<PAGE>

                                                                   EXHIBIT 10.28

                                                          [California Net Lease]

                                 LEASE AGREEMENT


         THIS LEASE AGREEMENT is made as of the 28th day of February, 2000 (the
"Effective Date"), between ProLogis Development Services Incorporated, a
Delaware corporation, ("Landlord"), and the Tenant named below.


TENANT:                             eToys Distribution, LLC, a Delaware limited
                                    liability company

TENANT'S REPRESENTATIVE,            Jordan Posell
ADDRESS, AND PHONE NO.:             Vice President Financial Operations
                                    3100 Ocean Park Blvd., Suite 300
                                    Santa Monica, CA 90405

PREMISES:                           The entire Building, containing
                                    approximately 763,228 rentable square feet,
                                    as determined by Landlord, as shown on
                                    Exhibit A, including without limitation, all
                                    surrounding land, parking areas and
                                    improvements owned by Landlord as depicted
                                    on Exhibit A.

PROJECT:                            ProLogis Park, Milliken Avenue, Ontario,
                                    California, as depicted on Exhibit A

BUILDING:                           ProLogis Park, Milliken Avenue, Ontario,
                                    California, as depicted on Exhibit A

TENANT'S PROPORTIONATE SHARE
OF PROJECT:                         100%

TENANT'S PROPORTIONATE SHARE
OF BUILDING:                        100%

LEASE TERM:                         Beginning on the Commencement Date and
                                    ending on the last day of the 60th full
                                    calendar month thereafter.

COMMENCEMENT DATE:                  The date on which the Initial Improvements
                                    are Substantially  Completed  pursuant to
                                    Addendum One.
<TABLE>
<CAPTION>

<S>                              <C>                         <C>                <C>               <C>
INITIAL MONTHLY BASE RENT:                                         $.2675/SF/month                       $  204,164.00

INITIAL ESTIMATED MONTHLY               1.  Utilities:                                $       0.00
OPERATING EXPENSE PAYMENTS:
(estimates only and subject             2.  Common Area Charges:   $.0067/SF/mo       $   5,113.63
to adjustment to actual costs
and expenses according to the           3.  Taxes:                 $.0275/SF/mo       $  20,988.77
provisions of this Lease)
                                        4.  Insurance:             $.0024/SF/mo       $   1,831.75

                                        5.  Management Fee:        $.0063/SF/mo       $   4,808.34

INITIAL ESTIMATED MONTHLY OPERATING
 EXPENSE PAYMENTS:                                                                                       $  32,742.49

INITIAL MONTHLY BASE RENT AND
  OPERATING EXPENSE PAYMENTS:                                                                            $ 236,906.49

</TABLE>


SECURITY DEPOSIT:                       $  1,350,000.00

BROKER:                             CRESA Partners, and Lee and Associates

ADDENDA:                            Addendum One - Two Renewal Options (Baseball
                                    Arbitration), Addendum Two - Expansion
                                    Option, Addendum Three - Construction

EXHIBITS:                           Exhibit A - The Premises
                                    Exhibit B - Form of Subordination,
                                                Non-Disturbance and Attornment
                                                Agreement
                                    Exhibit C - Form of Guaranty
                                    Exhibit D - Form of Landlord's Subordination
                                                of Lien
                                    Exhibit E - Form of Letter of Credit


         1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions of this Lease, Landlord leases to Tenant, and Tenant takes from
Landlord, the Premises, to have and to hold, for the Lease Term, subject to the
terms, covenants and conditions of this Lease.

         2. ACCEPTANCE OF PREMISES. Subject to the provisions of Addendum Three,
Tenant shall accept the Premises in its condition as of the Commencement Date,
subject to all applicable laws, ordinances, regulations, covenants and
restrictions. Landlord agrees that upon Tenant's written request, received by
Landlord within thirty (30) days after the Commencement Date, Landlord shall
have the Premises measured to the exterior dripline by an architect mutually
agreed upon by Landlord and Tenant. While the measurement is being performed,
Tenant shall pay the amounts reflected herein at the times required by this
Lease. If the rentable square footage of the Premises varies from that
referenced on Page One of this Lease, then the monthly Base Rent and Estimated
Operating Expenses shall be increased or decreased, as appropriate, based on the
rates per square foot referenced on Page One of this Lease multiplied by the
number of rentable square feet. Tenant and Landlord agree that they will execute
an amendment to the lease to reflect such adjusted amounts. Any additional
amounts due from Tenant shall be paid by Tenant upon Tenant's execution of the
amendment and any amount due from Landlord shall be credited against Tenant's
next payment of monthly Base Rent and Operating Expenses. Except as provided in
this Lease, Landlord has made no

<PAGE>


representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. Except as provided in Paragraph 10
or elsewhere in this Lease, in no event shall Landlord have any obligation for
any defects in the Premises (except for latent defects at Landlord's sole cost
and expense) or any limitation on its use. The taking of possession of the
Premises shall be conclusive evidence that Tenant accepts the Premises and that
the Premises were in good condition at the time possession was taken except for
items that are Landlord's responsibility under Paragraph 10, latent defects, or
elsewhere in this Lease and any punch list items agreed to in writing by
Landlord and Tenant.

         3. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to retail sales by internet without
Tenant's customers visiting at the Premises) products, materials and merchandise
made and/or distributed by Tenant, for general office use in connection with a
warehouse use, and for such other lawful purposes as may be incidental thereto;
provided, however, with Landlord's prior written consent which shall not be
unreasonably withheld or delayed, Tenant may also use the Premises for light
manufacturing. Tenant shall not conduct or give notice of any auction,
liquidation, or going out of business sale on the Premises. Tenant will not
commit waste, overload the floor or structure of the Premises or subject the
Premises to use that would damage the Premises. Tenant shall not permit any
unreasonably objectionable or unpleasant odors, smoke, dust, gas, noise, or
vibrations to emanate from the Premises, or take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any tenants of the Project. Outside storage, including without
limitation, storage of trucks and other vehicles, is prohibited without
Landlord's prior written consent; provided however, that Tenant shall have the
right, without obtaining Landlord's prior written consent, to park trucks and
trailers (provided the same are in operable condition) overnight at the truck
loading docks and on the parking areas of the Project. Subject to Landlord's
obligations under Addendum Three as well as Paragraphs 6, 10, 11, and 15 of this
Lease, Tenant, at its sole expense, shall use and occupy the Premises in
compliance with all laws, including, without limitation, the Americans With
Disabilities Act, orders, judgments, ordinances, regulations, codes, directives,
permits, licenses, covenants and restrictions now or hereafter applicable to the
Premises (collectively, "Legal Requirements"). The Premises shall not be used as
a place of public accommodation under the Americans With Disabilities Act or
similar state statutes or local ordinances or any regulations promulgated
thereunder, all as may be amended from time to time. Subject to Landlord's
obligations under Addendum Three as well as Paragraphs 6, 10, 11, and 15 of this
Lease, Tenant shall, at its expense, make any alterations or modifications,
within or without the Premises, that are required by Legal Requirements related
to Tenant's use or occupation of the Premises. Tenant will not use or permit the
Premises to be used for any purpose or in any manner that would void Tenant's or
Landlord's insurance or increase the insurance risk. If any increase in the cost
of any insurance on the Premises or the Project is caused by Tenant's use or
occupation of the Premises (other than Tenant's use which constitutes customary
warehouse storage and distribution) , or because Tenant vacates the Premises,
then Tenant shall pay the amount of such increase to Landlord. Any occupation of
the Premises by Tenant for the purpose of installing racks and receiving
inventory prior to the Commencement Date shall be subject to all obligations of
Tenant under this Lease except the payment of Base Rent and Operating Expenses
which shall commence on the Commencement Date.

         4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base Rent
on or before the first day of each calendar month succeeding the Commencement
Date. Payments of Base Rent for any fractional calendar month shall be prorated
based on the actual days under the Lease Term. All payments required to be made
by Tenant to Landlord hereunder shall be payable at such address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
The obligation of Tenant to pay Base Rent and other sums to Landlord and the
obligations of Landlord under this Lease are independent obligations. Tenant
shall have no right at any time to abate, reduce, or set-off any rent due
hereunder except as may be expressly provided in this Lease. If Tenant is
delinquent in any monthly installment of Base Rent or of estimated Operating
Expenses for more than 5 business days, Tenant shall pay to Landlord on demand a
late charge equal to 5 percent of such delinquent sum. The provision for such
late charge shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as a penalty. Notwithstanding the
provisions of this Paragraph, the late charge provided for herein shall not
accrue with respect to the first two occurrences of delinquent payment in any
consecutive twelve (12) month period so long as payment is made by Tenant within
5 business days of written notice from Landlord to Tenant of Tenant's failure to
pay an installment of Base Rent or estimated Operating Expenses as herein
described.

         5. SECURITY DEPOSIT. Concurrently with the execution of this Lease by
Tenant, Tenant shall deliver the Security Deposit to Landlord in the form of
cash or an unconditional, irrevocable letter of credit ("L-C"), or any
combination of the two. Tenant shall retain the right from time to time upon ten
(10) days prior written notice to Landlord, but not more often than once in any
twelve (12) month period, to replace the L-C and/or the cash portion of the
Security Deposit with the other (except that Tenant shall pay any penalties
resulting from the early withdrawal of any cash portion of the Security Deposit
invested hereunder). Tenant shall also obtain the right, from time to time, to
cancel the L-C at any time provided Tenant concurrently replaces such L-C being
cancelled with a substitute L-C or with cash in an amount equal to the then
outstanding amount of the L-C which was cancelled. Any substitute L-C shall be
(i) from a bank reasonably acceptable to Landlord (Landlord hereby approves of
Imperial Bank, N.A.), (ii) in the form and content of that attached hereto as
Exhibit "F" (or in a different form which is reasonably acceptable to Landlord),
and (iii) subject to the conditions stated in this paragraph. The L-C shall have
a term of at least three hundred sixty four days and be automatically renewed
(or replaced with a reasonably satisfactory replacement L-C from a bank
reasonably acceptable to Landlord in strict accordance with the terms hereof) at
least twenty (20) days prior to the expiration of each three hundred sixty-four
day period for additional periods of three hundred sixty-four days each until
the thirtieth (30th) day following the expiration or earlier termination of the
initial term of this Lease. Provided that

<PAGE>

Tenant has not received a notice of default from Landlord under this Lease which
has not been cured by Tenant and Landlord has acknowledged in writing that any
such default has been cured by Tenant as of the reduction dates set forth below,
the cumulative amount of the L-C and cash portion of the Security Deposit being
held by Landlord shall be reduced automatically and without need for further
documentation be as set forth below, except that (a) the L-C or the cash portion
of the Security Deposit shall reduce as provided below if Tenant subsequently
cures any default which caused the L-C ord cash portion of the Security Deposit
not to reduce in accordance with the schedule set forth below and Landlord has
acknowledged in writing that any such default has been cured by Tenant, and (b)
to the extent Landlord has not drawn upon the L-C or any cash portion of the
Security Deposit pursuant to the terms of this Lease, any remaining L-C and/or
cash portion of the Security Deposit shall be returned to Tenant by Landlord
within sixty (60) days following the expiration of the Term or earlier
termination of this Lease.

<TABLE>
<CAPTION>

           DATE OF REDUCTION                      AMOUNT OF REDUCTION             SECURITY DEPOSIT AMOUNT REMAINING
           -----------------                      -------------------             ---------------------------------
<S>                                              <C>                           <C>
    end of 12th month of Lease Term                   $150,000.00                           $1,200,000.00
    end of 24th month of Lease Term                   $150,000.00                           $1,050,000.00
    end of 36th month of Lease Term                   $150,000.00                           $  900,000.00
    end of 48th month of Lease Term                   $150,000.00                           $  750,000.00

</TABLE>

         Landlord agrees that Landlord has the right to sell or convey its
interest in the Premises and in this Lease and in the event of any such sale or
conveyance, Landlord shall transfer and assign the L-C and/or cash portion of
the Security Deposit to the transferee. If Landlord sells or conveys the
Premises, Tenant shall, at Landlord's request, cooperate in having the Letter of
Credit transferred to the purchaser. Landlord shall be released from any
obligation with respect to the cash portion of the Security Deposit and/or the
L-C upon the transfer of this Lease, the Premises, the cash portion of the
Security Deposit and the L-C to a person or entity assuming Landlord's
obligations under this Paragraph 5. The L-C shall provide that upon an Event of
Default, it may be drawn down upon by Landlord at any time Landlord delivers its
sight draft to the Bank. The L-C and/or cash portion of the Security Deposit
shall be held by Landlord as security for the performance of Tenant's
obligations under this Lease. The L-C and/or cash portion of the Security
Deposit is not an advance rental deposit or a measure of Landlord's damages in
case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or any part of the L-C and/or cash
portion of the Security Deposit, at Landlord's election, to pay delinquent
payments under this Lease, and the cost of any damage, injury, expense or
liability caused by such Event of Default, without prejudice to any other remedy
provided herein or provided by law. If the L-C is ever drawn upon or the cash
portion of the Security Deposit is ever applied by Landlord pursuant to the
terms of this Lease, Tenant shall pay Landlord within ten (10) business days the
amount that will restore the L-C and/or cash portion of the Security Deposit to
the amount then required under this paragraph. Landlord's obligation respecting
the L-C and/or the cash portion of the Security Deposit is that of a debtor, not
a trustee. The cash portion of the Security Deposit shall be the property of
Landlord, but shall be paid to Tenant or applied to Tenant's outstanding
obligations under the Lease within sixty (60) days after the Lease's termination
or expiration. Any portion of the L-C which is drawn and not applied by Landlord
shall become part of the cash portion of the Security Deposit. If Tenant at any
time during the Lease Term provides a cash Security Deposit, Landlord shall
invest such deposit in twelve (12) month Certificates of Deposit at the Bank of
America, or any successor bank, except that if Landlord rightfully draws on the
Security Deposit pursuant to this Paragraph, Landlord shall have no ongoing
obligation to invest the Security Deposit for the remainder of the Lease Term.
So long as no Event of Default exists, Landlord shall pay all interest earned on
the Security Deposit, if any, to Tenant within forty-five (45) days after each
anniversary of the Commencement Date.

         6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on
the same date that Base Rent is due, Tenant shall pay Landlord an amount equal
to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the
Project. Payments thereof for any fractional calendar month shall be prorated
based on the actual days under the Lease Term. The term "Operating Expenses"
means all costs and expenses incurred by Landlord with respect to the ownership,
maintenance, and operation of the Project including, but not limited to costs
of: Taxes (hereinafter defined) and fees payable to tax consultants and
attorneys for consultation and contesting taxes; insurance; utilities;
maintenance, repair and replacement of all portions of the Project, including
without limitation, paving and parking areas, roads, roofs, alleys, and
driveways, mowing, landscaping, exterior painting, utility lines, heating,
ventilation and air conditioning systems, lighting, electrical systems and other
mechanical and building systems; amounts paid to contractors and subcontractors
for work or services performed in connection with any of the foregoing; charges
or assessments of any association to which the Project is subject; an
administrative fee of two percent (2%) of Monthly Base Rent and Operating
Expenses payable to Landlord or property manager retained by Landlord; security
services, if any, provided that Tenant shall only be charged for security
services hereunder to the extent that Tenant is not providing such services and
Landlord reasonably determines that such services are necessary; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project or the Building in order to comply with Legal Requirements (other
than those expressly required herein to be made by Tenant) or that are
appropriate to the continued operation of the Project or the Building as a bulk
warehouse facility in the market area, provided that the cost of additions,
replacements or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 15 years. Operating Expenses do not include costs, expenses, depreciation or
amortization for capital repairs and capital replacements required to be made by
Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants.

