EXHIBIT 10.11

                                      LEASE
                                 (Multi Tenant)


                                     between



                   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

                                       and

                              BIG DOG U.S.A., INC.,

                            a California corporation





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                                TABLE OF CONTENTS

                                                                            Page

1. Parties...............................................................1

2. Premises, Parking and Common Areas....................................1

   2.1  Premises.........................................................1
   2.2  Vehicle Parking..................................................1
   2.3  Common Areas -- Definition.......................................2
   2.4  Common Areas -- Lessee's Rights..................................2
   2.5  Common Areas -- Rules and Regulations............................2
   2.6  Common Areas -- Changes..........................................3
   2.7  Roof Access......................................................4

3. Term..................................................................4

   3.1  Term.............................................................4
   3.2  Delay in Possession..............................................4
   3.3  Early Possession.................................................5

4. Rent..................................................................5

   4.1  Base Rent........................................................5
   4.2  Operating Expenses...............................................5
   4.3  Rent Escalations - Initial Term.................................10

5. Security Deposit.....................................................12

6. Use..................................................................12

   6.1  Use.............................................................12
   6.2  Compliance with Law.............................................12
   6.3  Conditions of Premises..........................................13

7. Maintenance, Repairs, Alterations and Common Area Services...........14

   7.1  Lessor's Obligations............................................14
   7.2  Lessee's Obligations............................................14
   7.3  Alterations and Additions.......................................15
   7.4  Utility Additions...............................................20
   7.5  Condition of Premises Upon Termination; Additional Use
        Provisions......................................................20

8. Insurance; Indemnity.................................................21

9. Damage or Destruction................................................25

   9.1  Definitions.....................................................25
   9.2  Premises Partial Damage; Premises Building Partial Damage.......26
   9.3  Premises Total Destruction; Premises Building Total
        Destruction; Industrial Center Buildings Total Destruction......27
   9.4  Damage Near End of Term.........................................27
   9.5  Abatement of Rent; Lessee's Remedies............................28
   9.6  Termination -- Advance Payments.................................29
   9.7  Waiver..........................................................29

10.Real Property Taxes..................................................29

   10.1  Payment of Taxes...............................................29
   10.2  Additional Improvements........................................29
   10.3  Definition of "Real Property Tax"..............................29
   10.4  Joint Assessment...............................................30
   10.5  Personal Property Taxes........................................30
   10.6  Additional Provisions Regarding Real Property Taxes............30

11.Utilities............................................................31

12.Assignment and Subletting............................................31

   12.1  Lessor's Consent Required......................................31
   12.2  Lessee Affiliate...............................................32
   12.3  Lessees Other Than Individuals.................................33
   12.4  Terms and Conditions of Assignment.............................33
   12.5  Terms and Conditions Applicable to Subletting..................33
   12.6  Attorney's Fees................................................35

13.Default Remedies.....................................................36

   13.1  Default........................................................36
   13.2  Remedies.......................................................37
   13.3  Default by Lessor..............................................39
   13.4  Late Charges...................................................39
   13.5  Notice Before Late Charge......................................40

14.Condemnation.........................................................40

15.Broker's Commissions.................................................41

16.Estoppel Certificate.................................................41

17.Lessor's Liability...................................................42

18.Severability.........................................................42

19.Interest on Past-due Obligations.....................................42

20.Time of Essence......................................................43

21.Additional Rent......................................................43

22.Incorporation of Prior Agreements; Amendments........................43

23.Notices..............................................................43

24.Waivers..............................................................44

25.Recording............................................................44

26.Holding Over.........................................................45

27.Cumulative Remedies..................................................45

28.Covenants and Conditions.............................................45

29.Binding Effect; Choice of Law........................................45

30.Subordination........................................................45

31.Attorneys Fees.......................................................46

32.Lessor's Access......................................................46

33.Auctions.............................................................47

34.Signs................................................................47

35.Merger...............................................................47

36.Consents.............................................................47

37.Guarantor............................................................47

38.Quiet Possession.....................................................47

39.Options..............................................................48

   39.1  Definition.....................................................48
   39.2  Options Personal...............................................48
   39.3  Multiple Options...............................................48
   39.4  Effect of Default on Options...................................48
   39.5  Option.........................................................49
   39.6  Fair Market Rent...............................................50
   39.7  Rent Escalations - Option Term.................................52

40.Security Measures....................................................54

41.Easements............................................................54

42.Performance Under Protest............................................54

43.Authority............................................................54

44.Intentionally Omitted................................................55

45.Amendments to Lease..................................................55

46.Storage Tanks........................................................55

47.Hazardous Materials..................................................56

   47.1  Lessee's Covenants Regarding Hazardous Materials...............56
   47.2  Indemnification of Lessor......................................58
   47.3  Preexisting Conditions.........................................58
   47.4  Studies........................................................58

48.Lessor's Default.....................................................59

49.Offer................................................................59

50.Lessor Improvements..................................................59

51.Lessee Improvement Allowance.........................................59

52.Signage Right........................................................60


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                                      LEASE



          1. Parties.  This Lease,  dated, for reference purposes only, November
4, 1997, is made by and between THE PRUDENTIAL  INSURANCE COMPANY OF AMERICA,  a
New Jersey  corporation  (herein  called  "Lessor") and BIG DOG U.S.A.,  INC., a
California corporation (herein called "Lessee").

         2. Premises, Parking and Common Areas

                   2.1  Premises.  Lessor  hereby  leases to Lessee  and  Lessee
leases from Lessor for the term, at the rental,  and upon all of the  conditions
set forth  herein,  that  certain  real  property  situated in the County of Los
Angeles, State of California, commonly known as 15614 Shoemaker Avenue, Santa Fe
Springs, California 90670 and described as the portion containing 136,198 square
feet of the building (the  "Building")  located on the property shown on Exhibit
"A" hereto,  said 136,198 square feet herein  referred to as the "Premises," and
cross-hatched  on Exhibit "A" attached  hereto,  including  rights to the Common
Areas as  hereinafter  specified but not including any rights to the roof of the
Premises or to any building in the Industrial Center. The Premises are a portion
of the Building.  The Premises,  the building,  the Common Areas,  the land upon
which the same are  located,  along with all other  buildings  and  improvements
thereon, are herein collectively referred to as the "Industrial Center."

                   2.2 Vehicle  Parking.  Lessee  shall be entitled to exclusive
use of all of the vehicle parking spaces,  on those portions of the Common Areas
shown as Lessee's Parking on Exhibit "B" hereto (Lessee's Parking Area:). Lessee
shall not use parking  spaces  outside of Lessee's  Parking  Area.  Said parking
spaces  shall be used only for  parking  by  vehicles  no larger  than full size
passenger   automobiles  or  pick-up  trucks,   herein  called  "Permitted  Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."

                            2.2.1  Lessee shall not permit or allow any vehicles
that belong to or are  controlled  by Lessee or Lessee's  employees,  suppliers,
shippers,  customers,  or invitees to be loaded,  unloaded, or parked (a) in the
Ezell Parking Area (as defined below) or the Ezell Truck Area (as defined below)
(except to the extent Ezell (as defined below) has consented thereto) or (b) any
other areas outside of Lessee's Parking Area.

                            2.2.2  If  Lessee  permits  or  allows  any  of  the
prohibited  activities  described  in paragraph  2.2 of this Lease,  then Lessor
shall have the right,  without  notice,  in  addition  to such other  rights and
remedies that it may have, to remove or tow away the vehicle involved and charge
the cost to Lessee,  which  cost shall be  immediately  payable  upon  demand by
Lessor.

