<PAGE>
 
                            THE CITADEL OFFICE LEASE



                                    between



                     COMMERCE CITADEL DEVELOPMENT AUTHORITY



                                    Landlord



                                      and



                        SMART & FINAL STORES CORPORATION


                                     Tenant
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
 
                                                                                                          Page
                                                                                                          ----
 <C>       <S>                                                                                             <C>
 
 1.       PREMISES.......................................................................................    1
          1.1   Lease of Premises........................................................................    1
          1.2   Rentable Area............................................................................    1
          1.3   Verification of Rentable Area and Useable Area...........................................    2
                                                                                                         
 2.       TERM...........................................................................................    2
          2.1   Effective Date...........................................................................    2
          2.2   Term.....................................................................................    2
          2.3   Condition of Premises....................................................................    2
          2.4   Delivery and Approval of Working Drawings................................................    3
          2.5   Delivery of Permits......................................................................    3
          2.6   Delivery of Premises.....................................................................    4
          2.7   Commencement Date........................................................................    4
          2.8   Notice of Commencement Date..............................................................    4
          2.9   Landlord's Contingencies.................................................................    4
                (a)    Rent Abatement....................................................................    5
                (b)    Reimbursement of Costs............................................................    5
          2.10   Tenant's Right to Terminate.............................................................    5
 
 3.       RENT...........................................................................................    6
          3.1   Payment of Base Rent.....................................................................    6
          3.2   Other Assessments........................................................................    6
          3.3   Definition of Rent.......................................................................    6
          3.4   Late Charge and Interest.................................................................    6
          3.5   Acceleration of Base Rent Payments.......................................................    7
          3.6   Disputes as to Payments of Rent..........................................................    7
          3.7   Rent Abatement...........................................................................    7
                (a)    Abated Rent During Construction Period............................................    7
                (b)    Abatement Due to Delays in Delivery of Premises...................................    7
                                                                                                         
 4.       ADJUSTMENTS TO RENT............................................................................    8
          4.1   Cost of Living Adjustment - Base Rent Increase...........................................    8
          4.2   Operating Expense Adjustment.............................................................    8
          4.3   Procedure for Payment of Operating Expense Adjustment....................................    9
          4.4   Tenant's Pro Rata Share..................................................................   10
          4.5   Operating Expenses.......................................................................   10
          4.6   Exclusions from Operating Expenses.......................................................   12
          4.7   Limited Exclusion from Taxes of "Proposition 13" Increases...............................   16
          4.8   "Grossing Up" Operating Expenses.........................................................   16
</TABLE> 
                                       1
<PAGE>
<TABLE> 
<C>       <S>                                                                                                <C> 
          4.9    Review of Operating Expenses............................................................    17
          4.10   Real Property Tax Exclusions............................................................    18
                                                                                                         
 5.       ARBITRATION....................................................................................    19
          5.1   General Submittals to Arbitration........................................................    19
          5.2   JAMS.....................................................................................    19
          5.3   Pre-Decision Actions.....................................................................    20
          5.4   Arbitrator's Decision....................................................................    20
                                                                                                          
 6.       USE............................................................................................    20
          6.1   Permitted Use............................................................................    20
          6.2   Restriction on Use.......................................................................    21
          6.3   Compliance With Law......................................................................    21
                (a)    Legal Requirements................................................................    21
                (b)    Compliance by Landlord............................................................    21
                (c)    Compliance by Tenant..............................................................    22
                (d)    Compliance by Other Tenants.......................................................    22
          6.4   Hazardous Material.......................................................................    22
                (a)    Tenant's Representations..........................................................    22
                (b)    Tenant's Indemnification of Landlord..............................................    23
                (c)    Landlord's Representations........................................................    23
                (d)    Landlord's Indemnification of Tenant..............................................    24
                (e)    Definition of Hazardous Material..................................................    24
          6.5   Tenant's Access to Premises..............................................................    25
                                                                                                         
 7.       ALTERATIONS AND IMPROVEMENTS...................................................................    25
          7.1   Initial Tenant Improvements..............................................................    25
          7.2   Tenant's Rights to Make Alterations......................................................    25
          7.3   Installation of Alterations..............................................................    26
          7.4   Tenant Improvements......................................................................    26
          7.5   Tenant's Extra Improvements..............................................................    26
          7.6   Alterations by Landlord..................................................................    27
                                                                                                         
 8.       TENANT'S REPAIRS...............................................................................    27
                                                                                                         
 9.       NO LIENS.......................................................................................    28
                                                                                                          
10.       LANDLORD'S REPAIRS.............................................................................    28
          10.1   Scope of Landlord's Repairs.............................................................    28
          10.2   Landlord's Right of Entry to Make Repairs...............................................    29
          10.3   Tenant's Right to Perform Landlord's Maintenance Obligations............................    29
                 (a)   General Action....................................................................    29
                 (b)   Emergency Action..................................................................    29
</TABLE> 

                                       2
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<TABLE> 
<C>        <S>                                                                                              <C> 
                 (c)   Restrictions on Action............................................................    30
                 (d)   Reimbursement for Action..........................................................    30
                                                                                                         
11.       BUILDING SERVICES..............................................................................    30
          11.1   Standard Building Services..............................................................    30
          11.2   Building HVAC System....................................................................    31
          11.3   After-Hours HVAC........................................................................    31
          11.4   Landlord's Right To Cease Providing Services............................................    31
          11.5   Tenant's Rights Upon Interruption of Services...........................................    32
                 (a)   Tenant's Abatement Rights.........................................................    32
                 (b)   Tenant's Termination Rights.......................................................    33
          11.6   Tenant's Right to Manage the Building...................................................    33
                                                                                                         
12.       ASSIGNMENT AND SUBLETTING......................................................................    34
          12.1   Right to Assign or Sublease.............................................................    34
          12.2   Procedure For Assignment or Sublease....................................................    34
          12.3   Grounds for Landlord's Refusal..........................................................    34
          12.4   Conditions Regarding Consent to Sublease and Assignment.................................    35
          12.5   Duration of Landlord's Consent..........................................................    36
          12.6   Assignment to Affiliates................................................................    36
          12.7   Landlord's Right to Assign..............................................................    37
          12.8   Release of Tenant.......................................................................    37
          12.9   Landlord's Recognition of Transfers Upon Lease Termination..............................    37
                                                                                                         
13.       SUBSTITUTED PREMISES...........................................................................    38
                                                                                                          
14.       INDEMNIFICATION; INSURANCE.....................................................................    38
          14.1   Tenant's Indemnification of Landlord....................................................    38
          14.2   Landlord's Indemnification of Tenant....................................................    39
          14.3   Tenant's Insurance......................................................................    39
          14.4   Landlord's Insurance....................................................................    40
          14.5   Insurance Policy Requirements...........................................................    41
          14.6   Assumption of Risk......................................................................    41
          14.7   Allocation of Insured Risks/Subrogation.................................................    41
                                                                                                         
15.       DAMAGE OR DESTRUCTION..........................................................................    42
          15.1   Loss Covered By Insurance...............................................................    42
          15.2   Loss Not Covered By Insurance...........................................................    43
          15.3   Loss Caused by Tenant or Tenant's Employees.............................................    43
          15.4   Destruction During Final 18 Months......................................................    44
          15.5   Destruction of Tenant's Personal Property, Tenant Improvements or Tenant's Extra
                 Improvements............................................................................    44
          15.6   Exclusive Remedy........................................................................    44
 
</TABLE> 
                                       3
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<TABLE> 
<C>      <S>                                                                                               <C> 
16.       EMINENT DOMAIN.................................................................................    44
          16.1   Permanent Taking - When Lease Can Be Terminated.........................................    44
          16.2   Permanent Taking - When Lease Cannot Be Terminated......................................    45
          16.3   Temporary Taking........................................................................    45
          16.4   Exclusive Remedy........................................................................    45
          16.5   Release Upon Termination................................................................    45
                                                                                                         
17.       DEFAULTS.......................................................................................    45
          17.1   Default by Tenant.......................................................................    45
          17.2   Default by Landlord.....................................................................    46
                                                                                                          
18.       LANDLORD'S REMEDIES AND RIGHTS.................................................................    46
          18.1   Termination of Lease....................................................................    46
          18.2   Right of Re-Entry.......................................................................    47
          18.3   Waiver of Redemption....................................................................    47
          18.4   Right to Perform........................................................................    47
          18.5   Civil Code ' 1951.4 Remedy..............................................................    47
          18.6   Remedies Not Exclusive..................................................................    48
                                                                                                         
19.       ATTORNEYS' FEES................................................................................    48
                                                                                                         
20.       SUBORDINATION..................................................................................    48
          20.1   Subordination of Lease..................................................................    48
          20.2   Attornment by Tenant....................................................................    48
          20.3   Existing Mortgage.......................................................................    49
                                                                                                         
21.       RULES AND REGULATIONS..........................................................................    49
                                                                                                         
22.       HOLDING OVER...................................................................................    49
          22.1   Surrender of Possession.................................................................    49
          22.2   Payment of Money After Termination......................................................    50
                                                                                                         
23.       INSPECTIONS AND ACCESS.........................................................................    50
                                                                                                         
24.       NAME OF BUILDING AND PROJECT...................................................................    50
                                                                                                         
25.       SURRENDER OF LEASE.............................................................................    51
                                                                                                         
26.       WAIVER.........................................................................................    51
                                                                                                         
27.       SALE BY LANDLORD...............................................................................    51
</TABLE> 

                                       4
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<TABLE> 
<C>      <S>                                                                                                <C> 
28.       NO LIGHT AND AIR EASEMENT......................................................................    51
                                                                                                          
29.       FORCE MAJEURE..................................................................................    52
                                                                                                         
30.       ESTOPPEL CERTIFICATES..........................................................................    52
                                                                                                         
31.       PARKING FACILITIES.............................................................................    52
          31.1   Parking Attributable to the Building....................................................    52
          31.2   Parking Attributable to Expansion Space.................................................    53
                                                                                                         
32.       SECURITY SERVICES..............................................................................    53
          32.1   Landlord's Right to Furnish Security Services...........................................    53
          32.2   Tenant's Right to Install Security System...............................................    53
                                                                                                         
33.       NOTICES........................................................................................    53
                                                                                                         
34.       OPTIONS TO EXTEND LEASE TERM...................................................................    54
          34.1   Options to Extend.......................................................................    54
          34.2   Base Rent During Option Periods.........................................................    54
          34.3   Determination of Base Rent by Arbitration...............................................    54
                                                                                                         
35.       OPTIONS TO LEASE ADDITIONAL SPACE..............................................................    55
          35.1   Space in 400 Citadel Drive (Option A)...................................................    55
          35.2   Space in 500 Citadel Drive (Option B)...................................................    55
                                                                                                         
36.       RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE...............................................    56
          36.1   Right of First Refusal..................................................................    56
          36.2   Method of Offer and Exercise............................................................    56
          36.3   Effect of Exercise......................................................................    56
          36.4   Superior Rights of Existing Tenants.....................................................    57
                                                                                                         
37.       FIRST RIGHT TO NEGOTIATE FOR PURCHASE OF BUILDING OR BUILDINGS.................................    57
                                                                                                         
38.       TENANT'S RIGHT TO TERMINATE THE LEASE..........................................................    57
                                                                                                         
39.       TENANT'S RIGHT TO TERMINATE LEASE OF FULL FLOOR OR OPTION A SPACE..............................    58
                                                                                                         
40.       SIGNAGE........................................................................................    58
          40.1   Building-Top Signage....................................................................    58
          40.2   Monument Signage........................................................................    58
          40.3   Eyebrow Signage.........................................................................    59
</TABLE> 
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<TABLE> 
 <C>             <S>                                                                                        <C> 
          40.4   Interior Signage........................................................................    59
          40.5   Exterior Directional Signage............................................................    59
          40.6   Landlord's Approval.....................................................................    59
          40.7   Compliance with Law.....................................................................    59
          40.8   Maintenance and Repair of Exterior Signs................................................    59
          40.9   Removal of Signs........................................................................    60
          40.10  Transferability of Signage Rights.......................................................    60
                                                                                                         
41.       USE OF APPURTENANT BUILDING COMPONENTS.........................................................    60
                                                                                                         
42.       BROKERAGE COMMISSIONS..........................................................................    60
                                                                                                         
43.       ANTENNA........................................................................................    61
          43.1   License to Install and Operate Antenna..................................................    61
          43.2   Permitted Use of Antenna................................................................    61
          43.3   Access..................................................................................    63
          43.4   License Not Assignable Separate from Lease..............................................    63
                                                                                                         
44.       HELIPORT.......................................................................................    63
                                                                                                         
45.       TITLE INSURANCE................................................................................    63
                                                                                                         
46.       FINANCIAL INCENTIVES TO TENANT.................................................................    63
          46.1   Loan....................................................................................    63
          46.2   Fee Waiver/Reimbursement................................................................    64
                                                                                                         
47.       TENANT'S FINANCIAL INFORMATION.................................................................    64
                                                                                                         
48.       MISCELLANEOUS..................................................................................    64
          48.1   Authorization to Sign Lease.............................................................    64
          48.2   Entire Agreement........................................................................    65
          48.3   Severability............................................................................    65
          48.4   Covenants and Conditions................................................................    65
          48.5   Gender and Headings.....................................................................    65
          48.6   Successors and Assigns..................................................................    65
          48.7   Governing Law...........................................................................    65
          48.8   Exhibits................................................................................    65
          48.9   Modification For Lender.................................................................    65
          48.10  Transportation System Management Program................................................    65
          48.11  Quiet Enjoyment.........................................................................    66
          48.12  Memorandum of LeasE.....................................................................    66
          48.13  Time is of the Essence..................................................................    66
          48.14  Cumulative Remedies.....................................................................    66
</TABLE> 
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<TABLE>
          <C>     <S>                                                                                                 <C>
          48.15   Nondiscrimination and Nonsegregation..........................................................       66
          48.16   Survival......................................................................................       66
          48.17   Confidentiality...............................................................................       66
          48.18   Reasonableness and Good Faith.................................................................       67
          48.19   Minimization of Interference..................................................................       67
          48.20   Waiver of Consequential Damages...............................................................       67



EXHIBIT "A"       SITE PLAN OF PROJECT                                                                                A-1
 
EXHIBIT "B"       LEGAL DESCRIPTION OF PROJECT                                                                        B-1

EXHIBIT "C"       FLOOR PLANS OF PREMISES                                                                             C-1

EXHIBIT "D"       CONSTRUCTION AGREEMENT                                                                              D-1

EXHIBIT "E"       NOTICE OF COMMENCEMENT DATE                                                                         E-1

EXHIBIT "F"       RULES AND REGULATIONS                                                                               F-1

EXHIBIT "G"       STANDARDS FOR UTILITIES AND SERVICES                                                                G-1

EXHIBIT "H"       HVAC SPECIFICATIONS                                                                                 H-1

EXHIBIT "I"       SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT                                             I-1

EXHIBIT "J"       ESTOPPEL CERTIFICATE                                                                                J-1

EXHIBIT "K"       PARKING FACILITIES                                                                                  K-1

EXHIBIT "L"       LOCATION OF PARKING SPACES                                                                          L-1

EXHIBIT "M"       MEMORANDUM OF LEASE                                                                                 M-1

</TABLE>

                                       7
<PAGE>
 
                                 LEASE SUMMARY


     This LEASE AGREEMENT (the "Lease"), dated this _____ day of April, 1998, is
made and entered into by and between the Commerce Citadel Development Authority,
a California corporation ("Landlord"), and Smart & Final Stores Corporation, a
California corporation ("Tenant").


1.   Project Name and Address:  The Citadel, 5675 E. Telegraph Road, Commerce,
     California  90040.

2.   Premises:  All four (4) floors of Building E, located at 600 Citadel Drive,
     Commerce, California  90040 (the "Building"), as shown on Exhibit "A".
     Rentable Area of the Premises:  81,382 square feet.
     Rentable Area of the Building:  81,382 square feet.

3.   Initial Base Rent:  $45,573.92 per month, subject to Paragraph 4.1 below,
     based on a rate of $0.56/rentable square foot (NNN) per month.

4.   Tenant's Pro Rata Share of the Building:  100%.
 
5.   Minimum periodic CPI increase:  14% every 5 years ("Minimum Increase"), but
     not to exceed 18% in such 5-year period.

6.   Estimated Commencement Date: October 1, 1998.

7.   Term:  Fifteen (15) years.

8.   Security Deposit:  None.

9.   Guarantor(s):  None.

10.  Broker(s):  Trammell Crow Company (Landlord's broker); Investment
     Development Services, Inc., and CB Commercial Real Estate (Tenant's
     brokers).

11.  Use of Premises:  General office purposes, training and educational
     facilities, and any other legally permitted uses compatible with office
     buildings comparable to the Building.

                                       1
<PAGE>
 
12.  Address for Payments and Notices:

     Landlord:
     -------- 

     Commerce Citadel Development Authority
     City Hall
     2535 Commerce Way
     Commerce, California  90040
     Attn:  Justin McCarthy
            Director of Community Development

     Tenant:
     ------ 

     Smart & Final Stores Corporation
     524 Chapala Street
     Santa Barbara, California 93101
     Attention: Property Manager

     with copies to:
     -------------- 

     Smart & Final Stores Corporation
     4700 South Boyle Avenue
     Los Angeles, California  90058
     Attn:   Legal Department

     and:
     --- 

     Allen, Matkins, Leck, Gamble & Mallory LLP
     1999 Avenue of the Stars, Suite 1800
     Los Angeles, California  90067-6050
     Attn:  Anton N. Natsis, Esq.


13.  Parking Charge:  $0.00 per month per automobile.
     Maximum number of automobiles:  486.
     Parking ratio:  six (6) cars per one thousand (1,000) rentable square feet
     of the Premises.

                                       2
<PAGE>
 
                                LEASE AGREEMENT


1. PREMISES.

     1.1  Lease of Premises.  Landlord hereby leases to Tenant, and Tenant
          -----------------                                               
hereby leases from Landlord, the premises referred to in Item 2 of the Lease
Summary (the "Premises").  The Premises are located within the Building
identified in Item 2 of the Lease Summary.  The Building is part of a mixed use
retail, office and hotel project commonly known as "The Citadel" (the
"Project").  The Project is located on a parcel of real property located in the
City of Commerce, County of Los Angeles, State of California (the "Land").  The
site plan of the Project, showing the location of the Building, is set forth on
Exhibit "A".  The legal description of the Land is set forth on Exhibit "B".
Floor plans of the Premises (designating the "Occupied Portion" and the
"Unoccupied Portion" referenced in Paragraph 1.2 below) are set forth on Exhibit
"C".  The Land is owned by the Commerce Community Development Commission, a
public body corporate and politic of the State of California (the "Commission").
Landlord is the lessee of those portions of the Land identified as Parcels A, B
and C on Exhibit "B" hereto, and is the owner of the outlet mall, office
buildings and other improvements located thereon, pursuant to Landlord's
assumption of the ground lessee's interest under three separate ground leases
each dated November 17, 1989, entered into between the Redevelopment Agency of
the City of Commerce (the Commission's predecessor in interest), as lessor, and
Crow-Staley-Commerce #1 Limited Partnership, as lessee (collectively, the
"Retail/Office Ground Leases").  The Commission is the lessee of that portion of
the Land identified as Parcel D on Exhibit "B" hereto, and is the owner of the
hotel and other improvements located thereon, pursuant to the Commission's
assumption of the ground lessee's interest under a fourth ground lease, also
dated November 17, 1989, entered into between the Redevelopment Agency of the
City of Commerce, as lessor, and Crow-Staley-Commerce #1 Limited Partnership, as
lessee (the "Hotel Ground Lease"); notwithstanding the fact that the Commission
holds both the lessor's and lessee's interests under the Hotel Ground Lease,
those interests have not merged and the Hotel Ground Lease continues in full
force and effect.

     1.2  Rentable Area.  The Rentable Area of the Premises and the Rentable
          -------------                                                     
Area of the Building are as specified in Item 2 of the Lease Summary.  A portion
of the fourth floor of the Premises containing approximately fourteen thousand
eight hundred thirty (14,830) square feet of Rentable Area (the "Occupied
Portion") is currently occupied by an existing tenant which Landlord is working
to relocate to another portion of the Project.  The remaining portion of the
Premises, containing approximately sixty-six thousand five hundred fifty-two
(66,562) square feet of Rentable Area (the "Unoccupied Portion) is currently
unoccupied and available for immediate delivery to Tenant.  Landlord and Tenant
hereby stipulate that the Occupied Portion and Unoccupied Portion of the
Premises contain the number of square feet of Rentable Area specified above.  If
it becomes necessary to determine the Rentable Area of other portions of the
Premises now or hereafter leased or released by Tenant under this Lease
(including without limitation: the size of the Option A Space, Option B Space or
Right of First Refusal Space leased by Tenant pursuant to Paragraphs 35 and 36
below; the size of full floors or option space released pursuant to Paragraph 39
below, or; the size of any part of

                                       1
<PAGE>
 
the Occupied Portion delivered to Tenant if possession of the Occupied Portion
is delivered in stages rather than all at once), then all such Rentable Area
measurements shall be made in accordance with the American National Standard
Institute Publication ANSI 265.1-1986, commonly known as the "BOMA standards".

     1.3  Verification of Rentable Area and Useable Area.  To the extent that
          ----------------------------------------------                     
the size of the Premises is increased or reduced pursuant to the terms of this
Lease, the Rentable Area of the increase or reduction shall be determined in
accordance with the BOMA standards and this Paragraph 1.3.  Tenant's architect
shall calculate and certify in writing to Landlord and Tenant the number of
rentable square feet and useable square feet of such increased or increased
portion of the Premises.  In the case of increases, such certification shall be
delivered to Landlord within thirty (30) days after Landlord's delivery of the
increased portion.  In the case of reductions in size, such certification shall
be delivered to Landlord within thirty (30) days after the effective date of the
reduction.  If Landlord disagrees with Tenant's architect's determination of the
rentable square feet and/or useable square feet, Landlord shall so notify Tenant
in writing within thirty (30) days after Landlord's receipt of said written
certification.  The parties shall diligently attempt in good faith to resolve
the disagreement within sixty (60) days after the date of Landlord's disapproval
notice.  If the parties are unable to resolve their dispute within that time,
then the dispute shall be resolved by arbitration in accordance with Paragraph 5
of this Lease.  Upon the agreement of the parties (or the arbitrator's issuance
of its decision), the parties will execute an amendment to this Lease specifying
the re-determined amount of rentable square footage and useable square footage
within the Premises.

2.   TERM.

     2.1  Effective Date. The Lease will become effective upon execution by
          --------------                                                   
Landlord and Tenant and delivery to Tenant of a fully signed original
counterpart of this Lease.

     2.2  Term.  The term of the Lease shall be for the number of years
          ----                                                         
specified in Item 7 of the Lease Summary (the "Term") beginning on the
Commencement Date (as defined in Paragraph 2.3 below) and expiring on the last
day of the month in which the fifteenth (15th) anniversary of the Commencement
Date occurs (the "Lease Expiration Date"), unless this Lease is sooner
terminated as hereinafter provided.  For purposes of this Lease, the term "Lease
Year" shall mean each consecutive twelve (12) month period during the Term;
provided that the last Lease Year shall end on the Lease Expiration Date.

     2.3  Condition of Premises.  Landlord shall deliver the Premises to Tenant
          ---------------------                                                
in its existing "as-is" condition, subject to the provisions of this Section
2.3.  At the time of such delivery, the Premises shall consist of the following
items (sometimes collectively referred to herein as the "Base Building"): (i)
the base, shell and core of the Building; (ii) all base building systems,
including without limitation heating, ventilation and air conditioning ("HVAC"),
mechanical (including without limitation elevators), electrical, plumbing and
telephone (collectively, the "Building Systems"); (iii) the curtain wall; (iv)
the structural components of the Building; and the exterior roof of the
Building.  Notwithstanding the "as-is" nature of Landlord's delivery of the Base
Building, Landlord agrees that it shall promptly improve 

                                       2
<PAGE>
 
the Base Building, at Landlord's expense, as necessary to remedy any defects
which are disclosed to Landlord by Tenant in a written notice delivered not
later than thirty (30) days after the earlier of (a) the date on which Tenant
discovers the defect, or (b) Landlord's delivery to Tenant of the portion of the
Premises in which the defect is located. Further notwithstanding the "as-is"
nature of Landlord's delivery of the Base Building, Landlord agrees to make any
improvements to the Base Building as and when required by the Construction
Agreement attached hereto as Exhibit "D". Moreover, Landlord covenants that upon
Landlord's delivery to Tenant of the Base Building, each component thereof
identified above shall be in good working order and shall comply with all
applicable laws, and Landlord shall at its expense make any improvements
necessary to cause said covenant to be true (regardless of the date on which
Tenant notifies Landlord of the need for such improvement). Tenant acknowledges
that portions of the Premises are now or have previously been occupied by other
tenants, and that upon delivery to Tenant the Premises may, in Landlord's
discretion, include some or all tenant improvements previously installed in
connection with such occupancy.

     2.4  Delivery and Approval of Working Drawings.  Tenant shall endeavor to
          -----------------------------------------                           
deliver to Landlord the "Construction Drawings" and "Final Working Drawings" (as
defined in the Construction Agreement attached hereto as Exhibit "D"), in form
and content acceptable to Landlord, by no later than May 1, 1998.  Tenant
acknowledges that its failure to do so will delay Landlord's application for the
"Permits" identified in Paragraph 2.5 below.  Landlord shall provide Tenant and
its representatives with access to the Premises for the purpose of allowing
Tenant to prepare the Construction Drawings and Final Working Drawings.  To the
extent that Tenant or its representatives request access to portions of the
Premises still occupied by another tenant, Landlord shall provide such access
after notice to the tenant in occupancy as Landlord deems sufficient, and at
such times as are mutually acceptable to Landlord, Tenant and the tenant in
occupancy.  As used herein, the term "Drawing Delivery Date" shall mean the date
on which Tenant completes its obligations under this Paragraph 2.4.

     2.5  Delivery of Permits.  Upon Tenant's performance of its obligations
          -------------------                                               
under Paragraph 2.4 above, Landlord shall apply to the City of Commerce for the
issuance of construction permits ("Permits") necessary for the construction of
the improvements contemplated by the "Approved Working Drawings" (as that term
is defined in the above referenced Construction Agreement).  Landlord shall use
its best efforts to deliver the Permits by no later than thirty (30) days after
the Drawing Delivery Date (the "Permit Delivery Deadline").  The Permit Delivery
Deadline shall be extended by one (1) day for each "day of delay" in the
issuance of the permits.  As used in this Paragraph, the term "day of delay"
shall mean the number of days between the Drawing Delivery Date and the day on
which the Permits are issued, less the sum of the following: (i) thirty days;
plus (ii) the  number of days in which the City of Commerce's processing of the
Permit applications is delayed by the acts or omissions of Tenant (but only to
the extent that Landlord has given Tenant at least one (1) business day's prior
written notice of the action or omission which Landlord or the City claims
constitutes the Tenant delay), including without limitation Tenant's failure to
pay any necessary permit fees (subject to any fee waiver available pursuant to
Paragraph 46.2 below); plus (iii) the number of days in which the processing of
the permit applications is delayed by a force majeure event described in
Paragraph 29 below.

                                       3
<PAGE>
 
     2.6  Delivery of Premises.  Landlord shall deliver the Unoccupied Portion
          --------------------                                                
of the Premises to Tenant by no later than the Permit Delivery Deadline.
Landlord shall use its best efforts to deliver the Occupied Portion of the
Premises to Tenant by the latter of (a) June 15, 1998 or (b) forty-five (45)
days after the Drawing Delivery Date.  All portions of the Premises delivered by
Landlord to Tenant shall be delivered unencumbered by leases to other tenants.
To the extent that any portion of the Premises is currently occupied by other
tenants, Landlord shall bear the full costs, if any, of relocating and/or
otherwise removing those other tenants from the Premises.  Tenant's entry,
possession and use of the Premises from the delivery date until the day prior to
the Commencement Date shall be subject to all of the terms and conditions of
this Lease, including without limitation all insurance and indemnification
provisions, except that no Base Rent or Operating Expenses shall be payable by
Tenant for the period from said delivery date until the Commencement Date.

     2.7  Commencement Date.  The Term shall commence on the earlier to occur of
          -----------------                                                     
(a) the date which is four (4) months after the date on which Landlord has
delivered to Tenant the Permits and the Unoccupied Portion of the Premises in
the condition required by Paragraph 2.3 above, or (b) November 1, 1998 (the
"Commencement Date").

     2.8  Notice of Commencement Date.  Landlord shall send Tenant notice of the
          ---------------------------                                           
occurrence of the Commencement Date in substantially the form as in the attached
Exhibit "E", which notice Tenant shall acknowledge by executing a copy of the
notice and returning it immediately to Landlord.  If Tenant fails to sign and
return the notice to Landlord within thirty (30) days of receipt (with any
changes as are necessary to make the notice factually correct), the notice as
sent by Landlord shall be deemed to have correctly set forth the Commencement
Date.

     2.9  Landlord's Contingencies.  Until Landlord causes Nippon Credit Bank
          ------------------------                                           
("Nippon") to enter into a Subordination, Non-Disturbance and Attornment
Agreement as contemplated by Paragraph 20.3 below ("Non-Disturbance Agreement")
relative to the deed of trust encumbering portions of the Project in favor of
Nippon (the "Nippon Trust Deed") or until Landlord causes Nippon to request the
reconveyance of the Nippon Trust Deed in connection with Landlord's payment to
Nippon of amounts secured thereby, this Lease and Tenant's interest in the
Premises hereunder is subject to termination upon foreclosure under the Nippon
Trust Deed.  Furthermore, Landlord cannot deliver the Occupied Portion of the
Premises to Tenant as required hereunder until Landlord enters into a written
relocation agreement ("Relocation Agreement") with the current tenant of the
Occupied Portion of the Premises, Consumer Credit Counselors of Los Angeles
("CCCLA").  Nippon's execution of the Non-Disturbance Agreement or the
reconveyance of the Nippon Trust Deed, and CCCLA's execution of the Relocation
Agreement, are collectively referred to herein as the "Landlord's
Contingencies."  Landlord acknowledges that (a) its failure to cause the
Landlord's Contingencies to be satisfied by May 15, 1998 will likely delay the
Commencement Date of this Lease, (b) that because of such delay Tenant will
remain in the existing premises owned by Tenant located in the City of Vernon
("Vernon Property") beyond the scheduled date of Tenant's sale of the Vernon
Property, and (c) that Tenant will be obligated to pay certain penalties
("Holdover Penalties") to the purchaser of the Vernon Property due to Tenant's
failure to vacate the Vernon Property in a timely manner.  Accordingly, Landlord
agrees that if it fails to cause the Landlord's Contingencies to be satisfied by
the dates specified in Paragraph's 

                                       4
<PAGE>
 
2.9(a) and 2.9(b) below, then Tenant shall have the following remedies:

          (a)  Rent Abatement.  If the Landlord's Contingencies have not been
               --------------                                                
satisfied by May 15, 1998, then Tenant shall be entitled to receive one (1) day
of abated Rent for each day between May 15, 1998 and the day that the Landlord's
Contingencies are satisfied, but only to the extent that such delay actually
delays Tenant's occupancy of the Premises.  The amount of such abated Rent shall
be reduced by the amount of any Holdover Penalties which are waived by the
purchaser of the Vernon Property.  Furthermore, the May 15, 1998 date referenced
in this Paragraph shall be extended by one day for each day which the purchaser
of the Vernon Property agrees to postpone (without penalty to Tenant) the
deadline for Tenant's departure from the Vernon Property.  Tenant agrees to
negotiate in good faith with the purchaser of the Vernon Property to postpone
said departure date and to waive some or all of the Holdover Penalties.  In no
event shall the amount of Rent abatement hereunder exceed Ninety Thousand
Dollars ($90,000.00).

          (b) Reimbursement of Costs.  If the Landlord's Contingencies have not
              ----------------------                                           
been satisfied by June 15, 1998, then Tenant may terminate the Lease pursuant to
Paragraphs 2.10(iii), 2.10(iv) or 2.11(v) below.  If Tenant so terminates this
Lease, Landlord shall reimburse Tenant up to Three Hundred Thousand Dollars
($300,000.00) for its space planning costs, negotiation costs and related costs
incurred in connection with this Lease.  Such reimbursement shall be in the form
of waivers of permit fees (in an amount not to exceed Two Hundred Thousand
Dollars ($200,000.00)) and reimbursement of other relocation expenses (in an
amount not to exceed One Hundred Thousand Dollars ($100,000.00)) in connection
with Tenant's relocation of its distribution facility to the City of Commerce,
notwithstanding Tenant's location of its corporate offices outside the City of
Commerce.