                                      -3-
<PAGE>

         Operating Expenses shall not mean or include: (i) costs incurred in
connection with the construction or remodeling of the Project or any other
improvements now or hereafter located thereon, correction of defects in design
or construction; (ii) interest, principal, or other payments on account of any
indebtedness that is secured by any encumbrance on any part of the Project, or
rental or other payments under any ground lease, or any payments in the nature
of returns on or of equity of any kind; (iii) costs of selling, syndicating,
financing, mortgaging or hypothecating any part of or interest in the Project;
(iv) taxes on the income of Landlord or Landlord's franchise taxes (unless any
of said taxes are hereafter instituted by applicable taxing authorities in
substitution for ad valorem real property taxes); (v) depreciation, reserves of
any kind, including replacement reserves and reserves for bad debt or lost rent,
or any other charge not involving the payment of money to third parties; (vi)
Landlord's overhead costs, including equipment, supplies, accounting and legal
fees, rent and other occupancy costs or any other costs associated with the
operation or internal organization and function of Landlord as a business entity
(but this provision does not prevent the payment of a management fee to Landlord
as provided in this Paragraph 6); (vii) fees or other costs for professional
services provided by space planners, architects, engineers, and other similar
professional consultants, real estate commissions, and marketing and advertising
expenses; (viii) costs of defending or prosecuting litigation with any party,
unless a favorable judgment would reduce or avoid an increase in Operating
Expenses, or unless the litigation is to enforce compliance with Rules and
Regulations of the Project, or other standards or requirements for the general
benefit of the tenants in the Project; (ix) costs incurred as a result of
Landlord's violation of any lease, contract, law or ordinance, including fines
and penalties; (x) late charges, interest or penalties of any kind for late or
other improper payment of any public or private obligation, including ad valorem
taxes; (xi) costs of removing Hazardous Materials or of correcting any other
conditions in order to comply with any environmental law or ordinance (but this
exclusion shall not constitute a release by Landlord of Tenant for any such
costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii)
costs for which Landlord is reimbursed from any other source; (xiii) costs
related to any building or land not included in the Project, including any
allocation of costs incurred on a shared basis, such as centralized accounting
costs, unless the allocation is made on a reasonable and consistent basis that
fairly reflects the share of costs actually attributable to the Project; and
(xiv) the part of any costs or other sum paid to any affiliate of Landlord that
may exceed the fair market price or cost generally payable for substantially
similar goods or services in the area of the Project.

                  Landlord agrees to assign, or cause its contractors to assign,
to Tenant all contractor's or subcontractor's guarantees or warranties, if any,
which relate to any construction work concerning which Tenant shall have the
obligation to make repairs.

                  If Tenant's total payments of Operating Expenses for any year
are less than Tenant's Proportionate Share of actual Operating Expenses for such
year, then Landlord shall notify Tenant of such within six (6) months following
the end of the prior calendar year and Tenant shall pay the difference to
Landlord within 30 days after demand, and if more, then Landlord shall retain
such excess and credit it against Tenant's next monthly Base Rent and Operating
Expense payments or if the Lease has expired, then Landlord shall pay such
amount directly to Tenant within such six (6) month period. For purposes of
calculating Tenant's Proportionate Share of Operating Expenses, a year shall
mean a calendar year except the first year, which shall begin on the
Commencement Date, and the last year, which shall end on the expiration of this
Lease. The estimated Operating Expenses for the Premises set forth on the first
page of this Lease are only estimates, and Landlord makes no guaranty or
warranty that such estimates will be accurate. Landlord shall provide Tenant
within ninety (90) days following the final day of the calendar year, Landlord's
itemized year-end common area maintenance reconciliation reports which reference
and include all applicable operating expenses for such year. Upon Tenant's
written request, which request shall be limited to once in a calendar year,
Landlord shall provide photocopies of invoices, bills, and other verification to
substantiate such costs.

         7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. All utilities shall be separately metered and charged directly to
Tenant by the provider. No interruption or failure of utilities shall result in
the termination of this Lease or the abatement of rent. Tenant agrees to limit
use of water and sewer for normal restroom use.

         8. TAXES. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof provided that
Landlord will obtain the advice of its tax consultants in reaching such
decisions. Tenant may, at its own expense and with fifteen (15) days prior
written notice to Landlord, contest by appropriate legal proceedings, the
amount, validity, or application of any Taxes against the Premises and Landlord
will cooperate with same provided that Tenant pays all costs Landlord incurs due
to such cooperation. All capital levies or other taxes assessed or imposed on
Landlord upon the rents payable to Landlord under this Lease and any franchise
tax, any excise, transaction, sales or privilege tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rents from the Premises
and/or the Project or any portion thereof shall be paid by Tenant to Landlord
monthly in estimated installments or upon thirty (30) days prior demand but not
more than the (10) days prior to delinquency if such is paid in a lump sum, at
the option of Landlord, as additional rent; provided, however, in no event shall
Tenant be liable for any net income taxes imposed on Landlord unless such net
income taxes are in substitution for any Taxes payable hereunder. Any refunds or
tax savings with respect to the Project shall be credited against the Taxes due
for the year in which such refund or savings is applicable. If any such tax or
excise is levied or assessed directly against Tenant, then Tenant shall be
responsible for and shall pay the same at such times and in such manner as the
taxing authority shall require. Tenant shall be liable for all taxes levied or
assessed against any personal property or fixtures

                                      -4-
<PAGE>

placed in the Premises, whether levied or assessed against Landlord or Tenant.
Notwithstanding anything to the contrary contained in this Lease, Taxes shall
not include (i) any excess profit 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) penalties incurred as a
result of Landlord's failure to timely pay the taxes due for the Premises or
(iii) any other taxes or assessments charged or levied against Landlord which
are not directly incurred as a result of the operation of the Premises. Tenant
shall be charged as an Operating Expense for any special assessments with
respect to the Building or Project based on Tenant's Proportionate Share of the
Building or Project, as applicable, and based on payment of the special
assessment over the longest period allowed for payment by the applicable taxing
authority and upon the amount due if such special assessment were paid over such
a period of time.

         9. INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem reasonably necessary, including, but not limited to, commercial liability
insurance, and shall carry rent loss insurance in an amount to cover one year of
rental loss from this Lease. All such insurance shall be included as part of the
Operating Expenses charged to Tenant but not in excess of what is charged by
comparable Landlord's of comparable Buildings. The Project or Building may be
included in a blanket policy (in which case the cost of such insurance allocable
to the Project or Building will be reasonably determined by Landlord based upon
the insurer's cost calculations). Tenant shall also reimburse Landlord for any
increased premiums or additional insurance which Landlord reasonably deems
necessary as a result of Tenant's use of the Premises as evidenced by insurer's
cost calculations.

            Tenant, at its expense, shall maintain during the Lease Term: all
risk property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $2,000,000 per
occurrence and a minimum umbrella limit of $3,000,000, for a total minimum
combined general liability and umbrella limit of $5,000,000 for property damage,
personal injuries, or deaths of persons occurring in or about the Premises.
Landlord may from time to time require reasonable increases in any such limits.
The commercial liability policies shall name Landlord as an additional insured,
insure on an occurrence and not a claims-made basis, be issued by insurance
companies which are reasonably acceptable to Landlord, not be cancelable unless
30 days' prior written notice shall have been given to Landlord, contain a
hostile fire endorsement and a contractual liability endorsement and provide
primary coverage to Landlord (any policy issued to Landlord providing duplicate
or similar coverage shall be deemed excess over Tenant's policies). Such
certificates of insurance shall be delivered to Landlord by Tenant upon
commencement of the Lease Term and upon each renewal of said insurance.

            The all risk property insurance obtained by Landlord and Tenant
shall include a waiver of subrogation by the insurers and all rights based upon
an assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and other business losses occasioned
thereby, including, without limitation, lost profits and consequential damages,
sustained by Tenant or any person claiming through Tenant resulting from any
accident or occurrence in or upon the Premises or the Project from any cause
whatsoever, including without limitation, damage caused in whole or in part,
directly or indirectly, by the negligence or willful misconduct of Landlord or
its agents, employees or contractors.

         10. LANDLORD'S REPAIRS. Landlord shall maintain and repair, at its sole
expense, the structural soundness of the roof, foundation, and exterior walls of
the Building in good repair, reasonable wear and tear and uninsured losses and
damages caused by Tenant, its agents and contractors excluded. The term "walls"
as used in this Paragraph 10 shall not include windows, glass or plate glass,
doors or overhead doors, special store fronts, dock bumpers, dock plates or
levelers, or office entries. Tenant shall promptly give Landlord written notice
of any repair required by Landlord pursuant to this Paragraph 10, after which
Landlord shall have a reasonable opportunity to repair.

         In the event of an emergency, Tenant shall have the right to make such
temporary, emergency repairs (and only such temporary, emergency repairs) to the
roof, foundation or exterior walls of the Project as may be reasonably necessary
to prevent material damage to Tenant's property at the Premises and/or personal
injury to Tenant's employees at the Premises (provided Tenant first attempts to
notify Landlord telephonically of such emergency and notifies Landlord of such
circumstances in writing as soon as practicable thereafter). In addition, if
Landlord fails to make any repairs required of Landlord under this Paragraph 10
after thirty (30) days prior written notice from Tenant to Landlord of such
repairs, subject to delays from Force Majeure, then Tenant may make such repairs
and seek reimbursement from Landlord for such repairs as provided in this
Paragraph. Tenant shall not have any right to make non-emergency repairs under
the prior provision if Landlord has commenced such repairs within thirty (30)
days of receiving Tenant's written notice of such repairs and diligently pursues
such repairs to completion. In the event Tenant makes emergency or other repairs
as allowed under this Paragraph 10, Landlord shall reimburse Tenant for the
reasonable, out-of-pocket costs actually incurred by Tenant in making such
repairs. If Landlord fails to reimburse Tenant for the reasonable, out-of-pocket
costs incurred by Tenant in making such repairs, up to but not to exceed
$100,000.00 with respect to such repairs, within 30 days after demand therefor,
accompanied by supporting evidence of the costs incurred by Tenant, then Tenant
may bring an action for damages against Landlord to recover such costs, together
with interest thereof at the rate provided for in Paragraph 37(j) of the Lease,
and reasonable attorney's fees incurred by Tenant in bringing such action

                                      -5-
<PAGE>

for damages; provided, however, in no way does this sentence limit Tenant's
rights allowed by law or in equity. In no event, however, shall Tenant have a
right to terminate the Lease.

         11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain, in a standard comparable to comparable industrial
buildings owned by comparable landlords (institutional ownership) in good repair
and condition the parking areas and other exterior areas of the Building,
including, but not limited to driveways, alleys, landscape and grounds
surrounding the Premises and those repairs or replacements which are necessary
to the interior generic Tenant Improvements (as defined Exhibit B to Addendum
Two and Exhibit B to Addendum Three of the Lease), which cost over $5,000, and
which are defined by the Internal Revenue Code as a Capital Improvement. Subject
to Landlord's obligations in this Paragraph, Paragraph 10 and subject to
Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain
in good condition all portions of the Premises and all areas, improvements and
systems exclusively serving the Premises including, without limitation, dock and
loading areas, truck doors, plumbing, water and sewer lines up to points of
common connection, fire sprinklers and fire protection systems, entries, doors,
ceilings and roof membrane, windows, interior walls, and the interior side of
demising walls, and heating, ventilation and air conditioning systems. Such
repair and replacements include capital expenditures and repairs whose benefit
may extend beyond the Term; provided that such capital expenditures and repairs
shall be fully amortized in accordance with the Formula (defined hereafter) over
the remainder of the Lease Term, without regard to any extension or renewal
option not then exercised. The "Formula" shall mean that number, the numerator
of which shall be the number of months of the Lease Term remaining after
replacement of any such capital expenditures, and the denominator of which shall
be the lesser of the maximum amortization period (in months) allowable for
determining a depreciation of such capital expenditures for federal income tax
purposes or fifteen (15) years. Landlord shall perform and pay for such capital
expenditures and repairs and Tenant shall reimburse Landlord for its amortized
share of same (determined as hereinabove set forth) in equal monthly
installments in the same manner as the payment by Tenant to Landlord of the
Operating Expenses. Heating, ventilation and air conditioning systems and other
mechanical and building systems serving the Premises shall be maintained at
Tenant's expense pursuant to maintenance service contracts entered into by
Tenant and reasonably approved by Landlord. The scope of services and
contractors under such maintenance contracts shall be reasonably approved by
Landlord.. If Tenant fails to perform any repair or replacement for which it is
responsible, after thirty (30) days notice of such repairs, except in the case
of an emergency, in which case no notice is necessary, Landlord may perform such
work and be reimbursed by Tenant within 10 days after demand therefor. Subject
to the terms of this Paragraph, Addendum Three and Paragraphs 9, 10 and 15,
Tenant shall bear the full cost of any repair or replacement to any part of the
Building or Project that results from damage caused by Tenant, its agents,
contractors, or invitees and any repair that benefits only the Premises. I f
Landlord fails to make any repairs which are to be performed by Landlord under
this Paragraph 11 within thirty (30) days after Tenant's written demand for such
repairs, subject to delays from Force Majeure, then Tenant may perform such
repairs at its sole cost and expense without right to any offset of rentals due
under this Lease; provided however, Tenant shall have no right to make such
repairs if Landlord has commenced such repairs within such thirty (30) day
period and is diligently pursuing such repairs.

         12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") shall be subject to Landlord's prior written
consent; provided however Landlord shall not unreasonably withhold its consent,
and such consent shall be granted or denied within ten (10) business days of
Landlord's receipt of Tenant's written request for same, to Tenant-Made
Alterations provided that that the cost of such alterations does not exceed
$1,000,000.00 in the aggregate, the alterations do not materially affect the
structure or roof of the building, do not modify the utility systems of the
Project, and do not pierce the roof, floor or external walls of the Building .
Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with
insurance requirements and with Legal Requirements and shall construct at its
expense any alteration or modification required by Legal Requirements as a
result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be
constructed in a good and workmanlike manner by contractors reasonably
acceptable to Landlord and only good grades of materials shall be used. All
plans and specifications for any Tenant-Made Alterations shall be submitted to
Landlord for its approval, which approval shall be granted or denied with ten
(10) business days of Landlord's receipt of Tenant's written request for same.
Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall
reimburse Landlord for its reasonable out of pocket costs in reviewing plans and
specifications and in monitoring construction. Landlord's right to review plans
and specifications and to monitor construction shall be solely for its own
benefit, and Landlord shall have no duty to see that such plans and
specifications or construction comply with applicable laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall provide
certificates of insurance for worker's compensation and other coverage in
amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all contractors
and subcontractors who did work on the Tenant-Made Alterations and final lien
waivers from all such contractors and subcontractors. Upon surrender of the
Premises, all Tenant-Made Alterations and any leasehold improvements constructed
by Landlord or Tenant shall remain on the Premises as Landlord's property,
except to the extent Landlord requires removal at Tenant's expense of any such
items or Landlord and Tenant have otherwise agreed in writing in connection with
Landlord's consent to any Tenant-Made Alterations. Upon Tenant's written
request, Landlord shall provide Tenant, at the time of Tenant's request for
consent of Tenant-Made Alterations, a list of which Tenant-Made Alterations
Landlord will require Tenant to remove upon surrender of the Premises. Tenant
shall repair any damage caused by such removal.

            Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, racking, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business

                                      -6-
<PAGE>

provided that such items do not alter the basic character of the Premises, do
not overload or damage the Premises, and may be removed without any
non-repairable injury to the Premises, and the construction, erection, and
installation thereof complies with all Legal Requirements and with Landlord's
requirements set forth above. Tenant shall remove its Trade Fixtures and shall
repair any damage caused by such removal.

         13. SIGNS. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent; provided
however Landlord agrees that it shall not unreasonably withhold or delay its
consent to or approval of signs proposed by Tenant for installation on the
exterior of the Premises or parking areas identifying Tenant or Tenant's
business at the Premises provided that such sign complies with all applicable
Legal Requirements. Upon surrender or vacation of the Premises, Tenant shall
have removed all signs and repair, paint, and/or replace the building facia
surface to which its signs are attached. Tenant shall obtain all applicable
governmental permits and approvals for sign and exterior treatments. All signs,
decorations, advertising media, blinds, draperies and other window treatment or
bars or other security installations visible from outside the Premises shall be
subject to Landlord's approval, which shall not be unreasonably withheld or
delayed provided that such signage complies with all applicable Legal
Requirements and conforms in all respects to Landlord's reasonable requirements.
Tenant shall be entitled to put its name and logo on the existing monument sign
on the Project and Landlord shall not put any name, other than Landlord's, on
any sign on the Project. Notwithstanding anything contained herein to the
contrary, Landlord has approved the color and logo of Tenant's exterior sign to
advertise its business at the Premises. Landlord agrees to work in good faith
with Tenant to allow Tenant to place an off-Project monument sign which will
advertise both Landlord's project as well as Tenant's business at the Premises.

         14. PARKING. Tenant shall be entitled to all parking at the Project.
Landlord shall not be responsible for enforcing Tenant's parking rights against
any third parties.

         15. RESTORATION. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days
after such damage as to the amount of time Landlord reasonably estimates (by a
contractor licensed by the State of California) it will take to restore the
Premises. If the restoration time is estimated to exceed 6 months, either
Landlord or Tenant may elect to terminate this Lease upon notice to the other
party given no later than 30 days after Landlord's notice. If neither party
elects to terminate this Lease or if Landlord estimates that restoration will
take 6 months or less, then, subject to receipt of sufficient insurance proceeds
(Landlord shall be deemed to have received sufficient insurance proceeds if
Landlord receives net proceeds in an amount equal to ninety percent (90%) of the
replacement value for the Project), Landlord shall promptly restore the Premises
excluding the improvements installed by Tenant or by Landlord and paid by
Tenant, subject to delays arising from the collection of insurance proceeds or
from Force Majeure events. Tenant at Tenant's expense shall promptly perform,
subject to delays arising from the collection of insurance proceeds, or from
Force Majeure events, all repairs or restoration not required to be done by
Landlord. Notwithstanding the foregoing, either party may terminate this Lease
if the Premises are damaged during the last year of the Lease Term and Landlord
reasonably estimates (by a contractor licensed by the State of California) that
it will take more than two months to repair such damage. Tenant shall pay to
Landlord with respect to any damage to the Premises the amount of the
commercially reasonable deductible under Landlord's insurance policy within
thirty (30) days after presentment of Landlord's invoice; provided however that
any earthquake deductible shall be amortized over fifteen (15) years and paid by
Tenant to Landlord monthly as a part of Operating Expenses. Base Rent and
Operating Expenses shall be abated for the period of repair and restoration in
the proportion which the area of the Premises, if any, which is not usable by
Tenant bears to the total area of the Premises or if the entire Premises is not
usable by Tenant as a result of a partial casualty, Tenant shall receive rental
abatement for the entire Premises for the period during which the entire
Premises is unusable plus a reasonable period of time, not to exceed thirty (30)
days, for Tenant to reinstall its improvements and trade fixtures; provided that
such abatement for the period of time not to exceed thirty (30) days and for any
abatement for any areas of the Premises greater than the amount actually damaged
shall occur only if Landlord actually recovers all amounts abated through the
rent loss insurance Landlord is required to carry pursuant to this Lease. Such
abatement shall be the sole remedy of Tenant, and except as provided herein,
Tenant waives any right to terminate the Lease by reason of damage or casualty
loss.

            Notwithstanding anything to the contrary contained in this Lease,
following any event of damage or destruction and in the event Landlord is
obligated or elects to repair the damage or destruction to the repairs which
Landlord is required to perform hereunder , then such repairs shall be
Substantially Completed (for occupancy) as defined in Addendum Two within 180
days from the date on which Landlord begins such repairs subject to delays from
Force Majeure (provided that the delay due to Force Majeure allowed hereunder
shall not exceed an additional ninety (90) days). If Landlord has failed to
complete the repairs within the time frames in the previous sentence, Tenant
shall have the right to terminate this Lease by thirty (30) days prior written
notice to Landlord (the "Damage Termination Notice",) effective as of a date set
forth in the Damage Termination Notice (but not sooner than thirty (30) days
after the date of the Damage Termination Notice) (the "Damage Termination
Date"). Notwithstanding the foregoing, if Tenant delivers a Damage Termination
Notice to Landlord, then Landlord shall have the right to suspend the occurrence
of the Damage Termination Date for a period ending thirty (30) days after the
Damage Termination Date set forth in the Damage Termination Notice by delivering
to Tenant, within five (5) business days of Landlord's receipt of the Damage
Termination Notice, a certificate of Landlord certifying that it is Landlord's
good faith judgement that the repairs shall be Substantially Completed within
thirty (30) days after the Damage Termination Date. If the repairs are not
Substantially Completed within the thirty-day period after the Damage
Termination Date, then this Lease shall terminate upon the expiration of such
thirty-day period.

         16. CONDEMNATION. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private

                                      -7-
<PAGE>

purchase in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent
or materially interfere with Tenant's use of the Premises or in Landlord's
judgment would materially interfere with or impair its ownership or operation of
the Project, then upon written notice by Landlord or Tenant this Lease shall
terminate and Base Rent shall be apportioned as of said date. If part of the
Premises shall be Taken, and this Lease is not terminated as provided above, the
Base Rent payable hereunder during the unexpired Lease Term shall be reduced to
such extent as may be fair and reasonable under the circumstances. In the event
of any such Taking, Landlord shall be entitled to receive the entire price or
award from any such Taking without any payment to Tenant, and Tenant hereby
assigns to Landlord Tenant's interest, if any, in such award; provided however,
Tenant shall have the right, to the extent that same shall not diminish
Landlord's award, to make a separate claim against the condemning authority (but
not Landlord) for such compensation as may be separately awarded or recoverable
by Tenant for moving expenses, damage to Tenant's Trade Fixtures, and other
improvements installed and paid for by Tenant, if a separate award for such
items is made to Tenant.


            17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written
consent, which Landlord shall not unreasonably withhold or delay, Tenant
shall not assign this Lease or sublease the Premises or any part thereof or
mortgage, pledge, or hypothecate its leasehold interest or grant any
concession or license within the Premises and any attempt to do any of the
foregoing shall be void and of no effect. Landlord shall grant or deny its
consent within fifteen (15) business days of Landlord's receipt of Tenant's
written request for approval of an assignment or sublease along with the
proposed assignment or sublease and any information concerning the proposed
assignee or sublessee as Landlord may reasonably request. For purposes of
this paragraph, a transfer of the ownership interests controlling Tenant
shall be deemed an assignment of this Lease unless such ownership interests
are publicly traded. Notwithstanding anything to the contrary contained in
this Paragraph 17; neither (i) an assignment or subletting of all or a
portion of the Premises (A) to an entity which is controlled by, controls or
is under common control with Tenant, (B) to an entity which is funded by
Tenant or an entity which is controlled by, controls or is under common
control with Tenant in connection with their business in the "e-commerce," or
"internet/high tech" industry or (C) to a purchaser of all or substantially
all of the assets of Tenant or of an entity which is controlled by, controls
or is under common control with Tenant, (ii) a transfer, by operation of law
or otherwise, in connection with the merger, consolidation or other
reorganization of Tenant or of an entity which is controlled by, controls or
is under common control with Tenant, nor (iii) the temporary use or occupancy
of portions of the Premises by a party or parties in connection with the
transaction of business with Tenant or with an entity which is controlled by,
controls or is under common control with Tenant, shall be subject to the
Landlord's consent or the payment of excess rent and other excess
consideration as provided in this Paragraph, (such entities, purchasers, and
parties shall be referred to herein collectively or individually as a "Tenant
Affiliate"); provided, however, no sublease or assignment to an Tenant
Affiliate shall release the Tenant named herein from any liability under this
Lease. Tenant shall immediately notify Landlord of any such assignment,
purchase, transfer, sublease, action, or use. For purposes of this Lease,
"control" 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 majority ownership of any sort, whether through the ownership of
voting securities, by contract or otherwise. Tenant shall reimburse Landlord
for all of Landlord's reasonable out-of-pocket expenses in connection with
any assignment or sublease, not to exceed $1000.00 per assignment or
sublease. Upon Landlord's receipt of Tenant's written notice of a desire to
assign or sublet the entire Premises, (other than to a Tenant Affiliate),
Landlord may, by giving written notice to Tenant within fifteen (15) business
days after receipt of Tenant's notice, terminate this Lease with respect to
the space described in Tenant's notice, as of the date specified in Tenant's
notice for the commencement of the proposed assignment or sublease. If
Landlord so terminates the Lease, Landlord may enter into a lease directly
with the proposed sublessee or assignee. Tenant may withdraw its notice to
sublease or assign by notifying Landlord within 10 days after Landlord has
given Tenant notice of such termination, in which case the Lease shall not
terminate but shall continue.

            It shall be reasonable for the Landlord to withhold its consent to
any assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the proposed
sublease or assignment; (ii) the assignee or sublessee in Landlord's opinion,
does not have a satisfactory net worth calculated according to generally
accepted accounting principles; in light of the obligations of the Tenant under
this Lease (iii) the intended use of the Premises by the assignee or sublessee
is in Landlord's reasonable opinion, inconsistent with the use provisions of
this Lease; (iv) occupancy of the Premises by the assignee or sublessee would,
in Landlord's opinion, violate an agreement binding upon Landlord or the Project
with regard to the identity of tenants, usage in the Project, or similar
matters, provided that, Landlord will notify Tenant of any such agreements upon
Tenant's written request for same; (v) the identity or business reputation of
the assignee or sublessee will, in the good faith judgment of Landlord, tend to
damage the goodwill or reputation of the Project; or (vi) in the case of a
sublease, the subtenant has not acknowledged that the Lease controls over any
inconsistent provision in the sublease (except that such sublease may contain
different rental obligations than those in the Lease). Tenant and Landlord
acknowledge that each of the foregoing criteria are reasonable as of the date of
execution of this Lease. The foregoing criteria shall not exclude any other
reasonable basis for Landlord to refuse its consent to such assignment or
sublease. Any approved assignment or sublease shall be expressly subject to the
terms and conditions of this Lease. Tenant shall provide to Landlord all
information concerning the assignee or sublessee as Landlord may reasonably
request.

            Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder fifty percent (50%) of
such excess rental and other excess consideration within 30 days following
receipt thereof by Tenant; provided however, that the payment of excess rental
and other excess consideration hereunder shall not apply to consideration
received by Tenant for a sale of it's business and/or a sale of its Trade
Fixtures. With respect to Tenant's obligation to pay to Landlord any excess rent
and other excess consideration

                                      -8-
<PAGE>

payable with respect to any assignment or subleasing, Landlord agrees that
Tenant shall be entitled, in determining the amount of such excess rental and
excess consideration, to first recapture the actual reasonable out of pocket
leasing commissions and attorneys fees paid by Tenant in connection therewith as
well as the amount of any reasonable Tenant improvements which Landlord approves
installed by Tenant for an assignee or sublessee.

            If this Lease be assigned or if the Premises be subleased (whether
in whole or in part) or in the event of the mortgage, pledge, or hypothecation
of Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder beyond any applicable notice and
cure periods, Landlord may collect rent from the assignee, sublessee, mortgagee,
pledgee, party to whom the leasehold interest was hypothecated, concessionee or
licensee or other occupant and, except to the extent set forth in the preceding
paragraph, apply the amount collected to the next rent payable hereunder; and
all such rentals collected by Tenant shall be held in trust for Landlord and
immediately forwarded to Landlord. No such transaction or collection of rent or
application thereof by Landlord, however, shall be deemed a waiver of these
provisions or a release of Tenant from the further performance by Tenant of its
covenants, duties, or obligations hereunder.

         18. INDEMNIFICATION. Except for the negligence of Landlord, or willful
misconduct its agents, employees or contractors, and to the extent permitted by
law, Tenant agrees to indemnify, defend and hold harmless Landlord, and
Landlord's agents, employees and contractors, from and against any and all
losses, liabilities, damages, costs and expenses (including attorneys' fees)
resulting from claims by third parties for injuries to any person and damage to
or theft or misappropriation or loss of property occurring in or about the
Project and arising from the use and occupancy of the Premises or from any
activity, work, or thing done, permitted or suffered by Tenant in or about the
Premises or due to any other act or omission of Tenant, its subtenants,
assignees, invitees, employees, contractors and agents. The furnishing of
insurance required hereunder shall not be deemed to limit Tenant's obligations
under this Paragraph 18.

            Landlord covenants and agrees to indemnify, defend, and save Tenant,
its employees and agents harmless of and from any and all claims, costs,
expenses and liabilities, including, without limitation, attorneys' fees,
arising on account of or by reason of claims by third parties for injuries or
death to persons or damages to property resulting from the negligence or willful
misconduct of Landlord or its agents, employees, or contractors, to the extent
not attributable to any negligence of Tenant, any assignee or subtenant of
Tenant, or their respective employees, agents, or contractors.