                            2.2.3 That portion of the parking for the Industrial
Center  shown as "Ezell  Parking  Area" on Exhibit  "B" is subject to a grant of
exclusive parking rights to another tenant ("Ezell") in the Building (the "Ezell
Parking Area") and that portion of the parking for the  Industrial  Center shown
as "Ezell Truck Area" on Exhibit "B" is subject to a grant of a right to enclose
that area with  fencing  (the "Ezell  Truck  Area").  Lessee's  right to use the
Common Area is subject to rights of Ezell to fence the Ezell Truck Area.  Lessee
shall not  interfere  with  access by Ezell,  or by Ezell's  employees,  agents,
contractors or invitees,  to and from the Ezell Parking Area and the Ezell Truck
Area.

                   2.3 Common Areas -  Definition.  The term  "Common  Areas" is
defined as all areas and facilities outside the Premises and within the exterior
boundary line of the  Industrial  Center that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other  lessees  of the  Industrial  Center  and their  respective  employees,
suppliers,  shippers,  customers and invitees,  including parking areas, loading
and unloading  areas,  trash areas,  roadways,  sidewalks,  walkways,  parkways,
driveways and landscaped areas.

                   2.4 Common Areas-  Lessee's  Rights.  Lessor hereby grants to
Lessee,  for the  benefit  of Lessee  and its  employees,  suppliers,  shippers,
customers and invitees,  during the term of this Lease, the non-exclusive (other
than Lessee's  exclusive parking provided for under Paragraph 2.2) right to use,
in common with others  entitled to such use, the Common Areas as they exist from
time to time, subject to any rights,  powers, and privileges  reserved by Lessor
under the terms  hereof  or under  the  terms of any  rules and  regulations  or
restrictions  governing the use of the Industrial Center. Under no circumstances
shall the right herein  granted to use the Common Areas be deemed to include the
right to store any property,  temporarily or  permanently,  in the Common Areas.
Any such storage shall be permitted only by the prior written  consent of Lessor
or Lessor's  designated agent,  which consent may be revoked at any time. In the
event that any  unauthorized  storage  shall  occur then  Lessor  shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee,  which cost shall be
immediately payable upon demand by Lessor.

                   2.5 Common Areas-Rules and Regulations.  Lessor or such other
person(s) as Lessor may appoint shall have the exclusive  control and management
of the Common Areas and shall have the right,  from time to time,  to establish,
modify, amend and enforce reasonable rules and regulations with respect thereto.
Lessee agrees to abide by and conform to all such rules and regulations,  and to
cause its employees,  suppliers,  shippers,  customers, and invitees to so abide
and conform.  Lessor shall not be responsible  to Lessee for the  non-compliance
with said  rules and  regulations  by other  lessees of the  Industrial  Center.
Notwithstanding  the  foregoing,  in the  event  Lessee  notifies  Lessor of any
material  non-compliance with the Rules and Regulations by another lessee of the
Industrial  Center which  adversely  affects  Lessee's use and  enjoyment of the
Premises or the Common Areas,  Lessor shall use its reasonable  efforts to cause
such other lessee to comply with the rules and regulations  that are enforceable
against  such  lessee.  Lessor  agrees to  enforce  all rules,  regulations  and
restrictions in a commercially  reasonable manner against Lessee.  The Rules and
Regulations  are  attached to this Lease.  The  enforceability  of the Rules and
Regulations  against other lessees is subject to such other lessees' approval of
the Rules  and  Regulations  in  accordance  with the terms of their  respective
leases.

                   2.6 Common Areas - Changes.  Lessor shall have the right,  in
Lessor's sole discretion, from time to time:

                           (1) To make changes to the Common  Areas,  including,
         without limitation,  changes in the location, size, shape and number of
         driveways,  entrances,  parking  spaces,  parking  areas,  loading  and
         unloading  areas,  ingress,  egress,  direction of traffic,  landscaped
         areas and walkways;

                            (2) To close temporarily any of the Common Areas for
          maintenance  purposes  so long as  reasonable  access to the  Premises
          remains  available and provided  that five days' prior written  notice
          (except in the case of emergencies, where no notice shall be required)
          is given to Lessee;

                            (3) To add additional  buildings and improvements to
          the Common Areas;


                            (4) To use the Common Areas while  engaged in making
          additional  improvements,  repairs or  alterations  to the  Industrial
          Center, or any portion thereof;

                            (5) To do and perform  such other acts and make such
          other  changes  in,  to or  with  respect  to  the  Common  Areas  and
          Industrial  Center as Lessor  may, in the  exercise of sound  business
          judgment, deem to be appropriate.

                            2.6.2 Lessor shall at all times  provide the parking
facilities  required  by  applicable  law and in no event  shall  the  number of
parking spaces that Lessee is entitled to under paragraph 2.2 be reduced.

                            2.6.3  In  Lessor's  exercise  of its  rights  under
Paragraphs  2.6(a) and (e), Lessor shall permit Lessee  reasonable access to the
Premises at all times and not unreasonably interfere with the physical operation
of Lessee's business.

                   2.7 Roof  Access.  Lessee  shall  allow  Ezell,  and  Ezell's
employees, agents and contractors, to have access to the roof of the Building by
means of the roof access in the Premises during normal business hours.

         3.0 Term

                   3.1 Term.  The term of this Lease shall be for Ten (10) years
commencing on January 1, 1998 (the  "Commencement  Date") and ending on the date
that is ten (10) years  after the  Commencement  Date unless  sooner  terminated
pursuant to any provision  hereof.  Lessor and Lessee shall promptly  execute an
amendment to the Lease  confirming the  commencement and expiration dates of the
initial  term as soon as the  Commencement  Date is  determined,  but failure to
execute  that  amendment  shall  not  affect  the  Commencement   Date.  If  the
Commencement  Date falls on a day that is other than the first day of a calendar
month,  the number of months for purposes of rent  adjustments  under this Lease
shall be  measured  from  the  first  day of the  calendar  month  in which  the
Commencement Date falls.

                   3.2   Delay  in   Possession.   Notwithstanding   the   later
Commencement Date, Lessee shall be given possession of the Premises on the first
business day (the "Early Access Date") after the date (the "Execution  Date") of
full  execution  and delivery of this Lease.  If for any reason  Lessor fails to
deliver  possession  of the Premises to Lessee by the Early Access Date,  Lessor
shall not be subject to liability  therefor,  nor shall such failure  affect the
validity of this Lease.  Notwithstanding the foregoing, if Lessor shall not have
delivered  possession  of the Premises by 5:00 p.m. Los Angeles time on December
31, 1997 (the  "Outside  Date") with  Lessor's Work (as defined in Paragraph 50)
completed  Lessee  may, at  Lessee's  option,  by notice in writing to Lessor no
later  than 5:00 p.m.  Los  Angeles  time on the  first  business  day after the
Outside Date,  cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder;  provided further, however, that if such written
notice of Lessee is not  received by Lessor by 5:00 p.m. Los Angeles time on the
first  business day after the Outside Date,  Lessee's right to cancel this Lease
hereunder  shall  terminate  and  be of  no  further  force  or  effect.  Lessee
acknowledges that after delivery of possession to Lessee,  Lessor shall continue
to have the  right to enter  the  Premises  to  perform  the work  necessary  to
complete  Lessor's  Work.  Lessee  further  acknowledges  that  due to  Lessor's
construction  of Lessor's Work there will exist  disruption of and  interference
with  Lessee's  use of the  Premises.  No such  disruption  or  interference  or
presence on the Premises by Lessor or its  contractors to perform  Lessor's Work
shall be deemed to be a failure  by Lessor to deliver  possession.  In the event
Lessor's Work is not completed by November 26, 1997, the Commencement Date shall
be extended for one day for each day after  November 26,  1997,  if  substantial
completion  of  Lessor's  Work is  delayed  for  reasons  other than the acts or
omissions of Lessee.