     2.10 Tenant's Right to Terminate.  Tenant shall have the right to terminate
          ---------------------------                                           
this Lease, without penalty, upon thirty (30) days' written notice to Landlord
in any of the following situations: (i) if Landlord has not delivered the entire
Premises and the Permits to Tenant by August 31, 1998; (ii) if at any time
thereafter it can be determined that (due to delays caused by Landlord) Tenant
will be unable to commence business operations upon the entire Premises by
December 31, 1998; (iii) if by June 15, 1998 Nippon has not executed the Non-
Disturbance Agreement or caused the reconveyance of the Nippon Trust Deed; (iv)
if Nippon commences foreclosure proceedings under the Nippon Trust Deed (but
such termination notice shall not be effective if the lien thereof is removed or
the proceedings have been discontinued, withdrawn or cancelled within 90 days
after the commencement of foreclosure proceedings); or (v) if CCCLA has not
entered into the Relocation Agreement by June 15, 1998.  Any termination notice
delivered pursuant to item (i) above may be delivered at any time after August
31, 1998 but prior to Landlord's delivery of the entire Premises and Permits.
Any termination notice delivered pursuant to item (ii) above may be delivered at
any time after August 31, 1998 but prior to Tenant's commencement of business
operations upon the entire Premises.  Any termination notice delivered pursuant
to item (iii) above may be delivered at any time after June 15, 1998 but prior
to the execution of the Non-Disturbance Agreement or reconveyance of the Nippon
Trust Deed.  Any termination notice delivered pursuant to item (iv) above may be
delivered at any time after Nippon commences foreclosure proceedings but prior
to the removal of the subject lien or the discontinuation, withdrawal or other
cancellation of those proceedings by Nippon or its trustee.  Any 

                                       5
<PAGE>
 
termination notice delivered pursuant to item (v) above may be delivered at any
time after June 15, 1998 but prior to CCCLA's execution of the Relocation
Agreement. Said termination shall, at Tenant's option (as specified in the
termination notice), be effective either with respect to the entire Premises or
only such portions thereof which have not been delivered as of the date of the
notice or will not be useable by December 31, 1998.

3.   RENT.

     3.1  Payment of Base Rent.  Tenant agrees to pay Landlord as monthly rent
          --------------------                                                
for the Premises the sum specified in Item 3 of the Lease Summary as computed
and adjusted from time to time pursuant to Paragraph 4.1 below (the "Base
Rent"), in advance, on or before the first day of each calendar month during the
Term.  In addition to the payment of Base Rent, Tenant shall also pay an
Operating Expense Adjustment (as defined in Paragraph 4.2 below) computed
pursuant to Paragraph 4.2 below.  On the Commencement Date, Tenant shall pay to
Landlord the prorated Base Rent attributable to the month in which the
Commencement Date occurs if the Commencement Date occurs on a date other than
the first day of a calendar month.  Tenant shall not prepay, and Landlord shall
not accept prepayments of, Base Rent in a combined sum exceeding the amount of
Base Rent for three (3) months.

     3.2  Other Assessments.  In addition to the Base Rent, Tenant shall pay,
          -----------------                                                  
prior to delinquency, provided Tenant is billed for the same, all personal
property taxes, charges, rates, duties and license fees assessed against or
levied upon Tenant's occupancy of the Premises, or upon any trade fixtures,
furnishings, equipment or other personal property contained in the Premises
(collectively, "Tenant's Personal Property").

     3.3  Definition of Rent.  Base Rent Operating Expense Adjustment, Taxes and
          ------------------                                                    
all other payments, disbursements or reimbursements that Tenant is obligated to
pay under the Lease (collectively, the "Rent") constitute "rent" within the
meaning of California Civil Code Section 1951(a).  Any Rent payable to Landlord
by Tenant for any fractional month shall be prorated based on the actual number
of days in that month.  All payments owed by Tenant under the Lease shall be
paid to Landlord in lawful money of the United States of America at the location
specified in Item 12 of the Lease Summary.  All payments of Rent shall be paid
without deduction, setoff or counterclaim, except as otherwise provided in this
Lease.

     3.4  Late Charge and Interest.  Tenant acknowledges that the late payment
          ------------------------                                            
of Rent will cause Landlord to incur costs not contemplated by this Lease,
including administrative costs, loss of use of the overdue funds and other
costs, the exact amount of which would be impractical and extremely difficult to
ascertain.  Landlord and Tenant agree that if Landlord does not receive a
payment of Rent within ten (10) days after Tenant's receipt of notice from
Landlord that such payment is due, Tenant shall pay to Landlord a late charge of
five percent (5%) of the overdue amount per month as a late charge; provided,
however, that it Tenant's payment of Rent is overdue more than three (3) times
in any twelve (12) month period, then no such notice from Landlord shall be
required thereafter, and a late charge shall accrue immediately upon Landlord's
failure to receive a Rent payment when due.  

                                       6
<PAGE>
 
Whenever interest is required to be paid under this Lease, the interest shall be
calculated from the date the payment was due or should have been due if
correctly assessed or estimated (or any overcharge paid), until the date payment
is made or the refund is paid or is credited against Rent next due.

     3.5  Acceleration of Base Rent Payments.  In the event a late charge
          ----------------------------------                             
becomes payable pursuant to Paragraph 3.4 above for three (3) installments of
Base Rent within a twelve (12) month period, then all subsequent Base Rent
payments for the next two (2) Lease Years shall immediately and automatically
become payable by Tenant in advance on a quarterly basis instead of monthly.

     3.6  Disputes as to Payments of Rent.  Except as specifically set forth in
          -------------------------------                                      
this lease, Tenant agrees to pay the Rent required under this Lease within the
time limits set forth in this Lease.  Except as otherwise specifically provided
in this Lease, Tenant shall have no right to claim any offset against or
reduction in any Rent due hereunder.

     3.7  Rent Abatement.
          -------------- 

          (a) Abated Rent During Construction Period.  Tenant shall not be
              --------------------------------------                      
obligated to pay any monthly Base Rent, or any Operating Expense Adjustment
attributable to the period between Landlord's delivery of possession of the
Premises to Tenant and the Commencement Date; provided, however, that during
such period Tenant shall be responsible for all utility charges incurred in
connection with Tenant's construction of the Tenant Improvements (as that term
is defined in the Construction Agreement attached hereto as Exhibit "D".

          (b) Abatement Due to Delays in Delivery of Premises.  To the extent
              -----------------------------------------------                
that delivery of all or part of the Unoccupied Portion of the Premises and/or
the Occupied Portion of the Premises in the condition required by Paragraph 2.3
above has not occurred by the dates (the "Outside Delivery Dates") which are
thirty (30) days after the applicable delivery dates specified in Paragraph 2.6
above, then the monthly Base Rent attributable to any portions of the Premises
not delivered by the applicable Outside Delivery Date shall be abated at the
rate of two (2) days for each one (1) day between the applicable Outside
Delivery Date and the date of delivery.  Furthermore, if Landlord's delivery of
one hundred percent (100%) of the Premises does not occur until after the forty-
fifth (45th) day following the Outside Delivery Date for the Unoccupied Portion
of the Premises, then monthly Base Rent for the entire Premises shall be abated
until the date which is four (4) months after the latter to occur of (i) the
date on which Landlord delivers the remainder of the Premises to Tenant in the
condition required by Paragraph 2.3 above or (ii) the date on which Landlord
delivers to Tenant the last of the Permits.  Notwithstanding the foregoing,
Tenant's abatement of Base Rent shall be reduced on a day-for-day basis by a
period equal to the number of days by which delivery of the Premises is delayed
due to the acts or omissions of Tenant (including without limitation Tenant's
failure to fulfill its obligations under Paragraph 2.4 above), or to the extent
that delivery of the Premises is delayed due to an event of force majeure
described in Paragraph 29 below.

                                       7
<PAGE>
 
4.   ADJUSTMENTS TO RENT.

     4.1  Cost of Living Adjustment - Base Rent Increase.  The monthly Base Rent
          ----------------------------------------------                        
payable by Tenant in accordance with Paragraph 3.1 above shall be adjusted,
upwards only, effective every five (5) years after the Commencement Date (the
"Adjustment Dates") by the greater of:  (a) the Minimum Increase specified in
Item 5 of the Lease Summary, or (b) the percentage increases, if any, in the
Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-
Anaheim-Riverside, All Items (1982-1984 = 100) (the "Index"), as published by
the United States Department of Labor, Bureau of Labor Statistics (the "Bureau")
occurring between the previous Adjustment Date and the current Adjustment Date
(or, in the case of the first such adjustment, occurring between the
Commencement Date and the first Adjustment Date).  In no event, however, will
the monthly rental be increased by more than eighteen percent (18%) on any
Adjustment Date.  The Index for the second month preceding each Adjustment Date
during the Term shall be compared with the Index for the second month preceding
the last Adjustment Date (or for the first Adjustment Date, the second month
preceding the date of this Lease), and the Base Rent shall be increased in
accordance with the percentage increase, if any, between them.  Landlord shall
use its best efforts to calculate and give Tenant notice of any such increase in
the Base Rent on or near each Adjustment Date, and Tenant shall commence to pay
the increased Base Rent effective on the Adjustment Date of each year.

     In the event that Landlord is unable to deliver to Tenant the notice of the
increased Base Rent at least thirty (30) business days prior to the Adjustment
Date, Tenant shall commence to pay the increased Base Rent on the first day of
the month following the date which is sixty (60) days after the date Tenant
receives such notice, which notice must be sent at least five (5) business days
prior to the first day of such month ("Payment Date").  Tenant shall also pay,
together with the first payment of the increased Base Rent, an amount determined
by multiplying the amount of the increase in Base Rent times the number of
months which have elapsed between the Adjustment Date and the Payment Date.
Should the Bureau discontinue the publication of the Index, or publish the same
less frequently, or alter the same in some other manner, Landlord, in its
reasonable discretion, shall adopt a substitute index or procedure which
reasonably reflects and monitors consumer prices.

     4.2  Operating Expense Adjustment.  Tenant shall pay, in addition to the
          ----------------------------                                       
Base Rent computed and due pursuant to Paragraphs 3.1 and 4.1 above, an
additional sum as an operating expense adjustment (the "Operating Expense
Adjustment").  Such additional amount shall be equal to Tenant's Pro Rata Share
of Operating Expenses (as defined in Paragraphs 4.4 and 4.5 below).  As used in
this Paragraph 4, "Expense Year" or "calendar year" shall mean each calendar
year in which any portion of the Term falls, through and including the calendar
year in which the Lease Term expires.

     4.3  Procedure for Payment of Operating Expense Adjustment.  Tenant shall
          -----------------------------------------------------               
pay the Operating Expense Adjustment as follows:

          (a)  Landlord shall endeavor to give Tenant a yearly expense estimate
statement (the "Estimate Statement") on or before May 1 of each Expense Year.
The Estimate Statement shall set 

                                       8
<PAGE>
 
forth (i) Landlord's reasonable estimate (the "Estimate") of what the total
amount of Operating Expenses for the then-current Expense Year shall be;
provided, however, that if the Estimate, as it relates to Operating Expense,
exceeds one hundred five percent (105%) of the Operating Expenses for the prior
Expense Year, then upon Tenant's request Landlord shall promptly provide Tenant
with a reasonable explanation of such excess. The failure of Landlord to timely
furnish the Estimate Statement for any Expense Year shall not preclude Landlord
from enforcing its rights to collect any Operating Expenses under this Paragraph
4. Tenant shall pay, with its next installment of Base Rent due (but not prior
to thirty (30) days after Tenant's receipt of the "Statement", as that term is
defined in Paragraph 4.3(b) below, for the preceding Tax Year), a fraction of
the Estimate for the then current Expense Year (reduced by any amounts paid
pursuant to the last sentence of this Paragraph 4.3(a)). Such fraction shall
have as its numerator the number of months which have elapsed in such current
Expense Year to the month of such payment, both months inclusive, and shall have
twelve (12) as its denominator. Until a new Estimate Statement is furnished,
Tenant shall pay monthly, with the monthly Base Rent installments, an amount
equal to one-twelfth (1/12) of the total Estimate set forth in the previous
Estimate Statement delivered by Landlord to Tenant.

          (b)  Within one hundred twenty (120) days after the end of each
calendar year, Landlord shall provide a statement (the "Statement") to Tenant
showing:  (i) the amount of actual Operating Expenses for such calendar year and
Tenant's Pro Rata Share thereof, (ii) any amount paid by Tenant towards
Operating Expenses during such calendar year on an estimated basis and (iii) any
revised estimate of Tenant's obligations for Operating Expenses for the current
calendar year.

          (c)  If the Statement shows that Tenant's estimated payments were less
than Tenant's actual obligations for Operating Expenses for such calendar year,
Tenant shall pay the difference to Landlord within thirty (30) days after
receipt of the applicable Statement.  If the Statement shows an increase in
Tenant's estimated payments for the current calendar year, Tenant shall pay the
difference between the new and former estimates, for the period from January 1
of the current calendar year through the month in which the Statement is sent.

          (d)  If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Operating Expenses, Landlord shall credit such
difference against payments of the Base Rent next due.  If the Term shall have
expired, Tenant shall receive a refund of such difference within thirty (30)
days after Landlord sends the Statement.

          (e)  No delay by Landlord in providing the Statement (or separate
statements) shall be deemed a default by Landlord or a waiver of Landlord's
right to require payment of Tenant's obligations for actual or estimated
Operating Expenses.

          (f)  Tenant's obligations to pay estimated and actual amounts towards
Operating Expenses for the first and/or final calendar years shall be prorated
to reflect the portion of such years included in the Term.  Such proration shall
be made by multiplying the difference of Tenant's Pro Rata Share of the total
estimated or actual (as the case may be) Operating Expenses for such calendar
years by a fraction, the numerator which shall be the number of days of the Term
during such calendar year, and the 

                                       9
<PAGE>
 
denominator of which shall be three hundred sixty five (365).

          (g)  The parties acknowledge that the Building is a part of a mixed
use development, containing restaurant, hotel, food court and outlet center uses
as well as office uses, and that the Operating Expenses and Taxes incurred in
connection with the Project should be shared among the tenants of the Building
and the tenants of the other buildings in the Project.  Different uses to which
portions of the Project are put place different demands on the services provided
by Landlord, and different portions of the Project, when considered as separate
elements, have different values, both before and after development for different
uses.  Many Operating Expenses and Taxes will be incurred for the benefit of the
Building or other buildings only, or for the benefit of the outlet center or
food court portions of the Project only, and Landlord will use reasonable
efforts to segregate costs where feasible.  The effect of such segregation shall
be that Operating Expenses and Taxes allocated to the tenants of the Building
shall include all of those attributable solely to the Building, plus an
equitable portion of those attributable to the Project as a whole.  Landlord
shall have the right to equitably allocate the costs and charges that benefit
the entire Project among the Land and different parcels in the Project and the
different uses to which they are put in a reasonable, consistent manner ("Cost
Pools"), such that the manner in which categories of common area charges within
each Cost Pool are allocated to Tenant hereunder generally coincides with the
manner in which such categories of common area charges are allocated to other
tenants of the office buildings within the Project.  All costs allocated to the
Land and buildings thereon shall be allocated among the Building and other
buildings in proportion to the Rentable Area of each.

     4.4  Tenant's Pro Rata Share.  During those times when the Premises are
          -----------------------                                           
located entirely within the Building, the term "Tenant's Pro Rata Share" means
the ratio, from time to time, of the Rentable Area of the Premises to the
Rentable Area of the Building.  During those times, if any, when the Premises
are located in other buildings within the Project in addition to the Building,
the term "Tenant's Pro Rata Share" shall be calculated separately for the
Building and each other such building, and shall mean with respect to each
building the ratio, from time to time, of the Rentable Area of the portion of
the Premises within the building in question to the Rentable Area of that
building.  Tenant's Pro Rata Share as of the Commencement Date is stipulated to
be the figure specified in Item 4 of the Lease Summary, which has been computed
using the square footage figures set forth in Item 2 of the Lease Summary.

     4.5  Operating Expenses.  "Operating Expenses" are defined to be the sum of
          ------------------                                                    
all costs, expenses, and disbursements, of every kind and nature whatsoever, and
the taxes, actually incurred by Landlord in connection with (i) the Reciprocal
Easement Agreement dated September 21, 1982 executed by Daon Corporation and Pen
Nom I Corp. recorded September 24, 1982 as Instrument No. 82-970494 in the
Official Records of Los Angeles County, (ii) the covenants, conditions and
restrictions set forth a document recorded March 1, 1990 as Instrument No. 90-
330359 in the Official Records of Los Angeles County, and (iii) the ownership,
management, maintenance, operation, administration and repair of all or any
portion of the Building or Project, including the roads, walks, plazas,
landscaped areas, common areas, parking structures, improvements and facilities
thereon.  Without limiting the generality of the foregoing, and except for those
items excluded from the 

                                       10
<PAGE>
 
definition of Operating Expenses pursuant to Paragraph 4.6 below, the definition
of "Operating Expenses" shall include the following:

          (a)  All utility costs not otherwise charged (pursuant to Paragraph
3.3 above) directly to Tenant or to any other tenant;

          (b)  All wages and benefits and costs of employees, independent
contractors, or employees of independent contractors engaged in the operation,
maintenance and security of the Project;

          (c)  All expenses for janitorial, maintenance, security and safety
services;

          (d)  All repairs to, replacement of, and physical maintenance of the
Project, including the cost of all supplies, uniforms, equipment, tools and
materials;

          (e)  Any license, permit and inspection fees required in connection
with the operation of the Project;

          (f)  Any auditor's fees for accounting provided for the operation and
maintenance services;

          (g)  Any legal fees, costs and disbursements as would normally be
incurred in connection with the operation, maintenance and repair of the
Project;

          (h)  All reasonable fees for management services provided by a
management company or by Landlord or an agent of Landlord;

          (i)  The annual amortization of costs (including interest on the
unamortized cost at the rate (the "Interest Rate") which is the lesser of (i)
Landlord's actual cost, (ii) two percent (2%) over the interest rate publicly
announced from time to time by the Bank of America (or, if Bank of America
ceases to exist, announced by the largest state chartered bank operating in the
State of California) as its prime rate, or (iii) the maximum rate permitted by
law), incurred by Landlord after completion of the Building for any capital
improvements installed or paid for by Landlord and required by any laws, rules
or regulations of any governmental or quasi-governmental authority enacted after
the Commencement Date;

          (j)  The annual amortization of costs (including interest on the
unamortized costs at the Interest Rate) incurred by Landlord after completion of
the Building for any capital improvement reasonably intended as a labor-saving
measure or to affect other economies in the operation or maintenance of the
Building;

          (k)  All insurance expenses, which shall mean all premiums and other
charges paid by Landlord with respect to the insurance of the Project, provided
that such insurance is either required or permitted to be carried by Landlord
hereunder or is customarily carried by operators of other comparable first-class
office buildings in Southern California which are of comparable size and located

                                       11
<PAGE>
 
in the immediate vicinity of the Building (the "Comparable Buildings");

          (l)  Such other usual costs and expenses which are paid by other
landlords for the purpose of providing for the on-site operation, servicing,
maintenance and repair of Comparable Buildings;

          (m)  All actual taxes, assessments, levies, charges, water and sewer
charges, rapid transit and other similar or comparable governmental charges
(collectively, the "Taxes") levied or assessed on, imposed upon or attributable
to the calendar year in question (a) to the Premises or the Land, and/or (b) to
the operation of the Building, including but not limited to taxes against the
Building or Land, personal property taxes or assessments levied or assessed
against the Building, plus any tax measured by gross rentals received from the
Building, together with any costs incurred by Landlord, including attorneys'
fees, in contesting any such taxes but excluding any net income, corporate,
franchise, capital stock, estate or inheritance taxes; provided that, if at any
time during the Term there shall be levied, assessed or imposed on Landlord or
the Building by any governmental entity, any general or special, ad valorem or
specific excised capital levy or other taxes on the payments received by
Landlord under this Lease or other leases affecting the Building and/or any
license fee, excise or franchise taxes measured by or based, in whole or in
part, upon such payments, and/or transfer or transaction taxes based directly or
indirectly upon the transaction represented by this Lease or other leases
affecting the Building, and/or any occupancy, use, per capita or other taxes,
based directly or indirectly upon the use or occupancy of the Premises or the
Building, then all such taxes shall be deemed to be included within the
definition of the term "Taxes."

          (n) Expenses incurred in connection with the provision of heating,
ventilation and air conditioning; and

          (o)  Window washing expenses.

     4.6  Exclusions from Operating Expenses.  Notwithstanding anything to the
          ----------------------------------                                  
contrary set forth elsewhere in this Lease, the following items shall be
excluded from the definition of "Operating Expenses":

          (a) Costs incurred in connection with the original construction of the
Building or in connection with any major change in the Building such as adding
or deleting floors;

          (b) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for other tenants
in the Building or incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for tenants or other occupants of the
Building;

          (c) Depreciation, interest and principal payments on mortgages, and
other debt costs, if any;

          (d) Costs of correcting defects in or inadequacy of the initial design
or construction of 

                                       12
<PAGE>
 
the Building;

          (e) Expenses directly resulting from the gross negligence of Landlord,
its agents, servants or employees;

          (f) Legal fees, space planners fees, real estate brokers leasing
commissions, and advertising expenses or other expenses incurred in connection
with the original development or original leasing of the Building or future
leasing of the Building;

          (g) Costs incurred by Landlord for repairs, replacements and/or
restoration to or of the Building to the extent that Landlord is reimbursed by
insurance or condemnation proceeds or by tenants, warrantors or other third
persons;

          (h) Any bad debt loss, rent loss or reserves for bad debts or rent
loss;

          (i) Expenses in connection with services or other benefits which are
not offered to Tenant or for which Tenant is charged directly but which are
provided to another tenant or occupant of the Building;

          (j) Costs associated with the operation of the business of the
partnership or entity which constitutes Landlord, as the same are distinguished
from the costs of operation of the Building or Project, including partnership
accounting and legal matters, costs of defending any lawsuits with any mortgagee
(except as the actions of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building, costs of any disputes between Landlord and its employees (if
any) not engaged in Building operation, disputes of Landlord with Building
management, or outside fees paid in connection with disputes with other tenants;

          (k) The wages of any employee to the extent that the employee does not
devote substantially all of his or her time to the office portion of the
Project;

          (l) Costs, fines, interest or penalties incurred by Landlord due to
the violation by Landlord of (i) any governmental rule or regulation or (ii) the
terms and conditions of any lease of space in the Building; provided, however,
that such costs, fines, interest or penalties shall not be excluded from
Operating Expenses if they were incurred due to the fault of Tenant;

          (m) Amounts paid as ground rental by Landlord;

          (n) Any building system maintenance contracts, Earthquake or any other
type of insurance, unless such maintenance costs and/or insurance coverage was
carried during the initial Lease Year, or, in the alternative, the Operating
Expenses have been "grossed up" to include what such maintenance and/or
insurance coverage would have cost had it been carried during the initial Lease
Year;

                                       13
<PAGE>
 
          (o) Wages and fees incurred in connection with the ownership,
management and operation of any parking structure now or hereafter located on
the Project, provided Tenant does not utilize said parking structure;

          (p) Any Operating Expenses in connection with the ground floor and
mezzanine levels, or any other floor in the Building devoted to retail operation
(but only during such periods, if any, that said floors and levels are not
leased by Tenant hereunder);

          (q) Any Operating Expenses actually incurred more than two (2) years
prior to the year in which Landlord proposes that such costs be included;

          (r) Costs incurred by Landlord with respect to goods and services
(including utilities sold and supplied to tenants and occupants of the Building)
to the extent that Landlord is entitled to reimbursement for such costs other
than through the Operating Expense pass-through provisions of such tenants'
lease;

          (s) Salaries and bonuses of officers and executives of Landlord above
the level of on-site Citadel General Manager;

          (t) Attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with present or prospective tenants or
other occupants of the Building, except those attorneys' fees and other costs
and expenses incurred in connection with negotiations, disputes or claims
relating to items of Operating Expenses, enforcement of rules and regulations of
the Building and such other matters relating to the maintenance of standards
required of Landlord under this Lease;

          (u) Costs of a capital nature, including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools, all as determined in accordance with generally accepted
accounting principals, consistently applied; provided, however, that the
following costs (amortized over the useful life of the improvement together with
interest at the Interest Rate identified in Paragraph 4.5(i) above) of the
following capital improvements shall be included in the definition of Operating
Expenses: (i) capital improvements made to comply with any law or governmental
regulation enacted after the Commencement Date of this Lease; and (ii) any other
capital improvements which reduce Operating Expenses, but limited to the amount
of Operating Expenses reasonably anticipated to be reduced thereby.  Tenant's
above commercially reasonable standard utilization of building systems shall not
be excluded from the Operating Expenses;

          (v) Overhead and profit increments paid to third parties, or to
subsidiaries or affiliates of Landlord, for services provided to the Building to
the extent the same exceeds the costs that would generally be charged for such
services if rendered on a competitive basis (based upon a standard of similar
owner-manager multi-story office buildings in the general area of the Premises)
by unaffiliated third parties capable of providing such service;

          (w) Base Rent payments incurred in leasing air conditioning systems,
elevators or other 

                                       14
<PAGE>
 
equipment ordinarily considered to be of a capital nature, except equipment not
affixed to the Building which is used in providing janitorial or similar
services;

          (x) Costs of installing the initial landscaping and the initial
sculpture, paintings and objects of art for the Building and Project;

          (y) Taxes and assessments attributable to the tenant improvements or
property of other tenants of the Building if such taxes or assessments are
separately paid by Tenant for its own tenant improvements or property rather
than being included in Operating Expenses;

          (z) marketing and promotional costs, including but not limited to
leasing commissions, real estate brokerage commissions, and attorneys' fees in
connection with the negotiation and preparation of letters, deal memos, letters
of intent, leases, subleases and/or assignments, space planning costs, and other
costs and expenses incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants or other
occupants of the Building;

          (aa) advertising and promotional expenditures, including but not
limited to tenant newsletters and Building promotional gifts, events or parties
for existing or future occupants, and the costs of signs (other than the
Building directory) in or on the Building identifying the owner of the Building
or other tenants' signs and any costs related to the celebration or
acknowledgment of any state or federal holidays;

          (bb) costs in excess of Ten Thousand Dollars ($10,000.00) per calendar
year arising from the presence or removal of Hazardous Materials located in the
Project, including, without limitation, any costs incurred pursuant to the
requirements of any governmental laws, ordinances, regulations or orders
relating to health, safety or environmental conditions, including but not
limited to regulations concerning asbestos, soil and ground water conditions or
contamination regarding hazardous materials or substances; provided, however,
that nothing herein shall limit Landlord's right to recover such costs from
Tenant separate and apart from Operating Expenses to the extent otherwise
permitted in this Lease; and

          (cc)  during all periods when Tenant is managing the Building pursuant
to the terms of this Lease, management fees which exceed an amount equal to (i)
two percent (2%) of Operating Expenses less (ii) janitorial, utility, HVAC and
other costs paid directly by Tenant.

     4.7  Limited Exclusion from Taxes of "Proposition 13" Increases.
          ----------------------------------------------------------  
Notwithstanding anything to the contrary set forth above, increases in Taxes
resulting from a "change in ownership" (as that term is defined in 18 C.F.R. '
462) of the Premises, Building or Project during the first ten (10) years of the
Term of this Lease shall only be deemed to be Taxes if they relate to (i) the
first change in ownership to occur during the first five (5) years of the Term
of the Lease, and (ii) the first change in ownership to occur during the sixth
(6th) through tenth (10th) years of the Term of the Lease.  Notwithstanding the
foregoing, none of the following shall constitute a "change in ownership" for
purposes of this 

                                       15
<PAGE>
 
Paragraph 4.7: (a) the purchase by Landlord, the Commerce Redevelopment
Commission, the City of Commerce or any affiliate of the City of Commerce (the
"Related Parties") of the ground lessee's interest under any of the
Retail/Office Ground Leases or under the Hotel Ground Lease or of any loan made
to any of the Related Parties in connection with the said purchase; (b) any
subsequent modification of any of the Retail/Office Ground Leases or the Hotel
Ground Lease; (c) any assignment or sublease of any of the Retail/Office Ground
Leases or the Hotel Ground Lease by any of the Related Parties to any of the
other Related Parties; or (d) the acquisition by any of the Related Parties of
the fee interest in the Project or any portion thereof in connection with the
termination of any of the Retail/Office Ground Leases or the Hotel Ground Lease.

     4.8  "Grossing Up" Operating Expenses.  The provisions of this Section 4.8
          --------------------------------                                     
shall not apply to the Building at any time during which Tenant is leasing at
least ninety-five percent (95%) of the Rentable Area of the Building.  The
provisions of this Section 4.8 shall apply to any other building(s) within the
Project (excluding the Building) during any time in which any portion of the
Premises is located in such other building(s).  If any building to which the
provisions of this Section 4.8 apply is not fully constructed and completed
and/or does not have at least ninety-five percent (95%) of the Rentable Area
thereof occupied during any calendar year period, then the Operating Expenses
(other than those specific to the building as opposed to other portions of the
Project) for such period shall be deemed to be equal to the total of (i) the
Operating Expenses, other than Taxes, which would have been incurred by Landlord
if the building had been fully constructed and completed and ninety-five percent
(95%) of the Rentable Area of the building had been occupied for the entirety of
such calendar year and (ii) the actual Taxes as defined in Paragraph 4.4(n)
above.  The annual amortization of costs shall be determined by dividing the
original cost of such capital expenditure by the number of years of useful life
of the capital item acquired, which useful life shall equal the number of years
permitted by the Internal Revenue Service for amortization; if no Internal
Revenue Service guidelines are available with respect to the item in question,
the useful life shall be determined by Landlord on a reasonable, equitable and
consistent basis.  Operating Expenses shall be computed according to the cash or
accrual basis of accounting, as Landlord may elect (in a reasonable, equitable
and consistent basis) in accordance with standard and reasonable accounting
principles employed by Landlord.

     4.9  Review of Operating Expenses.  Tenant shall have the right, not more
          ----------------------------                                        
than once with respect to each Lease Year, to cause Landlord's books and records
with respect to the subject calendar year to be audited, inspected, reviewed
and/or copied (the "Audit"), subject to the terms and conditions set forth
below.

          (a) Landlord shall be obligated to keep such books and records for all
Lease years associated with this Lease until eighteen (18) months following the
Lease Year in question.

          (b) In connection with the delivery of each Statement and Estimate
Statement, Landlord shall provide to Tenant substantial detail of the
calculations of the Operating Expenses or of the amounts charged, as the case
may be.  Landlord shall provide, by account and sub-account, the total Operating
Expenses and all adjustments corresponding thereto.  Landlord shall also provide
in reasonable detail the calculation of Tenant's Pro Rata Share of the Operating
Expenses.

                                       16
<PAGE>
 
          (c)  The Audit shall be conducted either by Tenant's in-house
accountants or by a certified public accountant selected by Tenant (the
"Auditor").

          (d)  The Audit may be conducted upon no less than ten (10) business
days' notice to Landlord and must be completed within eighteen (18) months after
receipt by Tenant of the Statement which is the subject of the Audit; provided,
however, that Landlord shall cooperate in good faith with Tenant in order to
allow Tenant and its Auditor to complete the Audit within said period.  If an
Audit has not been requested and completed within the time periods required
hereby, then the Statement shall be binding on both Landlord and Tenant.

          (e)  The Audit shall be conducted only during Landlord's regular
business hours.  The Audit shall be conducted only at the office where Landlord
maintains the books and records pertaining to Operating Expenses for the
Project, which office shall at all times be located in Southern California.

          (f)  No Audit shall be conducted if Tenant is in default under any
provision of this Lease beyond the expiration of any applicable cure period,
including but not limited to timely payment of any amount due pursuant to the
Statement.

          (g) The right to conduct the Audit may be exercised by Tenant or its
subtenants or assignees only to the extent that Tenant or such subtenant or
assignee occupied at least one full floor of the Building during the Lease Year
in question.

          (h)  Tenant shall deliver to Landlord a copy of the results of the
Audit within ten (10) days after Tenant's receipt thereof from the Auditor.

          (i)  Tenant shall bear the cost of the Audit, including without
limitation all of Landlord's copying costs relative thereto; provided, however,
that if (after conclusion of any contest by Landlord pursuant to Paragraph
4.9(k) below) reveals that the Statement overstated the amount of Tenant's Pro
Rata Share of Operating Expenses by more than five percent (5%), Landlord shall
reimburse Tenant for the reasonable cost of the Audit within thirty (30) days
after Tenant delivers to Landlord a written request for reimbursement and copies
of the Auditor's invoice and any other documentation evidencing expenses
incurred by Tenant in connection with the Audit.