            If a claim under the foregoing indemnity is made against the
indemnitee which the indemnitee believes to be covered by an indemnitor's
indemnification obligations hereunder, the indemnitee shall promptly notify the
indemnitor of the claim and, in such notice shall offer to the indemnitor the
opportunity to assume the defense of the claim within 10 business days after
receipt of the notice (with counsel reasonably acceptable to the indemnitee). If
the indemnitor timely elects to assume the defense of the claim, the indemnitor
shall have the right to settle the claim on any terms it considers reasonable
and without the indemnitee's prior written consent, as long as the settlement
shall not require the indemnitee to render any performance or pay any
consideration, and the indemnitee shall not have the right to settle any such
claim. If the indemnitor fails timely to elect to assume the defense of the
claim or fails to defend the claim with diligence, then the indemnitee shall
have the right to take over the defense of the claim and to settle the claim on
any terms the indemnitee considers reasonable. Any such settlement shall be
valid as against the indemnitor. If the indemnitor assumes the defense of a
claim, the indemnitee may employ its own counsel but such employment shall be at
the sole expense of the indemnitee. If any such claim arises out of the
negligence of both Landlord and Tenant, responsibility for such claim shall be
allocated between Landlord and Tenant based on their respective degrees of
negligence. This indemnity does not cover claims arising from the presence or
release of Hazardous Materials.

         19. INSPECTION AND ACCESS. Landlord and its agents, representatives,
and contractors may enter the Premises during business hours with 48 hours prior
written or telephonic notice, except in the case of an emergency in which case,
no prior notice is required to inspect the Premises and to make such repairs as
may be required or permitted pursuant to this Lease and for any other business
purpose. Landlord and Landlord's representatives may enter the Premises during
business hours for the purpose of showing the Premises to prospective purchasers
and, during the last six (6) months of the Lease Term, to prospective tenants.
Landlord may erect a commercially reasonable sign in a commercially reasonable
location at the Premises stating the Premises are available to let or that the
Project is available for sale. Landlord may grant easements, make public
dedications, designate common areas and create restrictions on or about the
Premises, provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be reasonably
necessary for such easements, dedications or restrictions. Landlord shall use
commercially reasonably efforts to minimize interference with Tenant's business
and attempt to reasonably schedule such entries with Tenant while exercising
Landlords rights under this Paragraph 19.

         20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant within any applicable
notice and cure periods, if any, Tenant shall, subject to the terms of this
Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of
the Premises against any person claiming by, through or under Landlord.

         21. SURRENDER. Upon termination of the Lease Term or earlier
termination of Tenant's right of possession, Tenant shall surrender the Premises
to Landlord in the same condition as received, broom clean, ordinary wear and
tear and casualty loss and condemnation covered by Paragraphs 15 and 16
excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so
removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed of by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and disposition of such property. All obligations

                                      -9-
<PAGE>

of Landlord and Tenant hereunder not fully performed as of the termination of
the Lease Term shall survive the termination of the Lease Term, including
without limitation, indemnity obligations, payment obligations with respect to
Operating Expenses and obligations concerning the condition and repair of the
Premises.

         22. HOLDING OVER. If Tenant retains possession of the Premises after
the termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to 125% the
Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over for the first two months of
such holding over and 150% of monthly Base Rent thereafter. All other payments
shall continue under the terms of this Lease. In addition, Tenant shall be
liable for all damages incurred by Landlord as a result of such holding over. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly provided, and this
Paragraph 22 shall not be construed as consent for Tenant to retain possession
of the Premises.

         23. EVENTS OF DEFAULT. Each of the following events shall be an event
of default ("Event of Default") by Tenant under this Lease:

                  (i) Tenant shall fail to pay any installment of Base Rent or
         any other payment required herein when due, and such failure shall
         continue for a period of 5 days from the date of Landlord's written
         notice to Tenant of such failure to pay; provided however, that any
         such notice shall be in lieu of, and not in addition to, any notice
         required under California Code of Civil Procedure Section 1161 or any
         similar or successor law.

                  (ii) Tenant or any guarantor or surety of Tenant's obligations
         hereunder shall (A) make a general assignment for the benefit of
         creditors; (B) commence any case, proceeding or other action seeking to
         have an order for relief entered on its behalf as a debtor or to
         adjudicate it a bankrupt or insolvent, or seeking reorganization,
         arrangement, adjustment, liquidation, dissolution or composition of it
         or its debts or seeking appointment of a receiver, trustee, custodian
         or other similar official for it or for all or of any substantial part
         of its property (collectively a "proceeding for relief"); (C) become
         the subject of any proceeding for relief which is not dismissed within
         60 days of its filing or entry; or (D) die or suffer a legal disability
         (if Tenant, guarantor, or surety is an individual) or be dissolved or
         otherwise fail to maintain its legal existence (if Tenant, guarantor or
         surety is a corporation, partnership or other entity) unless all of the
         obligations of Tenant and Guarantor are assumed in writing by a
         surviving entity which has a net worth which is equal to or greater
         than that of the Tenant or Guarantor, as applicable, at (i) the time of
         such dissolution or failure to maintain legal existence, and (ii) One
         Hundred Thirty Million U.S. Dollars ($130,000,000.00).

                  (iii) Any insurance required to be maintained by Tenant
         pursuant to this Lease shall be cancelled or terminated or shall expire
         or shall be reduced below what is required hereunder except, in each
         case, as permitted in this Lease and such matter is not cured within
         five (5) business days after written notice from Landlord of a default
         under this Paragraph 23 (iii); provided however that any such notice
         shall be in lieu of, and not in addition to, any notice required under
         California Code of Civil Procedure Section 1161 or any similar or
         successor law.

                  (iv) Tenant shall not occupy or shall vacate the Premises or
         shall fail to continuously operate its business at the Premises for the
         permitted use set forth herein, whether or not Tenant is in monetary or
         other default under this Lease. Tenant's vacating of the Premises shall
         not constitute a Event of Default if, prior to vacating the Premises,
         Tenant has made arrangements reasonably acceptable to Landlord to (a)
         insure that Tenant's insurance for the Premises will not be voided or
         cancelled with respect to the Premises as a result of such vacancy, (b)
         provide a commercially reasonable level of security to assure that the
         Premises is not subject to vandalism, and (c) insure that the Premises
         will be properly maintained after such vacation. In such event, Tenant
         shall inspect the Premises at least once month and shall maintain the
         Premises in the condition required by this Lease.

                  (v) Tenant shall attempt or there shall occur any assignment,
         subleasing or other transfer of Tenant's interest in or with respect to
         this Lease except as otherwise permitted in this Lease, provided
         however, that Tenant shall not be in default under the circumstances
         described in this sub-paragraph if Tenant cures such default within
         thirty (30) days after written notice from Landlord of such default.
         Landlord's notice provided under this sub-paragraph shall be in lieu
         of, and not in addition to, any notice required under California Code
         of Civil Procedure Section 1161 or any similar or successor law.

                  (vi) Tenant shall fail to discharge any lien placed upon the
         Premises in violation of this Lease within 30 days after Landlord shall
         have given Tenant written notice of any such lien or encumbrance is
         filed against the Premises. Any notice provided by Landlord under this
         Paragraph 23(vi) shall be in lieu of, and not in addition to, any
         notice required under California Code of Civil Procedure Section 1161
         or any similar or successor law.

                  (vii) Tenant shall fail to comply with any provision of this
         Lease other than those specifically referred to in this Paragraph 23,
         and except as otherwise expressly provided herein, such default shall
         continue for more than 30 days after Landlord shall have given Tenant
         written notice of such default. Notwithstanding the provisions of this
         sub-paragraph, Tenant shall not be in default under the circumstances
         described in this sub-paragraph if Tenant has made diligent efforts to
         cure such default within the thirty (30) day period


                                      -10-
<PAGE>

         described herein and thereafter proceeds diligently to cure such
         default within a commercially reasonable time but in no circumstances
         to exceed ninety (90) days after Landlord shall have given Tenant
         written notice of such default. Any notice provided by Landlord under
         this Paragraph 23(vii) shall be in lieu of, and not in addition to, any
         notice required under California Code of Civil Procedure Section 1161
         or any similar or successor law.

         24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default
and so long as such Event of Default shall be continuing, Landlord may at any
time thereafter at its election: terminate this Lease or Tenant's right of
possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.

         Except as otherwise provided in the next paragraph, if Tenant breaches
this Lease and abandons the Premises prior to the end of the term hereof, or if
Tenant's right to possession is terminated by Landlord because of an Event of
Default by Tenant under this Lease, this Lease shall terminate. Upon such
termination, Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the Civil Code of California: (i) the worth at the time of
award of the unpaid Base Rent and other charges under this Lease that had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the reasonable value of the unpaid Base Rent and other charges
under this Lease which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; (iii) the worth at the time of the award by which the
reasonable value of the unpaid Base Rent and other charges under this Lease for
the balance of the term of this Lease after the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or that in the ordinary course of things would be likely to result
therefrom. As used herein, the following terms are defined: (a) the "worth at
the time of award" of the amounts referred to in Sections (i) and (ii) is
computed by allowing interest at the lesser of the prime rate (the annual base
corporate rate as announced by the Wall Street Journal from time to time) plus
five percent (5%) per annum or the maximum lawful rate. The "worth at the time
of award" of the amount referred to in Section (iii) is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent; (b) the "time of award" as used in clauses
(i), (ii), and (iii) above is the date on which judgment is entered by a court
of competent jurisdiction; (c) The "reasonable value" of the amount referred to
in clause (ii) above is computed by determining the mathematical product of (1)
the "reasonable annual rental value" (as defined herein) and (2) the number of
years, including fractional parts thereof, between the date of termination and
the time of award. The "reasonable value" of the amount referred to in clause
(iii) is computed by determining the mathematical product of (1) the annual Base
Rent and other charges under this Lease and (2) the number of years including
fractional parts thereof remaining in the balance of the term of this Lease
after the time of award.

         Even though Tenant has breached this Lease and abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4 and the following provision from such Civil Code Section is
hereby repeated: "The Lessor 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)." Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that
Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.

         Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of law, it being understood that such surrender and/or termination
can be effected only by the written agreement of Landlord and Tenant. Any law,
usage, or custom to the contrary notwithstanding, Landlord shall have the right
at all times to enforce the provisions of this Lease in strict accordance with
the terms hereof; and the failure of Landlord at any time to enforce its rights
under this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific terms,
provisions, and covenants of this Lease or as having modified the same. Tenant
and Landlord further agree that forbearance or waiver by Landlord to enforce its
rights pursuant to this Lease or at law or in equity, shall not be a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord.
Tenant's payment of any such amounts is not a waiver of Tenant's right to object
to the amount of such billings. To the greatest extent permitted by law, Tenant
waives the service of notice of Landlord's intention to re-enter as provided for
in any statute, or to institute legal proceedings to that end, and also waives
all right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms "enter," "re-enter," "entry" or
"re-entry," as used in this Lease, are not restricted to their technical legal
meanings. Any reletting of the Premises shall be on such terms and conditions as
Landlord in its sole discretion may determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any tenant
and leasing any or all other portions of the Project before reletting the
Premises).

                                      -11-
<PAGE>


Landlord shall not be liable, nor shall Tenant's obligations hereunder be
diminished because of, Landlord's failure to relet the Premises or collect rent
due in respect of such reletting.

         25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary, so long as Landlord is diligently pursuing a cure). All
obligations of Landlord and Tenant hereunder shall be construed as covenants,
not conditions. All obligations of Landlord under this Lease will be binding
upon Landlord only during the period of its ownership of the Premises and not
thereafter, unless any new owner does not expressly assume Landlord's
obligations hereunder, in which case Landlord shall remain responsible for its
obligations to Tenant under this Lease for such Landlord's period of ownership.
The term "Landlord" in this Lease shall mean only the owner, for the time being
of the Premises, and in the event of the transfer by such owner of its interest
in the Premises, such owner shall thereupon be released and discharged from all
obligations of Landlord thereafter accruing, but such obligations shall be
binding during the Lease Term upon each new owner for the duration of such
owner's ownership.

         Any liability of Landlord for a default by Landlord under the Lease, or
a breach by Landlord of any of its obligations under the Lease, shall be limited
solely to its interest in the Premises, and in no event shall any personal
liability be asserted against Landlord in connection with the Lease nor shall
any recourse be had to any other property or assets of Landlord. Landlord's
interest in the Premises shall be deemed to include: (i) the rents or other
income from the Premises received by Landlord after Tenant obtains a final
judgment against Landlord, (ii) the net proceeds received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title and
interest in the Premises after Tenant obtains a final judgment against Landlord,
(iii) the net proceeds received by Landlord from any condemnation or conveyance
in lieu of condemnation of all or any portion of the Premises after Tenant
obtains a final judgment against Landlord, and (iv) the net proceeds of
insurance received by Landlord from any casualty loss of all or any portion of
the Premises after Tenant obtains a final judgment against Landlord.

         Any law, usage, or custom to the contrary notwithstanding, Tenant shall
have the right at all times to enforce the provisions of this Lease in
accordance with the Terms hereof; and the failure of Tenant at any time to
enforce its rights under this Lease strictly in accordance with same shall not
be construed as having created a custom in any way or manner contrary to the
specific terms, provisions and covenants of this Lease or having modified same.
Landlord and Tenant further agree that forbearance or a waiver by Tenant to
enforce its rights pursuant to this Lease or at law or equity, shall not be a
waiver of Tenant's right to enforce one or more of its rights in connection with
any subsequent default. No waiver by Tenant of provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Tenant.

         26. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL
BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

         27. SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees within fifteen (15) days of Landlord's demand for same to
execute, acknowledge and deliver such instruments, confirming such subordination
and such commercially reasonable instruments of attornment as shall be
reasonably requested by any such holder. Notwithstanding the foregoing, any such
holder may at any time subordinate its mortgage to this Lease, without Tenant's
consent, by notice in writing to Tenant, and thereupon this Lease shall be
deemed prior to such mortgage without regard to their respective dates of
execution, delivery or recording and in that event such holder shall have the
same rights with respect to this Lease as though this Lease had been executed
prior to the execution, delivery and recording of such mortgage and had been
assigned to such holder. The term "mortgage" whenever used in this Lease shall
be deemed to include deeds of trust, security assignments and any other
encumbrances, and any reference to the "holder" of a mortgage shall be deemed to
include the beneficiary under a deed of trust. There is currently a loan from
ProLogis Trust ("Lender") which is secured by the Building. Landlord agrees that
it will, no later April 1, 2000, obtain a non-disturbance agreement from Lender
in the form attached hereto as Exhibit B.

         Tenant shall not be obligated to subordinate the Lease or its interest
therein to any future mortgage, deed of trust or ground lease on the Project
unless concurrently with such subordination the holder of such mortgage or deed
of trust or the ground lessor under such ground lease agrees not to disturb
Tenant's possession of the Premises under the terms of the Lease in the event
such holder or ground lessor acquires title to the Premises through foreclosure,
deed in lieu of foreclosure or otherwise. Tenant shall be solely responsible for
any fees or expenses charged by the holder of such mortgage or deed of trust in
connection with the granting of such non-disturbance agreement.

         28. MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense

                                      -12-
<PAGE>

based on or arising out of asserted claims or liens against the leasehold estate
or against the interest of Landlord in the Premises or under this Lease. Tenant
shall give Landlord immediate written notice of the placing of any lien or
encumbrance against the Premises of which Tenant has knowledge and cause such
lien or encumbrance to be discharged within 30 days of the Tenant's knowledge
thereof ; provided, however, Tenant may contest such liens or encumbrances as
long as such contest prevents foreclosure of the lien or encumbrance and Tenant
causes such lien or encumbrance to be bonded or insured over in a manner
satisfactory to Landlord within such 30 day period.