                   3.3  Early  Possession.  Lessee's  use and  occupancy  of the
Premises  prior to the  Commencement  Date shall be  subject  to all  provisions
hereof, provided,  however, Lessee shall have no obligation to pay Base Rent (as
defined  below)  until  the  Commencement  Date.  From  and  after  the  date of
commencement of Lessee's early  occupancy and use of the Premises,  Lessee shall
be  responsible  for  payment of all costs and  expenses  (other than Base Rent)
payable by Lessee under this Lease.

         4.0    Rent

                   4.1. Base Rent.  Lessee shall pay to Lessor, as Base Rent for
the  Premises,  without  any  offset or  deduction,  except as may be  otherwise
expressly  provided  in this  Lease,  on the first day of each month of the term
hereof,  monthly payments in advance of $53,798.21.  The Base Rent is subject to
adjustment as provided herein. Lessee shall pay Lessor upon the execution hereof
$53,798.21 as Base Rent for the first month after the Commencement  Date (and if
such first month is a partial  month,  the balance  shall be applied to the next
month).  Rent for any period  during the term hereof  which is for less than one
month  shall be a pro rata  portion of the Base  Rent.  Rent shall be payable in
lawful money of the United  States to Lessor at the address  stated herein or to
such other persons or at such other places as Lessor may designate in writing.

                   4.2 Operating Expenses. Lessee shall pay to Lessor during the
term  hereof,  in  addition to the Base Rent,  Lessee's  Share,  as  hereinafter
defined, of all Operating Expenses, as hereinafter defined, during each calendar
year of the term of this Lease, in accordance with the following provisions:

                            (1)  "Lessee's  Share" is defined,  for  purposes of
          this Lease, as 39.36%.

                            (2) "Operating Expenses" is defined, for purposes of
          this Lease, as all costs incurred by Lessor, if any, for:

                            (1) The operation,  repair and maintenance, in neat,
          clean, good order and condition, of the following:

                                            (aa)  The  Common  Areas,  including
                           parking  areas,  loading and unloading  areas,  trash
                           areas,  roadways,   sidewalks,   walkways,  parkways,
                           driveways,   landscaped  areas,  striping,   bumpers,
                           irrigation systems,  Common Area, lighting facilities
                           and fences and gates.

                                            (bb)     Trash disposal services;

                                            (cc)     Tenant directories;

                                            (dd)     Fire detection systems
                           including sprinkler system maintenance and repair.

                                            (ee)     Security services;

                                            (ff)     Any other service to be
                           provided by Lessor that is elsewhere in this Lease
                           stated to be an "Operating Expense."



                            (2)Any   deductible   portion  of  an  insured  loss
          concerning  the  Building  or the Common  Areas  (unless  such cost is
          otherwise  excluded from  Operating  Expenses  pursuant to the term of
          this Lease).

                            (3)The cost of the  premiums for the  liability  and
          property insurance policies to be maintained by Lessor under paragraph
          8 hereof;  provided that if Lessor elects to  self-insure  or includes
          the  Premises  under  blanket  insurance  policies  covering  multiple
          properties, then the cost included in Operating Expenses shall include
          the portion of the reasonable cost of such  self-insurance  or blanket
          insurance that is allocated to the Premises;

                            (4)The amount of the real property tax to be paid by
          Lessor under paragraph 10.1 hereof;

                            (5)The cost of water, gas and electricity to service
          the Common Areas;



<PAGE>


                            (6)The cost of Lessor's  performing the  maintenance
          obligations described in paragraph 7.1, including replacements;

                            (7)The cost of operating,  repairing,  replacing and
          maintaining  the  Building,  the  roof,  and any  other  utilities  or
          equipment,  wherever  situated,  that  are for the  common  use of the
          tenants of the Building or Industrial Center; and

                            (8)The cost of a Commercial General Liability policy
          of  insurance,  insuring  Lessor,  but not Lessee,  against  liability
          arising out of the  ownership,  use,  occupancy or  maintenance of the
          Industrial   Center,  in  amounts  determined  by  Lessor,  if  Lessor
          determines to obtain such insurance.
Notwithstanding  the  provisions of Section 4.2 or anything else in the Lease to
the contrary, Operating Expenses shall not include the following:

                                    (i)     Any ground lease rental;

                                    (ii)  Costs  incurred  by  Landlord  for the
                  repair of damage  to the  extent  Landlord  is  reimbursed  by
                  insurance proceeds;

                                    (iii)  Costs   incurred   with   respect  to
                  improvements  made  for  other  lessees  or  occupants  in the
                  Industrial  Center that are not available to or do not benefit
                  Lessee  or that are  incurred  in  renovating  or  maintaining
                  vacant space for other potential lessees;

                                    (iv)  Marketing  costs   including   leasing
                  commissions,  attorneys' fees, space planning costs, and other
                  costs  and  expenses   incurred  in  connection  with  leases,
                  sublease and/or assignment  negotiations and transactions with
                  present  or  prospective  lessees  or other  occupants  of the
                  Industrial Center;

                                    (v) Expenses in connection  with services or
                  other  benefits  which are provided to another  lessee and not
                  offered or available to Tenant;

                                    (vi)  Costs  incurred  by Lessor  due to the
                  violation  by  Lessor  or any  other  lessee  of the terms and
                  conditions of any lease of space in the Industrial Center;

                                    (vii) Overhead and profit increments paid to
                  Lessee  or to  its  agents  or  affiliates  for  goods  and/or
                  services  in the  Industrial  Center  to the  extent  the same
                  exceeds the costs of such goods and/or  services that could be
                  obtained  from  unaffiliated  third  parties on a  competitive
                  basis;

                                    (viii)  Lessor's corporate overhead and
                  general and administrative expense;

                                    (ix) Tax  penalties  incurred as a result of
                  Lessor's  negligence,   inability  or  unwillingness  to  make
                  payments and/or file any income tax or  informational  returns
                  when due;

                                    (x) Costs  arising from remedial work or the
                  presence of Hazardous  Materials  (as defined in Paragraph 47)
                  in or  about  the  Industrial  Center  or the site on which is
                  resides (the "Site"), including, without limitation, Hazardous
                  Materials in the ground water or soil,  but only to the extent
                  the  same  are  (1)  Preexisting  Conditions  (as  defined  in
                  Paragraph  47.3),  or  (2)  due to the  introduction  of  such
                  Hazardous  Materials to the  Industrial  Center or the Site by
                  Lessor  or a lessee  (other  than  Lessee)  of the  Industrial
                  Center;

                                    (xi)    Costs arising from Lessor's
                  charitable or political contributions;

                                    (xii)   Costs   (including   in   connection
                  therewith  all   attorneys'   fees  and  costs  of  settlement
                  judgments and payments in lieu  thereof)  arising from claims,
                  disputes or potential disputes in connection with potential or
                  actual  claims  litigation or  arbitrations  pertaining to the
                  Lessor and/or the Industrial Center and/or Site.

                                    (xiii) The cost of the  maintenance,  repair
                  or replacement of the structural  elements of the foundations,
                  or exterior  walls or of the truss  system and wall ledger for
                  the roof.

                           (3) The inclusion of the improvements, facilities and
         services  set  forth  in  paragraph  4.2(b)(i)  of  the  definition  of
         Operating  Expenses  shall not be deemed to impose an  obligation  upon
         Lessor to either have said  improvements  or  facilities  or to provide
         those  services  unless the  Industrial  Center  already  has the same,
         Lessor already provides the services, or Lessor has agreed elsewhere in
         this Lease to provide the same or some of them.