          (j)  If the Audit indicates that Tenant has overpaid Operating
Expenses, Tenant may submit a claim for the overpaid amount to Landlord,
detailing the nature of the overpayment.  Landlord shall thereafter have thirty
(30) days to either pay the amount claimed or to contest the claim by giving
notice thereof to Tenant detailing the nature of Landlord's contest of Tenant's
claims.  If Landlord timely contests the claim, then either Landlord or Tenant
may submit the claim to arbitration in accordance with Paragraph 5 below.  If
the arbitration discloses that the Statement overstated the amount of Tenant's
Pro Rata Share of Operating Expenses, then Landlord shall within thirty (30)
days after the date of the arbitrator's decision reimburse to Tenant the amount
of the overpayment.  If (i) the claim is not timely contested by Landlord, or
(ii) the arbitration discloses that the Statement overstated 

                                       17
<PAGE>
 
the amount of Operating Expenses by more than five percent (5%), then Landlord
shall also reimburse to Tenant the reasonable expenses incurred by Tenant in
connection with the Audit and the arbitration, which reimbursement shall be made
within thirty (30) days after (i) the date of the arbitrator's decision and (ii)
Tenant's delivery to Landlord of copies of the Auditor's invoice and any other
documentation evidencing expenses incurred by Tenant in connection with the
Audit.

          (k)  Except as provided in this Paragraph 4.9, Tenant shall keep all
information gained in connection with any Audit confidential.  Tenant shall not
disclose any information gained in connection with any Audit to any third
parties (not including Tenant's agents, employees and consultants) except to
those who must receive the information in order to carry out the purpose of this
Paragraph 4.8 and who agree in writing to keep the information confidential;
provided, however, that Tenant may disclose such information to the extent
reasonably necessary in connection with financing arrangements or assignments of
Tenant's interest in the Premises so long as Tenant takes reasonable steps to
ensure that the applicable lender or assignee keeps such information
confidential, and Tenant may disclose such information as required by law or in
connection with the issuance of financial statements of Tenant and or its
affiliates.

     4.10 Real Property Tax Exclusions.  Notwithstanding anything to the
          ----------------------------                                  
contrary set forth in the Lease, Taxes shall not include (i) any excess profits
taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, and other taxes
to the extent applicable to Landlord's general or net income (as opposed to
rents or receipts), (ii) taxes on tenant improvements in any space in the
Building or the Project based upon an assessed level in excess of the assessed
level for which Tenant is individually and directly responsible under this
Lease, but only to the extent that said taxes on tenant improvements are
separately assessed and the assessed level for which Tenant is responsible can
be accurately determined, (iii) penalties incurred as a result of Landlord's
negligence, inability or unwillingness to make payments of, and/or to file any
tax or informational returns with respect to, any Taxes, when due, (iv) any real
estate taxes directly payable by Tenant or any other tenant in the Building
under the applicable provisions in their respective leases, and (v) any items
included as Operating Expenses or specifically excluded from Operating Expenses.

5.   ARBITRATION.

     5.1  General Submittals to Arbitration.  The submittal of all matters to
          ---------------------------------                                  
arbitration in accordance with the terms of this Paragraph 5 is the sole and
exclusive method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Lease, including, but not limited to any matter
relating to Landlord's failure to approve an assignment, sublease or other
transfer of Tenant's interest in the Lease under Paragraph 12 below, any other
defaults by Landlord, or any default by Tenant under this Lease (a "Default"),
except for (i) verification of the rentable square footage or usable square
footage of the Premises, which determination shall be made pursuant to
Paragraphs 1.2 and 1.3 above, (ii) all claims by either party which (A) seek
anything other than enforcement of rights under this Lease, or (B) are primarily
founded upon matters of fraud, wilful misconduct, bad faith or any other
allegations of tortious action, and seek the award of punitive or exemplary
damages, and (iii) claims relating to Landlord's exercise of any unlawful
detainer rights pursuant to California law or 

                                       18
<PAGE>
 
rights or remedies used by Landlord to gain possession of the Premises or
terminate Tenant's right of possession to the Premises, which disputes shall be
resolved by suit filed in the Superior Court of Los Angeles County, California,
the decision of which court shall be subject to appeal pursuant to applicable
law. The parties hereby irrevocably waive any and all rights to the contrary and
shall at all times conduct themselves in strict, full, complete and timely
accordance with the terms of this Paragraph 5 and all attempts to circumvent the
terms of this Paragraph 5 shall be absolutely null and void and of no force or
effect whatsoever. As to any matter submitted to arbitration (except with
respect to the payment of money) to determine whether a matter would, with the
passage of time, constitute a Default, such passage of time shall be tolled from
the time the matter is submitted to arbitration hereunder until an affirmative
arbitrated determination, as long as it is simultaneously determined in such
arbitration that the challenge of such matter as a potential Event of Default by
Tenant was made in good faith. As to any matter submitted to arbitration with
respect to the payment of money, to determine whether a matter would, with the
passage of time, constitute an Event of Default, such passage of time shall not
commence to run in the event that the party which is obligated to make the
payment does in fact make the payment to the other party. Such payment can be
made "under protest," which shall occur when such payment is accompanied by a
good faith notice stating the reasons that the party has elected to make a
payment under protest. Such protest will be deemed waived unless the subject
matter identified in the protest is submitted to arbitration as set forth in
this Paragraph 5.

     5.2  JAMS.  Any dispute to be arbitrated pursuant to the provisions of this
          ----                                                                  
Paragraph 5 shall be determined by binding arbitration before a retired judge of
the Superior Court of the State of California (the "Arbitrator") under the
auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS").  Such
arbitration shall be initiated by the parties, or either of them, within ten
(10) days after either party sends written notice (the "Arbitration Notice") of
a demand to arbitrate by registered or certified mail to the other party and to
JAMS.  The Arbitration Notice shall contain a description of the subject matter
of the arbitration, the dispute with respect thereto, the amount involved, if
any, and the remedy or determination sought.  The parties may agree on a retired
judge from the JAMS panel.  If they are unable to promptly agree, JAMS will
provide a list of three available judges and each party may strike one.  The
remaining judge (or if there are two, the one selected by JAMS) will serve as
the Arbitrator.  In the event that JAMS shall no longer exist or if JAMS fails
or refuses to accept submission of such dispute, then the dispute shall be
resolved by binding arbitration before the American Arbitration Association
("AAA") under the AAA's commercial arbitration rules then in effect.

     5.3  Pre-Decision Actions.  The Arbitrator shall schedule a pre-hearing
          --------------------                                              
conference to resolve procedural matters, arrange for the exchange of
information, obtain stipulations, and narrow the issues.  The parties will
submit proposed discovery schedules to the Arbitrator at the pre-hearing
conference.  The scope and duration of discovery will be within the sole
discretion of the Arbitrator.  The Arbitrator shall have the discretion to order
a pre-hearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, and examination by deposition of parties and
third-party witnesses.  This discretion shall be exercised in favor of discovery
reasonable under the circumstances.

                                       19
<PAGE>
 
     5.4  Arbitrator's Decision.  The arbitration shall be conducted in Los
          ---------------------                                            
Angeles County, California.  Any party may be represented by counsel or other
authorized representative.  In rendering a decision(s), the Arbitrator shall
determine the rights and obligations of the parties according to the substantive
and procedural laws of the State of California and the terms and provisions of
this Lease.  The Arbitrator's decision shall be based on the evidence introduced
at the hearing, including all logical and reasonable inferences therefrom.  The
Arbitrator may make any determination, and/or grant any remedy or relief that is
just and equitable; provided however, that the Arbitrator shall have no
authority to alter any of the terms or provisions of this Lease.  The decision
must be based on, and accompanied by, a written statement of decision explaining
the factual and legal basis for the decision as to each of the principal
controverted issues.  The decision shall be conclusive and binding, and it may
thereafter be confirmed as a judgment by the Superior Court of the State of
California, subject only to challenge on the grounds set forth in the California
Code of Civil Procedure Section 1285 et seq.  The validity and enforceability of
the Arbitrator's decision is to be determined exclusively by the California
courts pursuant to the provisions of this Lease.  The Arbitrator may award
costs, including without limitation attorneys' fees, and expert and witness
costs, to the prevailing party, if any, as determined by the Arbitrator in his
discretion.  The Arbitrator's fees and costs shall be paid by the non-prevailing
party as determined by the Arbitrator in his discretion.  A party shall be
determined by the Arbitrator to be the prevailing party if its proposal for the
resolution of dispute is the closer to that adopted by the Arbitrator.

6.   USE.

     6.1  Permitted Use.  The Premises shall be used only for the purposes
          -------------                                                   
specified in Item 11 of the Lease Summary and for no other purpose.  Tenant
shall use the Premises for general office purposes, training and educational
facilities, and any other legally permitted, non-retail, uses consistent with
the character of the Building as a first-class office building, and Tenant shall
not use or permit the Premises to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole and absolute discretion.  In connection with, and
incidental to, Tenant's use of the Premises, Tenant, at its sole cost and
expense and upon compliance with all applicable laws, may install "dwyer" or
similar units, microwave or convection ovens, kitchenettes, dishwashers and an
executive dining facility (provided same do not require a modification to the
Building's certificate of occupancy) in the Premises for the purpose of arming
or re-heating food for the employees and business guests of Tenant (but not for
use as a public restaurant or private cafeteria or for cooking), provided that
Tenant shall obtain all permits required by any governmental authorities for the
operation thereof and such installation shall comply with the provisions of this
Lease, including, without limitation, Paragraph 7 of this Lease.  Tenant may
also install, at its sole cost and expense and subject to and in compliance with
the provisions of Paragraph 7 of this Lease, vending machines for the exclusive
use of the officers, employees and business guests of Tenant, each of which
vending machines (if it dispenses any beverages or other liquids or
refrigerates) shall have a waterproof pan located thereunder or refrigerant
recovery system connected to a drain.

     6.2  Restriction on Use.  Tenant shall not do or permit to be done in or
          ------------------                                                 
about the Premises or Building or Project, or bring, keep or permit to be
brought or kept therein, anything which is 

                                       20
<PAGE>
 
prohibited by the Rules and Regulations attached hereto as Exhibit "F" or which
is prohibited by any standard form fire insurance policy or which will in any
way increase the existing rate of or affect, any fire or other insurance upon
the Building or its contents.

     6.3  Compliance With Law.
          ------------------- 

          (a) Legal Requirements.  As used herein, the term "Legal Requirements"
              ------------------                                                
shall mean each and every one of the following: (i) each law, statute, ordinance
or other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated, including without limitation any standard
or regulation now or hereafter imposed, by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational health or safety standards for employers, employees, landlords or
tenants, that relates to Tenant's use or occupancy of the Premises or the
operation of the Building; (ii) the requirements of any Board of Fire
Underwriters or other similar body now or hereafter instituted; and (iii) any
order, directive or certificate of occupancy issued pursuant to any laws which
affect the condition, use or occupancy of the Premises, including, but not
limited to, any requirements of structural changes related to or affected by
Tenant's acts, occupancy or use of the Premises.

          (b) Compliance by Landlord.  Landlord shall keep and maintain the Base
              ----------------------                                            
Building (together with any Building Systems located outside the Premises), in
compliance with any Legal Requirements; provided, however, that Tenant hereby
covenants and agrees that if such compliance is required in the Premises, or on
a floor of the Building on which the Premises are located, and (i) such
compliance relates to Tenant's tenant improvements or Alterations, or (ii) such
compliance is required as a result of Tenant's non-general office use of the
Premises, Tenant shall be responsible for the cost of causing, and Tenant shall
cause, the tenant improvements, Alterations, Base Building or Building Systems
located outside the Premises and on the floor(s) on which the Premises are
located (but then only to the extent that the cost of such compliance is not
included in Operating Expenses), as the case may be, to comply with such Legal
Requirements.  In the event Landlord is required to perform work in the Premises
in order to comply with any Legal Requirements and alternative means of
compliance are available, then Tenant shall have the right to approve the
alternative selected by Landlord for compliance, provided that in the event
Tenant requires Landlord to propose a different alternative than the one
Landlord has selected, then the alternative approved by Tenant shall not impose
a materially greater economic burden on Landlord than the alternative originally
selected by Landlord for compliance unless Tenant agrees to reimburse Landlord
for such increases in the economic burden, and provided further that Tenant's
approval shall not be unreasonably withheld or delayed.

          (c) Compliance by Tenant.  Tenant shall not use the Premises in any
              --------------------                                           
manner which materially violates any of the Legal Requirements applicable to
Tenant's use of the Premises.  Nothing in this Paragraph 6.3(c) is intended to
or shall expand, alter or modify Tenant's obligations with respect to the
maintenance, repair or alteration of the Premises, Tenant's tenant improvements,
Tenants Alterations, the Base Building, or Building Systems.

          (d) Compliance by Other Tenants.  Subject to Paragraph 21 below,
              ---------------------------                                 
Landlord shall 

                                       21
<PAGE>
 
not be liable to Tenant for any other occupant's or tenant's failure to conduct
itself in accordance with the provisions of this Paragraph 6. Tenant shall not
be released or excused from the performance of any of its obligations under the
Lease in the event of any such failure.

     6.4  Hazardous Material.
          ------------------ 

          (a) Tenant's Representations.  Tenant hereby represents, warrants and
              ------------------------                                         
covenants that:  Tenant's business operations in the Premises do not involve the
use, storage or generation of Hazardous Material (as defined in Paragraph 6.4(e)
below); Tenant shall not cause or permit any Hazardous Material to be brought
upon, stored, manufactured, generated, blended, handled, recycled, disposed of,
used or released on, in, under or about the Premises, Building or Project by
Tenant or Tenant's agents, employees, contractors, subtenants, assigns and
invitees (collectively, "Tenant's Affiliates"); Landlord acknowledges, however,
that Tenant will maintain products in the Premises which are incidental to the
operation of its offices, such as photocopy supplies, secretarial supplies and
limited janitorial supplies, which products contain chemicals which are
categorized as Hazardous Materials.  Landlord agrees that the use of such
products in the Premises in compliance with all applicable laws and in the
manner in which such product are designed to be used shall not be a violation by
Tenant of this Paragraph 6.4.  For purposes of this Paragraph 6.4,
"Environmental Laws" shall mean, collectively, any and all federal, state or
local environmental, health and/or safety related law, decision of the courts,
ordinance, rule, regulation, code, order, directive, guideline, permit or permit
condition currently existing and as amended, enacted, issued or adopted in the
future which is applicable to the Premises.

          (b) Tenant's Indemnification of Landlord.  Tenant shall indemnify,
              ------------------------------------                          
protect, defend and hold Landlord, the Commerce Redevelopment Commission, and
their partners, officers, employees, agents, lenders and each of their
respective successors and assigns (collectively, the "Indemnified Landlord
Parties") harmless from any and all claims, judgments, damages, penalties,
enforcement actions, taxes, fines, remedial actions, liabilities, losses, costs
and expenses (including, without limitation, reasonable attorneys' fees,
litigation, arbitration and administrative proceeding costs, expert and
consultant fees and laboratory costs), which arise during or after the Term in
whole or in part as a result of the presence of any Hazardous Material, in, on,
under or about the Premises or the Building, the surface or subsurface of the
Project and/or other properties due to Tenant's or Tenant's Affiliates'
activities, or failure to act, on or about the Project.  Without limiting the
foregoing, if any Hazardous Material is found in the soil, surface or ground
water in, on, under or about the Project at any time during or after the Term,
the presence of which was caused by Tenant and/or Tenant's Affiliates, Tenant
shall, at its sole cost and expense, promptly take all actions as are necessary
to return the Project to the condition existing prior to the introduction or
release of such Hazardous Material.  Such actions shall be conducted in
accordance with applicable Environmental Laws and Landlord's prior written
approval, which approval shall not be unreasonably withheld.

          (c) Landlord's Representations.  Landlord hereby represents to Tenant
              --------------------------                                       
that to the best of Landlord's knowledge without investigation, and except as
previously disclosed to Tenant in writing or otherwise set forth herein, there
are no Hazardous Materials in the Building or Project.  

                                       22
<PAGE>
 
After the date hereof and thereafter throughout the Term, Landlord shall be
responsible for removal or encapsulation of any Hazardous Materials (except for
those brought onto the Premises by Tenant or Tenant's Affiliates) as necessary
to comply with all applicable laws, codes, regulations and ordinances and the
requirements of the Environmental Protection Agency and any other regulatory
agency having jurisdiction. If, during the Term of this Lease, air sampling
tests conducted by properly certified individuals or entities detect asbestos in
amounts exceeding minimums which require corrective action, as set by any local,
state, or federal government or agency, Landlord will, at Landlord's sole cost
and expense (unless the presence of such amounts of asbestos is caused by
Tenant, in which case Landlord's remedial actions hereunder shall be done at
Tenant's expense), commence correction of said condition, within ten (10)
business days after the receipt of notice of such monitoring results, and shall
diligently continue such corrective action until completed. Landlord's
remediation of Hazardous Materials in the Premises as required above shall be
performed at night and on weekends so as not to disturb Tenant's business
operations. If, during the construction of Tenant's initial tenant improvements,
Hazardous Materials are discovered within the Premises, Landlord shall
diligently remove such Hazardous Materials at Landlord's sole cost and expense
prior to the Commencement Date. Landlord hereby acknowledges that the California
Asbestos Notification Act (the California Health and Safety Code Sections 25915,
et seq.) requires that every owner of a commercial or industrial building who
knows that the building contains asbestos containing materials must provide
written notice to its tenants and to its employees and contractors working in
the building. Tenant acknowledges that Landlord has previously informed Tenant
that prior to the construction of the Project, the Land was used as a site for
the use, generation, manufacture, storage, disposal or transportation of any
Hazardous Materials. Landlord represents and warrants to Tenant that, to the
best of Landlord's knowledge without investigation, the Land and Building and
every part thereof (i) are not currently being used for the generation,
manufacture, storage, disposal, transportation or other use of any Hazardous
Materials, and (ii) are presently in compliance with all federal, state and
local laws, ordinances, regulations, orders and directives pertaining to
Hazardous Materials, including without limitation those relating to soil and
ground water conditions. Tenant acknowledges that as a result of leakage from
underground fuel tanks located beneath the Land prior to the development of the
Project, hydrocarbons within the definition of "Hazardous Materials" set forth
below are currently located in, on, under or about the Premises. Landlord is in
the process of monitoring said hydrocarbons and performing such remediation
measures with respect thereto as required by applicable Environmental Laws.
Landlord covenants to Tenant that Landlord shall continue such monitoring and
remediation until the expiration of the Term of this Lease, or until such
monitoring and remediation is no longer required by applicable Environmental
Laws, whichever occurs first.

          (d) Landlord's Indemnification of Tenant.  Landlord shall indemnify,
              ------------------------------------                            
protect, defend and hold Tenant and Tenant's Affiliates harmless from any and
all claims, judgments, damages, penalties, enforcement actions, taxes, fines,
remedial actions, liabilities, losses, costs and expenses (including, without
limitation, reasonable attorneys' fees, litigation, arbitration and
administrative proceeding costs, expert and consultant fees and laboratory
costs), which arise before, during or after the Term in whole or in part as a
result of the presence of any Hazardous Material, in, on, under or about the
Premises or the Building, the surface or subsurface of the Project and/or other
properties to the extent the presence of such Hazardous Materials are not due to
Tenant or Tenant's Affiliates' 

                                       23
<PAGE>
 
activities on or about the Project.

          (e) Definition of Hazardous Material.  For purposes of this Lease, the
              --------------------------------                                  
term "Hazardous Material" means any hazardous or toxic substance, material or
waste which is (i) defined as a "hazardous waste," "extremely hazardous waste"
or "restricted hazardous waste" under Sections 25115, 25117 or 25112.7, or
listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"hazardous substance" under Section 25136 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act), (iii) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory), (iv) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
or Hazardous Substances), (v) listed under Article 9 or defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22 of the California Code of
Regulations, Division 4, Chapter 20, (vi) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (vii) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., (viii) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., (ix) defined as a hazardous waste, "hazardous material,"
             ------                                                           
"hazardous substance," "toxic chemical," "toxic air contaminant," or "hazardous
air pollutant" under the Clean Water Act, 33 U.S.C Section 1251 et seq., the
                                                                ------      
Clean Air Act, 42 U.S.C. Section 7901 et seq., the Toxic Substances Control Act,
                                      ------                                    
15 U.S.C. Section 2601 et seq., the Porter-Cologne Water Quality Control Act,
                       ------                                                
California Water Code Section 13000 et seq., or listed as a substance known to
                                    ------                                    
cause cancer or reproductive toxicity pursuant to the Safe Drinking Water and
Toxic Enforcement Act of 1986 (Proposition 65), the California Health and Safety
Code Section 25249.5 et seq., Chapter 3.5, Division 26, the California Health
                     ------                                                  
and Safety Code (Toxic Air Contaminants), Superfund Amendments and
Reauthorization Act of 1986, Occupational Safety and Health Act of 1970, or
California Occupational Safety and Health Act of 1973, (x) defined as a
hazardous waste, hazardous material or hazardous substance under any regulations
promulgated under any of the foregoing laws, or (xi) any hazardous or toxic
material, substance, chemical, waste, contaminant, emission, discharge or
pollutant or comparable material listed, identified, or regulated pursuant to
any federal, state or local law, ordinance or regulation which has as a purpose
the protection of health, safety or the environment, including but not limited
to petroleum or petroleum products or wastes derived therefrom.  Each reference
to a statute, law or regulation herein shall be deemed to include any amendments
or successor statutes thereto which are enacted from time to time.

     6.5  Tenant's Access to Premises.  Tenant shall have access to the Premises
          ---------------------------                                           
twenty-four (24) hours a day, seven (7) days a week.

7.   ALTERATIONS AND IMPROVEMENTS.

     7.1  Initial Tenant Improvements.  The initial Tenant Improvements to be
          ---------------------------                                        
built by Tenant 

                                       24
<PAGE>
 
shall be constructed in accordance with the provisions of this Paragraph 7 and
the Construction Agreement attached hereto as Exhibit "D".

     7.2  Tenant's Rights to Make Alterations.  Following the Commencement Date,
          -----------------------------------                                   
Tenant, at its sole cost and expense, shall have the right upon receipt of
Landlord's written consent (which consent shall not be unreasonably withheld,
delayed or conditioned), to make alterations, additions, or improvements to the
Premises (collectively, the "Alterations").  Notwithstanding the foregoing,
Landlord's consent to the Alterations shall not be required if all of the
following conditions are met: (i) Tenant provides Landlord with written notice
of Tenant's intention to make the Alterations, delivered at least ten (10) days
prior to commencement of construction thereof, which describes in detail the
proposed Alterations; (ii) Tenant agrees to remove, upon the expiration or
earlier termination of this Lease, any aspect of the Alterations which are not
normal for general office use; (iii) the Alterations do not adversely affect the
utility or value of the Premises or the Building for future tenants; (iv) the
Alterations do not alter the exterior appearance of the Building and cannot be
seen from the exterior of the Building (and, during any period in which Tenant
is not leasing the entire Building, if the Alterations cannot be seen from the
common areas of the Building); (v) the Alterations are not of a structural
nature; (vi) the Alterations will not adversely affect the Building Systems; and
(vii) the Alterations are not otherwise prohibited under this Lease.  All
Alterations made hereunder, regardless of whether or not Landlord's consent is
required, shall be made in accordance with this Paragraph 7, including without
limitation in conformity with the requirements of Paragraph 7.3 below.

     7.3  Installation of Alterations.  Any Alterations installed by Tenant
          ---------------------------                                      
during the Term shall be done in strict compliance with all of the following:

          (a)  Except to the extent, if any, that Landlord's consent is not
required by Paragraph 7.2 above, no such work shall proceed without Landlord's
prior written approval (which approval shall not be unreasonably withheld,
delayed or conditioned) of:  (i) Tenant's contractors, subcontractors,
architects, engineers and other consultants; (ii) certificates of insurance from
a company or companies approved by Landlord, furnished to Landlord by Tenant's
contractor, for (l) Combined Single Limit Bodily Injury and Property Damage
Insurance covering comprehensive general liability and automobile liability, in
an amount not less than One Million Dollars ($1,000,000.00) per occurrence and
endorsed to show Landlord as an additional insured, and (2) Workers'
Compensation as required by law, with all certificates endorsed to show a waiver
of subrogation by the insurer to any claims Tenant's contractor may have against
Landlord; and (iii) detailed plans and specifications for such work;

          (b)  All such work shall be done in first-class workmanlike manner and
in conformity with a valid building permit and/or all other permits or licenses
when and where required, copies of which shall be furnished to Landlord at least
ten (10) business days before the work is commenced, and any work not acceptable
to any governmental authority or agency having or exercising jurisdiction over
such work, or not reasonably satisfactory to Landlord, shall be promptly
replaced and corrected at Tenant's sole cost and expense.  Landlord's review and
approval of any such work is for Landlord's benefit only and shall not expose
Landlord to any liability.  No work shall proceed until and unless Landlord has
received at least ten (10) days prior written notice that such work is to
commence;

                                       25
<PAGE>
 
          (c)  To the extent that alterations or repairs to be made by Tenant
have a material effect on the Building Systems, Landlord shall have the right to
require the alterations or repairs to be performed by contractors designated by
Landlord.

          (d)  All work by Tenant shall be diligently and continuously pursued
from the date of its commencement through its completion; and

          (e)  Tenant shall obtain any bonds required by Landlord pursuant to
Paragraph 9 below.

     7.4  Tenant Improvements.  The Tenant Improvements shall become Landlord's
          -------------------                                                  
property upon the expiration or earlier termination of this Lease.  The Tenant
Improvements, upon expiration of the Term or earlier termination of the Lease,
shall be surrendered to Landlord without compensation to Tenant in good
condition and repair, reasonable wear and tear excepted.

     7.5  Tenant's Extra Improvements.  All Alterations and any tenant
          ---------------------------                                 
improvements made by or on behalf of Tenant (collectively, the "Tenant's Extra
Improvements"), whether temporary or permanent in character, made either by
Landlord or Tenant, shall become Landlord's property upon the expiration or
earlier termination of this Lease, except that Tenant may remove any Tenant's
Extra Improvements which Tenant can substantiate to Landlord have not been paid
for with any tenant improvement allowance funds provided to Tenant by Landlord.
All Tenant's Extra Improvements shall be surrendered to Landlord without
compensation to Tenant in good condition and repair, reasonable wear and tear
excepted, upon expiration or earlier termination of the Lease; provided,
however, that at the election of Landlord, exercisable by written notice to
Tenant either concurrent with Landlord's approval of the Tenant's Extra
Improvements (where Landlord has approval rights thereof) or within ten (10)
business days after Landlord receives notice of the proposed Tenant's Extra
Improvements (where Landlord has no approval rights), Tenant shall, at Tenant's
sole cost and expense, prior to the expiration or earlier termination of the
Lease, remove from the Premises Tenant's Extra Improvements (or that portion of
Tenant's Extra Improvements requested to be removed by Landlord) and repair all
damage to the Premises caused by such removal.  All of Tenant's Personal
Property, including moveable furniture, trade fixtures, and equipment not
attached to the Building or the Premises, shall be completely removed by Tenant
prior to the expiration of the Term or earlier termination of the Lease.  Tenant
shall repair all damage caused by such removal prior to the expiration or
earlier termination of the Lease.  Any of Tenant's Personal Property not so
removed shall, at the option of Landlord, automatically become the property of
Landlord.  Thereafter, Landlord may retain or dispose of, in any manner
permitted by applicable law, any Tenant's Personal Property not so removed,
without any liability or compensation to Tenant.

     7.6  Alterations by Landlord.  Landlord shall, at its expense, make any
          -----------------------                                           
alterations to the Building or the Project relative to any of the following: (a)
compliance with exterior path-of-travel access requirements under the Americans
with Disabilities Act of 1990; (b) correction of latent or structural defects;
and (c) removal, encapsulation or other remediation of asbestos or other
Hazardous 

                                       26
<PAGE>
 
Materials from the Premises. Except as specifically set forth in this lease, in
no event shall any payments owed by Tenant under the Lease be abated, nor shall
Landlord have any liability for interruption or interference to Tenant's
business, on account of Landlord's failure to make repairs under this Paragraph
7.6.

8.   TENANT'S REPAIRS.

     Subject to Landlord's obligations in Paragraph 10.1 below, Tenant shall, at
Tenant's sole cost and expense, keep the non-structural, non-Base Building and
non-"Premises Systems" (as that term is defined in Paragraph 10.1 below)
portions of the Premises in good and sanitary condition and repair at all times
during the Term.  All damage, injury or breakage to any part or portion of the
Premises or the Building or the Project caused by the willful misconduct or
negligent act or omission of Tenant or Tenant's agents, contractors, employees,
licensees, directors, officers, partners, trustees, visitors or invitees
(collectively, "Tenant's Employees") shall be promptly repaired by Tenant to the
satisfaction of Landlord at Tenant's sole cost and expense and pursuant to the
provisions of Paragraph 7.3 above (collectively, the "Repairs") (except to the
extent the cost of such Repairs are covered by insurance carried or required to
be carried by Landlord pursuant to the terms of this Lease).  Upon reasonable
advance notice to Tenant, Landlord may make any Repairs which are not made by
Tenant within a reasonable amount of time (except in the case of emergency when
such Repairs can be made immediately), and charge Tenant for the cost of such
Repairs.  Tenant shall be solely responsible for the design and function of all
of Tenant's Extra Improvements whether or not installed by Landlord at Tenant's
request.  Except as specifically set forth in this Lease, Tenant waives all
rights to make any Repairs at Landlord's cost, or to deduct the cost of such
Repairs from any payment owed to Landlord under the Lease.

                                       27
<PAGE>
 
9.   NO LIENS.

     Tenant shall at all times keep the Premises, the Building and the Project
free from any liens arising out of any work performed or allegedly performed,
materials furnished or allegedly furnished or obligations incurred by or on
behalf of Tenant.  At any time Tenant either desires or is required to make any
Alterations or Repairs which cost One Hundred Thousand Dollars ($100,000.00) or
more, Landlord may require Tenant, at Tenant's sole cost and expense, to obtain
and provide to Landlord a completion and/or performance bond in a form and by a
surety acceptable to Landlord and in amount not less than one and one-half 
(1-1/2) times the estimated cost of such Alterations or Repairs to insure
Landlord against liability from mechanics' and materialmen's liens and to insure
completion of the work and may also require such additional items or assurances
as Landlord in its sole discretion may deem reasonable or desirable; provided,
however, that Tenant shall not be required to obtain such bonds so long as
Tenant maintains a net worth of at least One Hundred Twenty-Five Million Dollars
($125,000,000.00), as shown on Tenant's annual report to its shareholders and
Tenant's Form 10Q statement filed quarterly with the Securities and Exchange
Commission. Tenant agrees to indemnify and hold Landlord and the Indemnified
Parties harmless from and against any and all claims for mechanics',
materialmen's or other liens in connection with any Alterations, Repairs, or any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant. Landlord reserves the right to enter the Premises for the purpose of
posting such notices of non-responsibility as may be permitted by law or desired
by Landlord.

10.  LANDLORD'S REPAIRS.

     10.1 Scope of Landlord's Repairs.  Landlord shall, as part of Operating
          ---------------------------                                       
Expenses to the extent permitted under Paragraph 4 of this Lease, operate,
improve, lease, manage and maintain the Building, Base Building, Common Areas,
and the Parking Facilities in accordance with all governmental laws, rules and
regulations in a manner consistent with Class "A" buildings located in the
vicinity of the Building.  Landlord shall maintain and repair all of the
following in order to keep them in proper working order, condition and repair,
except for non-insured damage or wear and tear which is the result of willful
misconduct or negligent acts or omissions by Tenant or Tenant's Affiliates: (i)
the structural elements and the public and common areas of the Building as the
same may exist from time to time; (ii) the Base Building; (iii) the Building
Systems located outside the Premises; (iv) the systems, equipment and facilities
located in the Premises which are either above the drop ceiling or constitute
electrical facilities (the "Premises Systems"); (v) the Building's
telecommunications system; (vi) the Building's exterior roof structure and
membrane; and (vii) the existing in-wall plumbing and underground sewer lines
serving the Premises.  Landlord shall have no obligation to make repairs under
this Paragraph 10 until a reasonable time after receipt of written notice of the
need for such repairs has elapsed.  Except as otherwise set forth in this Lease,
in no event shall any payments owed by Tenant under the Lease be abated, nor
shall Landlord have any liability for interruption or interference to Tenant's
business on account of Landlord's failure to make repairs under this Paragraph
10.

     10.2 Landlord's Right of Entry to Make Repairs.  Landlord and Landlord's
          -----------------------------------------                          
Employees (as defined in Paragraph 14.1 below) shall have the right to enter the
Premises at all reasonable times for 

                                       28
<PAGE>
 
the purpose of making any alterations, additions, improvements or repairs to the
Premises or the Building as Landlord may deem necessary or desirable, without
liability or compensation to Tenant, except in emergencies or as otherwise
specifically set forth in this Lease; provided, however, that any such entry
shall be accomplished after business hours, as expeditiously as reasonably
possible and in a manner so as to cause as little interference to Tenant as
reasonably possible.

     10.3 Tenant's Right to Perform Landlord's Maintenance Obligations.  At all
          ------------------------------------------------------------         
times during which Tenant is the lessee of one hundred percent (100%) of the
Building pursuant to this Lease, Tenant shall have the rights set forth in this
Paragraph 10.3 with respect to the Building.  The rights set forth herein shall
not apply to the Option A Space, the Option B Space, or any other portion of the
Project outside of the Building which may be leased by Tenant from time to time
pursuant to this Lease.