         29. ESTOPPEL CERTIFICATES. Landlord and Tenant agree, from time to
time, within 15 days after request of the other party, to execute and deliver to
such other party, or its designee, any estoppel certificate reasonably requested
by such Party, stating that this Lease is in full force and effect, the date to
which rent has been paid, whether, to its actual knowledge, such other party is
in default hereunder (or specifying in detail the nature of such other party's
default), the termination date of this Lease and such other matters pertaining
to this Lease as may be reasonably requested by the other party. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate.

         30. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material contained
in products used by Tenant in de minimis quantities for ordinary cleaning,
office purposes, and in the operation of warehousing, sorting and distributing
equipment and fixtures, and except for Hazardous Materials contained in items
received, shipped, and stored in the manufacturer's original sealed packaging in
the normal course of Tenant's business operations and in compliance with all
applicable Legal Requirements, Tenant shall not permit or cause any party to
bring any Hazardous Material upon the Premises or transport, store, use,
generate, manufacture or release any Hazardous Material in or about the Premises
without Landlord's prior written consent. Tenant, at its sole cost and expense,
shall operate its business in the Premises in strict compliance with all
Environmental Requirements and shall remediate in a manner satisfactory to
Landlord any Hazardous Materials released on or from the Project by Tenant, its
agents, employees, contractors, subtenants or invitees. Tenant shall complete
and certify to disclosure statements as reasonably requested by Landlord from
time to time relating to Tenant's transportation, storage, use, generation,
manufacture or release of Hazardous Materials on the Premises. The term
"Environmental Requirements" means all applicable present and future statutes,
regulations, ordinances, rules, codes, judgments, orders or other similar
enactments of any governmental authority or agency regulating or relating to
health, safety, or environmental conditions on, under, or about the Premises or
the environment, including without limitation, the following: the Comprehensive
Environmental Response, Compensation and Liability Act; the Resource
Conservation and Recovery Act; and all state and local counterparts thereto, and
any regulations or policies promulgated or issued thereunder. The term
"Hazardous Materials" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, under any
Environmental Requirements, asbestos and petroleum, including crude oil or any
fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas). As defined
in Environmental Requirements, Tenant is and shall be deemed to be the
"operator" of Tenant's "facility" and the "owner" of all Hazardous Materials
brought on the Premises by Tenant, its agents, employees, contractors or
invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.

         Landlord has delivered to Tenant the Environmental Reports described
below. It is understood by Tenant that Landlord has not made any independent
investigations to confirm the accuracy or completeness of the Environmental
Reports, and Landlord makes no representation or warranty as to the accuracy or
completeness of such reports. Tenant agrees to keep the Environmental Reports
confidential and not to disclose the contents thereof to any other party without
the prior written consent of Landlord.

         A copy of the Phase I Environmental Site Assessment for SWC Mission
Blvd and So. Milliken Aveenue, Ontario, California dated January 30, 1998
(Project No. 61246.0025) prepared for Meridian Industrial Trust by ATC
Associates, Inc. , and an update to such Phase I, dated September 29, 1998, also
prepared by ATC Associates, Inc. for Meridian Industrial Trust, (Project No.
612246.0064) (the "Environmental Reports"), have been provided to Tenant. To
Landlord's actual knowledge, there are no environmental conditions other than
those reflected in the Environmental Reports provided to Tenant by Landlord
hereunder. "Landlord's actual knowledge" as used in this Lease means the current
actual knowledge of Larry Harmsen, without duty of inquiry or investigation.

         Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income from the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the property or disturbed in breach of the requirements of this Paragraph
30, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord as a
result of any release of Hazardous Materials for which Tenant is obligated to
remediate as provided above or any other breach of the requirements under this
Paragraph 30 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Paragraph 30 shall survive
any termination of this Lease.

         Subject to the obligations of Landlord under Paragraph19, Landlord
shall have access to, and a right to perform inspections and tests of, the
Premises to determine Tenant's compliance with Environmental Requirements, its
obligations under this Paragraph 30, or the environmental condition of the
Premises. Access shall be granted to Landlord upon Landlord's prior notice to
Tenant and at such times so as to minimize, so far as may be reasonable under
the circumstances, any disturbance to Tenant's operations. Such inspections and
tests shall be conducted at Landlord's expense, unless such inspections or tests
reveal that Tenant has not complied with any Environmental Requirement, in

                                      -13-
<PAGE>

which case Tenant shall reimburse Landlord for the reasonable cost of such
inspection and tests. Landlord's receipt of or satisfaction with any
environmental assessment in no way waives any rights that Landlord holds against
Tenant.

         Notwithstanding anything contained in this paragraph, Tenant shall have
no liability of any kind to Landlord as to Hazardous Materials on the Premises
(i) caused or permitted by Landlord, its agents, employees, contractors or
invitees; or (ii) caused or permitted by any other person or entity located
outside the Premises or the Project; or (iii) existing prior to the earlier of,
Tenant's early occupancy under this Lease or the Commencement Date.

         If Hazardous Materials are hereafter discovered on the Premises, and
the presence of such Hazardous Materials is not the result of Tenant's use of
the Premises or any act or omission of Tenant or its agents, employees,
contractors, subtenants or invitees, and the presence of such Hazardous
Materials results in any contamination, damages, or injury to the Premises that
materially and adversely affects Tenant's occupancy or use of the Premises,
Landlord shall promptly take all actions at its sole expense as are necessary to
remediate such Hazardous Materials and as may be required by the Environmental
Requirements. Actual or threatened action or litigation by any governmental
authority is not a condition prerequisite to Landlord's obligations under this
paragraph. Within 30 days after notification from Tenant supported by reasonable
documentation setting forth such presence or release of Hazardous Materials, and
after Landlord has been given a reasonable period of time after such 30-day
period to conduct its own investigation to confirm such presence or release of
Hazardous Materials, Landlord shall either terminate this Lease or commence to
remediate such Hazardous Materials within 180 days after the completion of
Landlord's investigation and thereafter diligently prosecute such remediation to
completion. If Landlord fails to commence such remediation or if Landlord
commences such remediation and fails to diligently prosecute same until
completion, then Tenant as its sole remedy may terminate this Lease by written
notice to Landlord after expiration of 30 days following a notice to Landlord
that Tenant intends to terminate this Lease if Landlord does not promptly
commence or diligently prosecute the remediation within such 30-day period. If
Landlord commences remediation pursuant to this paragraph, Base Rent and
Operating Expenses shall be equitably adjusted if and to the extent and during
the period the Premises are unsuitable for Tenant's business. Notwithstanding
anything herein to the contrary, if Landlord obtains a letter from the
appropriate governmental authority that no further remediation is required prior
to the effective date of any such termination, such termination shall be null
and void and this Lease shall remain in full force and effect.

         31. RULES AND REGULATIONS. Tenant shall, at all times during the Lease
Term and any extension thereof, comply with all reasonable non-discriminatory
rules and regulations at any time or from time to time established by Landlord
covering use of the Premises and the Project; provided however, that such rules
shall not increase Tenant's obligations nor decrease it's rights hereunder. The
current rules and regulations are attached hereto. In the event of any conflict
between said rules and regulations and other provisions of this Lease, the other
terms and provisions of this Lease shall control. Landlord shall not have any
liability or obligation for the breach of any rules or regulations by other
tenants in the Project.

         32. SECURITY SERVICE. Tenant acknowledges and agrees that, while
Landlord may patrol the Project, Landlord is not providing any security services
with respect to the Premises and that Landlord shall not be liable to Tenant
for, and Tenant waives any claim against Landlord with respect to, any loss by
theft or any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises. Tenant may, at its sole cost and expense, install its
own security system or have its own security personnel at the Project. Landlord,
at its option, may require the removal, at Tenant's sole cost and expense, of
any security system installed by Tenant.

         33. FORCE MAJEURE. Except for the monetary obligations hereunder,
neither Tenant nor Landlord shall not be held responsible for delays in the
performance of its obligations hereunder when caused by strikes, lockouts, labor
disputes, acts of God, inability to obtain labor or materials or reasonable
substitutes therefor, governmental restrictions, governmental regulations,
governmental controls, delay in issuance of permits, enemy or hostile
governmental action, civil commotion, fire or other casualty, and other causes
beyond the reasonable control of such party ("Force Majeure").

         34. ENTIRE AGREEMENT. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.

         35. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.

         36. BROKERS. Landlord shall pay the Brokers listed on Page One of this
Lease pursuant to a separate written agreement between Landlord and the Brokers.
Landlord and Tenant represent and warrant that they have dealt with no broker,
agent or other person in connection with this transaction and that no broker,
agent or other person brought about this transaction, other than the Brokers, if
any, set forth on the first page of this Lease, Landlord and Tenant agree to
indemnify and hold the other harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Landlord and Tenant respectively
with regard to this leasing transaction.

                                      -14-
<PAGE>

         MISCELLANEOUS. (a) Any payments or charges due from Tenant to Landlord
hereunder shall be considered rent for all purposes of this Lease.

         (b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.

         (c) All notices required or permitted to be given under this Lease
shall be in writing and shall be sent by registered or certified mail, return
receipt requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 EAST 35TH PLACE, AURORA, COLORADO
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.

         (d) Except as otherwise expressly provided in this Lease or as
otherwise required by law, Landlord retains the absolute right to withhold any
consent or approval.

         (e) At Landlord's request from time to time Tenant shall furnish
Landlord with true and complete copies of its most recent annual and quarterly
financial statements prepared by Tenant or Tenant's accountants in the ordinary
course of business, and any other financial information or summaries that Tenant
typically provides to its lenders or shareholders in the ordinary course of
business.

         (f) Neither this Lease nor a memorandum of lease shall be filed by or
on behalf of Tenant in any public record. Landlord may prepare and file, and
upon request by Landlord Tenant will execute, a memorandum of lease.

         (g) The normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.

         (h) The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party until
execution of this Lease by both parties.

         (i) Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.

         (j) Any amount not paid by Tenant or Landlord within 5 days after its
due date in accordance with the terms of this Lease shall bear interest from
such due date until paid in full at the lesser of the highest rate permitted by
applicable law or the current prime rate plus five percent (5%) It is expressly
the intent of Landlord and Tenant at all times to comply with applicable law
governing the maximum rate or amount of any interest payable on or in connection
with this Lease. If applicable law is ever judicially interpreted so as to
render usurious any interest called for under this Lease, or contracted for,
charged, taken , reserved, or received with respect to this Lease, then it is
Landlord's and Tenant's express intent that all excess amounts theretofore
collected by Landlord be credited on the applicable obligation (or, if the
obligation has been or would thereby be paid in full, refunded to Tenant), and
the provisions of this Lease immediately shall be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder.

         (k) Construction and interpretation of this Lease shall be governed by
the laws of the state in which the Project is located, excluding any principles
of conflicts of laws.

         (l) Time is of the essence as to the performance of Tenant's
obligations under this Lease.

         (m) All exhibits and addenda attached hereto are hereby incorporated
into this Lease and made a part hereof. In the event of any conflict between
such exhibits or addenda and the terms of this Lease, such exhibits or addenda
shall control.

         38. LANDLORD'S LIEN/SECURITY INTEREST. Landlord retains any lien
rights or similar rights with respect to Tenant's Personal Property at the
Premises afforded to Landlord by California Law. Provided Tenant is not in
default under the Lease beyond applicable notice and cure periods, Landlord, at
the request of Tenant, agrees to subordinate Landlord's lien arising under the
Lease against Tenant's property located on the Premises. Such subordination
shall be required only if the lender shall be a bank or other financial
institution or the vendor of Tenant's equipment or a financing entity related to
such vendor and if such lender or vendor executes an agreement substantially
similar to Exhibit D or another agreement reasonably acceptable to Landlord.
Tenant shall reimburse Landlord for all reasonable out-of-pocket expenses
incurred by Landlord in negotiating and executing such agreement with Tenant's
lender.

         39. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS OF
PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument,

                                      -15-
<PAGE>

transaction, or undertaking contemplated hereby shall not be personally binding
upon, nor shall resort for the enforcement thereof be had to the property of,
its trustees, directors, shareholders, officers, employees or agents, regardless
of whether such obligation or liability is in the nature of contract, tort, or
otherwise.

         40. ABATEMENT EVENT. In the event that Tenant is prevented from using,
and does not use, the Premises or any portion thereof, as a result of any
occurrence outside the reasonable control of Tenant (an "Abatement Event"), then
rent shall be abated or reduced, as the case may be, for such time that Tenant
continues to be so prevented from using, and does not use, the Premises or a
portion thereof, in the proportion that the rentable area of the portion of the
Premises that Tenant is prevented from using, and does not use, bears to the
total rentable area of the Premises; provided, however, in the event that Tenant
is prevented from using, and does not use, a portion of the Premises and the
remaining portion of the Premises is not sufficient to allow Tenant to
effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then rent shall be abated for such time as
Tenant continues to be so prevented from using, and does not use, the entire
Premises; provided, however, notwithstanding anything to the contrary set forth
in this Paragraph 40, Tenant's rent shall only be abated to the extent the
occurrence is covered by rent loss insurance carried or required to be carried
by Landlord in connection with this Lease and to the extent of net rent loss
insurance proceeds actually received by Landlord (which Landlord shall use
commercially reasonable efforts to obtain).

         41. SATELLITE DISH. Landlord hereby grants Tenant the right to install,
maintain and replace from time to time a satellite dish or similar antennae
device (hereinafter "SATELLITE DISH") on the roof of the Premises, subject to
the following: (a) applicable governmental laws; (b) the right of Landlord to
supervise any roof penetrations; (c) compliance with the conditions of any roof
bond maintained by Landlord on the Premises; and (d) the Satellite Dish not
being visible at street level. Tenant shall be responsible for the repair of any
damage to any portion of the Premises caused by Tenant's installation, use or
removal of the Satellite Dish. The Satellite Dish shall remain the exclusive
property of Tenant, and Tenant shall have the right to remove same at any time
during the term of the Lease so long as Tenant is not in default under the
Lease. Tenant shall protect, defend, indemnify and hold harmless Landlord from
and against any and all claims, damages, liabilities, costs or expenses of every
kind and nature (including without limitation reasonable attorney fees) imposed
upon or incurred by or asserted against Landlord arising out of Tenant's
installation, maintenance, use or removal of the Satellite Dish.


         IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.


TENANT:                                           LANDLORD:

eToys Distribution, LLC,                          ProLogis Development Services
a Delaware Limited Liability Company              Incorporated, a Delaware
                                                  corporation



                                                  By: /s/ John W. Seiple, Jr.
By: /s/ Peter Juzwiak                             Name: John W. Seiple Jr.
Name: Peter Juzwiak                               Title: Managing Director
Title: VP
                                                  Address:
Address:                                          47775 Fremont Blvd.
 3100 Ocean Park Blvd, Suite 300                  Fremont, CA  94538
 Santa Monica, CA  90405
 Attn: General Counsel

with a copy to:
 3100 Ocean Park Blvd., Suite 300
 Santa Monica, CA  90405
 Attn: Facilities Manager



                                      -16-
<PAGE>



                              RULES AND REGULATIONS

1.       The sidewalk, entries, and driveways of the Project shall not be
         obstructed by Tenant, or its agents, or used by them for any purpose
         other than ingress and egress to and from the Premises.