<PAGE>

                           (4) Lessee's Share as set forth in paragraph  4.2(a),
         above, is Lessee's Share of Operating  Expenses  applicable only to the
         Building in which the Premises are located. The percentage set forth in
         paragraph 4.2(a) has been determined by dividing the approximate square
         footage of the  Premises  by the total  approximate  square  footage of
         rentable space  contained in the Building.  It is understood and agreed
         that the  percentage  figure  set forth in  4.2(a) is an  approximation
         which Lessor and Lessee agree is reasonable and shall not be subject to
         revision  except in connection with an actual change in the size of the
         Premises or a change in the space available for lease in the Building.

                           (5) Lessee's Share of Operating  Expenses  applicable
         to the  Industrial  Center shall be reasonably  determined by Lessor as
         the  percentage  created by dividing the square footage of the Premises
         by the total square footage of the Buildings in the  Industrial  Center
         that are involved in the item covered by the particular expense.

                           (6)  Lessee's  Share of Operating  Expenses  shall be
         payable by Lessee monthly or quarterly, as determined by Lessor, within
         ten (10) business days after a reasonably  detailed statement of actual
         expenses is presented to Lessee by Lessor. At Lessor's option, however,
         an amount  may be  estimated  by Lessor  from time to time of  Lessee's
         Share  of  annual  Operating  Expenses  and the same  shall be  payable
         monthly  or  quarterly,   as  Lessor  shall   designate,   during  each
         twelve-month period of the Lease term, on the same day as the Base Rent
         is due  hereunder.  In the event that Lessee pays Lessor's  estimate of
         Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver
         to Lessee within sixty (60) days after the  expiration of each calendar
         year,  or as soon  thereafter  as  practicable,  a reasonably  detailed
         statement  showing  Lessee's  Share of the  actual  Operating  Expenses
         incurred  during the preceding  year. If Lessee's  payments  under this
         paragraph  4.2(f) during said preceding  year exceed  Lessee's Share as
         indicated  on said  statement,  Lessee  shall be entitled to credit the
         amount of such overpayment against Lessee's Share of Operating Expenses
         and Base Rental next  falling  due.  If  Lessee's  payments  under this
         paragraph  during said  preceding year were less than Lessee's Share as
         indicated on said  statement,  Lessee shall pay to Lessor the amount of
         the  deficiency  within ten (10) business days after delivery by Lessor
         to Lessee of said statement.

                           (7) Lessor and Lessee shall  promptly  adjust between
         them by appropriate  cash payment any balance  determined to exist with
         respect to Lessee's  Share of Operating  Expenses  after the end of the
         calendar year in which this Lease terminates, prorating for any partial
         year involved.
(1)
                           (8) In the event of any  dispute  as to the amount of
         Operating  Expenses as set forth in  Lessor's  Statement  of  Operating
         Expenses  delivered  to Lessee,  Lessee  shall  have the  right,  after
         reasonable  notice and at  reasonable  times  within one year after the
         final statement for such Operating  Expenses is delivered to Lessee, to
         inspect and photocopy (at Lessee's expense) Lessor's  accounting record
         with respect to Lessee's  Share of Operating  Expenses.  If, after such
         inspection  and  photocopying,  Lessee  still  disputes  the  amount of
         Operating Expenses as set forth in Lessor's Statement,  Lessee shall be
         entitled  to  retain  an  independent,   certified  public   accountant
         reasonably approved by Lessor to audit Lessor's record to determine the
         proper amount of such Operating  Expenses and the proper amount payable
         by Lessee pursuant to this Lease. Lessee agrees to pay the cost of such
         audit,  provided  that Lessor shall pay such cost if the audit  reveals
         that  Lessor's  determination  of  Operating  Expenses  as set forth in
         Lessor's statement overstated Operating Expenses by 5% or more. If such
         audit reveals an overstatement or understatement of Operating Expenses,
         the amount of the differential  shall be promptly  reimbursed to Lessee
         by Lessor or paid by Lessee to Lessor, as the case may be.

                  4.3    Rent Escalations - Initial Term

                           (1) On the first  day of each of the  31st,  61st and
         91st months of the term of this Lease,  the monthly  Base Rent  payable
         under Paragraph 4.1 of this Lease shall be adjusted by the increase, if
         any, from the date this Lease commenced, in the Consumer Price Index of
         the  Bureau of Labor  Statistics  of the U.S.  Department  of Labor for
         Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-Riverside,
         California (1982-84=100), "All Items", herein referred to as "C.P.I."

                           (2) The monthly Base Rent payable in accordance  with
         Paragraph  (a) above  shall be  calculated  as  follows:  the Base Rent
         payable  as  set  forth  in  Paragraph  4.1 of  this  Lease,  shall  be
         multiplied by a fraction the numerator of which shall be the C.P.I.  of
         the calendar month during which the  adjustment is to take effect,  and
         the denominator of which shall be the C.P.I.  for the calendar month in
         which the original Lease term  commences.  The sum so calculated  shall
         constitute the new monthly Base Rent hereunder, subject to Subparagraph
         (e), below.

                            (3)  Pending  receipt  of the  required  C.P.I.  and
         determination of the actual  adjustment,  Lessee shall pay an estimated
         adjusted rental, as reasonably determined by Lessor by reference to the
         then available  C.P.I.  information.  Upon  notification  of the actual
         adjustment after  publication of the required  C.P.I.,  any overpayment
         shall be credited  against the next  installment  of rent due,  and any
         underpayment  shall be immediately due and payable by Lessee.  Lessor's
         failure to request  payment of an estimated  or actual rent  adjustment
         shall not constitute a waiver of the right to any  adjustment  provided
         for in this Lease or this Paragraph 4.3.

                           (4) In the event the compilation  and/or  publication
         of the C.P.I. shall be transferred to any other governmental department
         or  bureau  or agency  or shall be  discontinued,  then the index  most
         nearly the same as the C.P.I.  shall be used to make such  calculation.
         In the event that Lessor and Lessee  cannot  agree on such  alternative
         index,  then the matter shall be submitted for decision to the American
         Arbitration  Association  in  accordance  with the  then  rules of said
         association and the decision of the  Arbitrators  shall be binding upon
         the  parties.  The cost of said  Arbitrators  shall be paid  equally by
         Lessor and Lessee.

                           (5)  The   adjustment(s)   required   by  this   Rent
         Escalation  Paragraph  shall be  subject  to the  following  additional
         agreements:

                           (1)The increase under  Subparagraph (b), above, shall
                  be subject to the  following  minimum and  maximum  percentage
                  increases per year  involved in the  adjustment  period,  on a
                  cumulative but non-compounded basis:

         Minimum yearly percentage increase:3%

         Maximum yearly percentage increase:5%

The  "adjustment  period" is defined  as the  period  commencing  with the month
designated  in   Subparagraph   (b)  as  the  reference  for   determining   the
"denominator",  and ending with the month preceding the month designated therein
as the reference for determining the "numerator".  Should the adjustment  period
include a partial year,  the minimum and maximum  percentages  shall be prorated
for that partial year by multiplying them by a fraction,  the numerator of which
shall be the number of full calendar months or major portion  thereof  contained
in said partial year, and the denominator of which is twelve (12).

                           (2)The  new  monthly  Base Rent  shall in no event be
                  less  than  the  monthly  Base  Rent   scheduled  to  be  paid
                  immediately preceding the rent adjustment.

