONSEQUENTIAL DAMAGES. Notwithstanding anything to the contrary
contained in this Lease, in no event shall either party be liable to the other
party for any consequential damages in connection with this Lease or any breach
of this Lease, provided that amounts which Landlord is entitled to collect as
damages from Tenant under California Civil Code Section 1951.2 in the event of a
default by Tenant not cured within the applicable period for cure under Section
18 above shall not be deemed to constitute consequential damages for purposes
hereof..

43. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties
hereto with respect to the matters covered thereby, and no other agreement,
statement or promise made by any party hereto, or to any employee, officer or
agent of any party hereto, which is not contained herein, shall be binding or
valid. All prior or contemporaneous agreements or writings between or among the
parties are specifically merged into this Lease. This Lease may not be amended,
modified or supplemented except by written instrument executed by Landlord and
Tenant.

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

LANDLORD:
 
TENANT:
     
LA CAÑADA PROPERTIES, INC.,
 
SPORT CHALET, INC.,
a California corporation
 
a Delaware corporation
     
By:
/s/ Eric Olberz
 
By:
/s/ Dennis Trausch

 
Print Name:
   
Print Name:
 

 
Its:
   
Its:
           
By:
       

 
Print Name:
       

 
Its:
       

 
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