2.       Tenant shall not place any objects, including antennas, outdoor
         furniture, etc., in the parking areas, landscaped areas or other areas
         outside of its Premises, or on the roof of the Project.

3.       Except for dogs (provided that dogs trained as security dogs, shall not
         be allowed on the Project) no animals shall be allowed in the offices,
         halls, or corridors in the Project.

4.       Tenant shall not disturb the occupants of the Project or adjoining
         buildings by the use of any radio or musical instrument or by the
         making of loud or improper noises.

5.       Tenant shall not install or operate any steam or gas engine or boiler,
         or other mechanical apparatus in the Premises, except as specifically
         approved in the Lease. The use of oil, gas or inflammable liquids for
         heating, lighting or any other purpose is expressly prohibited.
         Explosives or other articles deemed extra hazardous shall not be
         brought into the Project.

6.       Parking any type of recreational vehicles is specifically prohibited on
         or about the Project. Except for the overnight parking of operative
         vehicles, no vehicle of any type shall be stored in the parking areas
         at any time. In the event that a vehicle is disabled, it shall be
         removed within 48 hours. There shall be no "For Sale" or other
         advertising signs on or about any parked vehicle. All vehicles shall be
         parked in the designated parking areas in conformity with all Legal
         Requirements markings. All parking will be open parking, and no
         reserved parking, numbering or lettering of individual spaces will be
         permitted except as specified by Landlord.

7.       Tenant shall maintain the Premises free from rodents, insects and other
         pests.

8.       Landlord shall not be responsible to Tenant for any loss of property on
         the Premises, however occurring, or for any damage done to the effects
         of Tenant by the janitors or any other employee or person.

9.       Tenant shall give Landlord prompt notice of any defects in the water,
         lawn sprinkler, sewage, gas pipes, electrical lights and fixtures,
         heating apparatus, or any other service equipment affecting the
         Premises.

10.      Tenant shall not permit storage outside the Premises, including without
         limitation, dumping of waste or refuse or permit any harmful materials
         to be placed in any drainage system or sanitary system in or about the
         Premises.

11.      All moveable trash receptacles provided by the trash disposal firm for
         the Premises must be kept in the trash enclosure areas, if any,
         provided for that purpose.

12.      No auction, public or private, will be permitted on the Premises or the
         Project.

13.      No awnings shall be placed over the windows in the Premises except with
         the prior written consent of Landlord.

14.      The Premises shall not be used for lodging, sleeping or cooking or for
         any immoral or illegal purposes or for any purpose other than that
         specified in the Lease. No gaming devices shall be operated in the
         Premises.

15.      Tenant shall ascertain from Landlord the maximum amount of electrical
         current which can safely be used in the Premises, taking into account
         the capacity of the electrical wiring in the Project and the Premises
         and the needs of other tenants, and shall not use more than such safe
         capacity. Landlord's consent to the installation of electric equipment
         shall not relieve Tenant from the obligation not to use more
         electricity than such safe capacity.

16.      Tenant assumes full responsibility for protecting the Premises from
         theft, robbery and pilferage.

17.      Tenant shall not install or operate on the Premises any machinery or
         mechanical devices of a nature not directly related to Tenant's
         ordinary use of the Premises and shall keep all such machinery free of
         vibration, noise and air waves which may be transmitted beyond the
         Premises.

                                      -17-

<PAGE>



                                  ADDENDUM ONE

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                        DATED FEBRUARY 28, 2000, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC

                               TWO RENEWAL OPTIONS
                             (BASEBALL ARBITRATION)


         (a) Provided that as of the time of the giving of the First Extension
Notice and the Commencement Date of the First Extension Term, (x) Tenant is the
Tenant originally named herein or a Tenant Affiliate, (y) Tenant or a Tenant
Affiliate actually occupies all of the Premises initially demised under this
Lease and (z) no Event of Default exists; then Tenant shall have the right to
extend the Lease Term for an additional term of five (5) years (such additional
term is hereinafter called the "FIRST EXTENSION TERM") commencing on the day
following the expiration of the Lease Term (hereinafter referred to as the
"COMMENCEMENT DATE OF THE FIRST EXTENSION TERM"). Tenant shall give Landlord
notice (hereinafter called the "FIRST EXTENSION NOTICE") of its election to
extend the term of the Lease Term at least nine (9) months, but not more than
twelve (12) months, prior to the scheduled expiration date of the Lease Term.

         (b) Provided that as of the time of the giving of the Second Extension
Notice and the Commencement Date of the Second Extension Term, (x) Tenant is the
Tenant originally named herein or a Tenant Affiliate, (y) Tenant or a Tenant
Affiliate actually occupies all of the Premises initially demised under this
Lease, and (z) no Event of Default exists, and provided Tenant has exercised its
option for the First Extension Term; then Tenant shall have the right to extend
the Lease Term for an additional term of five (5) years (such additional term is
hereinafter called the "SECOND EXTENSION TERM") commencing on the day following
the expiration of the First Extension Term (hereinafter referred to as the
"COMMENCEMENT DATE OF THE SECOND EXTENSION TERM"). Tenant shall give Landlord
notice (hereinafter called the "SECOND EXTENSION NOTICE") of its election to
extend the term of the Lease Term at least nine (9) months, but not more than
twelve (12) months, prior to the scheduled expiration date of the First
Extension Term.

         (c) The Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the greater of (i) the Base Rent applicable to the last
year of the initial Lease term and (ii) the then Fair Market Rent (as
hereinafter defined).

         (d) The Base Rent payable by Tenant to Landlord during the Second
Extension Term shall be the greater of (i) the Base Rent applicable to the last
year of the First Extension Term and (ii) the then Fair Market Rent (as
hereinafter defined).

                                      -18-
<PAGE>


         (e) The term "FAIR MARKET RENT" shall mean the Base Rent, expressed as
an annual rent per square foot of floor area, which Landlord would have received
from leasing the Premises for the Extension Term to an unaffiliated person which
is not then a tenant in the Project, assuming that such space were to be
delivered in "as-is" condition, and taking into account the rental which such
other tenant would most likely have paid for such premises, including market
escalations, provided that Fair Market Rent shall not in any event be less than
the Base Rent for the Premises as of the expiration of the Lease Term. Fair
Market Rent shall not be reduced by reason of any costs or expenses saved by
Landlord by reason of Landlord's not having to find a new tenant for the
Premises (including without limitation brokerage commissions, cost of
improvements necessary to prepare the space for such tenant's occupancy, rent
concession, or lost rental income during any vacancy period). Fair Market Rent
means only the rent component defined as Base Rent in the Lease and does not
include reimbursements and payments by Tenant to Landlord with respect to
operating expenses and other items payable or reimbursable by Tenant under the
Lease. In addition to its obligation to pay Base Rent (as determined herein),
Tenant shall continue to pay and reimburse Landlord as set forth in the Lease
with respect to such operating expenses and other items with respect to the
Premises during the Extension Term. The arbitration process described below
shall be limited to the determination of the Base Rent and shall not affect or
otherwise reduce or modify the Tenant's obligation to pay or reimburse Landlord
for such operating expenses and other reimbursable items.

         (f) Landlord shall notify Tenant of its determination of the Fair
Market Rent within sixty (60) days of Landlord's receipt of the First Extension
Notice or Second Extension Notice, as applicable, (which shall be made in
Landlord's sole discretion and shall in any event be not less than the Base Rent
in effect as of the expiration of the Lease Term) for the First Extension Term
or Second Extension Term, as applicable, and Tenant shall advise Landlord of any
objection within 30 days of receipt of Landlord's notice. Failure to respond
within the 30-day period shall constitute Tenant's acceptance of such Fair
Market Rent. If Tenant objects, Landlord and Tenant shall commence negotiations
to attempt to agree upon the Fair Market Rent within 30 days of Landlord's
receipt of Tenant's notice. If the parties cannot agree, each acting in good
faith but without any obligation to agree, then the Lease Term shall not be
extended and shall terminate on its scheduled termination date and Tenant shall
have no further right hereunder or any remedy by reason of the parties' failure
to agree unless Tenant or Landlord invokes the arbitration procedure provided
below to determine the Fair Market Rent.

         (g) Arbitration to determine the Fair Market Rent shall be in
accordance with the Real Estate Valuation Arbitration Rules of the American
Arbitration Association. Unless otherwise required by state law, arbitration
shall be conducted in the metropolitan area where the Project is located by a
single arbitrator unaffiliated with either party. Either party may elect to
arbitrate by sending written notice to the other party and the Regional Office
of the American Arbitration Association within 10 days after the 30-day
negotiating period provided in Paragraph (d), invoking the binding arbitration
provisions of this paragraph. Landlord and Tenant shall each submit to the
arbitrator their respective proposal of Fair Market Rent within thirty (30) days
after a party has elected to arbitrate. Within thirty (30) days after the
expiration of the time period in which Landlord and Tenant were required to
submit their proposals of Fair Market Rent, the arbitrator shall choose between
the Landlord's proposal and the Tenant's proposal and may not compromise between
the two or select some other amount and shall notify Landlord and Tenant of its
determination. Notwithstanding any other provision herein, the Fair Market Rent
determined by the arbitrator shall not be less than, and the arbitrator shall
have no authority to determine a Fair Market Rent less than, the Base Rent in
effect as of the scheduled expiration of the Lease Term. The cost of the
arbitration shall be paid by Landlord if the Fair Market Rent is that proposed
by Landlord and by Tenant if the Fair Market Rent is that proposed by Tenant;
and shall be borne equally otherwise. If the arbitrator has not determined the
Fair Market Rent as of the end of the Lease Term, Tenant shall pay 105 percent
of the Base Rent in effect under the Lease as of the end of the Lease Term until
the Fair Market Rent is determined as provided herein. Upon such determination,
Landlord and Tenant shall make the appropriate adjustments to the payments
between them.

         (h) The parties consent to the jurisdiction of any appropriate court to
enforce the arbitration provisions of this Addendum and to enter judgment upon
the decision of the arbitrator.

         (i) The determination of Base Rent does not reduce the Tenant's
obligation to pay or

                                      -19-
<PAGE>

reimburse Landlord for operating expenses and other reimbursable items as set
forth in the Lease, and Tenant shall reimburse and pay Landlord as set forth in
the Lease with respect to such operating expenses and other items with respect
to the Premises during the First Extension Term and Second Extension Term
without regard to any cap on such expenses set forth in the Lease.

         (j) Except for the Base Rent as determined above, Tenant's occupancy of
the Premises during the First Extension Term and the Second Extension Term shall
be on the same terms and conditions as are in effect immediately prior to the
expiration of the initial Lease Term or the First Extension Term; provided,
however, Tenant shall have no further right to any allowances, credits or
abatements or any options to expand, contract, renew or extend the Lease.

         (k) If Tenant does not give the First Extension Notice within the
period set forth in paragraph (a) above, Tenant's right to extend the Lease Term
for the First Extension Term and the Second Extension Term shall automatically
terminate. If Tenant does not give the Second Extension Notice within the period
set forth in paragraph (b) above, Tenant's right to extend the Lease Term for
the Second Extension Term shall automatically terminate. Time is of the essence
as to the giving of the First Extension Notice and Second Extension Notice.

         (l) Landlord shall have no obligation to refurbish or otherwise improve
the Premises for the First Extension Term or the Second Extension Term. The
Premises shall be tendered on the Commencement Date of the First Extension Term
and Second Extension Term in "as-is" condition.

         (m) If the Lease is extended for either the First Extension Term or
Second Extension Term, then Landlord shall prepare and Tenant shall execute an
amendment to the Lease confirming the extension of the Lease Term and the other
provisions applicable thereto (the "Amendment").

         (n) If Tenant exercises its right to extend the term of the Lease for
the First Extension Term or Second Extension Term pursuant to this Addendum, the
term "Lease Term" as used in the Lease, shall be construed to include, when
practicable, the First Extension Term or Second Extension Term, as applicable,
except as provided in (j) above.

         (o) If Tenant elects to renew the Initially Demised Premises and the
Option Space (as described in Addendum Two) pursuant to this Addendum One of
this Lease, if Tenant has maintained net profits after taxes of at least Ten
Million U.S. Dollars ($10,000,000.00) for the four cumulative quarters
immediately proceeding the Commencement Date of the First Extension Term or the
Commencement Date of the Second Extension Term, as applicable, then the Security
Deposit shall be equal to one month's Base Rent for the Initially Demised
Premises and the Option Space (as described in Addendum Two). If Tenant elects
to renew the Initially Demised Premises and Option Space (as described in
Addendum Two) pursuant to this Addendum One of this Lease and Tenant has not
maintained such net profits, then the Security Deposit for the applicable
renewal term will be an amount equal to three (3) months Base Rent for both the
Initially Demised Premises and Option Space (as described in Addendum Two).


                                      -20-
<PAGE>

                                  ADDENDUM TWO

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                        DATED FEBRUARY 28, 2000, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC

                                EXPANSION OPTION



         (a)      The following terms shall have the following meanings:

                  (i)  The "OPTION SPACE" shall mean approximately 193,396
                  rentable sf to be constructed by Landlord as detailed herein
                  adjacent to the Premises as depicted on Exhibit A.

                  (ii) The "OPTION PERIOD" shall mean the period of six (6)
consecutive months beginning on the Effective Date of this Lease.

                  (iii) The "RIGHT OF FIRST OFFER PERIOD" shall mean the period
of twenty-four (24) consecutive months beginning on the date immediately
following the expiration of the Option Period.

         (b) During the Option Period, provided that as of the date Tenant
exercises its rights hereunder, (x) Tenant is the Tenant originally named herein
or a Tenant Affiliate, (y) Tenant or Tenant Affiliate has not assigned or
subleased the Premises, or any portion of the Premises, and any premises added
to the Premises and (z) no Event of Default has occurred and is continuing,
Tenant shall have the option, subject to the City of Ontario's approval of the
development and construction of the Option Space, to include the Option Space as
part of the Premises commencing on the Option Space Commencement Date as defined
below, upon the terms and conditions of the Lease, except that the Base Rent for
the Option Space shall be as defined in Paragraph (d) hereof. Tenant shall
exercise its option by written notice to Landlord ("Tenant's Option Notice")
which shall indicate that Tenant wants to include the Option Space in the
Premises. Landlord shall diligently pursue the City of Ontario's approval of the
development and construction of the Option Space. If Tenant desires to exercise
its option for the Option Space, Tenant must deliver Tenant's Option Notice to
Landlord during the Option Period. Time shall be of the essence with respect to
the giving of Tenant's Option Notice. Within ten (10) business days of
Landlord's receipt of Tenant's Option Notice, Landlord shall provide a written
estimate of the Monthly Base Rent based on the formula in Paragraph (e) hereof
and Landlord's estimate of the Total Project Cost. If Tenant does not exercise
its option by such date, Tenant's rights under this Paragraph shall be null and
void.