          (a) General Action.  Tenant may provide Landlord with written notice
              --------------                                                  
(the "Repair Notice") of any event or circumstance which pursuant to the terms
of this Lease requires Landlord to repair, alter, improve and/or maintain the
Premises (a "Required Action").  Landlord shall provide the Required Action
within the time period required by this Lease, or, if no specific time period is
specified in this Lease, Landlord shall commence the Required Action within a
reasonable time (not to exceed ten (10) days) after the date of Landlord's
receipt of the Repair Notice (the "Notice Date"), and shall complete the
Required Action within thirty (30) days after the Notice Date; provided that if
the nature of the Required Action is such that the same cannot reasonably be
completed within a thirty (30) day period, Landlord's time period for completion
shall not be deemed to have expired if Landlord diligently commences such cure
within such period and thereafter diligently proceeds to rectify and complete
the Required Action, as soon as possible).  If Landlord fails to commence or
complete the Required Action within the applicable time periods, then upon
Tenant's delivery to Landlord of a second written notice specifying that Tenant
is taking the Required Action (the "Second Notice"), Tenant may proceed to take
the Required Action.

          (b) Emergency Action.  Notwithstanding the foregoing, (i) if there
              ----------------                                              
exists an emergency such that the Premises or a portion thereof are rendered
untenantable, and (ii) if Tenant's personnel are forced to vacate the Premises
or such portion thereof due to the emergency, and (iii) if Tenant gives the
Building's management office notice (the "Emergency Notice") of Tenant's
intention to take action with respect thereto (the "Necessary Action"), and (iv)
if the Necessary Action is also a Required Action, and (v) if Landlord does not
commence the Necessary Action within one (1) business day after the Emergency
Notice (the "Emergency Cure Period") and thereafter use its best efforts and due
diligence to complete the Necessary Action as soon as possible, then Tenant may
take the Necessary Action.  To the extent Tenant is entitled to recover damages
from Landlord by reason of Landlord's failure timely to commence and/or complete
the Necessary Action, Tenant's damages may include, without limitation, the
fully documented, reasonable costs incurred in any temporary relocation of
Tenant's personnel previously located in such untenantable space which shall
have occurred, including by way of example only, higher rent, broker's
commissions, fees of consultants and other reasonable costs of temporarily
moving to other premises.

                                       29
<PAGE>
 
          (c) Restrictions on Action.  If any Necessary Action will affect the
              ----------------------                                          
Building Systems, the structural integrity of the Building, or the exterior
appearance of the Building, Tenant shall use only those contractors used by
Landlord in the Building for work on the Building Systems, or its structure, and
Landlord shall provide Tenant (when available and upon Tenant's request) with
notice identifying such contractors and any changes to the list of such
contractors, unless such contractors are unwilling or unable to perform such
work or the cost of such work is not competitive, in which event Tenant may
utilize the services of any other qualified contractors which normally and
regularly performs similar work in the Comparable Buildings except for any
contractors who Landlord specifically notifies Tenant in writing within five (5)
business days of Landlord's receipt of a Repair Notice or within one (1)
business day of Landlord's receipt of an Emergency Notice that Tenant may not
use for such work (which notice shall specify the commercially reasonable
reasons for Landlord's not allowing Tenant to use such contractor.)

          (d) Reimbursement for Action.  If any Required Action or Necessary
              ------------------------                                      
Action is taken by Tenant pursuant to the terms of this Paragraph 10.3, then
Landlord shall reimburse Tenant for its reasonable and documented costs and
expenses in taking the Required Action or Necessary Action within thirty (30)
days after receipt by Landlord of an invoice from Tenant which sets forth a
reasonably particularized breakdown of its costs and expenses in connection with
taking the Required Action or Necessary Action on behalf of Landlord (the
"Repair Invoice").  In the event Landlord does not reimburse Tenant for the
Repair Invoice within thirty (30) days of receipt, then Tenant may deduct from
the next Rent payable by Tenant under this Lease, the amount set forth in the
Repair Invoice plus interest at the Interest Rate (the "Offset Right").
Notwithstanding the foregoing, if Landlord delivers to Tenant within thirty (30)
days after receipt of the Repair Invoice, a written objection to the payments of
such invoice, setting forth with reasonable particularity Landlord's reason for
its claim that the Required Action or Necessary Action did not have to be taken
by Landlord pursuant to the terms of this Lease or that Tenant breached the
terms of this Paragraph 10.3, or that the charges are excessive (in which case
Landlord shall pay the amount it contends would not have been excessive), then
Tenant shall not be entitled to deduct such amount from Rent, but the dispute
may be submitted to arbitration in accordance with the terms of Paragraph 5 of
this Lease for resolution.

11.  BUILDING SERVICES.

     11.1 Standard Building Services.  Landlord shall furnish the Premises with
          --------------------------                                           
such standard building services and utilities as set forth in Exhibit "G".

     11.2 Building HVAC System.  Subject to all governmental rules, regulations
          --------------------                                                 
and guidelines applicable thereto, Landlord shall provide heating, ventilating
and air conditioning ("HVAC") from Monday through Friday, during the period from
7 a.m. to 6 p.m. and on Saturday during the period from 9 a.m. to 1 p.m., except
for the date of observation of the Holidays (the "normal business hours").
Landlord shall cause the HVAC equipment in the Building (the "Building HVAC
System") to perform in accordance with the HVAC specifications attached to this
Lease as Exhibit "H" (the "HVAC Specifications") at all times that HVAC is
required to be provided under this Lease.  Landlord shall also cause the
Building HVAC System and indoor air quality of the Common Areas within the
Building 

                                       30
<PAGE>
 
and the Premises to meet for the entire Term and any periods of occupancy of the
Premises or any part thereof by Tenant prior to the Commencement Date the
standards set forth in Standard 62-1989 ("Ventilation for Acceptable Indoor Air
Quality"), including both the requirements of the Ventilation Rate Procedure and
Indoor Air Quality Procedure and the maintenance requirements, recommendations
and guidelines contained therein, promulgated by the American Society of
Heating, Refrigerating and Air Conditioning Engineers ("ASHRAE"), and any laws,
ordinances, rules or regulations now in effect or hereafter promulgated by any
governmental authority having jurisdiction over the Building or persons
occupying or working in the Building relating to office building indoor air
quality (collectively, the "Indoor Air Quality Standard"). In the event the
indoor air quality of the Premises or the Building Common Areas does not meet
the Indoor Air Quality Standard, such condition shall be referred to as a "Sick
Building," and in addition to any other obligations or liabilities of Landlord
and rights and remedies of Tenant with respect thereto, the terms of Paragraph
11.5 below shall apply. In the event that the Indoor Air Quality Standard is
subsequently modified, Tenant shall have the right to require Landlord to modify
the Building HVAC System, at Tenant's sole expense, to comply with such modified
Indoor Air Quality Standard. Tenant shall have the right, at Tenant's sole
expense, to install, maintain and replace a private HVAC system or systems (the
"Tenant HVAC System") separate from the Building HVAC System, in Tenant's
computer rooms, user rooms and other areas contained wholly within the Premises,
provided that such Tenant HVAC System does not materially interfere with the
operation, maintenance, or replacement of the Building HVAC System; provided,
however, that if the Tenant HVAC System does materially interfere with the
Building HVAC System, Tenant shall, so long as Tenant does not materially
interfere with the use or enjoyment of other tenants of their premises, have the
option, at its sole cost and expense, to alter the Building HVAC System (subject
to Tenant's compliance with the provisions of Paragraph 7 above), so long as the
Building HVAC System continues to operate at materially the same performance
level prior to such material interference by the Tenant HVAC System.

     11.3 After-Hours HVAC.  Tenant agrees to pay Landlord the sum of Two
          ----------------                                               
Dollars and Seventeen Cents ($2.17) per operating hour per unit for HVAC
services which are provided to the Premises at Tenant's request during hours
other than the "normal business hours" identified in Paragraph 11.2 above.

     11.4 Landlord's Right To Cease Providing Services.  Landlord reserves the
          --------------------------------------------                        
right in its reasonable discretion to temporarily interrupt, reduce or cease
service of the heating, air conditioning, ventilation, elevator, plumbing,
electrical, or telephone systems and/or utilities to the Premises, the Building
or the Project, for any or all of the following reasons or causes:

          (a)  any accident, emergency, governmental regulation, or act of God,
including, but not limited to, any cause set forth in Paragraph 29 below; or

          (b)  the making of any repairs, additions, alterations or improvements
to the Premises or the Building until said repairs, additions, alterations or
improvements shall have been completed (provided, however, that the same shall
be accomplished as expeditiously as reasonably possible and in a manner so as to
cause as little interference to Tenant as reasonably possible, and to the extent

                                       31
<PAGE>
 
possible shall be conducted after normal business hours).

     No such interruption, reduction or cessation of any such building services
or utilities shall constitute an eviction or disturbance of Tenant's use or
possession of the Premises or Building, or an ejection of Tenant from the
Premises, or a breach by Landlord of any of its obligations, or render Landlord
liable for any damages, including but not limited to any damages, compensation
or claims arising from any interruption or cessation of Tenant's business, or
entitle Tenant to be relieved from any of its obligations under the Lease, or
result in any abatement of Rent (except as specifically set forth in this
Lease).  In the event of any such interruption, reduction or cessation, Landlord
shall use reasonable diligence to restore such service where it is within
Landlord's reasonable control to do so.

     11.5 Tenant's Rights Upon Interruption of Services.  Tenant shall have the
          ---------------------------------------------                        
rights set forth in this Paragraph 11.5 if Tenant is prevented from using the
Premises or any portion thereof (the "Affected Area") to conduct its normal
business operations, and does not, in fact, use the Affected Area for a period
of three (3) consecutive business days or more, due to any of the following
events (collectively, the "Abatement Events"): (i) Landlord's failure to provide
passenger elevator service, janitorial service, HVAC, electricity or water
(collectively, the "Essential Services") to the Affected Area as required by
this Lease, except where such failure is caused by an event described in
Paragraph 29 below; (ii) Landlord's provision to the Affected Area of Essential
Services at a quality level which is materially below that which Landlord is
required to provide under the terms of this Lease, except where the provision of
Essential Services at such reduced level is caused by an event described in
Paragraph 29 below; (iii) the presence, in a form or concentration in violation
of applicable law then in effect, of Hazardous Materials regarded as unhealthful
under applicable regulations then in effect in or about the Premises (which
Hazardous Materials were not brought onto the Premises by Tenant or Tenant's
Affiliates); or (iv) a Sick Building condition which results from Landlord's
failure to maintain the Building HVAC System as required by Paragraph 11.2
above.

          (a) Tenant's Abatement Rights.  Upon the occurrence of an Abatement
              -------------------------                                      
Event, Tenant shall have the right to deliver written notice to Landlord
identifying the Abatement Event and requesting that Landlord immediately cure
the Abatement Event ("Cure Notice").  If Landlord fails to cure the Abatement
Event within two (2) business days after delivery of the Cure Notice, then Rent
applicable to the Affected Area shall be abated from the date which occurs three
(3) full business days prior to delivery to Landlord of the Cure Notice until
the date when such Abatement Event is cured; provided, however, that if Tenant
has previously paid Rent to Landlord for a period of time subsequent to the
commencement of Tenant's right to abate Rent hereunder, then Landlord shall,
within ten (10) business days following the date of such abatement, reimburse to
Tenant the amount of such excess payments, or Tenant, in addition to its other
remedies under this Lease, shall have the right to offset an amount equivalent
to such excess payments against the sums next due under this Lease.

          (b) Tenant's Termination Rights.  If any Abatement Event shall not be
              ---------------------------                                      
cured within one hundred eighty (180) days after Landlord's receipt of the Cure
Notice, then Tenant, upon notice to Landlord (the "Services Termination Notice")
after the expiration of such one hundred eighty (180) day period (the
"Termination Cure Period"), may terminate this Lease either as to (i) the
Affected 

                                       32
<PAGE>
 
Area, or (ii) if the Affected Area constitutes more than twenty-five percent
(25%) of the Premises, the entire Premises. Termination of the Lease with
respect to the Affected Area shall be effective upon the expiration of the
Termination Cure Period, in which case this Lease shall be amended to reflect
that the Affected Area is no longer a part of the Premises and the Rent payable
hereunder by Tenant shall be adjusted accordingly. Termination of the remainder
of the Premises hereunder shall be effective upon the latter of the date
specified in the Services Termination Notice or the date of Tenant's actual
vacation of the Premises; provided, however, that such termination shall in no
event be later than two (2) years after the date of delivery of the Services
Termination Notice. Notwithstanding the foregoing, the Termination Cure Period
shall be extended (for a period not to exceed an additional one hundred eighty
(180) days) by one day for each day that Landlord's cure of the Abatement Event
is delayed by an event described in Section 29 below, if Landlord offers to
provide (by no later than thirty (30) days prior to the expiration of the
original Termination Cure Period) suitable temporary replacement space
reasonably acceptable to Tenant in the Project and if such replacement space is
delivered to Tenant prior to the end of the original Termination Cure Period.

     11.6 Tenant's Right to Manage the Building.  Notwithstanding the provisions
          -------------------------------------                                 
of Paragraph 11.1 above, as long as Tenant occupies one hundred percent (100%)
of the Rentable Area of the Building, Tenant shall have the right to
professionally manage the Building itself pursuant to the terms of this
Paragraph 11.6, provided that Landlord shall still be required to perform its
obligations under this Lease which are unrelated to the management of the
Building.  In doing so, Tenant shall be responsible for providing or contracting
for the provision of only those services which affect the interior of the
Building and Tenant's usage thereof, and which do not impact the exterior of the
Building or the use or operation of portions of the Project other than the
Building.  All janitorial, trash removal, maintenance, HVAC, elevator, plumbing,
electrical and internal security services provided or contracted for by Tenant
hereunder shall be performed in a materially consistent manner with the
specifications set forth on Exhibit "G" hereto.  At any time during which Tenant
manages the Building pursuant to this Paragraph, Tenant may establish operating
hours which are different from the "Normal Hours" specified in Paragraph 1 of
Exhibit "G" attached hereto.


12.  ASSIGNMENT AND SUBLETTING.

     12.1 Right to Assign or Sublease.  Landlord and Tenant recognize and
          ---------------------------                                    
specifically agree that this Paragraph 12 is an economic provision, like Rent,
and that the Landlord's right to recapture the Premises and/or share in any
profits due to an assignment or sublease, was granted by Tenant to Landlord in
consideration of certain other economic concessions granted by Landlord to
Tenant.  Only upon Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned and shall be granted only under
the circumstances as provided in this Paragraph 12, Tenant may assign its
interest in this Lease or in the Premises, or sublease all or any part of the
Premises, or allow any other person or entity to occupy or use all or any part
of the Premises.  Any purported assignment or sublease without Landlord's prior
written consent shall be voidable at the election of Landlord, and shall
constitute an Event of Default (as defined in Paragraph 17.1 below).  No consent
to one assignment or sublease shall constitute a waiver of the provisions of
this Paragraph 12, with 

                                       33
<PAGE>
 
respect to another assignment or sublease.

     12.2 Procedure For Assignment or Sublease.  Tenant shall provide written
          ------------------------------------                               
notice to Landlord of:  (i) Tenant's intent to assign this Lease or sublease all
or any part of the Premises, (ii) the name of the proposed assignee or
sublessee, (iii) evidence reasonably satisfactory to Landlord that such proposed
assignee or sublessee is comparable in reputation, stature and financial
condition to the other tenants then leasing comparable space in the Building,
and (iv) the terms of the proposed assignment or sublease.  Landlord shall,
within twenty (20) days of receipt of such notice and of any additional
information requested by Landlord concerning the proposed assignee's or
sublessee's financial responsibility, elect one or more of the following:

          (a) Consent to such proposed assignment or sublease;

          (b) Refuse such consent, which refusal may be on any reasonable
grounds (including without limitation those specified in Paragraph 12.3 below);
or

          (c) Elect to terminate the Lease in the event of an assignment, or in
the case of a sublease, terminate this Lease as to the portion of the Premises
proposed to be sublet for the proposed term of the sublease; provided, however,
that the rights specified in this Paragraph 12.2(c) shall not be available to
Landlord with respect to any requested assignment or sublease of (i) any portion
of the Building or the "Option A Space" identified in Section 35.1 below,
regardless of the length of Tenant's occupancy thereof, or (ii) any other
portion of the Premises which Tenant has occupied for more than ten (10) years.

Landlord's failure to so elect within such twenty (20) day period shall be
deemed to constitute Landlord's consent to the proposed transfer.

     12.3 Grounds for Landlord's Refusal.  The parties hereby agree that it
          ------------------------------                                   
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed assignment or sublease where one or more of
the following apply, without limitation as to other reasonable grounds for
withholding consent:

          (a) The proposed assignee or subtenant is of a character or reputation
or engaged in a business which is not consistent with the quality of the
Building or Project;

          (b) The proposed assignee or subtenant intends to use the Premises for
purposes which are not permitted under this Lease;

          (c) Tenant marketed the Premises to the proposed assignee or subtenant
at a rental rate which was less than ninety (90%) of the rent which at the time
was being quoted by Landlord for comparable office space in the Project;
provided, however, that nothing in this Paragraph shall prohibit Tenant from
offering or agreeing to assign or sublease any part of the Premises at such a
rental rate, or from disseminating information in good faith to a prospective
transferee where such information 

                                       34
<PAGE>
 
contains such an offer or proposal, and nothing in this Paragraph shall give
Landlord a right to disapprove the proposed assignment or sublease due to such
offer, proposal or agreement. Instead, it is merely the intent of this Paragraph
to give Landlord the right to disapprove a proposed assignment or sublessee in
cases where Tenant advertises the Premises to the general public at a rental
                                           ---------------------
rate which is less than ninety percent (90%) of the rent which is at that time
being advertised by Landlord to the general public for comparable office space
in the Project.

          (d) The proposed assignee or sublessee does not have reasonable
financial worth and/or financial stability in light of the responsibilities
involved under the Lease on the date consent is requested.

     12.4 Conditions Regarding Consent to Sublease and Assignment.
          ------------------------------------------------------- 

          (a) In the event that Landlord shall consent to an assignment or
sublease under the provisions of this Paragraph 12, Tenant shall pay, within
thirty (30) days after written request by Landlord, Landlord's actual processing
costs and actual reasonable attorneys' fees incurred in giving such consent, not
to exceed One Thousand Dollars ($1,000.00) per each floor (or portion thereof)
to which the assignment or sublease pertains.

          (b) Except as provided by Paragraph 12.8 below, notwithstanding any
permitted assignment or sublease, Tenant shall at all times remain directly,
primarily and fully responsible and liable for all payments owed by Tenant under
the Lease and for compliance with all obligations under the terms, provisions
and covenants of the Lease.

          (c) If for any proposed assignment or sublease (other than to an
affiliated entity pursuant to Paragraph 12.6 below), Tenant receives money or
other consideration, either initially or over the term of the assignment or
sublease, in excess of the Base Rent required by this Lease, or, in the case of
the sublease of a portion of the Premises, in excess of such Base Rent fairly
allocable to such portion, after appropriate adjustments to assure that all
other payments called for hereunder are taken into account, Tenant shall pay to
Landlord as additional Rent, fifty percent (50%) of the excess of each such
payment of money or other consideration received by Tenant within thirty (30)
days of its receipt.  In the event the sublessee or assignee makes such payment
directly to Landlord, Landlord shall refund fifty percent (50%) of the amount to
Tenant.  In calculating the amount of any such excess, Tenant shall first be
entitled to deduct from the total consideration received by it in connection
with such assignment or sublease all costs reasonably incurred by Tenant in
connection with the assignment or subleasing, including without limitation (i)
the amount of any Base Rent and Additional Rent paid by Tenant to Landlord with
respect to the subject space during the period commencing on the latter of (A)
the date Tenant contracts with a reputable broker to market the subject space
and (B) the date Tenant vacates the subject space, until the commencement of the
term of the transfer (provided, however, that the total amount deductible by
Tenant hereunder shall not exceed six (6) months of such Base Rent and
Additional Rent), and (ii) reasonable advertising costs, commissions, legal
fees, and construction costs paid by Tenant in connection therewith.

                                       35
<PAGE>
 
          (d) The form of any proposed sublease or assignment agreement must be
reasonably satisfactory to Landlord, must comply with all applicable provisions
of this Lease concerning assignment and subletting, and must evidence the
agreement of the proposed assignee or sublessee to faithfully perform all of
Tenant's duties and obligations under this Lease.

          (e) Without limiting the generality of the foregoing paragraph, the
form of any proposed sublease or assignment must contain a provision requiring
Landlord, Tenant and the subtenant or assignee to hold the terms of this Lease
and the assignment or sublease in strict confidence, and to not make any private
disclosure, public announcement or other communication with respect thereto
without the prior consent of the other parties, subject only to the right of the
parties to (i) make reasonable disclosures to their attorneys, accountants and
business advisors in connection with the assignment or sublease, (ii) disclose
any information required by law, and (iii) disclose any information necessary in
connection with the issuance of the parties' (or their affiliates') financial
statements.

     12.5 Duration of Landlord's Consent.  If Landlord consents to any proposed
          ------------------------------                                       
assignment or sublease pursuant to the terms of this Paragraph 12, Tenant may
within six (6) months after Landlord's consent, but not later than the
expiration of said six-month period, enter into such assignment or sublease upon
substantially the same terms and conditions as those to which Landlord
consented, provided that if there are any material changes in those terms and
conditions (i) such that Landlord would initially have been entitled to refuse
its consent to such assignment or sublease under this Paragraph 12, or (ii)
which would cause the proposed assignment or sublease to be materially different
from the terms upon which Landlord's consent was based, then Tenant shall again
submit the request for consent to Landlord for its approval and other action
under this Paragraph 12.

     12.6 Assignment to Affiliates.  Notwithstanding anything to the contrary
          ------------------------                                           
contained in this Paragraph 12, Landlord's consent shall not be required for an
assignment or subletting of all or a portion of the Premises to any of the
following, provided that Tenant notifies Landlord of any such assignment or
sublease prior to the effective date thereof and promptly supplies Landlord with
any documents or information requested by Landlord regarding such assignment or
sublease or such assignee or sublessee, and further provided that such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease:  (i) any entity which is controlled by, controls, or is under
common control with Tenant; (ii) any purchaser of substantially all of Tenant's
assets or stock; (iii) any entity resulting from a consolidation or merger with
Tenant; or (iv) any attorney retained by Tenant under an "of counsel"
arrangement.  "Control," as used in this Paragraph 12.6, shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity, or ownership of any sort,
whether through the ownership of voting securities, by contract or otherwise.

     12.7 Landlord's Right to Assign.  Landlord shall have the right from time
          --------------------------                                          
to time to sell, encumber, convey, transfer, and/or assign any of its rights and
obligations under the Lease.

     12.8 Release of Tenant.  Notwithstanding the provisions of Paragraph
          -----------------                                              
12.4(c) above, 

                                       36
<PAGE>
 
Landlord shall release Tenant from liability under the Lease for obligations
accruing after any assignment to which Landlord specifically consents in writing
of Tenants interest in the if, prior to Landlord's consent to the assignment,
Tenant provides Landlord with financial statements certified by an independent
certified public accountant in accordance with generally accepted accounting
principals that are consistently applied which demonstrate to Landlord's
satisfaction that (a) the assignee has a tangible net worth of One Hundred
Twenty-Five Million Dollars ($125,000,000.00), increased in proportion to any
increases in the Index between the date of this Lease to the date of Landlord's
consent to the assignment, and (b) the assignee has adequate cash flow to meet
its obligations to pay Rent under this Lease. If the assignment pertains only to
a portion of the Premises, then the release given hereby shall pertain only to
obligations relative to said assigned portion.

     12.9 Landlord's Recognition of Transfers Upon Lease Termination.  Tenant
          ----------------------------------------------------------         
may request, as part of its notice under Paragraph 12.1 above, that a subtenant
of at least one full floor of the Building receive a recognition agreement (the
"Recognition Agreement") from Landlord which provides that in the event this
Lease is terminated, Landlord shall recognize the sublease (the "Transfer") as a
direct lease between Landlord and such subtenant, provided that Landlord shall
only execute a Recognition Agreement with such subtenant under the following
conditions (which conditions must be reflected in the Recognition Agreement):
(i) Landlord shall not be bound by any terms or conditions of the Transfer which
are inconsistent with the terms and conditions of this Lease; provided, however,
the economic terms of such Transfer may be more favorable to Landlord than those
set forth in this Lease; (ii) Landlord shall not be liable for any act or
omission of Tenant; (iii) Landlord shall not be subject to any offsets or
defenses which the subtenant might have as to Tenant or to any claims for
damages against Tenant; (iv) Landlord shall not be required or obligated to
credit the subtenant with any Base Rent, Additional Rent or other Rent paid by
the subtenant to Tenant; (v) Landlord shall be responsible for performance of
only those covenants and obligations of Tenant pursuant to the Transfer accruing
after the termination of this Lease; (vi) the subtenant shall agree, upon
termination of this Lease, to make full and complete attornment to Landlord, as
lessor, pursuant to a written agreement executed by Landlord and the subtenant,
so as to establish direct privity of contract between Landlord and the subtenant
with the same force and effect as though the Transfer was originally made
directly between Landlord and the subtenant; (vii) to the extent that certain
rights granted to Tenant hereunder are specifically conditioned upon the lease
or occupancy by Tenant of all or specified portions of the Building or Premises
(including without limitation building top signage rights and the right to
manage the Building), the subtenant shall be entitled to exercise those rights
only to the extent that the sublease grants the subtenant the right to use the
corresponding percentage of the Building or Premises; (viii) the subtenant shall
not have the release rights set forth in Paragraph 12.8 above, or the self-
insurance rights set forth in Paragraph 14.3(b) below; (ix) the bond
requirements set forth in Paragraph 9 above shall apply to all Alterations or
Repairs, regardless of the cost thereof; and (x) if Landlord enters into more
than one Recognition Agreement which results in the separate subtenants
thereunder having conflicting option rights or rights of first refusal under
this Lease, Landlord shall have the right to equitably allocate said rights
among the subtenants.  Upon Landlord's written request given any time after the
termination of this Lease, the subtenant shall execute a new lease for the space
subject to the applicable Transfer upon the same terms and conditions as set
forth in the Recognition Agreement.

                                       37
<PAGE>
 
13.  SUBSTITUTED PREMISES.

     Landlord shall have no right to substitute the Premises for any other
office space in the Project or elsewhere.

14.  INDEMNIFICATION; INSURANCE.

     14.1 Tenant's Indemnification of Landlord.  Tenant shall at its sole cost
          ------------------------------------                                
and expense defend, protect, indemnify, and hold Landlord and Landlord's agents,
contractors, licensees, employees, directors, officers, partners, lenders,
trustees and invitees (collectively, the "Landlord's Employees") harmless from
and against any and all "Claims" (defined below) arising out of or in connection
with the use of the Premises or the Building by Tenant, by any of Tenant's
Employees, or by any member of the "Tenant's Group" (defined in Paragraph 14.2
below), the conduct of Tenant's business, any activity, work or things done,
permitted or allowed by Tenant in or about the Premises or the Building, the
nonobservance or nonperformance by Tenant of any of its obligations under the
terms of this Lease (including without limitation obligations to comply with
Legal Requirements), or any wilful misconduct or negligent act or omission of
Tenant or Tenant's Employees; provided, however, that the terms of the foregoing
indemnity shall not apply to the negligence or willful misconduct of Landlord or
Landlord's Employees or to claims to the extent such claims are covered by
insurance carried (or required to be carried) by Landlord pursuant to the terms
of this Lease.  As used herein, the term "Claims" means any and all actions,
agreements, attorneys' fees, causes of action, claims, contracts, costs,
covenants, damages, debts, demands, expenses, judgments, lawsuits, liabilities,
liens, losses, obligations, orders, and rights.  Should Landlord be named as a
defendant in any suit involving a Claim for which Tenant is obligated to defend
Landlord under this Paragraph 14.1, Tenant shall pay to Landlord Landlord's
costs and expenses incurred in such suit, including without limitation, its
actual professional fees such as appraisers', accountants' and attorneys' fees.
The provisions of this Paragraph 12.1 shall survive the expiration or sooner
termination of this Lease.

     14.2 Landlord's Indemnification of Tenant.  Landlord shall at its sole cost
          ------------------------------------                                  
and expense defend, protect, indemnify, and hold Tenant's and Tenant's parent,
subsidiary and affiliated companies, including but not limited to their
respective directors, officers, agents, servants, employees and independent
contractors (collectively, the "Tenant's Group"), harmless from and against any
and all Claims arising out of or in connection with Landlord's use, ownership or
management of the Building or Project, including without limitation: (i) any
default by Landlord in the observance or performance of any of the terms,
covenants or conditions of this Lease on Landlord's part to be observed or
performed; (ii) the use or occupancy of the Building or the Project by Landlord
or any of Landlord's Employees; (iii) the condition of the Building or the
Project, to the extent that maintenance or repair of such condition is the
responsibility of Landlord hereunder; or (iv) any acts, omissions or negligence
of Landlord or Landlord's Employees in, on or about the Building or the Project,
either prior to, during, or after the expiration of the Term.  Notwithstanding
the foregoing, the terms of the indemnification agreement contained in this
Paragraph 14.2 shall not apply to the negligence or willful misconduct of
Tenant, Tenant's Employees or the Tenant's Group, or to claims to the extent
such claims are covered by insurance carried (or required to be carried) by
Tenant pursuant to the terms of this Lease.  Should 

                                       38
<PAGE>
 
Tenant be named as a defendant in any suit involving a Claim for which Landlord
is obligated to defend Tenant under this Paragraph 14.2, Landlord shall pay to
Tenant Tenant's costs and expenses incurred in such suit, including without
limitation, its actual professional fees such as appraisers', accountants' and
attorneys' fees. The provisions of this Paragraph 12.2 shall survive the
expiration or sooner termination of this Lease.

     14.3 Tenant's Insurance.  Tenant shall have the following insurance
          ------------------                                            
obligations:

          (a)   Tenant shall obtain at its sole cost and expense and keep in
full force a policy of Combined Single Limit Bodily Injury and Property Damage
Insurance protecting Landlord and Tenant and Landlord's managing agent and any
lessors and mortgagees (whose names shall have been furnished to Tenant) against
any liability arising out of Tenant's or Tenant's Employees' use, occupancy or
maintenance of the Premises and all areas appurtenant thereto.  Such insurance
shall be primary for any such risk and shall be in an amount not less than Two
Million Dollars ($2,000,000.00) per occurrence.  The policy shall contain cross-
liability endorsements, and shall insure performance by Tenant of the foregoing
indemnity provision of the Lease.  The policy shall provide for notice of
renewal to Landlord not less than thirty (30) days prior to expiration, and
shall provide for notice to Landlord of cancellation thirty (30) days prior to
said cancellation.  The limits of said insurance shall not, however, limit the
liability of Tenant under Paragraph 14.1 above.  Notwithstanding the foregoing,
Tenant shall have the right to self-insure against the liability to be covered
by the policy referenced in this Paragraph 14.3(a), so long as Tenant maintains
a net worth of at least One Hundred Twenty-Five Million Dollars
($125,000,000.00), as shown on Tenant's annual report to its shareholders and
Tenant's Form 10Q statement filed quarterly with the Securities and Exchange
Commission;

          (b)   Tenant shall maintain, at Tenant's sole cost and expense, on all
Tenant's Personal Property, the Tenant Improvements and Tenant's Extra
Improvements, a policy of All Risk insurance inclusive of standard fire and
extended coverage insurance, naming Landlord and Tenant as their interests may
appear, with vandalism and malicious mischief endorsements, to the extent of one
hundred percent (100%) of the full replacement value (as Landlord and Tenant may
reasonably determine from time to time) of Tenant's Personal Property, the
Tenant Improvements and Tenant's Extra Improvements.  Landlord shall not be
required to carry insurance of any kind on Tenant's Personal Property, the
Tenant Improvements or Tenant's Extra Improvements, and Landlord shall not be
obligated to repair any damage thereto or replace the same.  Notwithstanding the
foregoing, Tenant shall have the right to self-insure Tenant's Personal
Property, the Tenant Improvements and the Tenant's Extra Improvements, so long
as Tenant maintains a net worth of at least One Hundred Twenty-Five Million
Dollars ($125,000,000.00), as shown on Tenant's annual report to its
shareholders and Tenant's Form 10Q statement filed quarterly with the Securities
and Exchange Commission.  The right of Tenant to self-insure set forth herein
shall be personal to the original Tenant named herein and may not be assigned or
exercised by any assignee or sublessee;

          (c)   Tenant shall maintain Workers' Compensation and Employer's
Liability insurance as required by law;

                                       39
<PAGE>
 
          (d)   Tenant shall, at its sole cost and expense, maintain any other
types and amounts of insurance as Landlord, its mortgagees, or the trust deed
beneficiaries of Landlord or the ground or underlying lessors of the Land and/or
the Building may reasonably require from time to time in form, in amounts and
for insurance risks against which a prudent Landlord of a Comparable Building
would require; and

          (e)   Tenant shall provide Landlord, prior to the date on which
Landlord delivers possession of the Premises (or any portion thereof) to Tenant
and thereafter as Landlord may reasonably request, certificates issued by the
insurance company which is providing coverage, evidencing compliance with the
above insurance requirements.