         5. Security  Deposit.  Lessee shall deposit with Lessor upon  execution
hereof  $53,798.21  as security for Lessee's  faithful  performance  of Lessee's
obligations  hereunder.  If  Lessee  fails  to pay  rent or  other  charges  due
hereunder,  or otherwise  defaults  with respect to any provision of this Lease,
Lessor may use,  apply or retain  all or any  portion  of said  deposit  for the
payment of any rent or other  charge in default or for the  payment of any other
sum to which Lessor may become  obligated by reason of Lessee's  default,  or to
compensate  Lessor for any loss or damage  which Lessor may suffer  thereby.  If
Lessor so uses or applies  all or any  portion  of said  deposit,  Lessee  shall
within ten (10) business days after written  demand  therefor  deposit cash with
Lessor in an amount  sufficient  to restore said deposit to the full amount then
required of Lessee and Lessee's  failure to do so shall be a material  breach of
this Lease.  If the monthly rent shall,  from time to time,  increase during the
term of this Lease,  Lessee shall,  at the time of such  increase,  deposit with
Lessor  additional  money as a security  deposit so that the total amount of the
security  deposit held by Lessor shall at all times bear the same  proportion to
the then current Base Rent as the initial  security deposit bears to the initial
Base Rent set forth in  paragraph  4. Lessor  shall not be required to keep said
security deposit separate from its general  accounts.  If Lessee performs all of
Lessee's  obligations  hereunder,  said  deposit,  or so much thereof as has not
theretofore  been  applied  by Lessor,  shall be  returned,  without  payment of
interest or other increment for its use, to Lessee (or, at Lessor's  option,  to
the last assignee,  if any, of Lessee's interest hereunder) at the expiration of
the  term  hereof,  and  after  Lessee  has  vacated  the  Premises.   No  trust
relationship  is created  herein  between Lessor and Lessee with respect to said
Security Deposit.

         6.0      Use

                   6.1 Use.  The Premises  shall be used and  occupied  only for
warehousing,  distribution,  sale and manufacture (including screen printing and
embroidery)  of Lessee's  apparel and other  products and for no other  purpose;
provided,  however,  that the area used for sales to the public shall not exceed
2% of the gross floor area of the Premises.

                   6.2 Compliance with Law

                            (1) Lessor warrants to Lessee that the Premises,  in
         the  state  existing  on the date that the Lease  term  commences,  but
         without  regard to alterations by Lessee or to the use for which Lessee
         will  occupy  the   Premises,   does  not  violate  any   covenants  or
         restrictions  of  record,  or  any  applicable   building  code,  rule,
         regulation or ordinance in effect on such Lease term commencement date.
         In the event it is  determined  that this  warranty has been  violated,
         then it shall be the  obligation of the Lessor,  after  written  notice
         from Lessee,  to promptly,  at Lessor's sole cost and expense,  rectify
         any such violation. In the event Lessee does not give to Lessor written
         notice of the violation of this warranty within 24 months from the date
         that the Lease  term  commences,  the  correction  of same shall be the
         obligation of Lessee at Lessee's sole cost.  The warranty  contained in
         this  paragraph  6.2(a) shall be of no force or effect if, prior to the
         date of this Lease,  Lessee was an owner or  occupant  of the  Premises
         and, in such event, Lessee shall correct any such violation at Lessee's
         sole cost.

                           (2) Except as provided  in  paragraph  6.2(a)  Lessee
         shall,  at  Lessee's  expense,  promptly  comply  with  all  applicable
         statutes,   ordinances,  rules,  regulations,   orders,  covenants  and
         restrictions  of  record,   and  requirements  of  any  fire  insurance
         underwriters  or rating  bureaus,  now in effect or which may hereafter
         come into  effect,  whether or not they reflect a change in policy from
         that now  existing,  during  the  term or any part of the term  hereof,
         relating in any manner to the  Premises and the  occupation  and use by
         Lessee of the  Premises and of the Common  Areas.  Lessee shall not use
         nor permit the use of the  Premises  or the Common  Areas in any manner
         that will tend to create  waste or a nuisance  or shall tend to disturb
         other occupants of the Industrial Center.

                   6.3 Conditions of Premises

                           (1) Lessor shall deliver the Premises to Lessee clean
         and free of debris on the Lease  commencement  date  (unless  Lessee is
         already in possession) and Lessor warrants to Lessee that the plumbing,
         lighting, air conditioning,  heating, and loading doors in the Premises
         other  than  those  portions  constructed  by  Lessee  shall be in good
         operating  condition on the Lease  commencement date. In the event that
         it is determined that this warranty has been violated, then it shall be
         the  obligation of Lessor,  after receipt of written notice from Lessee
         setting  forth  with  specificity  the  nature  of  the  violation,  to
         promptly,  at Lessor's  sole cost,  rectify  such  violation.  Lessee's
         failure to give such  written  notice to Lessor  within 12 months after
         the Lease commencement date shall cause the conclusive presumption that
         Lessor has complied  with all of Lessor's  obligations  hereunder.  The
         warranty  contained  in this  paragraph  6.3(a) shall be of no force or
         effect  if  prior  to the date of this  Lease,  Lessee  was an owner or
         occupant of the Premises.


                            (2)  Except as  otherwise  provided  in this  Lease,
         Lessee hereby  accepts the Premises in their  condition  existing as of
         the Lease commencement date or the date that Lessee takes possession of
         the Premises,  whichever is earlier,  subject to all applicable zoning,
         municipal,  county and state laws, ordinances and regulations governing
         and regulating the use of the Premises, and any covenants, easements or
         restrictions  of record and accepts this Lease  subject  thereto and to
         all matters  disclosed  thereby and by any  exhibits  attached  hereto.
         Lessee acknowledges that neither Lessor nor Lessor's agent has made any
         representation  or warranty as to the present or future  suitability of
         the Premises for the conduct of Lessee's business.

         7. Maintenance, Repairs, Alterations and Common Area Services.

                   7.1  Lessor's  Obligations.  Subject  to  the  provisions  of
paragraph 4.2 (Operating  Expenses),  6 (Use), 7.2 (Lessee's  Obligations)  7.5,
(Condition  of Premises  Upon  Termination)  and 9 (Damage or  Destruction)  and
except for damage  caused by any  negligent  or  intentional  act or omission of
Lessee,  Lessee's employees,  suppliers,  shippers,  customers,  or invitees, in
which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject
to  reimbursement  pursuant to paragraph  4.2,  shall keep in good condition and
repair the foundations, exterior walls, structural condition of interior bearing
walls,  and  roof  of the  Premises,  as  well as the  parking  lots,  walkways,
driveways,  landscaping,  fences, signs and utility  installations of the Common
Areas and all parts thereof.  Lessor shall not,  however,  be obligated to paint
the  interior  surface  of  exterior  walls,  nor shall  Lessor be  required  to
maintain, repair or replace windows, doors or plate glass of the Premises, or to
maintain or repair anything  required to be maintained by Lessee under paragraph
7.2.  The cost to Lessor of painting  the  exterior  walls shall be an Operating
Expense.  Lessor shall have no obligation  to make repairs under this  paragraph
7.1 until a reasonable  time after receipt of written  notice from Lessee of the
need for such repairs.  Lessee  expressly waives the benefits of any statute now
or  hereafter in effect which would  otherwise  afford  Lessee the right to make
repairs at  Lessor's  expense or to  terminate  this Lease  because of  Lessor's
failure to keep the Premises in good order,  condition and repair.  Lessor shall
not be liable for  damages  or loss of any kind or nature by reason of  Lessor's
failure  to furnish  any Common  Area  services  when such  failure is caused by
accident,  breakage,  repairs,  strikes, lockout, or other labor disturbances or
disputes of any character or by any other cause beyond the reasonable control of
Lessor.