         (c) During the Right of First Offer Period, provided that as of the
date of the giving of Landlord's First Offer Notice (as hereinafter defined),
(x) Tenant is the Tenant originally named herein or a Tenant Affiliate, (y)
Tenant or a Tenant Affiliate has not assigned or subleased the Premises
originally demised under this Lease or any portion of the Premises and any
premises added to the Premises, and (z) no Event of Default has occurred and is
continuing, if at any time during the Right of First Offer Period Landlord shall
enter negotiations to lease or sell to any third party, then Landlord, at
anytime before selling or leasing such Option Space to such third party, shall
offer to Tenant the right to include the Option Space within the Premises on the
same terms of the Lease except that the Base Rent for the Option Space shall be
as defined in Paragraph (d) hereof. Landlord shall only be required to make one
offer to Tenant during any period of negotiations between Landlord and any
single third party. Such offer shall be made by Landlord to Tenant in a written
notice (hereinafter called the "FIRST OFFER NOTICE") and shall contain
Landlord's estimate of the Monthly Base Rent based on the formula in Paragraph
(d) hereof and Landlord's estimate of Total Project Cost. Tenant may accept the
offer set forth in the First Offer Notice by delivering to Landlord an
unconditional acceptance (hereinafter called "TENANT'S ACCEPTANCE NOTICE") of
such offer within 10 business days after delivery by Landlord of the First Offer
Notice to Tenant. Time shall be of the essence with respect to the giving of
Tenant's Acceptance Notice. Tenant must accept all Option Space offered by
Landlord at any one time if it desires to accept any of such Option Space and
may not exercise its right with respect to only part of such space.

         (d) Landlord agrees, that upon receipt of Tenant's Option Notice or
Tenant's Acceptance

                                      -21-
<PAGE>

Notice, as applicable, that it will diligently pursue the City of Ontario's
approval of the development and construction of the Option Space and seek to
obtain such approval within six (6) months after receipt of Tenant's Option
Notice, or Tenant's Acceptance Notice, as applicable. If Landlord does not meet
the time frame in the preceding sentence, then Tenant can elect to terminate its
use of the Option Space. Landlord shall diligently pursue the issuance of the
applicable building permits for the Building Shell within nine (9) months of
Landlord's receipt Tenant's Option Notice or Tenant's Acceptance Notice as
applicable. If Landlord does not meet the time frame in the preceding sentence,
then Tenant can elect to terminate its use of the Option Space.

         (e) In the event Tenant exercises its option pursuant to Paragraph (b)
or (c) hereof, then the Base Rent for the Option Space shall be determined under
this paragraph (e). Beginning on the Option Space Commencement Date, as defined
below, the Monthly Base Rent shall equal:

                            TOTAL PROJECT COST X 11%
                                       12

                  Total Project Cost. "Total Project Cost" is the sum of (i) the
land cost, of $1,674,600.60 ($4.43 per square foot for the real property
consisting of 378,013.68 square feet) ("Real Property") and all costs related to
the acquisition and holding of the Real Property until the Option Space
Commencement Date, including closing costs and due diligence costs including
internal costs incurred by ProLogis in managing the due diligence process, a
construction management fee to Landlord of 5% of the Total Project Cost, and
costs of third party consultants, (ii) improvement and development costs
incurred by Landlord through Project Close-Out to prepare the Real Property and
construct the Building Shell and related on-site paving, landscaping and utility
lines, as determined by Landlord according to its standard underwriting criteria
and cost calculation methods, and (iii) all leasing commissions incurred by
Landlord related to the expansion by Tenant. The Total Project Cost is intended
to include all costs ordinarily included by Landlord so that the Rate of Return
is the rate of return according to Landlord's standard underwriting and cost
calculations. "PROJECT CLOSE-OUT" is the date that (i) all permits and approvals
for operation of the Building Shell have been obtained; (ii) all contractor,
subcontractor, suppliers, architects and others who supplied labor, materials or
services have been paid in full; (iii) the Architect of Record has issued a
certificate of completion; and (iv) all punchlist items have been completed.

                  The estimate of Monthly Base Rent provided by Landlord
pursuant to Paragraph (b) or (c) as applicable, will be billed until the final
calculation of the Monthly Base Rent has occurred. The final calculation of the
Monthly Base Rent will be provided 90 days after the Option Space Commencement
Date. The appropriate adjustment to previously billed Monthly Base Rent will be
made and the parties will execute a memorandum confirming the calculation of
Base Rent.

                  The Landlord has categorized the improvement and development
costs referred to in this paragraph follows:

-    infrastructure costs (land development costs). If the Real Property is a
     portion of a larger land parcel which was acquired by Landlord, and the
     land parcel will require infrastructure improvements which will support
     multiple buildings, then the Real Property will be allocated its share of
     these infrastructure improvements based on the fraction which is the
     developable land square footage associated with the Real Property divided
     by the developable land square footage associated with the larger land
     parcel;
-    impact fees, fiscal requirements, platting and site preparation;
-    architectural and engineering fees;
-    legal fees;
-    construction materials testing and inspection;
-    labor and materials to construct the Initial Improvements and related
     infrastructure and improvements;
-    permit fees, sales taxes and fees payable to contractors;
-    project landscaping, including related design fees and permits;
-    water, gas and electrical hookup fees and related miscellaneous costs;
-    builder's risk insurance;
-    a prorated share of property taxes assessed and operating expenses incurred
     during the construction period (beginning upon acquisition and ending on
     the Option Space

                                      -22-
<PAGE>

     Commencement Date);
-    title insurance on the Total Project Cost:
-    a fee to cover reasonable general and administrative and employer
     out-of-pocket expenses incurred in managing the pre-construction and
     construction process equal to 5% of the Total Project Cost described
     herein;
-    Landlord's average cost of coverage for liability insurance during the
     construction period;
-    services for verification of compliance with city ordinances and other
     laws;
-    a 10 percent administrative cost with respect to any Change Orders; and
-    imputed interest at 11% percent on the Total Project Cost (imputed interest
     accrues on actual cost as and when incurred up to the Option Space
     Commencement Date).

         (f)      Construction

                  (i) Landlord agrees to furnish or perform those items of
construction and those improvements (collectively, the "INITIAL IMPROVEMENTS")
specified below:

                  (A) Landlord, at its sole cost and expense shall construct the
Building Shell portion of the Option Space (the "Building Shell") so that it is
substantially similar to the building which constitutes the initial Premises and
in substantial conformance with plans to be prepared by RKZ Architects.

                  (B) Landlord shall construct those generic improvements listed
in Exhibit B attached hereto (the "Tenant Improvements"). Landlord shall pay for
the Tenant Improvements up to a maximum amount of $193,396 (the "Tenant
Allowance"), and in no event shall Landlord have any obligation to pay for any
costs of the Tenant Improvements in excess of such amount. If the cost of the
Tenant Improvements exceeds such amount, such overage shall be an obligation of
Tenant, but shall be paid on behalf of Tenant by Landlord and repaid to Landlord
together with interest at 11.5% per annum, in equal monthly installments over
the initial five year term for the Option Space (the "Amortized Improvements");
provided however, in no event shall Landlord be obligated to amortize any
portion of such overage in excess of $193,396, and any estimated overage in
excess of such amount shall be paid by Tenant to Landlord before Landlord begins
constructing the Tenant Improvements but after all permits and approvals
necessary to construct the Option Space have been obtained by Landlord. Upon
completion, the parties shall make any adjustment payment necessary between
them.

                  (ii) If Tenant should desire to install any interior
improvements which are not generic Tenant Improvements as described on Exhibit
B, the cost of such Tenant Improvements shall be included in the Amortized
Improvements and shall be subject to the $193,396 maximum provided in Paragraph
(f)(i)(B) hereof. Landlord shall not be obligated to pay for any such
non-generic improvements as part of the Tenant Allowance. In addition, in such
event, the Security Deposit held by Landlord shall be increased by an amount
equal to the cost of such non-generic Tenant Improvements. Such increased
Security Deposit shall be held by Landlord pursuant to the terms of Paragraph 5
of this Lease.

                  (iii) If Tenant shall desire any changes to the Tenant
Improvements, Tenant shall so advise Landlord in writing. Such changes shall be
subject to the limitations of Paragraph (f)(i)(B) and (f)(ii) hereof and subject
to all Legal Requirements. Any and all out of pocket costs of reviewing any
requested changes, and any and all out of pocket costs of making any changes to
the Tenant Improvements which Tenant may request and to which Landlord may agree
to shall be at Tenant's sole cost and expense and shall be paid to Landlord upon
demand and before execution of the change order. Landlord will advise Tenant at
the time of review of any such changes of any estimated delay as a result of the
changes requested by Tenant.

                  (iv) Landlord shall proceed with and complete the construction
of the Initial Improvements as soon as commercially possible after Tenant has
exercised its rights under Paragraph (b) or (c) hereof. The Initial Improvements
shall be constructed in material compliance with all applicable laws and
building codes, shall be delivered free from latent defects, and in a broom
clean condition with all building systems and equipment in good working order
and condition. Landlord shall endeavor to give Tenant five (5) business days
prior notice of the date on which Landlord estimates that the Initial
Improvements will be Substantially Completed. As soon

                                      -32-
<PAGE>

as such improvements have been Substantially Completed, Landlord shall notify
Tenant in writing of the date that the Initial Improvements were Substantially
Completed. Such date, unless an earlier date is otherwise agreed to in writing
between Landlord and Tenant, shall be the "OPTION SPACE COMMENCEMENT DATE,"
unless the completion of such improvements was delayed due to any act or
omission of, or delay caused by, Tenant including, without limitation, Tenant's
failure to approve plans, complete submittals or obtain permits which Tenant
must obtain, within the time periods agreed to by the parties or as reasonably
required by Landlord, with reasonable advance notice from Landlord to Tenant of
such time periods ("Tenant-Caused Delays"), in which case the Option Space
Commencement Date shall be the date such improvements would have been completed
but for the delays caused by Tenant. The Initial Improvements shall be deemed
substantially completed ("SUBSTANTIALLY COMPLETED") whenever the following
occurs; (i) the City of Ontario grants a temporary Certificate of Occupancy or
its equivalent; or (ii) Landlord has received final sign-off on the building
permit card as to all items of construction for the Building Shell and Initial
Improvements such that legal occupancy is permitted. If, under (ii) of the
preceding sentence, legal occupancy is not allowed as a result of actions
required of Tenant with respect to any tenant improvements, installed by Tenant,
Tenant-Made Alterations, or other installations being made by Tenant including
without limitation racking or trade fixtures then the Initial Improvements shall
be deemed Substantially Completed on the date of such final sign off, even if
legal occupancy is not allowed. In the event Tenant, its employees, agents, or
contractors cause construction of such improvements to be delayed, the date on
which the Initial Improvements are Substantially Completed shall be deemed to be
the date that, in the opinion of the architect of record for the project, the
Initial Improvements would have been Substantially Completed if such delays had
not taken place. Without limiting the foregoing, Tenant shall be solely
responsible for delays caused by Tenant's request for any changes in the plans,
Tenant's request for long lead items or Tenant's interference with the
construction of the Initial Improvements, and such delays shall not cause a
deferral of the Option Space Commencement Date beyond what it otherwise would
have been. After the Option Space Commencement Date Tenant shall, upon demand,
execute and deliver to Landlord a letter of acceptance of delivery of the
Premises. Notwithstanding anything to the contrary contained herein, no
Tenant-Caused Delay shall be deemed to have commenced to accrue unless and until
Landlord has provided notice to Tenant specifying the action or inaction by
Tenant, its agents, employees, contractors, subcontractors or licensees which
Landlord contends constitutes a Tenant-Caused Delay.

                  (v) The failure of Tenant to take possession of or to occupy
the Premises shall not serve to relieve Tenant of obligations arising on the
Option Space Commencement Date or delay the payment of rent by Tenant. Subject
to applicable ordinances and building codes governing Tenant's right to occupy
or perform in the Premises, Tenant shall be allowed to install its tenant
improvements, machinery, equipment, fixtures, or other property on the Premises
during the final stages of completion of construction provided that Tenant does
not thereby unreasonably interfere with the completion of construction or cause
any labor dispute as a result of such installations, and provided further that
Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from
any loss or damage to such property, and all liability, loss, or damage arising
from any injury to the Project or the property of Landlord, its contractors,
subcontractors, or materialmen, and any death or personal injury to any person
or persons arising out of such installations, unless any such loss, damage,
liability, death, or personal injury was caused by Landlord's, its agents, or
contractor's negligence or willful misconduct. With respect to the early
occupancy of Tenant provided under this Paragraph, Landlord and Tenant agree
that each will work in good faith and each will use best efforts, not to
interfere with or delay the other's construction of the Premises. Any such
occupancy or performance in the Premises shall be in accordance with the
provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease,
and shall be subject to Tenant providing to Landlord satisfactory evidence of
insurance for personal injury and property damage related to such installations
and satisfactory payment arrangements with respect to installations permitted
hereunder. Delay in putting Tenant in possession of the Premises shall not serve
to extend the term of this Lease or to make Landlord liable for any damages
arising therefrom.

                  (vi) Except for Landlord's obligation hereunder and incomplete
punch list items, Tenant upon the Option Space Commencement Date shall have and
hold the Premises as the same shall then be without any liability or obligation
on the part of Landlord for making any further alterations. Landlord and Tenant
shall reasonably agree upon a list of punch list items no later than thirty (30)
days after the Initial Improvements are Substantially Completed.

                                      -24-
<PAGE>

Thereafter, Landlord shall diligently pursue the completion of such punch list
items.

         (g) Landlord agrees that Landlord will not market the Option Space
during the Option Period; provided that, if Tenant terminates this Option by
written notice to Landlord, then Landlord has no further obligation to refrain
from marketing the Option Space.

         (h) Tenant agrees that Landlord shall construct all improvements on the
Option Space. Landlord and Tenant shall mutually agree upon the improvements to
be constructed on the Option Space for Tenant's use; however, subject to
Paragraph (f)(i)(A) above, all aspects of the construction of the base building
constructed on the Option Space shall be in the sole discretion of Landlord.
Subject to the allowances in Paragraph (f)(i)(B) and (f)(ii) above, Tenant shall
pay all costs to construct the improvements related to Tenant's use on the
Option Space.

         (i) In the event that Tenant elects to take the Option Space pursuant
to either Paragraph (b) or (c) above, the Lease Term for the Lease shall be
amended so that the Lease Term for the Initial Premises and the Option Space is
equal to sixty (60) months beginning on the Option Space Commencement Date. In
such event, the monthly base rent for the initially demised Premises shall be
increased at the beginning of the sixty-first (61) month through the end of the
amended Lease Term to the amount of $242,483 per month.