     14.4 Landlord's Insurance.
          -------------------- 

          (a) From and after the date hereof until expiration of the Term,
Landlord shall maintain Commercial General Liability Insurance or the equivalent
against claims of bodily injury, personal injury or property damage arising out
of Landlord's operations, assumed liabilities, contractual liabilities, or use
of the Building, Common Areas, and Project and the Parking Facilities (as
defined in Section 31.1 below) located on the Project.  Such coverages shall be
in such amounts, from such companies, and on such terms and conditions, as
Landlord may from time to time reasonably determine; provided, however, that the
coverage amounts (including deductible amounts) carried by Landlord in
connection with the Building, shall, at a minimum, be comparable to the coverage
and amount of insurance carried by the landlords of Comparable Buildings.  The
minimum limits of policies of insurance required of Landlord under this Lease
shall in no event limit the liability of Landlord under this Lease, except as
otherwise provided in this Lease.  At no additional cost to Tenant, Tenant and
its designated affiliates will be named as additional insureds on any and all
policies of liability insurance obtained with respect to the Building, the
Common Areas and the Parking Facilities.

          (b)   Landlord shall have the right to maintain loss of rent insurance
in such amounts as will reimburse Landlord for any Rent which is to be abated
hereunder or otherwise commonly insured against by prudent landlords of
Comparable Buildings.

     14.5 Insurance Policy Requirements.  Each policy of insurance which either
          -----------------------------                                        
party is required to carry hereunder shall be issued by an insurance company
having a rating of not less than A-VII in Best's Insurance Guide or which is
otherwise reasonably acceptable to the parties and, if required by applicable
law, licensed to do business in the State of California.  To the extent that
Landlord or Tenant is named as an additional insured on any such policy, the
policy shall provide that it cannot be cancelled without thirty (30) days'
notice to said additional insured.  Either party shall have the right to examine
any insurance policy and/or certificates thereof maintained by the other party
hereunder at the Building's management office (with respect to those maintained
by Landlord) or the Premises (with respect to those maintained by Tenant) upon
at least five (5) business days prior notice to the Building's management office
or the Premises, as applicable.  In the event that any of the policies of
insurance carried under this Paragraph shall be cancelled by the provider
thereof, the primary insured shall forward a copy of the cancellation notice to
the other party within two (2) business days of the primary 

                                       40
<PAGE>
 
insured's receipt of such notice, and the primary insured shall thereafter
immediately obtain substitute insurance.

     14.6 Assumption of Risk.  Tenant, as a material part of the consideration
          ------------------                                                  
to Landlord, hereby assumes all risk of damage to Tenant's Personal Property or
injury to persons in and upon the Premises or the Building from any cause
(except for damage or injury caused by the gross negligence or willful
misconduct of Landlord) and Tenant hereby waives all such claims against
Landlord.  Landlord and Landlord's Employees shall not be liable for any damage
to any of Tenant's Personal Property entrusted to Landlord or Landlord's
Employees, nor for loss or damage to any of Tenant's Personal Property by theft,
water leakage or otherwise.  Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building.  Landlord hereby
assumes all risk of damage to the Base Building from any cause (except for
damage or injury caused by the gross negligence or willful misconduct of Tenant)
and Landlord hereby waives all such claims against Tenant.

     14.7 Allocation of Insured Risks/Subrogation.  Landlord and Tenant release
          ---------------------------------------                              
each other from any claims and demands of whatever nature for damage, loss or
injury to the Premises or the Building, or to the other's property in, on or
about the Premises or the Building, that are caused by or result from risks or
perils insured against under any insurance policies required by the Lease to be
carried by Landlord and/or Tenant and in force at the time of any such damage,
loss or injury.  Landlord and Tenant shall cause each insurance policy obtained
by them or either of them to provide that the insurance company waives all right
of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by any policy and shall provide each other
with evidence of such appropriate endorsements.  Neither Landlord nor Tenant
shall be liable to the other for any damage caused by fire or any of the risks
insured against under any insurance policy required by the Lease.

15.  DAMAGE OR DESTRUCTION.

     15.1 Loss Covered By Insurance.  If, at any time prior to the expiration
          -------------------------                                          
earlier termination of the Lease, the Premises or the Building or the Project
are wholly or partially damaged or destroyed by a casualty, which casualty
renders the Premises totally or partially inaccessible or unusable by Tenant in
the ordinary conduct of it's business, and the cost of restoring the damage or
destruction does not exceed $500,000 above the aggregate insurance proceeds
available to Landlord, then:

          (a)   If all repairs to such Premises or Building or Project can, in
the judgment of a contractor mutually acceptable to Landlord and Tenant, be
completed within eighteen (18) months following the date of notice to Landlord
of such damage or destruction without the payment of overtime or other premiums,
Landlord shall, at Landlord's expense, repair the same (including the Common
Areas), and shall return the Premises to Tenant in a condition at least equal to
that originally delivered by Landlord to Tenant hereunder (i.e. Landlord shall
repair and deliver the Base Building to Tenant but shall not be responsible to
repair or rebuild the Tenant Improvements or any other improvements shown on the
final working drawings submitted by Tenant to Landlord pursuant to the
Construction Agreement attached hereto as Exhibit "D"), and this Lease shall
remain in full force and 

                                       41
<PAGE>
 
effect and a proportionate reduction of Base Rent shall be allowed Tenant for
such portion of the Premises as shall be rendered inaccessible to or unusable by
Tenant during the period of time that such portion is inaccessible or unusable;
provided, however, that if the Premises are damaged such that the remaining
portion thereof is not sufficient to allow Tenant to conduct its business
therefrom, Landlord shall allow Tenant a total abatement of Rent during the time
and to the extent the Premises are unfit for occupancy for the purposes
permitted under this Lease and not occupied by Tenant as a result of the subject
damage. There shall be no proportionate reduction of Base Rent by reason of less
than fifty percent (50%) of the Premises being unusable or inaccessible for a
period equal to five (5) consecutive business days or less.

          (b)   If all such repairs cannot, as certified by a contractor
mutually acceptable to Landlord and Tenant, be completed within eighteen (18)
months following the date of notice to Landlord of such damage or destruction
without the payment of overtime or other premiums, Landlord may, at Landlord's
sole and absolute option, upon written notice to Tenant given within thirty (30)
days after notice to Landlord of the occurrence of such damage or destruction,
elect to repair such damage or destruction at Landlord's expense, and in such
event, this Lease shall continue in full force and effect but the Base Rent
shall be proportionately reduced as hereinabove provided in Paragraph 15.1(a)
above.  If Landlord does not elect to make such repairs, then either party may,
upon written notice to the other, terminate this Lease.  At any time, from time
to time, after the date occurring thirty (30) days after the date of the damage,
Tenant may request that Landlord inform Tenant of Landlord's reasonable opinion
of the date of completion of the repairs and Landlord shall respond to such
request within twelve (12) business days.

          (c) If any repairs which Landlord elects or is required to make under
this Paragraph 15.1 have not been completed within eighteen (18) months (subject
to extension for the events described in Paragraph 29 below), then Tenant may
terminate this Lease upon thirty (30) days' written notice to Landlord;
provided, however, that if such repairs are completed and (with respect to
repairs to the Premises) delivered to Tenant by the end of said thirty (30) day
period, the termination shall have no effect and this Lease shall continue in
full force.

     15.2 Loss Not Covered By Insurance.  If, at any time prior to the
          -----------------------------                               
expiration or earlier termination of this Lease, the Premises or the Building or
the Project are totally or partially damaged or destroyed by a casualty, and the
dollar amount of the loss to Landlord which is not fully covered by insurance
maintained by Landlord or for Landlord's benefit is greater than or equal to
Five Hundred Thousand Dollars ($500,000.00), which casualty renders the Premises
inaccessible or unusable to Tenant in the ordinary course of its business,
Landlord may, at Landlord's option, upon written notice to Tenant within thirty
(30) days after notice to Landlord of the occurrence of such damage or
destruction, elect to repair or restore such damage or destruction, or Landlord
may elect to terminate this Lease.  If Landlord elects to repair or restore such
damage or destruction, this Lease shall continue in full force and effect but
the Base Rent shall be proportionately reduced as provided in Paragraph 15.1(a)
above.  If Landlord does not elect by notice to Tenant to repair such damage, or
if the damage cannot, as certified by a contractor mutually acceptable to
Landlord and Tenant, be completed within eighteen (18) months following the date
of notice to Landlord of such damage or destruction without 

                                       42
<PAGE>
 
the payment of overtime or other premiums, then either party may, upon written
notice to the other, terminate this Lease; provided, however, that if Landlord
elects to terminate the Lease because the dollar amount of the loss to Landlord
which is not fully covered by said insurance exceeds Five Hundred Thousand
Dollars ($500,000.00), then Tenant may prevent such termination by agreeing,
within thirty (30) days after Landlord's delivery of its termination notice, to
pay (in advance of repairs) the amount of such loss which exceeds Five Hundred
Thousand Dollars ($500,000.00). If any repairs which Landlord elects or is
required to make under this Paragraph 15.2 have not been completed within
eighteen (18) months (subject to extension for the events described in Paragraph
29 below), then Tenant may terminate this Lease upon thirty (30) days' written
notice to Landlord; provided, however, that if such repairs are completed and
(with respect to repairs to the Premises) delivered to Tenant by the end of said
thirty (30) day period, the termination shall have no effect and this Lease
shall continue in full force.

     15.3 Loss Caused by Tenant or Tenant's Employees.  If the Premises or the
          -------------------------------------------                         
Building or the Project are wholly or partially damaged or destroyed as a result
of the willful misconduct or negligence of Tenant or Tenant's Employees, and
Landlord elects to undertake to repair or restore all such damage or
destruction, then (a) this Lease shall continue in full force and effect without
any abatement or reduction in Base Rent or other payments owed by Tenant (except
to the extent Landlord receives proceeds of loss of rent insurance), and (b)
with respect to insured damage, Tenant shall be responsible for the payment of
the deductible and that portion not covered by insurance.

     15.4 Destruction During Final 18 Months.  In the event that the Premises,
          ----------------------------------                                  
the Building or the Project is destroyed or damaged to any substantial extent
during the last eighteen (18) months of the Lease Term, and Tenant has not
previously or within sixty (60) days after the date of the casualty exercised an
available option to extend the Lease Term pursuant to Paragraph 34 of this
Lease, then notwithstanding anything contained in this Paragraph 15, either
Landlord or Tenant shall have the option to terminate this Lease by giving
written notice to the other party of the exercise of such option within sixty
(60) days after such damage or destruction, in which event this Lease shall
cease and terminate as of the date of such notice.  Tenant shall pay the Rent,
properly apportioned up to such date of damage, and both parties hereto shall
thereafter be freed and discharged of all further obligations hereunder, except
as provided for in provisions of this Lease which by their terms survive the
expiration or earlier termination of the Lease Term.

     15.5 Destruction of Tenant's Personal Property, Tenant Improvements or
          -----------------------------------------------------------------
Tenant's Extra Improvements.  In the event of any damage to or destruction of
---------------------------                                                  
the Premises or the Building or the Project, under no circumstances shall
Landlord be required to repair any injury, or damage to, or make any repairs to
or replacements of, Tenant's Personal Property, the Tenant Improvements, or
Tenant's Extra Improvements.  Landlord shall have no responsibility for any
property placed or kept in or on the Premises or the building or the Project by
Tenant or Tenant's Employees.

     15.6 Exclusive Remedy.  This Paragraph 15 shall be Tenant's sole and
          ----------------                                               
exclusive remedy in the event of damage or destruction to the Premises or the
Building or the Project, and Tenant, as a material inducement to Landlord to
enter into this Lease, irrevocably waives and releases Tenant's 

                                       43
<PAGE>
 
rights under California Civil Code Sections 1932 and 1933. No damages,
compensation or claim shall be payable by Landlord for any inconvenience,
interruption or cessation of Tenant's business, or for any annoyance, arising
from any damage to or destruction of all or any portion of the Premises or the
Building or the Project.

16.  EMINENT DOMAIN.

     16.1 Permanent Taking - When Lease Can Be Terminated.  If the whole of the
          -----------------------------------------------                      
Premises, or so much of the Premises as to render the balance unusable by
Tenant, shall be taken under the power of eminent domain, or if any such taking
substantially impairs access to the Premises, then (a) in the case of total
taking, the Lease shall automatically terminate as of the date of final judgment
in such condemnation, or as of the date possession is taken by the condemning
authority, whichever is earlier, and (b) in the case of partial taking, Tenant
shall have he option to terminate this Lease upon one hundred eighty (180) days'
notice, provided such notice is given no later than thirty days after the date
of such taking.  A sale by Landlord under threat of condemnation shall
constitute a "taking" for the purpose of this Paragraph 16.  Landlord shall be
entitled to the entire award or payment in connection with the taking of the
Building and the leasehold estate, except that (i) Tenant shall have the right
to file any separate claim available to Tenant for any taking of Tenant's
Personal Property, for interruption of or damage to Tenant's business, or for
Tenant's unamortized cost of the Tenant Improvements paid for by Tenant, so long
as such claim is separately payable to Tenant, and (ii) Tenant shall be entitled
to receive fifty percent (50%) of the "Bonus Value" of the leasehold estate in
connection with this Lease, which Bonus Value shall be equal to the sum paid by
the condemning authority as the award for compensation for taking the leasehold
created by this Lease.  All Rent shall be apportioned as of the date of such
termination, or the date of such taking, as appropriate.  If any part of the
Premises shall be taken, and this Lease shall not be so terminated, the Rent
shall be proportionately abated.

     16.2 Permanent Taking - When Lease Cannot Be Terminated.  In the event of a
          --------------------------------------------------                    
partial taking which does not result in a termination of the Lease, Base Rent
shall be proportionately reduced based on the portion of the Premises rendered
unusable, and Landlord shall restore the Premises or the Building to the extent
of available condemnation proceeds.

     16.3 Temporary Taking.  No temporary taking of the Premises or any part of
          ----------------                                                     
the Premises and/or of Tenant's rights to the Premises or under this Lease shall
terminate this Lease or give Tenant any right to any abatement of any payments
owed to Landlord pursuant to this Lease; any award made to Tenant by reason of
such temporary taking shall belong entirely to Tenant.

     16.4 Exclusive Remedy.  This Paragraph 16 shall be Tenant's sole and
          ----------------                                               
exclusive remedy in the event of a taking or condemnation.  Tenant hereby waives
the benefit of California Civil Procedure Code Section 1265.130.

     16.5 Release Upon Termination.  Upon termination of the Lease pursuant to
          ------------------------                                            
this Paragraph 16, Tenant and Landlord hereby agree to release each other from
any and all obligations and liabilities with respect to the Lease except such
obligations and liabilities which arise or accrue prior to such 

                                       44
<PAGE>
 
termination.

17.  DEFAULTS.

     17.1 Default by Tenant.  Each of the following shall be an "Event of
          -----------------                                              
Default" by Tenant and a material breach of the Lease:

          (a)   Tenant shall fail to make any payment owed by Tenant under the
Lease, as and when due, and where such failure is not cured within five (5)
business days after written notice to Tenant.  Such five (5) business day notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 of the California Code of Civil Procedure.

          (b) Tenant shall fail to observe, keep or perform any of the terms,
covenants, agreements or conditions under the Lease that Tenant is obligated to
observe or perform, other than that described in Paragraph 17.1(a) above, for a
period of thirty (30) days after notice to Tenant of said failure; provided
however, that if the nature of Tenant's default is such that more than thirty
(30) days are reasonably required for its cure, then Tenant shall not be deemed
to be in default under the Lease if Tenant shall commence the cure of such
default so specified within said thirty (30) day period and diligently
prosecutes the same to completion.  Such thirty (30) day notice shall be in lieu
of, and not in addition to any notice required under Section 1161 of the
California Code of Civil Procedure.

     17.2 Default by Landlord.  Landlord shall not be in default in the
          -------------------                                          
performance of any obligation required to be performed under this Lease unless
Landlord has failed to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days is required for its performance, Landlord shall
not be deemed in default if Landlord shall commence such performance within
thirty (30) days and thereafter diligently pursues the same to completion.
Tenant shall have no rights as a result of any default by Landlord until Tenant
gives thirty (30) days written notice to any person who has a recorded interest
pertaining to the Building, specifying the nature of Landlord's default.  Such
person shall then have the right to cure such default, and Landlord shall not be
deemed in default if such person cures such default within thirty (30) days
after receipt of notice of the default, or within such longer period of time as
may reasonably be necessary to cure the default.  If Landlord or such person
does not cure the default, Tenant may exercise such rights or remedies or shall
be provided or permitted by law to recover any damages proximately caused by
such default.  Notwithstanding anything to the contrary in the Lease, Landlord's
liability to Tenant for damages resulting from Landlord's breach of any
provision or provisions of the Lease shall not exceed the value of Landlord's
equity interest in the Project.  Neither Landlord nor Landlord's Employees shall
have any personal liability for any matter in connection with this Lease or its
obligation as Landlord of the Premises.  Tenant shall not institute, seek or
enforce any personal or deficiency judgment against Landlord or Landlord's
Employees, and none of their property shall be available to satisfy any judgment
hereunder.  Except as specifically set froth in this Lease, Tenant hereby waives
and relinquishes any right which Tenant may have to terminate this Lease or
withhold any payment owed by Tenant under the Lease, on account of any damage,
condemnation, destruction 

                                       45
<PAGE>
 
or state of disrepair of the Premises (including, without limiting the
generality of the foregoing, those rights under California Civil Code Sections
1932, 1933, 1941, 1941.1 and 1942).

18.  LANDLORD'S REMEDIES AND RIGHTS.

     18.1 Termination of Lease.  Upon an Event of Default by Tenant, the
          --------------------                                          
Landlord shall have the right, in addition to all other rights available to
Landlord under this Lease or now or later permitted at law or in equity, to
terminate this Lease by providing Tenant with a notice of termination.  Upon
termination, Landlord may recover any damages proximately caused by Tenant's
failure to perform under the Lease, or which are likely in the ordinary course
of business to be incurred, including any amount expended or to be expended by
Landlord in and effort to mitigate damages, as well as any other damages to
which Landlord is entitled to recover under any statute now or later in effect.
Landlord's damages include the worth, at the time of any award, of the amount by
which the unpaid Rent for the balance of the Term after the time of the award
exceeds the amount of the rental loss that the Tenant proves could be reasonably
avoided.  The worth at the time of award shall be determined by discounting such
amount at one percent (1%) more than the discount rate of the Federal Reserve
Bank in San Francisco in effect at the time of the award.  Other damages to
which Landlord is entitled shall earn interest at the Interest Rate.  Without
limiting the generality of the foregoing, Landlord shall have all of the
remedies available under California Civil Code Section 1951.2.

     18.2 Right of Re-Entry.  Except as prohibited by California law, upon an
          -----------------                                                  
Event of Default by Tenant, Landlord shall also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
Tenant's Personal Property from the Premises, such property being removed and
stored in a public warehouse or elsewhere at Tenant's sole cost and expense.  No
removal by Landlord of any persons or property in the Premises shall constitute
an election to terminate this Lease.  Such an election to terminate may only be
made by Landlord in writing, or decreed by a court of competent jurisdiction.
Landlord's right of entry shall include the right to remodel the Premises and
re-let the Premises.  All costs incurred in such re-entry and re-letting shall
be paid solely by Tenant.  Rents collected by Landlord from any other tenant
which occupies the Premises shall be offset against the amounts owed to Landlord
by Tenant.  Tenant shall be responsible for any amounts not recovered by
Landlord from any other tenant.  Any payments made by Tenant shall be credited
to the amounts owed by Tenant in the sole order and discretion of Landlord,
irrespective of any designation or request by Tenant.  No re-entry by Landlord
shall prevent Landlord from later terminating the Lease by written notice.

     18.3 Waiver of Redemption.  Tenant hereby waives, for itself and all
          --------------------                                           
persons claiming by, under, and through Tenant, all rights and privileges which
it might have under any present or future law to redeem the Premises or to
continue the Lease after being dispossessed or ejected from the Premises.

     18.4 Right to Perform.  If Tenant is in default, beyond the expiration of
          ----------------                                                    
any applicable cure period, of any covenant, condition or agreement to be
performed by Tenant under the Lease, Landlord may perform such covenant or
condition at its sole option, after an additional notice to Tenant.  All costs
incurred by Landlord in so performing shall immediately be reimbursed to
Landlord by Tenant, 

                                       46
<PAGE>
 
together with interest at the Interest Rate computed from the due date. Any
performance by Landlord of Tenant's obligations shall not waive or cure such
default. Landlord may perform Tenant's defaulted obligations at Tenant's sole
cost and expense without notice in the case of any emergency. All reasonable out
of pocket costs and expenses incurred by Landlord, including reasonable
attorneys' fees (whether or not legal proceedings are instituted), in collecting
Rent or enforcing the obligations of Tenant under the Lease shall be paid by
Tenant to Landlord upon demand.

     18.5 Civil Code ' 1951.4 Remedy.  Landlord has 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).

     18.6 Remedies Not Exclusive.  The rights and remedies of Landlord set forth
          ----------------------                                                
herein are not exclusive, and Landlord may exercise any other right or remedy
available to it under this Lease, at law or in equity.

19.  ATTORNEYS' FEES.

     If either Landlord or Tenant commences or engages in, or threatens to
commence or engage in, any action or litigation or arbitration against the other
party arising out of or in connection with the Lease, the Premises, the Building
or the Project, including but not limited to, any action for recovery of any
payment owed by either party under the Lease, or to recover possession of the
Premises, or for damages for breach of the Lease, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorneys' fees
and other costs incurred in connection with and preparation for such action.

20.  SUBORDINATION.

     20.1 Subordination of Lease.  The Lease and the rights granted to Tenant by
          ----------------------                                                
the Lease are and shall be subject and subordinate at all times to:  (a) all
ground or underlying leases affecting all or any part of the Project as of the
date of this Lease, and all amendments, renewals, modifications, supplements and
extensions of such leases, and (b) all deeds of trust or mortgages affecting or
encumbering all or any part of the Project and/or any ground or underlying
leasehold estate as of the date of this Lease; provided however, that if
Landlord elects at any time to have Tenant's interest in the Lease be or become
superior, senior or prior to any such instrument, then upon receipt by Tenant of
written notice of such election, Tenant shall within ten (10) business days
after Landlord's request, execute all necessary subordination instruments or
other documents confirming the subordination of such mortgage, deed of trust,
ground or underlying lease to the Lease.  Tenant agrees, upon request, to
subordinate Tenant's leasehold interest and estate in this Lease to the interest
of the mortgagee, beneficiary or ground lessor under any mortgage, deed of trust
or ground lease which may become a lien against the Premises, the Building or
the Project, provided that the trustee, beneficiary or ground lessor executes
and delivers to Tenant a recordable Subordination, Non-Disturbance and
Attornment Agreement in the form substantially as attached hereto in Exhibit
"I".

                                       47
<PAGE>
 
     20.2 Attornment by Tenant.  In the event of the cancellation or termination
          --------------------                                                  
of any or all ground or underlying leases affecting all or any part of the
Project in accordance with its terms or by the surrender thereof, whether
voluntary, involuntary or by operation of law, or by summary proceedings, or in
the event of any foreclosure of any or all mortgages or deeds of trust
encumbering the Project by trustee's sale, voluntary agreement, deed in lieu of
foreclosure, or by the commencement of any judicial action seeking foreclosure,
Tenant, at the request of the then Landlord under the Lease, shall attorn to and
recognize:  (a) the ground or underlying lessor, under the ground or underlying
lease being terminated or cancelled, or (b) the beneficiary or purchaser at the
foreclosure sale, as Tenant's Landlord under the Lease, and Tenant agrees to
execute and deliver at any time upon request of such ground or underlying
lessor, beneficiary, purchaser, or their successors, any instrument to further
evidence such attornment.  Tenant hereby waives its right, if any, to elect to
terminate the Lease or to surrender possession of the Premises in the event of
any such ground or underlying lease cancellation or termination or mortgage or
deed of trust foreclosure.

     20.3 Existing Mortgage.  If, as of the date of execution of this Lease,
          -----------------                                                 
there is any mortgage, deed of trust, ground lease or other similar encumbrance
affecting the Premises, Landlord agrees to obtain from the mortgagee,
beneficiary or ground lessor and deliver to Tenant a recordable Subordination,
Non-Disturbance and Attornment Agreement in the form attached hereto as Exhibit
"I".

21.  RULES AND REGULATIONS.

     Tenant shall faithfully observe and comply with the Building rules and
regulations (the "Rules"), a copy of which is attached to this Lease as Exhibit
"F", and all reasonable modifications and additions to the Rules from time to
time put into effect by Landlord.  Landlord agrees that the Rules and
Regulations shall not be changed or revised or enforced in any discriminatory or
unreasonable manner by Landlord, nor enforced or changed by Landlord in such a
way as to interfere with the purposes permitted under Paragraph 6.1 above.  In
the event any other tenant or occupant of the Project fails to comply with the
Rules and Regulations, and such noncompliance unreasonably interferes with
Tenant's use of the Premises, Landlord shall use reasonable efforts to make such
other tenants and/or occupants comply with the Rules and Regulations.

                                       48
<PAGE>
 
22.  HOLDING OVER.

     22.1 Surrender of Possession.  Tenant shall surrender possession of the
          -----------------------                                           
Premises immediately upon the expiration or earlier termination of the Lease.
If Tenant shall continue to occupy or possess the Premises after such expiration
or termination without the consent of Landlord, then Tenant shall be a tenant at
will, but if Landlord has consented to such holdover in writing, Tenant shall be
a tenant from month-to-month.  All the terms, provisions and conditions of the
Lease shall apply to the month-to-month tenancy except those terms, provisions
and conditions pertaining to the Term, and except that the Base Rent shall be
immediately adjusted upward upon the expiration or earlier termination of the
Lease to equal the greater of (a) the then prevailing monthly rental rate for
similar commercial space, as determined by Landlord, or (b) one hundred twenty-
five percent (125%) of the Base Rent for the Premises in effect under this Lease
on the day immediately prior to the date of the expiration or earlier
termination of the Lease.  The month-to-month tenancy may be terminated by
Landlord or Tenant upon thirty (30) days prior notice to the nonterminating
party.  In the event that Tenant fails to surrender the Premises upon such
expiration or earlier termination, then Tenant shall indemnify and hold Landlord
harmless against all losses or liability resulting from or arising out of
Tenant's failure to surrender the Premises, including, but not limited to, any
amounts required to be paid to or damages incurred due to the loss of any tenant
or prospective tenant who was to have occupied the Premises after said
termination or expiration and any related attorneys' fees and brokerage
commissions, provided that Landlord notifies Tenant of such tenant or
prospective tenant.

     22.2 Payment of Money After Termination.  No payment of money by Tenant to
          ----------------------------------                                   
Landlord after the termination of the Lease by Landlord, or after the giving of
any notice of termination to Tenant by Landlord which Landlord is entitled to
give Tenant under the Lease, shall reinstate, continue or extend the Term of the
Lease or shall affect any such notice given to Tenant prior to the payment of
such money, it being agreed that after the service of such notice or the
commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease, and otherwise exercise its rights and remedies.  The making of
any such payments by Tenant shall not waive such notice, or in any manner affect
any pending suit or judgment obtained.

                                       49
<PAGE>
 
23.  INSPECTIONS AND ACCESS.

     Landlord may enter the Premises at all reasonable hours upon reasonable
notice to Tenant and in compliance with all other terms of this Lease, in order
to: (i) inspect the Premises; (ii) show the Premises to prospective purchasers,
mortgagees, or tenants, ground or underlying lessors, or during the last twelve
(12) months of the initial Lease Term (or Option Term, as applicable) to
prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building.  Notwithstanding anything to the
contrary contained in this Paragraph 23, Landlord may enter the Premises at any
time to: (a) perform services required of Landlord; (b) take possession due to
any breach of this Lease in the manner provided herein; and (c) perform any
covenants of Tenant which Tenant fails to perform.  Landlord may make any such
entries without the abatement of Rent (except as otherwise provided herein) and
may take such reasonable steps as required to accomplish the stated purposes.
If Tenant shall not be personally present to open and permit an entry into the
Premises at any time when such entry by Landlord is necessary or permitted under
the Lease, Landlord may enter by means of a master key without liability to
Tenant except for any failure to exercise due care for Tenant's Personal
Property, and without affecting the Lease.

24.  NAME OF BUILDING AND PROJECT.

     Except as permitted in connection with Tenant's signage rights pursuant to
Paragraph 40 below, if Tenant uses any name, insignia, or logotype of the
Building or the Project for any purpose or uses any picture of the Building or
the Project in its advertising, stationery or any other manner, Tenant shall
also specify therein that the Building is located in the City of Commerce.
Landlord expressly reserves the right, in Landlord's sole and absolute
discretion, at any time to change the name, insignia, logotype, or street
address of the Building or the Project without in any manner being liable to
Tenant.  Nothing in this Paragraph 24 shall give Landlord the right to remove or
alter or signs except to the extent authorized by Paragraph 40 below.

25.  SURRENDER OF LEASE.

     The voluntary or other surrender of the Lease by Tenant, or a mutual
cancellation of the Lease, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of Tenant's interest in
any or all such subleases or subtenancies.

26.  WAIVER.

     The waiver by Landlord or Tenant of any term, covenant, agreement or
condition contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other term, covenant, agreement,
condition or provision of this Lease, nor shall any custom or practice which may
develop between the parties in the administration of the Lease be construed to
waive or lessen the 

                                       50
<PAGE>
 
right of Landlord or Tenant to insist upon the performance by the other in
strict accordance with all of the terms, covenants, agreements, conditions, and
provisions of the Lease. The subsequent acceptance by Landlord of any payment
owed by Tenant to Landlord under the Lease, or the payment of Rent by Tenant,
shall not be deemed to be a waiver of any preceding breach by Tenant of any
term, covenant, agreement, condition or provision of the Lease, other than the
failure of Tenant to make the specific payment so accepted by Landlord,
regardless of Landlord's or Tenant's knowledge of such preceding breach at the
time of the making or acceptance of such payment.

27.  SALE BY LANDLORD.

     In the event Landlord shall sell, assign, convey or transfer all or a part
of its interest in the Project or any part of the Project, Tenant agrees to
attorn to such transferee, assignee or new owner, and upon consummation of such
sale, conveyance or transfer, provided and to the extent that the transferee has
agreed to assume liability, Landlord shall automatically be freed and relieved
from all liability and obligations accruing or to be performed from and after
the date of such sale, transfer, or conveyance.  In the event of such sale,
assignment, transfer or conveyance, Landlord shall transfer to such transferee,
assignee or new owner of the Project the balance of the Security Deposit, if
any, remaining after lawful deductions and in accordance with California Civil
Code Section 1950.7, after notice to Tenant, and Landlord shall thereupon be
relieved of all liability with respect to the Security Deposit.

28.  NO LIGHT AND AIR EASEMENT.

     Any diminution or shutting off of light or air by any structure which may
be erected on lands adjacent to or in the vicinity of the Project shall not
affect the Lease, abate any payment owed by Tenant under the Lease or otherwise
impose any liability on Landlord.

29.  FORCE MAJEURE.

     Except with respect to the obligations imposed with regard to Rent and
other charges to be paid by Tenant pursuant to this Lease, the parties hereto
shall not be chargeable with, liable for, or responsible to the other party for
anything or in any amount for any failure to perform or delay caused by:  fire;
earthquake; explosion; flood; hurricane; the elements; acts of God or the public
enemy; actions, restrictions, limitations or interference of governmental
authorities or agents; war; invasion; insurrection; rebellion; riots; strikes or
lockouts; inability to obtain necessary materials, goods, equipment, services,
utilities or labor; or any other cause which is beyond the reasonable control of
such party; and any such failure or delay due to said causes or any of them
shall not be deemed a breach of or default in the performance of the Lease by
such party.  Notwithstanding the foregoing, this Paragraph 29 shall not extend
any time period set forth in Paragraphs 3.7, 11 or 15.1 above.

                                       51
<PAGE>
 
30.  ESTOPPEL CERTIFICATES.

     Tenant shall, at any time and from time to time upon request of Landlord,
within thirty (30) days following notice of such request from Landlord, execute,
acknowledge and deliver to Landlord in recordable form, a certificate (the
"Estoppel Certificate") in writing in the form of the attached Exhibit "J" or in
such other form as Landlord or any of its lenders, prospective purchasers,
lienholders or assignees may deem reasonably appropriate.  Failure by Tenant to
deliver the Estoppel Certificate within this ten (10) day period shall be deemed
to conclusively establish that this Lease is in full force and effect and has
not been modified except as may be represented by Landlord.  Tenant's failure to
deliver the Estoppel Certificate within ten (10) business days after notice from
Landlord that the same is due shall, at the option of Landlord, constitute an
Event of Default.  Landlord hereby agrees to provide to Tenant an estoppel
certificate signed by Landlord, containing the same types of information, and
within the same period of time, as set forth above, with such changes as are
reasonably necessary to reflect that the estoppel certificate is being granted
and signed by Landlord to Tenant, rather than from Tenant to Landlord or a
lender of Landlord.