                   7.2 Lessee's Obligations

                            (1) Subject to the provisions of paragraphs 6 (Use),
         7.1 (Lessor's Obligations),  and 9 (Damage or Destruction),  and except
         for damage to the Premises  caused by any negligent or intentional  act
         or  omission  of  Lessor  or  its  employees,  agents,  contractors  or
         invitees,  in which event Lessor shall repair the damage at its expense
         (subject to paragraph 9), Lessee,  at Lessee's  expense,  shall keep in
         good order,  condition  and repair the  Premises and every part thereof
         (whether  or not the  damaged  portion of the  Premises or the means of
         repairing  the same are  reasonably  or readily  accessible  to Lessee)
         including,  without  limiting  the  generality  of the  foregoing,  the
         non-structural  elements  of  foundations,   exterior  walls,  interior
         bearing  walls,  and  roof  of the  Premises,  any  plumbing,  heating,
         ventilating  and air  conditioning  systems  (Lessee  shall procure and
         maintain,  at Lessee's  expense,  a  ventilating  and air  conditioning
         system maintenance  contract),  electrical and lighting  facilities and
         equipment  within  the  Premises,  or that  serves  only  the  Premises
         wherever  situated,  fixtures,  interior walls and interior surfaces of
         exterior walls,  ceilings,  windows,  doors, plate glass, and skylights
         located within the Premises.  Lessor  reserves the right to procure and
         maintain  the  ventilating  and  air  conditioning  system  maintenance
         contract and if Lessor so elects,  Lessee shall reimburse Lessor,  upon
         demand for the cost thereof.

                           (2) If Lessee fails to perform  Lessee's  obligations
         under this  paragraph  7.2 or under any other  paragraph of this Lease,
         Lessor may enter upon the Premises  after ten (10) days' prior  written
         notice to Lessee  (except in the case of emergency,  in which no notice
         shall be required)  perform such obligations on Lessee's behalf and put
         the Premises in good order,  condition and repair, and the cost thereof
         together  with  interest  thereon at the Interest Rate shall be due and
         payable as additional  rent to Lessor  together with Lessee's next Base
         Rent installment.

                           (3) On the  last day of the  term  hereof,  or on any
         sooner  termination,  Lessee shall  surrender the Premises to Lessor in
         the same condition as received,  ordinary wear and tear excepted, broom
         clean and free of debris.  Any damage or  deterioration of the Premises
         shall not be deemed  ordinary wear and tear if the same could have been
         prevented by generally prevailing maintenance  practices.  Lessee shall
         repair any damage to the Premises  occasioned  by the  installation  or
         removal  of  Lessee's  trade  fixtures,  alterations,  furnishings  and
         equipment. Notwithstanding anything to the contrary otherwise stated in
         this Lease, Lessee shall leave the air lines, power panels,  electrical
         distribution   systems,   lighting   fixtures,   space   heaters,   air
         conditioning,  plumbing and fencing on the  Premises in good  operating
         condition.

                   7.3 Alterations and Additions

                            (1) Lessee shall not, without Lessor's prior written
         consent  make any  alterations,  improvements,  additions,  or  Utility
         Installations in, on or about the Premises,  or the Industrial  Center,
         except for  nonstructural  alterations  to the Premises  not  exceeding
         $2,500  in costs as to any  single  project  (the  "Threshold  Amount")
         during the term of this Lease.  In any event,  whether or not in excess
         of the Threshold  Amount,  Lessee shall make no change or alteration to
         the  exterior of the  Premises nor the exterior of the Building nor the
         Industrial  Center without Lessor's prior written  consent.  As used in
         this  paragraph  7.3  the  term  "Utility   Installation"   shall  mean
         carpeting,  window  coverings,  air  lines,  power  panels,  electrical
         distribution   systems,   lighting   fixtures,   space   heaters,   air
         conditioning,  plumbing,  and  fencing.  Lessor may require that Lessee
         remove  any or all of  said  alterations,  improvements,  additions  or
         Utility  Installations at the expiration or earlier  termination of the
         term, and restore the Premises and the Industrial Center to their prior
         condition.  Lessor may require  Lessee to provide  Lessor,  at Lessee's
         sole cost and expense, a lien and completion bond in an amount equal to
         one and one-half  times the  estimated  cost of such  improvements,  to
         insure Lessor against any liability for  mechanic's  and  materialmen's
         liens and to insure completion of the work; provided,  however, that so
         long as Big Dog U.S.A., Inc., a California corporation,  is the Lessee,
         Lessor shall not require a lien and completion  bond unless the cost of
         the work for the particular project exceeds $50,000. Should Lessee make
         any  alterations,  improvements,  additions  or  Utility  Installations
         without the prior  approval  of Lessor,  Lessor may, at any time during
         the term of the Lease,  require  that  Lessee  remove any or all of the
         same, excluding the improvements made pursuant to Paragraph 51.

                           (2)  Any  alterations,  improvements,  additions,  or
         Utility  Installations  made by Lessee  during  the term of this  Lease
         shall  be  done  in a good  and  workmanlike  manner  and of  good  and
         sufficient  materials,  and Lessee shall, within thirty (30) days after
         completion  of  such  alteration,  improvements,  addition  or  Utility
         Installation, provide Lessor with as-built plans and specifications for
         same. Notwithstanding anything contained in this Lease to the contrary,
         Paragraphs   7.3(d)(i)(bb)  and  (cc)  shall  apply  to  non-structural
         alterations,  improvements,  additions  or  Utility  Installations  not
         exceeding the Threshold Amount.

                           (3)  Any  alterations,   improvements,  additions  or
         Utility Installations in or about the Premises or the Industrial Center
         that Lessee shall desire to make and which  requires the consent of the
         Lessor  shall be  presented to Lessor in written  form,  with  proposed
         detailed plans. If Lessor shall give its consent,  the consent shall be
         deemed  conditioned  upon  Lessee  acquiring  a  permit  to do so  from
         appropriate  governmental agencies, the furnishing of a copy thereof to
         Lessor  prior to the  commencement  of the work and the  compliance  by
         Lessee of all  conditions  of said  permit in a prompt and  expeditious
         manner.
(1)
                           (4) For any additions, alterations,  improvements, or
         Utility Installations requiring Lessor's prior written consent:

                           (1)Lessee shall:

                                            (aa)     Request Lessor's approval
                           in writing at least thirty (30) days prior to
                           proposed construction.

                                            (bb)  Employ a  California  licensed
                           architect,  contractor  and  structural  engineer  in
                           connection  with the  proposed  construction,  if the
                           work is structural or, in the case of  non-structural
                           work, if the employment of such person is appropriate
                           in connection  with the work being  performed and the
                           cost of such work exceeds $20,000.

                                            (cc) Be  fully  responsible  for the
                           acts of Lessee's consultants, employees, contractors,
                           subcontractors,  invitees and agents,  and cause them
                           to fully  comply  with any  applicable  terms of this
                           Lease and documents referred to by this Lease and all
                           applicable laws, rules and regulations.

                                            (dd) Enter into  written  agreements
                           with an architect and general  contractor on standard
                           American   Institute  of  Architects  (AIA)  form  or
                           reasonable equivalent for the contract itself as well
                           as payment schedules,  change orders,  etc. Copies of
                           executed  agreements  will  be  forwarded  to  Lessor
                           within five (5) days of execution.

                                            (ee)   Cause  to  be   obtained   an
                           applicable   building   permit   for   any   and  all
                           construction  and  modifications,  and  construct the
                           additions   and    alterations    and   perform   the
                           construction  work in accordance  with all applicable
                           laws, including without limitation the Americans With
                           Disabilities Act.