         (j) Landlord will, at Tenant's written request and at the Tenant's
expense, take all actions reasonably necessary to get the Option Space in a
permit-ready condition, except the payment of permit fees. Tenant shall pay for
all estimated costs of the actions to be taken by Landlord hereunder before
Landlord is required to take any such actions hereunder. When Landlord has made
the Option Space permit ready as provided herein, Landlord shall submit an
invoice(s) to Tenant for any amounts which remain unpaid and Tenant shall pay
Landlord such amounts within thirty (30) days of the date of such invoice(s). If
Tenant does not exercise its option to lease the Option Space under Paragraph
(b) or (c) hereof, then Landlord shall retain all payments of Tenant hereunder.
If Tenant exercises its option to lease the Option Space under Paragraph (b) or
(c) hereof, then Landlord shall hold the amount paid by Tenant under this
Paragraph (j) as Tenant's Security Deposit for the Option Space. The Security
Deposit for the Option Space shall be equal to three (3) months reasonably
estimated rent for the Option Space plus any reasonably estimated third party
leasing commissions due for the Option Space (which may be in the form of cash
or a letter of credit as provided in Paragraph 5 of the Lease). Any excessive
amount paid by Tenant shall be promptly refunded to Tenant by Landlord after a
final calculation of three (3) months rent and actual leasing commissions. When
Tenant exercises its option hereunder, Tenant shall deposit the remainder of the
additional Security Deposit for the Option Space with Landlord. Landlord shall
hold all such additional Security Deposit pursuant to Paragraph 5 of the Lease.
The Security Deposit for the Option Space shall be reduced at the end of the
twelfth, twenty-fourth, thirty-sixth, and forty-eighth month of the Lease Term
for the Option Space in an amount equal to twenty percent (20%) of any third
party commissions due for the Option Space (for example, if the leasing
commission for the Option Space is $200,000.00 then the Security Deposit for the
Option Space shall be reduced subject to the provisions concerning a reduction
the Security Deposit in Paragraph 5 of the Lease by the amount of $40,000.00 at
the end of twelfth, twenty-fourth, thirty-sixth, and forty-eighth month of the
Lease Term for the Option Space). With respect to the Security Deposit for the
Initially Demised Premises, if Tenant elects to expand as provided hereunder and
as a result, the Lease Term for the Initially Demised Premises is extended
beyond sixty (60) months from the Commencement Date, then at the end of the
sixtieth month of the Lease Term for the Initially Demised Premises, Landlord
shall reduce the Security Deposit for the Initially Demised Premises to an
amount equal to $600,000.00. Notwithstanding the immediately preceding sentence,
in the event that Tenant has maintained a net profit after taxes of at least Ten
Million U.S. Dollars ($10,000,000.00) for the four cumulative quarters
immediately proceeding such sixtieth month period, then Landlord shall reduce
the Security Deposit for the Initially Demised Premises and the Option Space to
an amount equal to two (2) months of Base Rent for the Initially Demised
Premises and the Option Space, respectively. Further at the end of the
seventy-second month of the Lease Term for the Initially Demised Premises, if
Tenant has maintained net profits after taxes of at least Ten Million U.S.
Dollars ($10,000,000.00) for the four cumulative quarters immediately proceeding
such seventy-second month, then the Security Deposit for the Initially Demised
Premises and the Option Space shall be reduced to an amount equal to one month's
Base Rent for the Initially Demised Premises and the Option Space, respectively.

         (k) During the Lease Term, Landlord agrees that it will not lease the
Option Space or grant signage on the Project or grant signage on the Option
Space (for so long as ProLogis Development Services Incorporated owns the Option
Space, to any of the following entities: (1) ToyTime, Inc., (2) Toysmart, Inc.,
(3) Toy R Us, (4) KB Toys, Inc., (5) Babystyle, Inc., (6) iBaby, Inc., and (7)
Amazon.com.

                                      -25-
<PAGE>


                            EXHIBIT A TO ADDENDUM TWO
                         TO THE LEASE AGREEMENT BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC


                                      -26-

<PAGE>


                            EXHIBIT B TO ADDENDUM TWO
                         TO THE LEASE AGREEMENT BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC



The following generic Tenant Improvement shall be installed at the Option Space:

         1)       Five Thousand (5,000) square feet of single story general
                  purpose office space,
         2)       Up to thirty (30) six foot by eight foot 30,000 pound
                  mechanical dock levelers,
         3)       Metal halide warehouse lighting at 20 foot candles 3 feet
                  A.F.F. , assuming aisle width of nine feet,
         4)       Main electrical service of 2,000 amps with distribution to the
                  office area and warehouse lights, and
         5)       Other mutually agreed upon generic improvements.


                                      -27-

<PAGE>



                                 ADDENDUM THREE

                                  CONSTRUCTION
                              (ALLOWANCE AMORTIZED)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                        DATED FEBRUARY 28, 2000, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                            ETOYS DISTRIBUTION, LLC.


         (a)      Landlord agrees to furnish or perform those items of
construction and those improvements (collectively, the "INITIAL IMPROVEMENTS")
specified below:

         (i)      Landlord, at its sole cost and expense, shall construct the
                  building (the "Building Shell") in substantial conformance
                  with the plans prepared by RKZ Architects dated December 14,
                  1999, and in substantial conformance with the drawings dated
                  January 28, 2000 listed in Exhibit A.

         (ii)     Landlord shall construct those improvements listed in Exhibit
                  B and depicted in Exhibit C-1 through C-4 attached hereto (the
                  "Tenant Improvements"). Landlord will competitively bid all
                  Tenant Improvements, except for those improvements related to
                  electrical improvements. Landlord's determination as to which
                  bid to accept shall be made in a commercially reasonable
                  manner. Landlord shall pay for the Tenant Improvements up to a
                  maximum amount of $ 763,228.00 (the "Tenant Allowance"), and
                  in no event shall Landlord have any obligation to pay for any
                  costs of the Tenant Improvements in excess of such amount. If
                  the cost of the Tenant Improvements exceeds such amount, such
                  overage shall be an obligation of Tenant, but paid on behalf
                  of Tenant by Landlord and repaid to Landlord, together with
                  interest at 11.50% per annum, in equal monthly installments
                  over the initial Lease Term (the "Amortized Improvements");
                  provided, however, in no event shall Landlord be obligated to
                  amortize any portion of such overage in excess of $
                  763,228.00, and any estimated overage in excess of such amount
                  shall be paid by Tenant to Landlord before Landlord begins
                  constructing the Tenant Improvements. In the event Tenant
                  elects to install Tenant Improvements which are not generic
                  Tenant Improvements as described in Exhibit B and Exhibit C-2
                  attached hereto, the cost of any such Tenant Improvements
                  shall be included in the Amortized Improvements and shall be
                  subject to the $763,228.00 maximum amount to amortize as
                  provided in this paragraph. Landlord shall not be obligated to
                  pay for any such improvements as a part of the Tenant
                  Allowance. In the event that Tenant elects to install such
                  non-generic Tenant Improvements at the Premises, the Security
                  Deposit held by Landlord pursuant to Paragraph 5 of the Lease
                  shall be increased by an amount equal to the total cost for
                  such non-generic Tenant Improvements. Upon completion, the
                  parties shall make any adjusting payment necessary between
                  them. The generic and non-generic Tenant Improvements to be
                  installed at the Premises are depicted in Exhibits B and C-1
                  through C-4 attached hereto.

         (b)      If Tenant shall desire any changes to the Tenant Improvements,
Tenant shall so advise Landlord in writing. All such changes shall be subject to
the limitations of Paragraph (a)(ii) hereof and subject to all Legal
Requirements. Any and all out of pocket costs of reviewing any requested
changes, and any and all out of pocket costs of making any changes to the Tenant
Improvements which Tenant may request and to which Landlord may agree to shall
be at Tenant's sole cost and expense and shall be paid to Landlord upon demand
and before execution of the change order. Landlord will advise Tenant of any
estimated delay, at the time of Landlord's review of any such changes, as a
result of the changes requested by Tenant.

                                      -28-
<PAGE>

         (c)      Landlord represents that it has all permits and financing
necessary to construct the Building Shell. Landlord shall proceed with and
complete the construction of the Initial Improvements as soon as commercially
possible. The Initial Improvements shall be constructed in material compliance
with all applicable laws and building codes and shall be delivered free from
latent defects and in a broom clean condition with all building systems and
equipment in good working order and condition. Subject to Tenant-Caused Delays,
the Initial Improvements shall be Substantially Completed (as hereinafter
defined) no later than June 1, 2000, provided that Tenant has provided in
writing, a lighting and power plan for the warehouse portion of the Premises by
February 23, 2000. Subject to the terms of the preceding sentence, in the event
that the Initial Improvements are not Substantially Completed by June 1, 2000,
Tenant shall be entitled to the credits listed in Paragraph (f) hereof. Landlord
shall endeavor to give Tenant five business days prior notice of the date on
which Landlord estimates that the Initial Improvements will be Substantially
Completed. As soon as such improvements have been Substantially Completed,
Landlord shall notify Tenant in writing of the date that the Initial
Improvements were Substantially Completed. Such date, unless an earlier date
agreed to in writing between Landlord and Tenant, shall be the "COMMENCEMENT
DATE," unless the completion of such improvements was delayed due to any act or
omission of, or delay caused by, Tenant including, without limitation, Tenant's
failure to approve plans, complete submittals or obtain permits which Tenant
must obtain within the time periods agreed to by the parties or as reasonably
required by Landlord, with reasonable advance notice from Landlord to Tenant of
such time periods ("Tenant-Caused Delays"), in which case the Commencement Date
shall be the date such improvements would have been completed but for the delays
caused by Tenant. The Initial Improvements shall be deemed substantially
completed ("Substantially Completed") when one of the following occurs: (i) the
City of Ontario grants a temporary Certificate of Occupancy or its equivalent;
or (ii) Landlord has received final sign-off on the building permit card as to
all items of construction for the Building Shell and Initial Improvements such
that legal occupancy is permitted. If legal occupancy is not allowed under (ii)
of the preceding sentence as a result of actions required by Tenant with respect
to improvements being installed by Tenant, including without limitation, racking
or trade fixtures, then the Initial Improvements shall be deemed Substantially
Completed on the date of such final signoff, even if legal occupancy is not
allowed. In the event Tenant, its employees, agents, or contractors cause
construction of such improvements to be delayed, the date on which the Initial
Improvements are Substantially Completed shall be deemed to be the date that, in
the opinion of the architect of record for the Project, the Initial Improvements
would have been Substantially Completed if such delays had not taken place.
Without limiting the foregoing, Tenant shall be solely responsible for delays
caused by Tenant's request for any changes in the plans, Tenant's request for
long lead items or Tenant's interference with the construction of the Initial
Improvements, and such delays shall not cause a deferral of the Commencement
Date beyond what it otherwise would have been. After the Commencement Date
Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. Notwithstanding anything to the contrary
contained herein, no Tenant-Caused Delay shall be deemed to have commenced to
accrue unless and until Landlord has provided notice to Tenant specifying the
action or inaction by Tenant, or its agents, employees, contractors,
subcontractors or licensees, which Landlord contends constitutes a Tenant-Caused
Delay.

         (d)      The failure of Tenant to take possession of or to occupy the
Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing Tenant's right to occupy or perform in
the Premises and the sufficient completion of the Premises, Tenant shall be
allowed to install its tenant improvements, machinery, equipment, fixtures, or
other property on the Premises after April 15, 2000, and shall be allowed to
receive product at the Premises after May 15, 2000, provided that Tenant does
not thereby unreasonably interfere with the completion of construction or cause
any labor dispute as a result of such installations, and provided further that
Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from
any loss or damage to such property, and all liability, loss, or damage arising
from any injury to the Project or the property of Landlord, its contractors,
subcontractors, or materialmen, and any death or personal injury to any person
or persons arising out of such installations, unless any such loss, damage,
liability, death, or personal injury was caused by Landlord's, its agents, or
contractors negligence or willful misconduct. With respect to the early
occupancy of Tenant provided under this Paragraph, Landlord and Tenant agree
that each will work in good faith and each will use its best efforts not to
interfere with or delay the other's construction at the Premises. Any such
occupancy or performance

                                      -29-
<PAGE>

in the Premises shall be in accordance with the provisions governing Tenant-Made
Alterations and Trade Fixtures in the Lease, and shall be subject to Tenant
providing to Landlord satisfactory evidence of insurance for personal injury and
property damage related to such installations and satisfactory payment
arrangements with respect to installations permitted hereunder. Delay in putting
Tenant in possession of the Premises shall not serve to extend the term of this
Lease or to make Landlord liable for any damages arising therefrom.

         (e) Except for incomplete punch list items and Landlord's obligations
hereunder, Tenant upon the Commencement Date shall have and hold the Premises as
the same shall then be without any liability or obligation on the part of
Landlord for making any further alterations or improvements of any kind in or
about the Premises. Landlord and Tenant shall reasonably agree on a written list
of punch list items on or before thirty (30) days after the date on which the
Initial Improvements are Substantially Completed. Thereafter, Landlord shall
diligently pursue the completion of such punch list items and shall complete
such punch list items within sixty (60) days thereafter, subject to Force
Majeure events and Tenant-caused delays.

         (f) In the event the Initial Improvements are not Substantially
Completed by June 1, 2000, subject to Tenant-Caused Delays, Tenant shall
receive, at Landlord's option, either (i) a cash payment in the amount of
$6,805.00 per day of delay not to exceed the total amount of $204,164.00, or
(ii) one day of free Base Rent and Operating Expenses for each day of delay
after June 1, 2000, until the Initial Improvements are Substantially Completed.
If the Initial Improvements are not Substantially Completed by August 1, 2000,
subject to delays due to Force Majeure, Tenant-Caused Delays, and Tenant has met
the deadline concerning its lighting and electrical plan in Paragraph (c) of
this Addendum Three (provided that if Tenant misses the February 23, 2000,
deadline, then the August 1, 2000 date hereunder shall be extended one day for
each day after February 23, 2000 until Tenant provides the written lighting and
electrical plan to Landlord), Tenant shall have the right to terminate this
Lease with thirty (30) day prior written notice to Landlord designating the date
on which the Lease shall terminate (the "Termination Date"). In the event Tenant
provides Landlord with a written notice of termination pursuant to this
Paragraph, Tenant's right to terminate shall cease if the Initial Improvements
are Substantially Completed on or before the Termination Date.

                                      -30-
<PAGE>


                           EXHIBIT A TO ADDENDUM THREE
                         TO THE LEASE AGREEMENT BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC


                                      -31-

<PAGE>


                           EXHIBIT B TO ADDENDUM THREE
                         TO THE LEASE AGREEMENT BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       AND
                             ETOYS DISTRIBUTION, LLC


The following generic Tenant Improvements shall be installed at the Premises:

1)       the single story general purpose office space, depicted as "generic" on
         Exhibit C-1 through C-3,

2)       41 six foot by eight foot 30,000 pound mechanical dock levelers, as
         depicted in Exhibit C-4,

3)       Metal halide warehouse lighting at 20 foot candles 3 feet A.F.F.,
         assuming aisle width of nine feet,

4)       Main electrical service with distribution to the office area and
         warehouse lights, and

5)       Other mutually agreed upon generic improvements.


                                      -322