31.  PARKING FACILITIES.

     31.1 Parking Attributable to the Building.  Landlord shall maintain and
          ------------------------------------                              
operate, or cause to be maintained and operated, automobile parking facilities
(the "Parking Facilities") in, adjacent to or within a reasonable distance from
the Building.  Tenant's privileges during such time with respect to the Parking
Facilities shall be in accordance with the provisions of the attached Exhibit
"K".  Tenant shall not be required to pay a parking charge in connection with
the use of such parking spaces.  One third (a) of the parking spaces to be
provided to Tenant hereunder shall be located as shown on Exhibit "L".  Ten (10)
of the remaining spaces shall be located immediately adjacent to the eastern
entrance to the Building as shown on said Exhibit "L" and shall, at Tenant's
option, be designated for the use of Tenant's visitors or employees.

     31.2 Parking Attributable to Expansion Space.  With respect to any space in
          ---------------------------------------                               
the Project, other than in the Building, leased by Tenant pursuant to any option
or right of first refusal contained herein, or otherwise leased by Tenant
(collectively, the "Expansion Space"), Landlord shall provide Tenant, at no
additional charge and throughout the Term of the lease of said Expansion Space,
with the use of unreserved parking spaces in the Parking Facilities at the rate
of four (4) spaces for each one thousand (1,000) square feet of Rentable Area
contained within the Expansion Space.

32.  SECURITY SERVICES.

     32.1 Landlord's Right to Furnish Security Services.  Landlord shall
          ---------------------------------------------                 
provide, throughout the Term of this Lease, at least one (1) roving security
guard patrolling the Project twenty-four (24) hours a day, seven (7) days a
week.  The cost thereof shall be included as an Operating Expense hereunder.
Landlord may furnish additional security services for the Premises and/or the
Building and/or the Project as it deems appropriate in its sole and absolute
discretion.  In the event Landlord does furnish or contract to furnish any such
security services, Tenant shall nevertheless have sole responsibility for 

                                       52
<PAGE>
 
the protection of itself, Tenant's Employees and all property of Tenant and
Tenant's Employees located in, on or about the Premises, the Building or the
Project, and the provisions of Paragraph 14.6 above shall nevertheless continue
in full force and effect.

     32.2 Tenant's Right to Install Security System.  If Tenant wishes to
          -----------------------------------------                      
establish or install any automated and/or non-automated security system in, on
or about the Premises, Tenant shall first notify Landlord of Tenant's plan for
any such system, and Landlord shall have the right to review and approve or
disapprove said plan in Landlord's reasonable discretion.  If Landlord approves
any such plan and Tenant establishes or installs any automated and/or non-
automated security system in, on or about the Premises and should such system
materially and adversely affect the Premises or the Project, or have a material
and adverse effect on other tenants respectively, Landlord shall subsequently
have the right to enter upon the Premises to review Tenant's security system
from time to time and request Tenant to make changes which are reasonable under
the circumstances in personnel and/or equipment.  Tenant shall make said
reasonably requested changes within a reasonable period of time thereafter.

33.  NOTICES.

     All notices, requests, consents, approvals, payments in connection with the
Lease, or communications that either party desires or is required or permitted
to give or make to the other party under the Lease shall only be deemed to have
been given, made and delivered, when received, if personally served, or when
mailed, if deposited in the United States mail, certified or registered mail,
postage prepaid, and addressed to the parties as specified in Item 13 of the
Lease Summary or to such other address or addresses as either Landlord or Tenant
may from time to time designate to the other by written notice in accordance
herewith.

34.  OPTIONS TO EXTEND LEASE TERM.

     34.1 Options to Extend.  Landlord hereby grants Tenant options ("Options")
          -----------------                                                    
to further extend the term of the Lease for three (3) additional five-year
periods commencing on the fifteenth (15th), twentieth (20th) and twenty-fifth
(25th) anniversaries of the Commencement Date ("Option Periods").  All of the
terms and provisions of the Lease shall apply to Tenant's use and occupancy of
the Premises during the Option Periods, except that the Base Rent during the
Option Periods shall be as set forth in Paragraph 34.2 below.  Tenant may
exercise an Option only by written notice to Landlord delivered not less than
nine (9) months and not more than twelve (12) months prior to the commencement
of the corresponding Option Period.  Within ten (10) business days after
Tenant's request therefor (but not sooner than the first day on which Tenant may
exercise any Option), Landlord and Tenant shall each disclose to the other their
respective good faith estimates of the amount of Base Rent which, pursuant to
Paragraph 34.2 below, would be charged to Tenant during the Option Period in
question.  If the term of this Lease is not extended for any Option Period, then
Tenant shall have no right to exercise any subsequent Option or to occupy the
Premises during any subsequent Option Period.  Tenant may not exercise any
Option at any time in which Tenant is in default under the Lease.

     34.2 Base Rent During Option Periods.  The Base Rent during each Option
          -------------------------------                                   
Period shall 

                                       53
<PAGE>
 
equal the greater of (i) ninety-five percent (95%) of the average Base Rent at
which Landlord offers to lease comparable office space within the Project to
third parties at the time of Tenant's exercise of the corresponding Option, or
(ii) ninety-five percent (95%) of the current Base Rent. If no such comparable
office space is being offered at the time of such exercise, then Landlord and
Tenant shall use the average base rent then being offered to tenants by
landlords of the Comparable Buildings (as defined in Paragraph 4.5(l) above). If
it is necessary to examine comparable office buildings in order to determine
base rent under this Paragraph 34.2 and the parties are unable to agree upon
what constitutes "Comparable Buildings", then upon the request of either party,
Base Rent for the Option Period in question shall be determined by "baseball"
arbitration pursuant to Paragraph 34.3 below, provided that the Base Rent shall
not be less than ninety-five percent (95%) of the Base Rent then being paid by
Tenant to Landlord for the Premises. In any event, the determination of the
average base rent being offered by Landlord or other landlords shall take into
account, on a net present value basis, all economic lease concessions,
improvement allowances, moving allowances, construction time, in-lieu brokerage
commissions, free rent and all other concessions being offered by Landlord or
such other landlords so that Tenant will receive all of the same benefits that a
prospective tenant would receive.

     34.3 Determination of Base Rent by Arbitration.  If arbitration of the Base
          -----------------------------------------                             
Rent during any Option Period is requested pursuant to Paragraph 34.2 above,
then Landlord and Tenant shall, within five (5) days after such request, agree
upon one appraiser who shall, by profession, be a real estate broker or
attorney, to determine the Base Rent.  If Landlord and Tenant are unable to
agree upon an appraiser, Landlord and Tenant shall each select one appraiser,
who shall select a third appraiser, and the third appraiser alone shall decide
the issue.  Landlord and Tenant shall each pay one half of the appraiser's
appraisal fee; if each party selects an appraiser who in turn selects a third
appraiser, Landlord and Tenant shall each pay the entire fee of its own
appraiser, and shall each pay one half of the fee of the third appraiser.  All
such appraisers shall have at least five (5) years experience in commercial real
estate appraisal in the county in which the Premises are located.  Within five
(5) days thereafter, Landlord and Tenant shall each give notice (the
"Determination Notice") to the other and to the appraiser setting forth the
submitting party's determination (based on the criteria specified in Paragraph
34.2 above) of the Base Rent for the Option Period.  The arbitrator shall
conduct such hearings and investigations as the arbitrator shall deem
appropriate and shall, within thirty (30) days after having been appointed,
choose on of the determinations set forth in either Landlord's or Tenant's
Determination Notice, and that choice shall be final and binding on Landlord and
Tenant.  The arbitrator shall not have the power to add to, modify, or change
any provision of this Lease.  The arbitrator's role, and the scope of his or her
decision, shall be limited to a determination of Base Rent as set forth herein.

                                       54
<PAGE>
 
35.  OPTIONS TO LEASE ADDITIONAL SPACE.

     35.1 Space in 400 Citadel Drive (Option A).  Landlord hereby grants Tenant
          -------------------------------------                                
the option ("Option A") to lease up to approximately seven thousand (7,000)
contiguous rentable square feet on the ground floor of Building F of the
Project, located at 400 Citadel Drive (the "Option A Space").  Option A may be
exercised only by written notice from Tenant to Landlord delivered no later than
June 1, 1998.  Tenant shall designate the approximate number of square feet to
be included in the Option A Space.  The exact location and configuration of the
Option A Space shall be mutually determined by Landlord and Tenant.  Landlord
shall deliver the Option A Space to Tenant within six (6) months after Tenant's
exercise of Option A.  Tenant shall accept the Option A Space in its "as is"
condition as of the date on which Tenant exercises Option A; provided, however,
that Option Space A and all Building Systems serving said space shall be in good
condition and in good working order and in compliance with all applicable codes
and laws as of the delivery date.  Base Rent per rentable square foot of the
Option A Space shall equal Base Rent for the Premises.  Upon Landlord's delivery
of the Option A Space to Tenant in the condition required herein, the Option A
Space shall be deemed part of the Premises, and Tenant's use of the Option A
Space shall be subject to all of the terms and conditions of this Lease
(including without limitation rental adjustments made pursuant to Paragraph 4
above), except that Tenant shall not be entitled to any free or abated rent in
connection with the Option A Space.  Tenant's lease of the Option A Space shall
terminate concurrently with the termination of its lease of the Premises
hereunder.

     35.2 Space in 500 Citadel Drive (Option B).  Landlord hereby grants Tenant
          -------------------------------------                                
the option ("Option B") to lease up to approximately thirteen thousand five
hundred (13,500) contiguous rentable square feet on the ground floor of Building
D of the Project, located at 500 Citadel Drive (the "Option B Space").  Option B
may be exercised only by written notice from Tenant to Landlord delivered no
later than December 31, 1999.  Tenant shall designate the approximate number of
square feet to be included in the Option B Space.  The exact location and
configuration of the Option B Space shall be mutually determined by Landlord and
Tenant.  Landlord shall deliver the Option B Space to Tenant within six (6)
months after Tenant's exercise of Option B.  Tenant shall accept the Option B
Space in its "as is" condition as of the date on which Tenant exercises Option
B; provided, however, that Option Space B and all Building Systems serving said
space shall be in good condition and in good working order and in compliance
with all applicable codes and laws as of the delivery date.  If Option B is
exercised prior to January 1, 1999, Base Rent per rentable square foot of the
Option B Space shall equal Base Rent for the Premises; if Option B is exercised
after January 1, 1999, Base Rent per rentable square foot of the Option B Space
shall equal Sixty-Three Cents ($0.63) per month.  Upon Landlord's delivery of
the Option B Space to Tenant in the conditions required herein, the Option A
Space shall be deemed part of the Premises, and Tenant's use of the Option B
Space shall be subject to all of the terms and conditions of this Lease
(including without limitation rental adjustments made pursuant to Paragraph 4
above), except that Tenant shall not be entitled to any free or abated rent in
connection with the Option B Space.  Tenant's lease of the Option B Space shall
terminate concurrently with the termination of its lease of the Premises
hereunder.

                                       55
<PAGE>
 
36.  RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE.

     36.1 Right of First Refusal.  Subject to rights previously granted to
          ----------------------                                          
existing tenants of the Project as described in Paragraph 36.4 below, Tenant
shall have the continuing right of first refusal ("Right of First Refusal")
during the Term of this Lease (including all Option Periods) to lease the
following space (collectively, the "Right of First Refusal Space") at such times
and on such economic conditions as Landlord offers the Right of First Refusal
Space to third parties: (a) any additional office space within the Project that
is contiguous to any portion of the Premises then leased by Tenant hereunder;
and (b) any office space within the Project containing four thousand (4,000) or
more contiguous square feet.

     36.2 Method of Offer and Exercise.  Prior to accepting any offer of, or
          ----------------------------                                      
making any commitment to, any third party for the lease of any Right of First
Refusal Space, Landlord shall offer to lease that space to Tenant on the same
economic terms and conditions (that is, for the same Base Rent and with the same
economic lease concessions, improvement allowances, moving allowances, free rent
and all other similar concessions) as set forth in the third party offer or
commitment.  Tenant shall have seven (7) business days after Landlord's offer to
exercise (by written notice to Landlord) Tenant's Right of First Refusal.  If
Tenant elects not to so exercise its Right of First Refusal, and thereafter (but
prior to execution of the third party lease) the economic terms of the third
party offer are changed in the tenant's favor by more than five percent (5%),
then Landlord shall re-offer the Right of First Refusal Space to Tenant on such
changed terms, and Tenant shall have three (3) business days to exercise (by
written notice to Landlord) Tenant's Right of First Refusal.

     36.3 Effect of Exercise.  Upon Tenant's exercise of its Right of First
          ------------------                                               
Refusal, it shall enter into an amendment of this Lease which shall provide that
(a) the Right of First Refusal Space shall be deemed part of the Premises, (b)
the Base Rent and other economic provisions applicable to the Right of First
Refusal Space shall be as set forth in this Lease, and (c) all other provisions
of this Lease which do not conflict with said economic provisions shall apply to
the Right of First Refusal Space.

     36.4 Superior Rights of Existing Tenants.  Notwithstanding the foregoing,
          -----------------------------------                                 
Tenant acknowledges that it has previously granted rights of first refusal
and/or first offer to other tenants of the Project on certain other office space
within the Project, as follows: (a) State Compensation Insurance Fund has a
right of first offer to any space on the first floor of Building F (400 Citadel
Drive); (b) Le Roy Crandall & Associates also has a right of first offer to any
space on the first floor of Building F (400 Citadel Drive), as well as a right
of first offer on third floor space in Building D (500 Citadel Drive); (c)
Barbosa, Garcia & Barnes has a right of first refusal on third floor space in
Building D (500 Citadel Drive); and (d) Concept 7 has a right of first refusal
on third floor space in Building D (500 Citadel Drive).  Tenant's Right of First
Refusal shall be subject to all such rights, and shall be further subject to the
rights of any existing tenant of any Right of First Refusal Space to extend or
renew its lease; the exercise of any such right, or the extension or renewal of
any such lease, shall not be deemed a violation of Tenant's Right of First
Refusal.

37.  FIRST RIGHT TO NEGOTIATE FOR PURCHASE OF BUILDING OR BUILDINGS.

                                       56
<PAGE>
 
     During the first ten (10) years of the Term of this Lease, Tenant shall
have a one-time right to negotiate ("First Right to Negotiate") for the purchase
of the Building on the terms set forth in this Paragraph 37.  If, at any time
prior to the expiration of said ten (10) year period, Landlord desires to sell
either the Building separate from the remainder of the Project, or the office
buildings contained in the Project (including the Building) separate from the
retail and hotel buildings contained in the Project, then Landlord shall so
notify Tenant in writing.  During the ninety (90) day period following
Landlord's delivery of said notice, Tenant shall have the exclusive right to
negotiate with landlord for the purchase of the Building or office building
component of the Project.  Landlord agrees to negotiate in good faith with
Tenant during said period.  If Tenant purchases the Building or the office
building component of the Project pursuant to this Paragraph 37, no real estate
brokerage fee shall be payable by Landlord.  Landlord's merger, affiliation or
joint venture with one or more entities in connection with the ownership or
operation of the Project or any portion thereof shall not be deemed a sale for
the purpose of allowing Tenant to exercise its First Right to Negotiate
hereunder.  Furthermore, Tenant's First Right to Negotiate shall not apply to
any sale by Landlord of the office component of the Project together with either
or both the retail and/or hotel components of the Project.

38.  TENANT'S RIGHT TO TERMINATE THE LEASE.

     Subject to the terms and provisions of this Paragraph 38, Tenant shall have
two (2) one-time rights to terminate this Lease.  The first such right shall be
exercised only by written notice delivered to Landlord no later than the fourth
(4th) anniversary of the Commencement Date, and said termination shall be
effective at the end of the fifth (5th) year of the Term of this Lease.  The
second such right shall be exercised only by written notice delivered to
Landlord no later than the ninth (9th) anniversary of the Commencement Date, and
said termination shall be effective at the end of the tenth (10th) year of the
Term of this Lease.  In order for either such termination notice to be
effective, Tenant must also deliver to Landlord, within fifteen (15) days after
Tenant's delivery of the notice, a termination fee equal to the unamortized cost
(without interest) of all leasing commissions paid by Landlord in connection
with this Lease.

                                       57
<PAGE>
 
39.  TENANT'S RIGHT TO TERMINATE LEASE OF FULL FLOOR OR OPTION A SPACE.

     Subject to the terms and provisions of this Paragraph 39, Tenant shall have
the one-time right to terminate its lease of either one full floor of the
Building (or any other building) leased by Tenant hereunder, or to terminate its
lease of the Option A Space, effective at the end of the fifth (5th) year of the
Lease Term.  Such notice shall be exercised by written notice to Landlord
specifying the portion of the Premises which is subject to the termination,
which notice must be delivered to Landlord not later than nine (9) months prior
to said effective date.  In order for such termination notice to be effective,
Tenant must also deliver to Landlord, within fifteen (15) days after Tenant's
delivery of the notice, a termination fee equal to the unamortized cost (without
interest) of the pro-rata portion (attributable to the released portion of the
Premises) of all leasing commissions paid by Landlord in connection with this
Lease.  If the termination notice pertains to the Option A Space, all of
Tenant's signage rights relative to that space and the building in which that
space is located shall terminate concurrent with the termination of the lease of
the Option A Space.

40.  SIGNAGE.

     40.1 Building-Top Signage.  Tenant shall have the exclusive right, at its
          --------------------                                                
sole cost and expense, to install up to four signs identifying Tenant (with the
identical name at all times) on the parapet at the top of the exterior of the
Building, or within ten feet of the top of the exterior wall of the Building.  A
maximum of one such sign may be located on each side of the Building.

     40.2 Monument Signage.  Subject to the existing rights of certain other
          ----------------                                                  
tenants of the Project as discussed below, Tenant shall have the right, at its
sole cost and expense, to the exclusive use of the first tenant monument sign
immediately adjacent to the main entry of the Project.  Notwithstanding the
foregoing, Tenant acknowledges that Barbosa, Garcia & Barnes, Consumer Credit
Counselors of Los Angeles, Le Roy Crandall & Associates, Lee & Associates, State
Compensation Insurance Fund, and Transportation Displays Incorporated ("TDI")
all have the right to monument signage which are superior to the rights of
Tenant granted hereby.  Tenant further acknowledges that the monument sign which
is to be used by Tenant hereunder is currently being used by TDI pursuant to its
lease.  Landlord shall use its best efforts to persuade TDI to relinquish its
rights to use said monument, but Landlord makes no representation or warranty
that TDI will agree to do so.  If TDI refuses to relinquish its rights to said
monument, Landlord will use its best efforts to provide Tenant with alternate
monument signage on another of the existing monuments in the Project.
Landlord's inability to provide Tenant with the use of monument sign
contemplated herein due to TDI's refusal to relinquish its rights to that
monument sign shall not be deemed a default by Landlord and shall not entitle
Tenant to any offset rights, rent abatement, termination rights or other
compensation or remedies.

     40.3 Eyebrow Signage.  Tenant shall have the right, at its sole cost and
          ---------------                                                    
expense, to install one "eyebrow" sign on the exterior of the Building (or on
the exterior of Building F (400 Citadel Drive) if Tenant exercises Option A), in
a location mutually acceptable to Landlord and Tenant.

                                       58
<PAGE>
 
     40.4 Interior Signage.  Subject to Landlord's prior written approval, in
          ----------------                                                   
its sole discretion, and provided all signs are in keeping with the quality,
design and style of the other buildings in the Project, Tenant, at its sole cost
and expense, may install identification signage anywhere in the Premises
including in the elevator lobbies of the Premises, provided that such signs must
not be visible from the exterior of the Building.

     40.5 Exterior Directional Signage.  Subject to Landlord's prior written
          ----------------------------                                      
approval (which shall not be unreasonably withheld), Tenant shall have the right
(at Tenant's expense) to cause Landlord to install reasonable directional
signage (in amounts and at locations determined by the mutual agreement of
Landlord and Tenant) at ground level in the Project indicating the location of
the Premises.

     40.6 Landlord's Approval.  The graphics, materials, color, design,
          -------------------                                          
lettering, lighting, size, specifications, manner of affixing, and location
(collectively, the "Sign Specifications") of all signs to be installed by Tenant
pursuant to this Paragraph 40 shall be subject to the prior written approval of
Landlord, which approval shall not be unreasonably withheld if the Sign
Specifications (a) are reasonably consistent with other exterior signs in the
Project, (b) comply with law as required by Paragraph 40.7 below, and (c) are
not prohibited under the Retail/Office Ground Lease affecting the portion of the
Land upon which the Building is located.  Any signs, insignias, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord in writing may be removed without notice by
Landlord at the sole expense of Tenant.  Except as specifically provided in this
Paragraph 40, Tenant may not install any signs: on the exterior or roof of the
Building; on the exterior, interior or roof of any other building in the
Project; or in any of the common areas of the Project.  Any signs, window
coverings, or blinds (even if the same are located behind the Landlord approved
window coverings for the Building), or other items visible from the exterior of
the Premises are subject to the prior approval of Landlord, which approval shall
not be unreasonably withheld.

     40.7 Compliance with Law.  No sign, insignia, notice, logo, picture, name
          -------------------                                                 
or advertisement shall be attached or affixed to the exterior of the Premises in
violation of any law, ordinance, regulation, rule or requirement of any
governmental entity having jurisdiction over the Premises.

     40.8 Maintenance and Repair of Exterior Signs.  Landlord shall have the
          ----------------------------------------                          
right to maintain all of Tenant's signs on the exterior of the Premises, and to
pass the cost thereof to Tenant as an Operating Expense.  At Landlord's option,
Landlord may require Tenant, upon written notice to Tenant, to maintain, repair
or replace any or all such signage as Landlord deems necessary, all at Tenant's
expense.

     40.9 Removal of Signs.  Upon the termination of this Lease, Tenant shall
          ----------------                                                   
remove all signs and repair any damage caused by the installation, maintenance
or removal of such signs.  Furthermore, if Tenant exercises its right to
relinquish the use of Option Space A, Tenant shall remove the eyebrow sign
referenced in Paragraph 40.3 above and any other signs installed in Option Space
A by or on behalf of Tenant, and shall repair any damage caused by the
installation, maintenance or removal thereof.  All such removal and repair shall
be done at Tenant's sole expense.

                                       59
<PAGE>
 
     40.10  Transferability of Signage Rights.  The building-top, monument and
            ---------------------------------                                 
directional signage rights granted to Tenant pursuant to Paragraphs 40.1, 40.2
and 40.5 above may be transferred by the originally named Tenant hereunder only
to a transferee which concurrently takes an assignment or sublease from Tenant
of at least one full floor of the Building (provided, however, that such rights
may not be assigned to more than one transferree).  The eyebrow signage rights
granted to Tenant pursuant to Paragraph 40.3 above may be transferred by the
originally named Tenant hereunder only to a transferee which concurrently takes
an assignment or sublease from Tenant of either one hundred percent (100%) of
the Option A Space (if that sign is installed on Building F) or one full floor
of the Building (if that sign is installed on the Building); provided, however,
that such rights may not be assigned to more than one transferree.  The interior
signage rights with respect to each floor of the Building granted to Tenant
pursuant to Paragraph 40.4 above may be transferred by the originally named
Tenant hereunder only to a transferee which concurrently takes an assignment or
sublease from Tenant of one hundred percent (100%) of the corresponding floor.
No transferee of any signage rights granted herein shall have the right to
install a sign bearing a name which (a) relates to an entity which is of a
character or reputation, or is associated with a political orientation or
faction, which would be materially detrimental to or materially inconsistent
with the quality, reputation or character of the Project, or (b) violates any
exclusive use or exclusive signage rights of any other tenant of the Project,
provided that Landlord notifies Tenant of any such exclusive rights prior to the
request of Tenant (or any transferee hereunder) to change the name on any sign
installed under this Lease.

41.  USE OF APPURTENANT BUILDING COMPONENTS.

     Tenant shall have the right to use shafts, risers or conduits within the
Building (including without limitation those connecting the interior of the
Building to the roof), and similar components of the Building, for the
installation and maintenance of conduits, cables, ducts, flues, pipes and other
devices for communications, data processing devices, supplementary HVAC and
other facilities consistent with Tenant's permitted use of the Premises, subject
in all cases to Landlords prior written consent.  Such written consent shall not
be unreasonably withheld.

42.  BROKERAGE COMMISSIONS.

     The real estate brokerage commission owing by Landlord to Investment
Development Services, Inc. and CB Commercial Real Estate shall be limited to the
aggregate amount of Two Hundred Thirty-Four Thousand Eight Hundred Sixty-Eight
Dollars ($234,868.00).  The real estate brokerage commission owing by Landlord
to Trammell Crow Company shall be One Hundred Seventy-Nine Thousand Sixteen
Dollars ($179,016.00).  In calculating commissions owed by Landlord hereunder,
Tenant's Operating Expense Adjustment shall (for purposes of this Paragraph
only) be deemed to be Fifty-Eight Cents ($0.58) per rentable square foot per
month for the Term of this Lease.  Fifty percent (50%) of each said commission
shall be paid upon Tenant's commencement of construction of tenant improvements
hereunder, and the remainder shall be paid when Tenant is required to commence
(and actually commences) paying Base Rent under this Lease.  In addition, fifty
percent (50%) of the corresponding real estate brokerage commission payable to
the real estate brokers identified in Item 10 of the Lease Summary (the
"Brokers") in connection with any options or rights of first refusal exercised
by Tenant (excluding the First Right to Negotiate) shall be payable upon

                                       60
<PAGE>
 
Tenant's commencement of construction of tenant improvements to such expansion
space, and the remainder shall be payable when Tenant commences conducting
business therefrom.  Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the Brokers, and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease.  Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent other than
the Brokers.

43.  ANTENNA.

     43.1 License to Install and Operate Antenna.  Landlord hereby grants to
          --------------------------------------                            
Tenant a license (the "Antenna License"), during the Term of this Lease, to
install, operate, maintain and use a satellite dish, microwave antenna, or other
transmission or receiver device ("Antenna") within an area of approximately five
hundred (500) square feet on the rooftop of the Building in a location to be
selected by Landlord and reasonably acceptable to Tenant ("License Area").  The
installation of the Antenna shall be done at Tenant's expense by Landlord or by
contractors or subcontractors mutually approved by Landlord and Tenant.  The
Antenna and all related hardware shall be purchased or leased by Tenant at its
expense.  The Antenna License is expressly conditional upon the payment by
Tenant of all Rent due and payable under this Lease and upon compliance by
Tenant with all of the other terms and provisions of this Lease.  Upon the
expiration or termination of the Term of this Lease, the Antenna License shall
also thereupon automatically terminate.  Upon termination of the Antenna
License, Tenant shall, at Tenant's sole cost and expense, within ten (10)
business days thereafter, remove the Antenna and all personal property of Tenant
incidental thereto, repair all damage to the Building resulting from such
removal, and shall restore such portion of the Building rooftop affected by the
Antenna to its condition immediately prior to installation of the Antenna.

     43.2 Permitted Use of Antenna.  The purpose of the Antenna License is to
          ------------------------                                           
permit Tenant, at its sole expense, to install, operate, use, maintain and
remove the Antenna, provided that the installation, operation, repair, use and
removal of the Antenna complies with the following requirements:

          (a) The installation, operation, use, repair, maintenance and removal
of the Antenna shall satisfy all federal, state and local licensing requirements
and be in compliance with (i) all applicable laws, ordinances and regulations,
including without limitation any required conditional use permits applicable to
the Building and/or the Antenna, and (ii) any and all covenants, conditions and
restrictions encumbering the Land and/or the Building during the Term of this
Lease.  The installation (including the installation of any vertical cable
risers, wires, power sources and all related equipment and materials),
operation, use, repair, maintenance and removal of the Antenna shall not
interfere with or affect in any way the telecommunications or other systems of
the Building or Project now installed or those of any existing tenant or
occupant.

                                       61
<PAGE>
 
          (b) The Antenna may not protrude above a height equal to the highest
point of the Building structure, except to the extent necessary to facilitate
transmission of signals, but in all events only if Tenant is in strict
compliance with this Paragraph 43 and only if the installed Antenna is not
visible above a siteline reasonably designated by Landlord.

          (c) The Antenna must be mounted at a location to be reasonably and
mutually determined by Landlord and Tenant, which location shall permit the
transmission of the appropriate signals.  In no event shall the License Area,
the Antenna or any wires or cables appurtenant to the Antenna be located or
installed so as to in any way interfere with or adversely affect the Building's
mechanical, electrical, life-safety, structural, engineering, window washing,
maintenance or other systems or functions.

          (d) The Antenna must be properly secured and installed so as not to be
affected by high winds or other elements.

          (e) The Antenna must be properly grounded.

          (f) The design, color, size, manner of affixing, and aesthetics of the
Antenna must be reasonably acceptable to Landlord and must be approved by
Landlord in writing prior to installation.

          (g) The weight of the Antenna shall not exceed the load limits of the
Building.

          (h) Tenant shall reimburse Landlord for any actual, out of pocket,
reasonable costs or expenses (including any management fees or administrative
costs permitted under this Lease) incurred by Landlord in connection with the
installation, maintenance, repair or removal of the Antenna within thirty (30)
days after demand therefor by Landlord, including, without limitation, any cost
or expense incurred by Landlord in (i) repairing any damage to the Building
resulting from the installation, use, maintenance or repair of the Antenna and
(ii) repairing any damage to the Building suffered in connection with the
removal of the Antenna or otherwise restoring the area of the rooftop of the
Building affected thereby to its original condition.

          (i) Should Tenant's use of the Antenna interfere with other
telecommunications systems of the Building or Project or those of any other
tenant of the Project existing as of the date of the installation of the
Antenna, Tenant shall, at its sole cost and expense, immediately make such
adjustments to the Antenna or its related equipment as may be reasonably
required by Landlord to eliminate such interference.

     43.3 Access.  Upon reasonable prior written notice to Landlord, Tenant (or
          ------                                                               
its contractors and subcontractors approved by Landlord) shall be permitted
reasonable and adequate access to the rooftop of the Building for the
installation, operation, repair and maintenance of the Antenna during the term
of the Antenna License.

                                       62
<PAGE>
 
     43.4 License Not Assignable Separate from Lease.  The Antenna License
          ------------------------------------------                      
granted herein may not be transferred, assigned or conveyed in any manner
whatsoever except in connection with Tenant's assignment or subletting of not
less than one full floor of the Building; provided, however, that the Antenna
License may not be assigned to more than one assignee or sublessee.

44.  HELIPORT.

     Landlord consents to Tenant's construction and use of a heliport either on
the roof of the Building or in the reserved parking area allocated for Tenant,
provided that (a) Tenant first obtains all permits and approvals necessary for
said construction and use from all governmental entities having jurisdiction
thereover, (b) construction and use of a heliport on the roof of the Building
would not exceed the Building's load limits, and (c) the construction thereof is
conducted in accordance with the Construction Agreement attached hereto as
Exhibit "D".  Tenant shall have the exclusive right to use said heliport during
the Term of this Lease, with the exception of any rights of Landlord or any
other governmental entity pursuant to Landlord's or such other entity's police
powers.

45.  TITLE INSURANCE.

     Upon the execution of this Lease (and following the recordation of the
short form memorandum of this Lease identified in Paragraph 48.12 below if
required by the title company issuing the policy required by this Paragraph 45),
Landlord shall provide Tenant with a leasehold policy of title insurance with
policy limits equal to the sum of (a) the present value of the total Base Rent
payable by Tenant hereunder, and (b) the estimated value of the initial tenant
improvements to be constructed by Tenant in the Premises.  Tenant shall
cooperate with Landlord to provide such information and execute such documents
(including without limitation a short form memorandum of this Lease in form and
content selected by Landlord) necessary to cause such policy to be issued.

46.  FINANCIAL INCENTIVES TO TENANT.

     46.1 Loan.  Landlord shall cause its Community Development Commission to
          ----                                                               
make an interest free loan to Tenant in the original principal amount of Two
Hundred Thousand Dollars ($200,000.00).  The proceeds of said loan shall be
disbursed to Tenant upon Tenant's commencement of business upon the Premises.
The proceeds of said loan shall be used by Tenant solely to defer the expenses
of relocating to the Premises, and for no other purpose.  If, prior to the
expiration of the initial term of the Lease, Tenant terminates the Lease or
vacates more than fifty percent (50%) of the Premises, then a percentage of the
principal balance equal to the remaining percentage of the initial Term of the
Lease shall become due and payable; in that event, Tenant shall have the option
of repaying the amount due (a) in one lump-sum payment not later than thirty
(30) days after the effective date of the termination or vacation, or (b) in
equal monthly installments of principal and interest (at the rate of ten percent
(10%) per annum) amortized over the remaining life (or, where the repayment
obligation is triggered by the termination of the Lease, amortized over what
would have been the remaining life) of the initial Term of the Lease.  If no
such termination or vacation occurs prior to the expiration of the initial Term
of the Lease, then the entire balance of the loan shall be forgiven.  Tenant

                                       63
<PAGE>
 
shall execute a promissory note, loan agreement and any other documents
evidencing Tenant's obligations regarding the loan upon Landlord's request; all
such documents shall be prepared by Landlord and shall be reasonably acceptable
to Landlord and Tenant in form and content.