                           (2)Lessee's Architect shall:

                                            (aa)     Be licensed by the State of
                           California.

                                            (bb) Design and  specify  within the
                           parameters  of the building  work letter (if any) and
                           approved  building  specifications  (if  any) or have
                           received specific written exceptions from Lessor.

                                            (cc)   Secure    Lessor's    written
                           approval  before  submitting  plans  to  the  general
                           contractor  for bidding or to  governmental  agencies
                           for approval.

                                            (dd)   Secure    Lessor's    written
                           approval  of any changes or  alternates  to the plans
                           recommended by the general  contractor or required by
                           governmental agencies.

                                            (ee)     Submit a copy of the final
                           application for permit and issued permit to Lessor.

                                            (ff)     Incorporate the building
                           standard details (if any) supplied by Lessor onto the
                           drawings.

                                            (gg)     Submit final plans for
                           Lessor's written approval prior to construction.

                                            (hh)     Be available for final
                           inspection with Lessor at job completion.

                                            (ii)   Secure    Lessor's    written
                           approval of details of any changes in  specifications
                           or finishes during construction.

                                            (jj)     Provide samples and
                           specifications as required by Lessor.

                                            (kk)   Sign  off  on  the   as-built
                           drawings as the  Architect's  certification  that the
                           improvements  have,  in fact,  been  built as per the
                           Architect's design.

                           (3)Lessee's General Contractor and/or Subcontractors
                              shall:

                                            (aa)     Be licensed by the State of
                           California.

                                            (bb)  Have  substantial   experience
                           providing    similar    quality   and   quantity   of
                           improvements.  Work  history  shall  be  provided  to
                           Lessor prior to being awarded contract.

                                            (cc)     Have a bonding capacity
                           equal to or exceeding the valuation of the job.

                                            (dd)  Maintain  in  full  force  and
                           effect,  throughout  the duration of its  performance
                           under  the  contract  with  the  Lessee,  a  Worker's
                           Compensation   insurance   policy  and  a  Commercial
                           General  Liability  insurance  policy  issued  by  an
                           insurer   satisfactory   to  Lessor  with   liability
                           coverage of not less than  $1,000,000.00 for personal
                           injury and $500,000.00 to cover property damage.  The
                           Commercial  General Liability  insurance policy shall
                           include   assumption   of   contractual    liability.
                           Certificates  of  insurance  containing a thirty (30)
                           day cancellation  clause shall be furnished to Lessor
                           prior  to  commencement  of  performance   under  the
                           construction  contract  naming Lessor (The Prudential
                           Insurance  Company of America) and its managing agent
                           (currently  Cushman & Wakefield of California,  Inc.)
                           as additional insureds.

                                            (ee)     Provide a construction
                           schedule to Lessor prior to commencement of work and
                           weekly written progress reports.

                                            (ff)     Warrant the General
                           Contractor's work and that of the General
                           Contractor's subcontractors, for a minimum of one
                           (1) year.

                                            (gg)     Provide Lessor with as-
                           built drawings of all improvements.

                           (4) All approvals by Lessor,  as herein provided for,
                  shall  not  be  unreasonably  withheld.  All  requests  to  be
                  submitted  to  Lessor  shall  be  submitted  through  Lessor's
                  managing agent.

                            (5) Lessee shall pay, when due, all claims for labor
         or  materials  furnished  or alleged to have been  furnished  to or for
         Lessee  at or for  use  in the  Premises,  which  claims  are or may be
         secured by any mechanic's or  materialmen's  lien against the Premises,
         or the Industrial  Center, or any interest  therein.  Lessee shall give
         Lessor not less than thirty (30) days' notice prior to the commencement
         of any work in the  Premises,  and Lessor  shall have the right to post
         notices of  non-responsibility in or on the Premises or the Building as
         provided by law. If Lessee shall,  in good faith,  contest the validity
         of any such  lien,  claim or demand,  then  Lessee  shall,  at its sole
         expense  defend  itself and Lessor  against  the same and shall pay and
         satisfy any such adverse  judgment that may be rendered  thereon before
         the  enforcement  thereof  against  the Lessor or the  Premises  or the
         Industrial  Center,  upon the condition  that if Lessor shall  require,
         Lessee shall furnish to Lessor a surety bond  satisfactory to Lessor in
         an amount  equal to such  contested  lien claim or demand  indemnifying
         Lessor against  liability for the same and holding the Premises and the
         Industrial  Center  free from the  effect  of such  lien or  claim.  In
         addition,  Lessor may require Lessee to pay Lessor's attorneys fees and
         costs in  participating  in such action if Lessor shall decide it is to
         Lessor's best interest to do so.


                           (6)  All  alterations,  improvements,  additions  and
         Utility   Installations  (unless  they  constitute  trade  fixtures  of
         Lessee),  which may be made on the  Premises,  shall be the property of
         Lessor and shall  remain upon and be  surrendered  with the Premises at
         the expiration or earlier  termination of the Lease term, unless Lessor
         requires their removal  pursuant to paragraph  7.3(a).  Notwithstanding
         the  provisions  of  this  paragraph  7.3(f),  Lessee's  machinery  and
         equipment,  other than that which is affixed to the Premises so that it
         cannot be removed without  material  damage to the Premises,  and other
         than Utility Installations, shall remain the property of Lessee and may
         be removed by Lessee subject to the provisions of paragraph 7.2.

                  . Lessor  reserves  the  right to  install  new or  additional
utility facilities  throughout the Building and the Common Areas for the benefit
of Lessor or Lessee,  or any other lessee of the Industrial  Center,  including,
but not by way of limitation,  such utilities as plumbing,  electrical  systems,
security  systems,  communication  systems,  and fire  protection  and detection
systems,  so long as  such  installations  do not  unreasonably  interfere  with
Lessee's use of the Premises.

         7.5 Condition of Premises Upon Termination; Additional Use Provisions.

                   7.5.1  Lessee  shall  maintain  the  Premises  as provided in
Paragraph  7.2 and in  accordance  with the  requirements  of any  covenants  or
restrictions as may from time to time be applicable to the Premises.  Lessee, in
keeping the Premises in good order,  condition  and repair,  shall  exercise and
perform good maintenance  practices and any damage or deterioration shall not be
deemed  "ordinary  wear and tear" if the same could have been  prevented by good
maintenance   practice.   Lessee's   obligations  shall  include   restorations,
replacements   or  renewals  when   necessary  to  keep  the  Premises  and  all
improvements  thereon or a part  thereof in good order,  condition  and state of
repair,  subject to Lessor's  obligations  under Paragraph 7.1.  Notwithstanding
anything  contained in the Lease to the contrary,  Lessee shall make all repairs
whatsoever on the Premises  necessitated by the negligence,  misconduct or fault
of Lessee, or its agents, licensees, contractors or invitees.

                   7.5.2  Notwithstanding  anything to the contrary in paragraph
7.2 of this  Lease,  upon  termination  of this  Lease,  Lessee  shall leave all
plumbing,  heating (including space heaters),  air conditioning,  electrical and
mechanical  systems,  on the Premises and in good condition and operating order,
reasonable  wear and tear  excepted,  and Lessee shall upon demand pay to Lessor
that portion of the cost to restore such items to good  condition  and operating
order.

                   7.5.3  Notwithstanding  anything to the contrary contained in
this Lease,  the Premises shall not be used for the  warehousing or distribution
of hazardous or explosive  products,  substances or  materials,  or of products,
substances or materials  that are  detrimental  to the Premises,  the Industrial
Center or other tenants thereof.