     46.2 Fee Waiver/Reimbursement.  Commencing upon the execution of this
          ------------------------                                        
Lease, and continuing until the expiration or earlier termination of this Lease,
Landlord or its designee shall reimburse to Tenant, or cause the City of
Commerce to waive, all building permit and related fees for Tenant's warehouse
and office projects within the City limits of the City of Commerce; provided,
however, that the total amount of fees to be reimbursed and/or waived pursuant
to this Paragraph 46.2 shall in no event exceed Two Hundred Thousand Dollars
($200,000.00).

47.  TENANT'S FINANCIAL INFORMATION.

     Tenant has provided Landlord with full and complete copies of (a) Tenant's
annual report to its shareholders for each of its three (3) most recent fiscal
years, and (b) Tenant's most recent Form 10Q as filed with the Securities and
Exchange Commission.

48.  MISCELLANEOUS.

     48.1 Authorization to Sign Lease.  If Tenant is a corporation, each
          ---------------------------                                   
individual executing the Lease on behalf of Tenant represents and warrants that
he/she is duly authorized to execute and deliver the Lease on behalf of Tenant
in accordance with Tenant's bylaws or a duly adopted resolution of Tenant's
Board of Directors, and that the Lease is binding upon Tenant in accordance with
its terms.  Tenant shall, concurrently with its execution of the Lease, deliver
to Landlord upon its request a certified copy of such bylaws or the resolution
of its Board of Directors authorizing the execution of the Lease.  If Tenant is
a partnership or trust, each individual executing the Lease on behalf of Tenant
represents and warrants that he/she is duly authorized to execute and deliver
the Lease on behalf of Tenant in accordance with the terms of the partnership or
trust agreement, respectively, and that the Lease is binding upon Tenant in
accordance with its terms.  Tenant shall, concurrently with its execution of the
Lease, deliver to Landlord upon its request such certificates or written
assurances from the partnership or trust as Landlord may request authorizing the
execution of the Lease.

     48.2 Entire Agreement.  The Lease contains the entire agreement between the
          ----------------                                                      
parties respecting the Premises and all other matters covered or mentioned in
the Lease.  The Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.

     48.3 Severability.  The illegality, invalidity or unenforceability of any
          ------------                                                        
term, condition, or provision of the Lease shall in no way impair or invalidate
any other term, condition or provision of the Lease, and all such other terms,
conditions and provisions shall remain in full force and effect.

     48.4 Covenants and Conditions.  All provisions, whether covenants or
          ------------------------                                       
conditions, on the part of Tenant shall be deemed to be both covenants and
conditions.

                                       64
<PAGE>
 
     48.5 Gender and Headings.  The words "Landlord" and "Tenant" as used herein
          -------------------                                                   
shall include the plural as well as the singular and, when appropriate, shall
refer to action taken by or on behalf of the Landlord or Tenant by their
respective employees, agents, or authorized representatives. Words in masculine
gender include the feminine and neuter and vice versa.  If there is more than
one Tenant, the obligations hereunder imposed upon Tenant shall be joint and
several.  The paragraph headings of the Lease are not a part of the Lease and
shall have no effect upon the construction or interpretation of any part hereof.

     48.6 Successors and Assigns.  Subject to the provisions of Paragraphs 12
          ----------------------                                             
and 27 above, and except as otherwise provided to the contrary in this Lease,
the terms, conditions and agreements of this Lease shall apply to and bind the
heirs, successors, legal representatives and permitted assigns of the parties
hereto.

     48.7 Governing Law.  The Lease shall be governed by and construed pursuant
          -------------                                                        
to the laws of the State of California.

     48.8 Exhibits.  Exhibits "A", "B", "C", "D", "E", "F", "G," "H," "I", "J",
          --------                                                             
"K", "L" and "M", and any riders attached to the Lease, are hereby incorporated
by this reference and made a part of the Lease.  In the event of variation or
discrepancy, the duplicate original hereof (including Exhibits, if any) held by
Landlord shall control.


     48.9 Modification For Lender.  Intentionally Omitted.
          -----------------------                         

     48.10  Transportation System Management Program.  Tenant hereby covenants
            ----------------------------------------                          
and agrees, at its sole cost and expense, to participate in and cooperate with
the requirements of any and all governmentally required transportation system
management programs adopted for the Project.

     48.11  Quiet Enjoyment.  Landlord agrees that if Tenant shall perform all
            ---------------                                                   
of the covenants and agreements herein required to be performed by Tenant,
Tenant shall, subject to the terms of this Lease and the rights of any
mortgagees, at all times during the continuance of this Lease have the peaceable
and quiet enjoyment and possession of the Premises.

     This Lease is subject and subordinate to: (i) the ground lease and all of
its terms, covenants, provisions and conditions, including as the same are
interpreted or construed in any judgment or arbitration ruling between Landlord
and Ground Lessor, and (ii) all other matters that are of record in the Official
Records of Los Angeles County, California.

     48.12  Memorandum of Lease.  Landlord and Tenant agree that in no event and
            -------------------                                                 
under no circumstances shall this Lease be recorded by Tenant.  Landlord and
Tenant agree that a short form memorandum of this Lease, in substantially the
form attached hereto as Exhibit "M", shall be executed concurrent with the
execution of this Lease and recorded as soon thereafter as possible in the
Official Records of Los Angeles County, California.

                                       65
<PAGE>
 
     48.13  Time is of the Essence.  Subject to the provisions of Paragraph 29
            ----------------------                                            
above, time shall be of the essence of the Lease and of each of the provisions
hereof.

     48.14  Cumulative Remedies.  No remedy or election provided, allowed or
            -------------------                                             
given by any provision of the Lease shall be deemed exclusive unless so
indicated, but shall, whenever possible, be cumulative with all other remedies
in law or equity.

     48.15  Nondiscrimination and Nonsegregation.  Tenant herein covenants by
            ------------------------------------                             
and for itself, its administrators, successors and assigns, and all persons
claiming under or through it, and this Lease is made and accepted upon and
subject to the following conditions:  that there shall be no unlawful
discrimination against or segregation of any person or group of persons, on
account of age, race, color, creed, religion, sex, sexual orientation, handicap,
marital status, national origin, or ancestry, in the leasing, subleasing,
transferring, use, occupancy, tenure, or enjoyment of the Premises herein
leased, nor shall Tenant itself, or any person claiming under or through it,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use, or
occupancy, of tenants, lessees, subtenants, or vendees in the Premises and
improvements herein leased.

     48.16  Survival.  The terms, covenants, and provisions of Paragraphs 6.4,
            --------                                                          
9, 14.1, 14.4 and 22.1 shall survive the expiration or earlier termination of
the Lease.

     48.17  Confidentiality.  This Lease and the terms, covenants, obligations,
            ---------------                                                    
and conditions contained in this Lease shall remain strictly confidential.
Landlord and Tenant agree to keep such terms, covenants, obligations and
conditions strictly confidential and not to disclose such matters to any other
landlord, tenant, prospective tenant, or broker; provided, however, that Tenant
may (i) disclose such information to the extent reasonably necessary in
connection with financing arrangements or assignments of Tenant's interests in
the Premises so long as Tenant takes reasonable steps to ensure that the
applicable lender or assignee keeps such information confidential, (ii) disclose
such information as required by law or in connection with the issuance of
financial statements of Tenant and/or the Tenant's Affiliates, and (iii) provide
a copy of this Lease to a non-party solely in conjunction with Tenant's
reasonable and good faith effort to secure an assignee or sublessee for the
Premises.  Notwithstanding the foregoing, Landlord may make such disclosures
pertaining to this Lease as are required by law or as Landlord in good faith
deems necessary or proper in the performance of its duties and the enforcement
of its rights hereunder.

     48.18  Reasonableness and Good Faith.  Except for determinations expressly
            -----------------------------                                      
described as being in the "sole" or "absolute" discretion of the applicable
party, neither Landlord nor Tenant shall unreasonably withhold or delay any
consent, approval or other determination provided for hereunder, and
determinations subject to sole or absolute discretion shall not be unreasonably
delayed.  In the event that either Landlord or Tenant disagrees with any
determination made by the other hereunder (other than a determination in the
sole or absolute discretion of the determining party) and reasonably requests
the reasons for such determination, the determining party shall furnish its
reasons in writing and in reasonable detail within five (5) business days
following such request.  Furthermore, in addition 

                                       66
<PAGE>
 
to the foregoing, whenever the Lease grants Landlord or Tenant the right to take
action, exercise discretion, establish rules and regulations, make allocations
or other determinations, or otherwise exercise rights or fulfill obligations,
Landlord and Tenant shall act reasonably and in good faith and take no action
which might result in the frustration of the reasonable expectations of a
sophisticated landlord and sophisticated tenant concerning the benefits to be
enjoyed under this Lease.

     48.19  Minimization of Interference.  Except as otherwise provided under
            ----------------------------                                     
this Lease, (a) Landlord shall exercise its rights and perform its obligations
hereunder, and otherwise operate the Building, in such a way as to reasonably
minimize any resulting interference with Tenant's use of the Premises, and (b)
Tenant shall exercise its rights and perform its obligations hereunder, and
otherwise operate the Premises, in such a way as to reasonably minimize any
resulting interference with the operation of the Building and Project.

     48.20  Waiver of Consequential Damages.  Except as otherwise specified in
            -------------------------------                                   
this Lease, neither party shall be liable under any circumstances for injury to,
damage to or interference with the other party's business, including but not
limited to loss of title to the Building or any portion thereof, loss of
profits, loss of rents or other revenues (excluding payments thereof which
Tenant is otherwise obligated to make under this Lease), loss of business
opportunity, loss of goodwill or loss of use, in each case however occurring.

                                       67
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written, acknowledged that each party has carefully read each and
every provision of the Lease, that each party has freely entered into the Lease
of its own free will and volition, and that the terms, conditions and provisions
of the Lease are commercially reasonable as of the date first above written.

     LANDLORD

     COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
     California corporation


     By: /s/ Hugo A. Argumedo
         --------------------
     Name: Hugo A. Argumedo
           ----------------
     Title: Chairman
            --------


     TENANT

     SMART & FINAL STORES CORPORATION,
     a California corporation


     By: /s/ Robert J. Emmons
         --------------------
     Name: Robert J. Emmons
     Title: President & CEO
            ----------------


     By: /s/ Donald G. Alvarado
         ----------------------
     Name:  Donald G. Alvarado
            ------------------
     Title:   Sr. Vice President
              ------------------

 

                                       68
<PAGE>
 
                                  EXHIBIT "A"

                              SITE PLAN OF PROJECT







                                      A-1
<PAGE>
 
                                  EXHIBIT "B"

                          LEGAL DESCRIPTION OF PROJECT
                          ----------------------------


The land on which the Project is located is legally described as follows:

Parcel A - Retail (Outlet Mall) Site
------------------------------------

PARCEL 1:

A PORTION OF PARCEL 1 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES 16
THROUGH 18 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN THE SOUTHWESTERLY LINE OF SAID PARCEL l, WHICH BEARS
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 417.09 FEET THERE ALONG FROM THE
SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG SAID SOUTHWESTERLY LINE, BEING
THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, NORTH 43 DEGREES 16 MINUTES 10 SECONDS
WEST 904.75 FEET TO THE BEGINNING OF A CURVE CONCAVE EASTERLY AND HAVING A
RADIUS OF 27.00 FEET; THENCE NORTHWESTERLY, NORTHERLY AND NORTHEASTERLY ALONG
SAID CURVE, 42.41 FEET THROUGH A CENTRAL ANGLE OF 90 DEGREES 00 MINUTES 00
SECONDS TO THE NORTHWESTERLY LINE OF SAID PARCEL l, BEING THE SOUTHEASTERLY LINE
OF HOEFNER AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE ALONG SAID LINE, NORTH 46
DEGREES 43 MINUTES 50 SECONDS EAST 801.40 FEET TO A LINE PARALLEL WITH AND 30.00
FEET SOUTHWESTERLY OF THE NORTHEASTERLY LINE OF SAID PARCEL 1; THENCE ALONG SAID
PARALLEL LINE, SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 495.71 FEET; THENCE
SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 345.83 FEET; THENCE SOUTH 43 DEGREES
16 MINUTES 10 SECONDS EAST 222.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 80.40 FEET; THENCE SOUTH 43 DEGREES 6 MINUTES 10 SECONDS EAST
214.04 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 402.17 FEET TO
THE POINT OF BEGINNING.

EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.

ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.

SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING

                                      B-1
<PAGE>
 
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".

SAID LAND IS ALSO SHOWN AS PARCEL 1 AND A PORTION OF PARCEL 3 OF PARCEL MAP NO.
21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.


Parcel B - Undeveloped Building Site
------------------------------------

PARCEL 1:

A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:

BEGINNING AT THE INTERSECTION OF THE NORTHWESTERLY LINE OF SAID PARCEL 1, BEING
THE SOUTHEASTERLY LINE OF HOEFNER AVENUE, AS SHOWN ON SAID PARCEL MAP AND A LINE
PARALLEL WITH AND 30.00 FEET SOUTHWESTERLY OF THE NORTHEASTERLY LINE OF SAID
PARCEL 1; THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 30.00 FEET TO THE NORTHERLY CORNER OF SAID PARCEL 1;
THENCE ALONG THE NORTHEASTERLY LINE OF SAID PARCEL 1, SOUTH 43 DEGREES 16
MINUTES 10 SECONDS EAST 1278.34 FEET TO ANGLE POINT THEREIN; THENCE CONTINUING
ALONG SAID NORTHEASTERLY LINE AND THE NORTHEASTERLY LINE OF SAID PARCEL 2, SOUTH
33 DEGREES 44 MINUTES 30 SECONDS EAST 120.83 FEET TO AN ANGLE POINT THEREIN;
THENCE CONTINUING ALONG THE NORTHEASTERLY LINE OF SAID PARCEL 2, SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 379.84 FEET TO THE EASTERLY CORNER OF SAID
PARCEL 2; THENCE ALONG THE SOUTHEASTERLY LINE OF SAID PARCEL 2, SOUTH 46 DEGREES
43 MINUTES 50 SECONDS WEST 136.00 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 613.01 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST
30.67 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 178.08 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 40.00 FEET; THENCE NORTH 43
DEGREES 16 MINUTES 10 SECONDS WEST 109.00 FEET; THENCE NORTH 46 DEGREES 43
MINUTES 50 SECONDS EAST 40.00 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 177.54 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
30.67 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 204.00 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 126.00 FEET; THENCE NORTH 43
DEGREES 16 MINUTES 10 SECONDS WEST 495.71 FEET TO THE POINT OF BEGINNING.

EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.

ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING 

                                      B-2
<PAGE>
 
UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE SUBSURFACE
THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A CORPORATION, ITS
SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND USE OF BUILDINGS
AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR INTERFERING WITH
THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF AS HEREINABOVE
SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS, AS RESERVED BY
UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED RECORDED AUGUST 26,
1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.

SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".

SAID LAND IS ALSO SHOWN AS PARCEL 2 AND A PORTION OF PARCEL 3 OF PARCEL MAP NO.
21208, AS PER MAP FILED IN BOOK 242 PAGES l9, 20 AND 21 OF PARCEL MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.


Parcel C - Existing Office Building Sites (Including Site of the "Building")
----------------------------------------------------------------------------

PARCEL 1:

A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN SOUTHWESTERLY LINE OF PARCEL 1 OF SAID PARCEL MAP NO.
13483, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, AS SHOWN ON SAID MAP AND
WHICH POINT BEARS NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 12.00 FEET ALONG
SAID SOUTHWESTERLY LINE FROM THE SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG
SAID SOUTHWESTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 405.09
FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 402.17 FEET; THENCE
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 214.04 FEET; THENCE NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 80.40 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 222.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
219.83 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 204.00 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 177.54 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10
SECONDS EAST 109.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 178.08 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 613.01 FEET TO THE SOUTHEASTERLY LINE OF SAID
PARCEL 2; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 64.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST
66.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 181.12 FEET TO
THE NORTHEASTERLY LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE
ALONG LAST SAID NORTHEASTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST
43.50 FEET TO THE NORTHERLY 

                                      B-3
<PAGE>
 
CORNER OF SAID GASPAR AVENUE; THENCE ALONG THE NORTHWESTERLY LINE OF SAID GASPAR
AVENUE, SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 34.05 FEET; THENCE NORTH 44
DEGREES 49 MINUTES 06 SECONDS WEST 430.66 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 180.30 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 32.50 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST
231.29 FEET TO THE POINT OF BEGINNING.

EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.

ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.

SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT."

SAID LAND IS ALSO SHOWN AS A PORTION OF PARCEL 3 AND PORTION OF PARCEL 4 OF
PARCEL MAP NO. 21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.


Parcel D - Hotel Site
---------------------

PARCEL 1:

A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 18 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHEASTERLY TERMINUS OF THAT CERTAIN COURSE IN THE
SOUTHWESTERLY LINE OF SAID PARCEL 2, SHOWN AS "NORTH 38 DEGREES 16 MINUTES 10
SECONDS WEST 192.41 FEET" ON SAID PARCEL MAP; THENCE ALONG SAID SOUTHWESTERLY
LINE, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, NORTH 38 DEGREES 16
MINUTES 

                                      B-4
<PAGE>
 
10 SECONDS WEST 192.41 FEET; THENCE CONTINUING ALONG SAID LINE, NORTH 43 DEGREES
16 MINUTES 10 SECONDS WEST 241.97 FEET; THENCE LEAVING SAID LINE, NORTH 46
DEGREES 43 MINUTES 50 SECONDS EAST 231.29 FEET; THENCE SOUTH 43 DEGREES 16
MINUTES 10 SECONDS EAST 32.50 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50
SECONDS EAST 180.30 FEET; THENCE SOUTH 44 DEGREES 49 MINUTES 06 SECONDS EAST
430.66 FEET TO THE SOUTHEASTERLY LINE OF SAID PARCEL 2, BEING THE NORTHWESTERLY
LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE ALONG SAID LINE,
SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 413.10 FEET TO THE BEGINNING OF A
CURVE CONCAVE NORTHERLY AND HAVING A RADIUS OF 27.00 FEET; THENCE SOUTHERLY AND
WESTERLY ALONG SAID CURVE, 44.77 FEET THROUGH A CENTRAL ANGLE OF 95 DEGREES 00
MINUTES 00 SECONDS TO THE POINT OF BEGINNING.

EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.

ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER WITHOUT
ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.

SAID LAND IS ALSO SHOWN ON PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6 TO 10
INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,
WHICH MAP CONTAINS THE FOLLOWING RECITAL: "THIS MAP IS FOR FINANCING PURPOSES
ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".

SAID LAND IS SHOWN AS PORTION OF PARCEL 4 OF PARCEL MAP NO. 21208, IN THE CITY
OF COMMERCE, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN
BOOR 242 PAGES 19, 20 AND 21 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY.

PARCEL 2:

NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET, ALL PUBLIC STREETS; FOR THE
PASSAGE OF VEHICLES, PARKING, AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH l, 1990 AS INSTRUMENT NO.
90-330359.

                                      B-5
<PAGE>
 
                                  EXHIBIT "C"

                            FLOOR PLANS OF PREMISES
                            -----------------------










                                      C-1
<PAGE>
 
                                  EXHIBIT "D"

                             CONSTRUCTION AGREEMENT
                             ----------------------


     This Construction Agreement (the "Agreement") is being entered into as of
this ___ day of April, 1998, by and between Commerce Citadel Development
Authority, a California corporation ("Landlord") and Smart & Final Stores
Corporation, a California corporation ("Tenant"), in connection with the
execution of the Lease between Landlord and Tenant dated April ___, 1998 (the
"Lease"), who hereby agree as follows:

SECTION 1.  BASE BUILDING.
            ------------- 

          Pursuant to the terms of the Lease,  Landlord shall deliver to Tenant
the following items (sometimes collectively referred to herein as the "Base
Building"): (i) the base, shell and core of the Building; (ii) all base building
systems, including without limitation heating, ventilation and air conditioning
("HVAC"), mechanical (including without limitation elevators), electrical,
plumbing and telephone (collectively, the "Building Systems"); (iii) the curtain
wall; (iv) the structural components of the Building; and the exterior roof of
the Building.  Delivery of the Base Building shall be made in its current, "as-
is" condition; provided, however, that notwithstanding the "as-is" nature of
Landlord's delivery of the Base Building, Landlord agrees that it shall promptly
improve the Base Building, at Landlord's expense, as necessary to remedy any
defects which are disclosed to Landlord by Tenant in a written notice delivered
not later than thirty (30) days after the earlier of (a) the date on which
Tenant discovers the defect, or (b) Landlord's delivery to Tenant of the portion
of the Premises in which the defect is located.  Moreover, Landlord covenants
that upon Landlord's delivery to Tenant of the Base Building, each component
thereof identified above shall be in good working order and shall comply with
all applicable laws, and Landlord shall at its expense make any improvements
necessary to cause said covenant to be true (regardless of the date on which
Tenant notifies Landlord of the need for such improvement).  Tenant acknowledges
that portions of the Premises are now or have previously been occupied by other
tenants, and that upon delivery to Tenant the Premises may, in Landlord's
discretion, include some or all tenant improvements previously installed in
connection with such occupancy.

SECTION 2.  CONSTRUCTION DRAWINGS.
            --------------------- 

          2.1  Selection of Architect.  Tenant shall retain, and Landlord hereby
               ----------------------                                           
approves, Wirt Design Group, or any other architect/space planner designated by
Tenant and reasonably approved by Landlord (the "Architect") to prepare the
"Construction Drawings" (as defined in Section 2.2 below), which approval shall
be granted or denied by Landlord within five (5) business days after Tenant has
submitted the proposed Architect to Landlord.  Any engineering consultants
("Engineers") to be used by Tenant in connection with the Construction Drawings
shall be subject to the reasonable approval of Landlord, which approval shall be
granted or denied by Landlord within five (5) business days after Tenant has
submitted the proposed Engineers to Landlord.

                                      D-1
<PAGE>
 
          2.2  Preparation of Construction Drawings.  The plans and drawings to
               ------------------------------------                            
be prepared by Architect and the Engineers hereunder shall be known collectively
as the "Construction Drawings."  All additions or modifications to the Premises
disclosed on the Construction Drawings shall be referred to herein as the
"Tenant Improvements".  All Construction Drawings shall comply with the drawing
format and specifications determined by Landlord, and shall be subject to
Landlord's approval.  Tenant and Architect shall verify, in the field, the
dimensions and conditions as shown on the relevant portions of any Base Building
plans, and Tenant and Architect shall be solely responsible for the same, and
Landlord shall have no responsibility in connection therewith.  Landlord's
review of the Construction Drawings as set forth in this Section 2.2 shall be
for its sole purpose and shall not obligate Landlord to review (or imply that
Landlord has reviewed) the same for quality, design, building code compliance or
other like matters.  Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's space planner, architect, engineers, and
consultants, Landlord shall have no liability whatsoever in connection therewith
and shall not be responsible for any omissions or errors contained in the
Construction Drawings.  Without limiting the generality of the foregoing, the
floor plans which are part of the Construction Drawings shall show any item
reasonably requested by Landlord (including without limitation any dimensions,
locations, types, weights, specifications, special requirements, or colors
thereof).

          2.3  Final Working Drawings.  Tenant, the Architect and the Engineers
               ----------------------                                          
shall complete the architectural, engineering, structural, mechanical,
electrical and plumbing drawings for the Premises in a form which is complete to
allow subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval.  The Final Working Drawings may be submitted
in one or more stages at one or more times, provided that Tenant shall
ultimately supply Landlord with four (4) completed copies signed by Tenant of
such Final Working Drawings.  Landlord shall, within three (3) business days
after Landlord receives the Final Working Drawings, either (a) approve the Final
Working Drawings, (b) approve the Final Working Drawings subject to specified
conditions to be satisfied by Tenant prior to submitting the Approved Working
Drawings for permits as set forth in Section 2.4, below, or (c) disapprove the
Final Working Drawings and return them to Tenant with requested revisions;
provided, however, that Landlord shall only be entitled to conditionally approve
pursuant to item (b) above or disapprove pursuant to item (c) above the Final
Working Drawings if they materially deviate from the Construction Drawings, or
for any of the following reasons: (i) an adverse effect on the structural
integrity of the Building; (ii) non-compliance with applicable laws; (iii) an
adverse effect on the systems and equipment of the Building; or (iv) an adverse
effect on the exterior appearance of the Building (individually or collectively,
a "Design Problem").  If Landlord disapproves the Final Working Drawings, Tenant
may resubmit the Final Working Drawings to Landlord at any time, and Landlord
shall approve or disapprove of the resubmitted Final Working Drawings within two
(2) business days after Landlord receives such resubmitted Final Working
Drawings.

          2.4  Permits.  The Final Working Drawings shall be approved by
               -------                                                  
Landlord (the "Approved Working Drawings") prior to the commencement of the
construction of the Tenant Improvements.  Architect shall submit the Approved
Working Drawings to the appropriate municipal 

                                      D-2
<PAGE>
 
authorities for all applicable building permits necessary to allow the
"Contractor," as that term is defined in Section 3.1, below, to commence and
fully complete the construction of the Tenant Improvements. Landlord shall be
responsible for obtaining any building permits for the Premises necessary to
construct the Tenant Improvements pursuant to the Approved Working Drawings, and
Tenant shall be responsible for obtaining any building permits necessary
relative to any "Tenant Change" (as defined in Section 2.5 below) and any
certificate of occupancy for the Premises. Each party shall cooperate with the
other in executing permit applications and performing other ministerial acts
reasonably necessary to enable the party charged with obtaining any such permit
or certificate of occupancy to do so. Landlord shall use its best efforts (at no
additional cost to Landlord) to cause the City of Commerce to expedite
processing of all permit applications relative to construction of the Tenant
Improvements.

          2.5  Change Orders.  In the event Tenant desires to change the
               -------------                                            
Approved Working Drawings, Tenant shall deliver notice (the "Drawing Change
Notice") of the same to Landlord, setting forth in detail the changes (the
"Tenant Change") Tenant desires to make to the Approved Working Drawings.
Landlord shall, within two (2) business days of receipt of the Drawing Change
Notice, either (i) approve the Tenant Change, or (ii) disapprove the Tenant
Change and deliver a notice to Tenant specifying in detail the reasons for
Landlord's disapproval; provided, however, that Landlord may only disapprove of
the Tenant Change if the Tenant Change contains a Design Problem or materially
deviates from the Approved Working Drawings.  Any additional costs which arise
in connection with such Tenant Change shall be paid by Tenant.

SECTION 3.  CONSTRUCTION OF THE TENANT IMPROVEMENTS.
            --------------------------------------- 

          3.1  The Contractor.  Tenant shall retain a licensed general
               --------------                                         
contractor (the "Contractor") as contractor for the construction of the Tenant
Improvements.  The Contractor shall be selected by Tenant, but subject to
Landlord's approval, which approval shall not be unreasonably withheld or
conditioned, and which approval or refusal shall be granted or denied within
three (3) business days after Tenant has submitted the name of the proposed
Contractor.

          3.2  Tenant's Agents.  All subcontractors, laborers, materialmen, and
               ---------------                                                 
suppliers used by Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "Tenant's Agents")
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed, and which approval or refusal shall be granted
or denied within three (3) business days after Tenant has submitted the names
thereof to Landlord.

          3.3  Landlord's General Conditions for Tenant's Agents and Tenant
               ------------------------------------------------------------
Improvement Work.  Tenant's and Tenant's Agent's construction of the Tenant
----------------                                                           
Improvements shall comply with the following: (i) the Tenant Improvements shall
be constructed in strict accordance with the Approved Working Drawings; (ii)
Tenant's Agents shall submit schedules of all work relating to the Tenant
Improvements to Contractor and Landlord, and Contractor shall, within five (5)
business days of receipt thereof, inform Landlord and Tenant's Agents of any
changes which are necessary thereto, and Tenant's Agents shall adhere to such
corrected schedule; and (iii) Tenant shall abide by all reasonable 

                                      B-3
<PAGE>
 
rules made by Landlord's Building manager with respect to the use of freight,
loading dock and service elevators, storage of materials, coordination of work
with the contractors of other tenants, and any other matter in connection with
this Construction Agreement, including, without limitation, the construction of
the Tenant Improvements.

          3.4  Indemnity.  Tenant's Indemnity of Landlord and assumption of
               ---------                                                   
risks set forth in Sections 14.1 and 14.6 of the Lease shall also apply with
respect to any and all costs, losses, damages, injuries and liabilities related
in any way to any act or omission of Tenant or Tenant's Agents, or anyone
directly or indirectly employed by any of them, or in connection with Tenant's
non-payment of any amount arising out of the Tenant Improvements and/or Tenant's
disapproval of all or any portion of any request for payment.  Such indemnity by
Tenant shall also apply with respect to any and all costs, losses, damages,
injuries and liabilities (except for those caused by Landlord's negligence or
willful misconduct or by the negligence or willful misconduct of Landlord's
Employees, as that term is defined in Paragraph 14.1 of the Lease) related in
any way to Landlord's performance of any ministerial acts reasonably necessary
(i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable
Tenant to obtain any building permit or certificate of occupancy for the
Premises.

          3.5  Guarantees and Warranties.  Each of Tenant's Agents shall
               -------------------------                                
guarantee to Tenant and for the benefit of Landlord that the portion of the
Tenant Improvements for which it is responsible shall be free from any defects
in workmanship and materials for a period of not less than one (1) year from the
date of completion thereof.  Each of Tenant's Agents shall be responsible for
the replacement or repair, without additional charge, of all work done or
furnished in accordance with its contract that shall become defective within one
(1) year after the later to occur of (i) completion of the work performed by
such contractor or subcontractors and (ii) the Commencement Date of the Lease.
The correction of such work shall include, without additional charge, all
additional expenses and damages incurred in connection with such removal or
replacement of all or any part of the Tenant Improvements, and/or the Building
and/or common areas that may be damaged or disturbed thereby.  All such
warranties or guarantees as to materials or workmanship of or with respect to
the Tenant Improvements shall be contained in the construction contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either.  Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such right of direct enforcement.

          3.6  Governmental Compliance.  The Tenant Improvements shall comply in
               -----------------------                                          
all respects with the following: (i) all state, federal, county and city laws,
codes, ordinances and regulations, as each may apply according to the rulings of
the controlling public official, agent or other person; (ii) applicable
standards of the American Insurance Association (formerly, the National Board of
Fire Underwriters) and the National Electrical Code; (iii) building material
manufacturer's specifications; and (iv) applicable provisions of California's
Title 24 requirements.

          3.7  Inspection by Landlord.  Subject to Section 48.19 of the Lease,
               ----------------------                                         
Landlord shall have the right to inspect the Tenant Improvements at all times,
provided, however, that Landlord's 

                                      D-4
<PAGE>
 
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Landlord shall
have the right to disapprove of the Tenant Improvements based only on Design
Problems or on material deviations from the Approved Working Drawings. Should
Landlord disapprove any portion of the Tenant Improvements, Landlord shall
notify Tenant in writing of such disapproval and shall specify the items
disapproved. Any defects or deviations from the Approved Working Drawings in,
and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by
Tenant at no expense to Landlord, provided however, that in the event Landlord
determines that a defect or deviation exists or disapproves of any matter in
connection with any portion of the Tenant Improvements and such defect,
deviation or matter might adversely affect the mechanical, electrical, plumbing,
heating, ventilating and air-conditioning or life-safety systems of the
Building, the structure or exterior appearance of the Building or any other
tenant's use of such other tenant's leased premises, and where the defect,
deviation or other disapproved matter is not corrected within thirty (30) days
after Landlord's delivery to Tenant of written notice thereof (or, if the nature
of the defect, deviation or other disapproved matter is such that more than 30
days is reasonably necessary for its cure, where Tenant fails to commence to
cure the same within said 30 day period or fails to thereafter diligently
continue such cure process until complete), then upon notice to Tenant Landlord
may take such action as Landlord deems necessary, at Tenant's expense and
without incurring any liability on Landlord's part, to correct any such defect,
deviation and/or matter, including, without limitation, causing the cessation of
performance of the construction of the Tenant Improvements until such time as
the defect, deviation and/or matter is correct to Landlord's satisfaction.

          3.8  Meetings.  Commencing upon the execution of this Lease, Tenant
               --------                                                      
shall use commercially reasonable efforts to hold weekly meetings at a
reasonable time with the Architect and the Contractor regarding the progress of
the preparation of Construction Drawings and the construction of the Tenant
Improvements, which meetings shall be held at a location designated by Landlord,
and Landlord and/or its agents shall receive prior notice of, and shall have the
right to attend, all such meetings, and, upon Landlord's request, certain of
Tenant's Agents shall attend such meetings.  In addition, minutes shall be taken
at all such meetings, a copy of which minutes shall be promptly delivered to
Landlord.

          3.9  Notice of Completion; Copy of Record Set of Plans.  Within ten
               -------------------------------------------------             
(10) days after completion of construction of the Tenant Improvements, Tenant
shall cause a Notice of Completion to be recorded in the office of the Recorder
of the County of Los Angeles in accordance with Section 3093 of the Civil Code
of the State of California or any successor statute, and shall furnish a copy
thereof to Landlord upon such recordation.  If Tenant fails to do so, Landlord
may execute and file the same on behalf of Tenant as Tenant's agent for such
purpose, at Tenant's sole cost and expense.  At the conclusion of construction,
Tenant shall cause the Architect and Contractor to (i) update the Approved
Working Drawings as necessary to reflect all changes made to the Approved
Working Drawings during the course of construction, (ii) certify to the best of
their knowledge that the "record-set" of mylar as-built drawings are true and
correct, which certification shall survive the expiration or termination of the
Lease, and (iii) deliver to Landlord two (2) sets of copies of such record set
of 

                                      D-5
<PAGE>
 
drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises. At the conclusion of construction, Tenant shall also
deliver to Landlord a copy of all warranties, guarantees, and operating manuals
and information relating to the Tenant Improvements, equipment, and systems in
the Premises.

SECTION 4.  CONSTRUCTION INSURANCE.
            ---------------------- 

          4.1  General Coverages.  All of Tenant's Agents shall carry worker's
               -----------------                                              
compensation insurance covering all of their respective employees, and shall
also carry public liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in Sections 7.3(a) and 14 of the Lease.

          4.2  Special Coverages.  Tenant shall carry "Builder's All Risk"
               -----------------                                          
insurance in an amount approved by Landlord covering the construction of the
Tenant Improvements, and such other insurance as Landlord may require, it being
understood and agreed that the Tenant Improvements shall be insured by Tenant
pursuant to Section 14.3(b) of the Lease immediately upon completion thereof.
Such insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord including, but not
limited to, the requirement that all of Tenant's Agents shall carry excess
liability and Products and Completed Operation Coverage insurance, each in
amounts not less than $1,000,000 per incident, $2,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth in
Section 14 of the Lease.

          4.3  General Terms.  Certificates for all insurance carried pursuant
               -------------                                                  
to this Section 4 shall be delivered to Landlord before the commencement of
construction of the Tenant Improvements and before the Contractor's equipment is
moved onto the site.  All such policies of insurance must contain a provision
that the company writing said policy will give Landlord thirty (30) days' prior
written notice of any cancellation or lapse of the effective date or any
reduction in the amounts of such insurance.  In the event that the Tenant
Improvements are damaged by any cause (other than Landlord's or Landlord's
Employees' negligence or willful misconduct) during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense.  Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord, except for any Products and Completed Operation Coverage insurance
required by Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant.  All policies
carried under this Section 4 shall insure Landlord and Tenant, as their
interests may appear, as well as Contractor and Tenant's Agents.  All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder.  Such
insurance shall provide that it is primary insurance as respects the Landlord
and that any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder.  The requirements for the
foregoing insurance shall not derogate from the provisions for indemnification
of Landlord by Tenant under Section 4 of this Construction Agreement.

SECTION 5.  MISCELLANEOUS.
            ------------- 

                                      D-6
<PAGE>
 
          5.1  Tenant's Representative.  Tenant has designated Steve Zick as its
               -----------------------                                          
sole representative with respect to the matters set forth in this Agreement,
who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Agreement.

          5.2  Landlord's Representative.  Landlord has designated Justin
               -------------------------                                 
McCarthy as its sole representative with respect to the matters set forth in
this Agreement, who, until further notice to Tenant, shall have full authority
and responsibility to act on behalf of the Landlord as required in this
Agreement.
 
          5.3  Time of the Essence in This Agreement.  Unless otherwise
               -------------------------------------                   
indicated, all references herein to a "number of days" shall mean and refer to
calendar days.  In all instances where Tenant is required to approve or deliver
an item, if no written notice of approval is given or the item is not delivered
within the stated time period, at the end of such period the item shall
automatically be deemed disapproved by Tenant.

          5.4  Miscellaneous Charges.  During the period of construction of the
               ---------------------                                           
Tenant Improvements and Tenant's move into the Premises (to the extent that
those activities are conducted prior to the Commencement Date), Tenant or
Tenant's agents shall not be charged for, directly or indirectly, Landlord's
supervision and/or overhead, parking, restrooms, elevator usage, hoists, access
to loading docks, freight elevator usage, or security.

          5.5  Clean-Up.  Prior to the delivery of the Premises to Tenant for
               --------                                                      
the commencement of the construction of the Tenant Improvements, Landlord shall
deliver the Premises to Tenant in the condition required by Section 1 hereof.
Following Tenant's move into the Premises, Tenant shall reasonably clean the
Premises, including the removal of all rubbish and debris.

          5.6  Staging Area Storage Space.  During the period commencing on the
               --------------------------                                      
date of this Lease and prior to the Lease Commencement Date, Tenant shall have
the right, without the obligation to pay rent, to use the empty space in the
Building for the purposes of storing and staging Tenant's property.  With
respect to this free storage space, Tenant shall provide all insurance and any
necessary fencing or other protective facilities.  Tenant shall hold Landlord
harmless and indemnify Landlord from and against any and all loss, liability or
cost arising out of or in connection with use of this storage space by Tenant,
except to the extent caused by the negligence or willful misconduct of Landlord.
Tenant shall be obligated to remove all of the stored materials and its fencing
and other facilities within thirty (30) days after written notice from Landlord
that such staging area is needed by Landlord for construction of another
tenant's premises.

                                      D-7
<PAGE>
 
          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

     "LANDLORD"

     COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
     California corporation


     By: _________________________________________
     Name: _______________________________________
     Title: ______________________________________


     "TENANT"

     SMART & FINAL STORES CORPORATION,
     a California corporation


     By: ________________________________________
     Name: ______________________________________
     Its: _______________________________________


     By: ________________________________________
     Name: ______________________________________
     Its: _______________________________________

                                      D-8
<PAGE>
 
                                  EXHIBIT "E"

                          NOTICE OF COMMENCEMENT DATE
                          ---------------------------

                                                 Date: ____________
To: ____________________

Re:  Lease dated _____, 19_____ between Commerce Citadel Development Authority,
     Landlord, and Smart & Final Stores Corporation, Tenant, concerning Suite
     _____located at _____.

Gentlemen:

     In accordance with the subject Lease, we wish to advise and/or confirm as
follows:

     1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the subject Lease, and that there is
no deficiency in construction, and that the Rentable Area of the Premises is
_____.

     2. That the Tenant has possession of the subject Premises and acknowledges
that under the provisions of the subject Lease, the Term of said Lease commenced
as of _____ for a term of _____ (_____) months, ending on _____.

     3. That in accordance with the subject Lease, Base Rent commenced to accrue
on _____.

     4. If the Commencement Date of the subject Lease is other than the first
day of the month, the first billing will contain a pro rata adjustment.  Each
billing thereafter shall be for the full amount of the monthly installment as
provided for in said Lease.


                                      E-1
<PAGE>
 
     5. Rent is due and payable in advance on the first day of each and every
month during the Term of said Lease.  Your rent checks should be made payable to
_____ at _____.

     "LANDLORD"

     COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
     California corporation

 
     By: _______________________________________
     Name: _____________________________________
     Title: ____________________________________



AGREED AND ACCEPTED:

"TENANT"

SMART & FINAL STORES CORPORATION,
a California corporation


By: ____________________________________
Name:  _________________________________
Its: ___________________________________


                                      E-2
<PAGE>
 
                                  EXHIBIT "F"

                             RULES AND REGULATIONS
                             ---------------------

      1.       The sidewalks, entrances, exits, passages, parking areas, courts,
elevators, vestibules, stairways, corridors, terraces, lobbies or halls shall
not be obstructed or used for any purpose other than ingress and egress.  The
halls, passages, entrances, exits, elevators and stairways are not for the use
of the general public, and Landlord shall retain the right to control and
prevent access thereto of all persons whose presence, in the judgment of
Landlord, is deemed to be prejudicial to the safety, character, reputation and
interests of the Building and its tenants.  No Tenant or any of Tenant's
Employees shall go up on the roof of the Building.

      2.       No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window of the Premises other than
Landlord's standard window covering without Landlord's prior written consent.
All electric ceiling fixtures hung in offices or spaces along the perimeter of
the Building must be fluorescent, of a quality, type, design and bulb color
approved by Landlord.  Neither the interior nor exterior of any windows shall be
coated or otherwise sunscreened without the prior written consent of Landlord.

      3.       No signs, picture, placard, advertisement, notice, lettering,
direction or handbill shall be exhibited, distributed, painted, installed,
displayed, inscribed, placed or affixed by any Tenant on any part of the
exterior of Premises or the interior of the Premises which is visible from the
exterior of the Premises, the Building or the Project without the prior written
consent of Landlord.  In the event of the violation of the foregoing by Tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred in such removal to Tenant.  Interior signs on doors shall be inscribed,
painted or affixed for Tenant by Landlord at Tenant's sole cost and expense, and
shall be of a size, color and style acceptable to Landlord.  Nothing may be
placed on the exterior of corridor walls or corridor doors other than Landlord's
building standard sign on the corridor door, applied and installed by Landlord.

      4.       The Building directory will be provided exclusively for the
display of the name and location of tenants of the Building and Landlord
reserves the right to exclude any other names therefrom.  Any additional name(s)
which Tenant shall desire to have placed on the Building directory must first be
approved by Landlord and paid for by Tenant.

      5.       Subject to Paragraph 7 of the Lease, (i) Tenant shall not drill
into, or in any way deface any part of the Premises or Building, and (ii) no
boring, cutting or stringing of wires or laying of linoleum or other similar
floor coverings shall be permitted.

      6.       No bicycles, vehicles, birds or animals of any kind shall be
brought into or kept in or about the Premises or the Building, and, subject to
the terms of Paragraph 6 of the Lease, no cooking shall be done or permitted by
Tenant on the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for Tenant and Tenant's Employees shall be
permitted; provided, 

                                      F-1
<PAGE>
 
however, that the power required shall not exceed that amount which can be
provided by a 30-amp circuit. Tenant shall not cause or permit any unusual or
objectionable odors to be produced or to permeate the Premises or the Building.

      7.       The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes.  No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public stenographer or
typist or for the manufacture or sale of liquor, narcotics, or tobacco in any
form, or as a medical office, or as a barber or manicure shop, or as an
employment bureau, or as a travel agency, without the prior written consent of
Landlord.  Tenant shall not sell or permit the sale of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise in or on the
Premises.  Tenant shall not engage or pay any employees on the Premises except
those actually working for Tenant on the Premises nor shall Tenant advertise for
laborers giving an address at the Premises.  The Premises shall not be used for
lodging or sleeping or for any illegal purposes.

      8.       Tenant shall not make or permit to be made, any unseemly noises
which disturb other occupants of the Building, whether by the use of any musical
instrument, radio, television, phonograph, screening room, loud, unusual or
disruptive noise, or in any other way.  Tenant shall not use, keep or permit to
be used any foul or noxious gas or substance in, on or about the Premises.

      9.       Subject to Paragraph 6.4(a) of the Lease, Tenant or any of
Tenant's Employees shall not at any time bring or keep within the Premises or
the Building any flammable, combustible or explosive fluid, chemical substance,
or material.  Electric spaceheaters shall not be used at any time by Tenant.

      10.      No new or additional locks or bolts of any kind shall be placed
upon any of the doors by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof without the prior written consent of Landlord.  If
Landlord consents to such a lock change, Tenant must furnish Landlord with a
key.  Tenant must, upon the termination of its tenancy, give, return, and
restore to Landlord all keys of stores, offices, vaults, and toilet rooms,
either furnished to, or otherwise procured by Tenant, and in the event at any
time of any loss of keys so furnished, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such changes.

      11.      Furniture, freight, packages, equipment, safes, bulky matter or
supplies of any description shall be moved in or out of the Building only after
the Building manager has been furnished with prior notice and given his/her
approval and only during such hours and in such manner as may be prescribed by
the Landlord from time to time.  The scheduling and manner of all tenant move-
ins and move-outs shall be subject to the discretion and approval of Landlord,
and said move-ins and move-outs shall only take place after 6:00 P.M. on
weekdays, on weekends, or at such other times as Landlord may designate.
Landlord shall have the right to approve or disapprove the movers or moving
company employed by Tenant, and Tenant shall cause said movers to use only the
loading facilities and elevators designated by Landlord.  Notwithstanding the
foregoing, the provisions of this Paragraph 11 

                                      F-2
<PAGE>
 
shall not apply during any period when Tenant is managing the Building pursuant
to Paragraph 11.6 of the Lease.

      12.      In the event Tenant's movers damage the elevator or any other
part of the Premises or Building, Tenant shall immediately pay to Landlord the
amount required to repair said damage.  The moving of safes or other fixtures or
bulky or heavy matter of any kind must be done under Landlord's (or its Building
manager's) supervision, or in a manner approved by Landlord (or it's Building
manager), in order to ensure that elevator and floor load capacities of the
Building are not exceeded.  The person employed by any Tenant to move said items
must be reasonably acceptable to Landlord, but such persons shall not be deemed
to be agents or servants of Landlord or it's Building manager.  The Landlord
reserves the right to inspect all safes, freight or other bulky or heavy
articles to be brought into the Building and to exclude from the Building all
safes, freight or other bulky or heavy articles which would exceed the elevator
or floor load capacities of the Building.  Landlord reserves the right to
determine the location and position of all safes, freight, furniture or bulky or
heavy matter brought onto the Premises, which must be placed upon supports
approved by Landlord to distribute the weight.

      13.      No furniture shall be placed in front of the Building, or in any
lobby or corridor or balcony, without the prior written consent of Landlord;
provided, however, that Tenant shall have the right to place furniture in the
first floor lobby of the Building in connection with Tenant's use of the lobby
as a reception area.  Landlord shall have the right to remove all non-permitted
furniture, without notice to Tenant, and at the sole cost and expense of Tenant.

      14.      Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's sole opinion, tends to impair the reputation of the
Building or its desirability as an office building and, upon written notice from
Landlord, Tenant shall immediately refrain from or discontinue such advertising.

      15.      Landlord reserves the right to exclude from the Building between
the hours of 5:00 P.M. and 9:00 A.M., Monday through Friday, and at all hours on
Saturday, Sunday, and state and federal holidays, all persons who are not
authorized by Tenant.  Such authorization shall be in accordance with procedures
established by Landlord in its sole and absolute discretion.  Tenant shall be
responsible for all persons for whom it causes to be present in the Building and
shall be liable to Landlord for all acts of such persons.  In the case of
invasion, riot, public excitement, act of God, or other circumstance rendering
such action advisable in Landlord's opinion, Landlord reserves the right to
prevent access of all persons, including Tenant, to the Building during the
continuance of the same by such actions as Landlord may deem appropriate,
including the closing and locking of doors.

      16.      Any persons employed by Tenant to do any work in or about the
Premises shall, while in the Building and outside of the Premises, be subject to
and under the control and direction of the superintendent of the Building (but
shall not be deemed to be an agent or servant of said superintendent or of the
Landlord), and Tenant shall be responsible for all acts of such persons.

                                      F-3
<PAGE>
 
      17.      All doors opening onto public corridors shall be kept closed,
except when in use for ingress and egress.  All doors leading to equipment and
utility rooms shall be kept closed.

      18.      Canvassing, soliciting and peddling in or about the Building are
prohibited and Tenant shall cooperate to prevent the same.

      19.      All office equipment of any electrical nature shall be placed by
Tenant in the Premises in settings and locations approved by Landlord, to absorb
or prevent any vibration, noise and annoyance.

      20.      No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the prior written consent of Landlord.

      21.      Tenant shall faithfully observe and comply (consistent with the
level of observation and compliance therewith by the other tenants of the
Project) with the terms of any and all covenants, conditions and restrictions
recorded against the Project, provided Landlord provides Tenant with notice of
the same.

      22.      Restrooms and other water fixtures shall not be used for any
purpose other than that which the same are intended, and any damage resulting to
the same from misuse on the part of Tenant or Tenant's Employees shall be paid
for by Tenant.  Tenant shall be responsible for causing all water faucets, water
apparatus and utilities to be shut off before Tenant or Tenant's Employees leave
the Premises each day and Tenant shall be liable for any waste or damage
sustained by other tenants or occupants of the Building or Landlord as a result
of Tenant's failure to perform said duty.

      23.      In the event the Building or the Premises is or later becomes
equipped with an electronic access control device, Tenant shall pay Landlord the
sum of ten dollars ($10.00) for each identification key or card issued to Tenant
as a deposit against the return of the identification key or card to Landlord.

      24.      For all purposes of this Exhibit "E", the term "Tenant" shall be
defined to include and encompass Tenant's employees, agents and contractors.

      25.      Landlord may amend, rescind, or add additional rules and
regulations from time to time in accordance with Paragraph 21 of the Lease.
Tenant shall comply with all such amended or additional rules, except to the
extent that they directly conflict with rights granted to Tenant by the attached
Lease.

                                      F-4
<PAGE>
 
                                  EXHIBIT "G"

                      STANDARDS FOR UTILITIES AND SERVICES
                      ------------------------------------

     The furnishing of building services and utilities to Tenant shall be
accomplished in accordance with and subject to the terms and conditions set
forth in this Exhibit "G" and elsewhere in the Lease.  Landlord reserves the
right to adopt from time to time such reasonable modifications and additions
hereto as Landlord may deem appropriate; provided, however, that no such
modifications or additions shall alter the times during which such services and
utilities are provided or materially reduce the types or quality of said
utilities and services.

     1. Subject to the full performance by Tenant of all of Tenant's obligations
under the Lease, Landlord shall, on Monday through Friday, from 7:00 A.M. to
6:00 P.M., and on Saturday, from 9:00 A.M. to 1:00 P.M., excepting state and
federal holidays ("Normal Hours"), provide the following standard building
services and utilities:

        (a)  Provide automatic elevator facilities on Monday through Friday,
7:00 A.M. to 6:00 P.M. only, and have one automatic elevator available at all
other times (if the Building is passenger elevator equipped).  Specifications
and related data pertaining to the elevators serving the Building are set forth
at "Attachment 1" to this Exhibit "G".

        (b)  Provide to the Premises, during Normal Hours, heating, ventilation,
and air conditioning ("HVAC") when, in the judgment of Landlord or Tenant, it
may be required for the comfortable occupancy of the Premises for general office
purposes (subject, however, to any governmental act, proclamation or
regulation).  The extent of HVAC services which Landlord is obligated to provide
shall be limited as set forth in the Lease, in this Exhibit "G", and in Exhibit
"H" to the Lease.

        (c)  Provide to the Premises electric current for routine lighting and
the operation of general office machines such as typewriters, dictating
equipment, desk model adding machines, photocopy machines and "small" computers
incidental to the conduct of normal general office business, which use 110/220-
volt electric power, not to exceed the reasonable capacity of Building Standard
office lighting and receptacles, and not in excess of limits imposed by any
governmental authority.  Electrical capacity specifications for the Building are
set forth at "Attachment 2" to this Exhibit "G".

        (d)  Provide at all times reasonably necessary amounts of water for
restrooms furnished by Landlord.

        (e)  Provide janitorial services to the Premises each evening, Sunday
through Thursday (except state and federal holidays), provided the Premises are
used exclusively in accordance with Paragraph 6 of the Lease, and are kept
reasonably in order by Tenant.  Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish, to the extent that the same exceeds the
refuse and rubbish usually attendant upon the use of the Premises for general
office purposes.  Said janitorial 

                                      G-1
<PAGE>
 
services shall be performed at Landlord's direction without interference by
Tenant or Tenant's Employees. Janitorial standards for the Building are set
forth at Sections III through IX of "Attachment 3" to this Exhibit "G".

     2. Landlord shall have the exclusive right to replace, and shall replace in
a timely fashion, electric light bulbs, tubes and ballasts in the Premises
throughout the Term.  The Landlord may, at Landlord's sole discretion, adopt a
system of relamping and reballasting periodically on a group basis in accordance
with good practice.

     3. No electrical equipment, air conditioning or heating units, or plumbing
additions shall be installed, nor shall any changes to the Building's HVAC,
electrical or plumbing systems be made which would possibly adversely affect the
Building or such systems without prior written consent of Landlord, which
consent shall be subject to Landlord's reasonable discretion.  Landlord reserves
the right to reasonably designate and/or approve the contractor to be used by
Tenant.  Any permitted installations shall be made under Landlord's supervision.
Tenant shall pay any additional cost on account of any increased support to the
floor load or additional equipment required for such installations, and such
installations shall otherwise be made in accordance with Paragraph 7.3 of the
Lease.

     4. Tenant shall not, without the prior written consent of Landlord, use any
apparatus, machine or device in the Premises, which will increase the amount of
electricity used in the Premises beyond the Building's electrical capacity.

     5. Tenant shall separately arrange with the applicable local public
authorities, utility companies and telephone companies, as the case may be, for
the furnishing of, and payment of, all telephone services as may be required by
Tenant in the use of the Premises; provided, however, that Tenant shall neither
bear the cost of nor be responsible for installation of the telephone wiring
stubbed to the telephone room.  Tenant shall directly pay for such telephone
services, including the establishment and connection thereof, at the rates
charged for such services by said authority, telephone company or utility, and
the failure of Tenant to obtain or to continue to receive such services for any
reason whatsoever shall not relieve Tenant of any of its obligations under the
Lease nor constitute a breach of the Lease by Landlord.

     6.  Tenant agrees to cooperate fully at all times with Landlord to assure,
and to abide by all reasonable regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the Building's HVAC,
electrical, security (if any), and/or plumbing systems.

                                      G-2
<PAGE>
 
                                  EXHIBIT "H"

                              HVAC SPECIFICATIONS
                              -------------------






                                      H-1
<PAGE>
 
                                  EXHIBIT "I"

            SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
            -------------------------------------------------------











                                      I-1
<PAGE>
 
                                  EXHIBIT "J"

                              ESTOPPEL CERTIFICATE
                              --------------------

                                                            DATE:______________

Gentlemen:

     The undersigned hereby certifies as follows:

     1.   Smart & Final Stores Corporation, as "Tenant," and Commerce Citadel
Development Authority, as "Landlord," entered into a written lease dated _____,
19_____, ("Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord, certain "Premises" described in said Lease and located in the City of
Commerce, County of Los Angeles, State of California.

     2.  The Lease is in full force and effect and has not been amended,
modified, supplemented or assigned by Tenant except by written agreement(s)
dated, _____, 19_____.  The Lease represents the entire agreement between
Landlord and Tenant.

     3.  Tenant has accepted the Premises and presently occupies them, and is
paying rent on a current basis.  Tenant has no setoffs, claims, or defenses to
the enforcement of the Lease.

     4.  As of the date of this certificate, Tenant is not in default in the
performance of any of its obligations under the Lease, and has not committed any
breach of the Lease, and no notice of default has been given to Tenant.

     5.  As of the date of this certificate, Landlord is not in default in the
performance of any of its obligations under the Lease, and has not committed any
breach of the Lease, and no notice of default has been given to Landlord.

     6.  Base Rent (as defined in the Lease) in the amount of $________ was
payable from _____, 19_____.  No Base Rent has been paid by Tenant in advance
under the Lease except for a payment that becomes due on _____, 19_____.  The
amount of the Operating Expense Adjustment (as defined in the Lease) currently
payable by Tenant is $_____ per month and Tenant has paid such amounts up to and
including _____.  A Security Deposit in the amount of $_____ was deposited with
Landlord on _____, 19_____.

     7.  Tenant has no claim against Landlord for any other security deposit,
prepaid fee or charge or prepaid rent except as provided in Paragraph 6 of this
certificate.

     8.  Tenant is executing and delivering this certificate with the
understanding that either a potential buyer is contemplating acquiring all or a
part of the Project or a potential lender or ground lessor is contemplating
providing financing or a ground lease which affects the Building and/or the
Project and that said buyer, lender or ground lessor will be entering into said
transaction in material 

                                      J-1
<PAGE>
 
reliance on this certificate.

                         "TENANT"
 
                         SMART & FINAL STORES CORPORATION,
                         a California corporation
 
                         By: _____________________________________
                         Name: ___________________________________
                         Its: ____________________________________





                                      J-2
<PAGE>
 
                                  EXHIBIT "K"

                               PARKING FACILITIES
                               ------------------


     Provided the Lease remains in effect, Tenant and Tenant's designated
employees shall be entitled during the Term upon reasonable prior notice to
Landlord, to (a) acquire monthly parking licenses, privileges or leases (without
charge) for automobiles to reflect a parking ratio of six (6) cars per one
thousand (1,000) rentable square feet of the Premises (with respect to the
Building) and a parking ratio of four (4) cars per one thousand (1,000) rentable
square feet of the Premises (with respect to other portions of the Project; and
(b) park said automobiles in the Parking Facilities without charge.  In each
case, Tenant (or its designated employee) shall enter into parking licenses or
lease agreements (without charge) or other arrangements then in use by Landlord
(or Landlord's operator) with respect to such monthly parking.

     Tenant shall comply with parking rules and regulations and all
modifications additions thereto from time to time reasonably established by
Landlord (or Landlord's operator), in their reasonable discretion, including any
sticker or other identification system established by Landlord (or Landlord's
operator).  Landlord (and/or Landlord's operator) shall not be responsible to
Tenant for the non-performance of any of said rules and regulations by any other
parker.  The rules and regulations for the Parking Facilities are as follows:

                             RULES AND REGULATIONS

     1.  Tenant shall have the right to use the Parking Facilities twenty-four
(24) hours per day, seven (7) days per week.

     2.  Automobiles must be parked entirely within the stall lines on the
pavement.

     3.  All directional signs and arrows must be observed.

     4.  The speed limit shall be 5 miles per hour.

     5.  Parking is prohibited in areas not striped for parking.

     6.  Parking stickers or any other device or form of identification supplied
by Landlord (or its operator) shall remain the property of Landlord (or its
operator).  Such parking identification device must be displayed as requested
and may not be mutilated in any manner.  The serial number of the parking
identification device may not be obliterated.  Devices are not transferable or
assignable and any device in the possession of an unauthorized holder will be
void.  There will be a deposit of $10.00 required for each parking card and a
replacement charge to Tenant or person designated by Tenant, of $10.00 for loss
of any parking card which amounts can be adjusted from time to time by Landlord
at its discretion.

                                      K-1
<PAGE>
 
     7.  Tenant, at Tenant's sole cost and expense, may validate visitor parking
by such method or methods as Landlord may approve or establish, at a validation
rate from time to time established by Landlord.

     8.  Landlord (and its operator) may refuse to permit any person who
violates the within rules to park in the parking area, and any violation of the
rules shall subject the automobile to removal from the parking area at the
parker's expense.  In either of said events, Landlord (or its operator) shall
refund a pro rata portion of the current monthly parking rate, and the sticker,
or any other form of identification supplied by Landlord (or its operator).

     9. Parking area managers or attendants are not authorized to make or allow
any exceptions to these rules and regulations.

     10. Every parker is required to park and lock his/her own automobile.  All
responsibility for any loss or damage to automobiles or any personal property
therein is assumed by the parker.

     11. Loss or theft of parking identification devices from automobiles must
be reported to the parking area manager immediately, and a lost or stolen report
must be filed by the parker at that time.

     12. The Parking Facilities are for the sole purpose of parking one (1)
automobile per space.  Washing, waxing, cleaning or servicing of any vehicle by
the parker, or his/her agents is prohibited except by persons expressly
authorized to do so in advance by Landlord.

     13. Landlord (and its operator) reserves the right to refuse the issuance
of monthly stickers or other parking identification devices to any tenant and/or
its employees who refuse to comply with the above rules and all posted and
unposted city, state or federal ordinances, laws or agreements.

     14. Tenant agrees to acquaint all employees with these rules.

                                      K-2
<PAGE>
 
                                  EXHIBIT "L"

                           LOCATION OF PARKING SPACES
                           --------------------------








                                      L-1
<PAGE>
 
                                  EXHIBIT "M"

                              MEMORANDUM OF LEASE
                              -------------------









                                      M-1
<PAGE>
 
Recording Requested
By And When Recorded
Return To:

Commerce Citadel Development Authority
c/o City of Commerce
City Hall
2535 Commerce Way
Commerce, California  90040
Attn:  Justin McCarthy
       Director of Community Development

_________________________________________________________________  (Space above
this line for Recorder's Use)


                              MEMORANDUM OF LEASE



     THIS MEMORANDUM OF LEASE is made and entered into as of April ___, 1998, by
and between Commerce Citadel Development Authority, a California corporation
("Landlord") and Smart & Final Stores Corporation, a California corporation
("Tenant").

     1.   LEASE.  On the terms and conditions set forth in an unrecorded
          -----                                                         
document dated April ___, 1998 entitled "The Citadel Office Lease", which terms
and conditions are incorporated herein by reference, and in consideration of the
rent and covenants therein provided, Landlord does hereby lease to Tenant, and
Tenant hereby rents and accepts from Landlord, certain improved real property
located at 600 Citadel Drive in the City of Commerce, County of Los Angeles,
State of California, within the property of Landlord which is described in
Exhibit "A" attached hereto and incorporated herein by this reference.

     2.   TERM OF LEASE.  The initial term of the Lease is fifteen (15) years
          -------------                                                      
from and after the first day of the month in which the Lease commences.  The
commencement date of the Lease is approximately four (4) months after Landlord
delivers possession of the leased premises to Tenant, subject to adjustment for
certain circumstances as specifically provided in the Lease.

     3.   OPTIONS TO EXTEND TERM.  The Lease grants Tenant options to further
          ----------------------                                             
extend the term of the Lease for three (3) additional periods of five (5) years
each.


                                      M-2
<PAGE>
 
     IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Memorandum
of Lease on the day and year first above written.


     ALANDLORD@

     COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
     California corporation


     By: _____________________________________
     Name: ___________________________________
     Title: __________________________________


     ATENANT@

     SMART & FINAL STORES CORPORATION,
     a California corporation


     By: _____________________________________
     Name: ___________________________________
     Title: __________________________________


     By: _____________________________________
     Name: ___________________________________
     Title: __________________________________

                                      M-3
<PAGE>
 
STATE OF CALIFORNIA      )
                         )  ss.
COUNTY OF LOS ANGELES    )

     On __________________, before me, __________________________, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.

     WITNESS my hand and official seal.



Signature:____________________  [place seal here]


STATE OF CALIFORNIA      )
                         )  ss.
COUNTY OF LOS ANGELES    )

     On __________________, before me, __________________________, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.

     WITNESS my hand and official seal.



Signature:____________________  [place seal here]

                                      M-4
<PAGE>
 
                       EXHIBIT "A" TO MEMORANDUM OF LEASE

                    LEGAL DESCRIPTION OF LANDLORD'S PROPERTY
                     UPON WHICH LEASED PREMISES ARE LOCATED



PARCEL 1:

A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN SOUTHWESTERLY LINE OF PARCEL 1 OF SAID PARCEL MAP NO.
13483, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, AS SHOWN ON SAID MAP AND
WHICH POINT BEARS NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 12.00 FEET ALONG
SAID SOUTHWESTERLY LINE FROM THE SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG
SAID SOUTHWESTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 405.09
FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 402.17 FEET; THENCE
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 214.04 FEET; THENCE NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 80.40 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 222.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
219.83 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 204.00 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 177.54 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10
SECONDS EAST 109.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 178.08 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 613.01 FEET TO THE SOUTHEASTERLY LINE OF SAID
PARCEL 2; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 64.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST
66.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 181.12 FEET TO
THE NORTHEASTERLY LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE
ALONG LAST SAID NORTHEASTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST
43.50 FEET TO THE NORTHERLY CORNER OF SAID GASPAR AVENUE; THENCE ALONG THE
NORTHWESTERLY LINE OF SAID GASPAR AVENUE, SOUTH 46 DEGREES 43 MINUTES 50 SECONDS
WEST 34.05 FEET; THENCE NORTH 44 DEGREES 49 MINUTES 06 SECONDS WEST 430.66 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 180.30 FEET; THENCE NORTH 43
DEGREES 16 

                                      M-5
<PAGE>
 
MINUTES 10 SECONDS WEST 32.50 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 231.29 FEET TO THE POINT OF BEGINNING.

EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.

ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.

SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT."

SAID LAND IS ALSO SHOWN AS A PORTION OF PARCEL 3 AND PORTION OF PARCEL 4 OF
PARCEL MAP NO. 21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

                                      M-6
<PAGE>
 
PARCEL 2:

NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.

                                      M-7