         8. Insurance; Indemnity

                   8.1  Lessee  hereby  agrees  to  indemnify,  defend  and hold
harmless Lessor, its successors,  assigns,  subsidiaries,  directors,  officers,
agents and  employees  from and against any and all damage,  loss,  liability or
expense  including,  but not limited to,  reasonable  attorney's  fees and legal
costs  suffered by same  directly or by reason of any claim,  suit or  judgement
brought by or in favor of any person or persons for damage,  loss or expense due
to, but not  limited  to,  bodily  injury,  including  death  resulting  anytime
therefrom,  and property damage sustained by such person or persons which arises
out of, is occasioned by or in any way  attributable  to the use or occupancy of
the  Premises  by the Lessee,  the acts or  omission of the Lessee,  its agents,
employees or any other contractors or invitees brought onto said Premises by the
Lessee,  or any  breach or  default  in the  performance  of any  obligation  on
Lessee's  part to be  performed  under  the terms of this  Lease,  except to the
extent caused by the negligence or wilful  misconduct of Lessor,  its employees,
and agents.  If any action or proceeding is brought  against Lessor by reason of
any such claim,  Lessee, upon notice from Lessor,  shall defend same at Lessee's
expense by counsel  reasonably  satisfactory  to Lessor  (it being  agreed  that
Lessor's good faith belief that a conflict of interest  exists or may reasonably
exist in the event that Lessor and Lessee are  represented  by the same  counsel
shall  constitute   reasonable  grounds  for  Lessor's  insistence  on  separate
counsel).  Such loss or damage shall include,  but not be limited to, any injury
or damage to Lessor's personnel (including death resulting anytime therefrom) on
the Premises. Lessor shall not be liable for any damages arising from any act or
neglect of any other  tenant,  if any, of the Building or  Industrial  Center in
which the Premises  are  located.  Lessee  agrees that the  obligations  assumed
herein shall survive the termination of this Lease.

                   8.2 Lessee hereby agrees to maintain in full force and effect
at all times during the term of this Lease,  at Lessee's  own  expense,  for the
protection of Lessee,  Lessor and Lessor's property  manager,  as their interest
may appear, policies of insurance issued by a responsible carrier or carriers to
Lessor which afford the following coverages:

                           (1)      Workers' Compensation with statutory limits.

                           (2)      Employers' Liability insurance with the
                                    following minimum limits:

                  Bodily injury by disease per person            $1,000,000
                  Bodily injury by accident policy limit         $1,000,000
                  Bodily injury by disease policy limit          $1,000,000

                           (3) Property  insurance  on a special  causes of loss
         insurance  form  covering  any  and all  personal  property  of  Lessee
         including  but not  limited to  improvements,  betterments,  furniture,
         fixtures,  Utility  Installations,  and equipment in an amount not less
         than their  full  replacement  cost,  with a  deductible  not to exceed
         $10,000. This policy should contain a waiver of subrogation.

                           (4) Commercial General Liability  Insurance including
         Broad Form Property Damage and Contractual Liability with the following
         minimum limits:

                  General Aggregate                           $2,000,000
                  Products/Completed Operations Aggregate     $2,000,000
                  Each Occurrence                             $1,000,000
                  Personal & Advertising Injury               $1,000,000
                  Medical Payments                            $5,000 per person

                           (5)  Umbrella/Excess  Liability  on a following  form
         basis with the following minimum limits:

                  General Aggregate                           $10,000,000
                  Each Occurrence                             $10,000,000

         The limits of said insurance in this Paragraph 8.2 shall not,  however,
         limit the liability of Lessee hereunder.

                  8.3 If Lessor is providing property insurance on the Premises,
then Lessor  shall,  at all times  during the term of this Lease,  maintain  the
following insurance:

                           (1)  A  policy  or  policies  of  all-risk   property
         insurance,  issued by and binding upon some solvent insurance  company,
         insuring for the full replacement cost of the building on the Premises.
         Lessor  shall not be  obligated  to  insure,  and shall not  assume any
         liability  or risk of loss for, any of Lessee's  furniture,  equipment,
         machinery,  goods, supplies,  utility installations,  improvements,  or
         alterations  upon the  Premises.  This policy  shall  contain an agreed
         amount endorsement and be written with no coinsurance.  Lessor may, but
         shall not be obligated to, obtain earthquake and flood insurance.

                           (2) Rent  insurance on an all-risk basis in an amount
         equal to all that is called for under  Paragraph  4 of this Lease (Base
         Rent and any  additional  rents payable under this Lease  including tax
         and  insurance  costs)  for a period  of at least  twelve  (12)  months
         commencing with the date of loss.

                           (3)  Boiler  and  machinery  insurance  in an  amount
         satisfactory to Lessor on a comprehensive coverage form.

                   8.4 The  Lessee  shall  deliver  to  Lessor  prior to  taking
possession  of the Premises,  and  thereafter at least thirty (30) days prior to
expiration  of such  policy,  certificates  of  insurance  evidencing  the above
coverage with limits not less than those  specified  above.  Insurance  required
hereunder shall be in companies holding a "General  Policyholders  Rating" of at
least A-VIII as set forth in the most current issue of "Best's Insurance Guide".
Such  Certificates  with the  exception  of  Worker's  Compensation,  shall name
Lessor,  its  subsidiaries,  directors,  agents and employees,  and its property
manager as additional  insureds and shall expressly provide that the interest of
same herein shall not be affected by a breach by Lessee of any insurance  policy
provision  for  which  such  Certificates   evidence  coverage.   Further,   all
Certificates  shall  expressly  provide that no less than thirty (30) days prior
written  notice shall be given to Lessor in the event of material  alteration to
or cancellation of the coverage evidenced by such Certificates.

                   8.5  Lessor may secure and  maintain,  at  Lessee's  expense,
increased  amounts of insurance and other insurance  coverage in such limits, as
Lessor  may  require  in its  reasonable  judgment  to  afford  Lessor  adequate
protection  consistent with the practices of institutional  owners of comparable
properties.

                   8.6  Lessor  makes  no  representation  that  the  limits  of
liability  specified  to be carried  by Lessee  under the term of this Lease are
adequate to protect Lessee against Lessee's  undertaking  under this Paragraph 8
and in the event Lessee  believes that any such  insurance  coverage  called for
under this Lease is insufficient, Lessee shall provide, at its own expense, such
additional insurance as Lessee deems adequate.

                   8.7 Anything in this Lease to the  contrary  notwithstanding,
Lessor and Lessee  hereby  waive and release  each other of and from any and all
rights of recovery, claims, action or cause of action, against each other, their
agents,  officers  and  employees,  for any loss or damage that may occur to the
Premises,  improvements  to the  building  of  which  the  Premises  are a part,
personal property (building  contents) within the building on the Premises,  any
furniture,  equipment,  machinery,  goods or supplies  not covered by this Lease
which  Lessee  may  bring  or  obtain  upon  the  Premises  or  any   additional
improvements which Lessee may construct on the Premises,  by reason of fire, the
elements or any other cause to the extent the same is insured  against under the
terms of all risk property  insurance  policies,  regardless of cause or origin,
including  negligence  of Lessor  or  Lessee  and  their  agents,  officers  and
employees.  Because this  Paragraph  will  preclude the  assignment of any claim
mentioned in it by way of subrogation (or otherwise) to an insurance company (or
any other  person) each party to this Lease agrees  immediately  to give to each
insurance  company,  written notice of the terms of the mutual waivers contained
in this  Paragraph,  and to have the  insurance  policies  properly  endorsed if
necessary to prevent the  invalidation  of the insurance  coverages by reason of
the mutual waivers contained in this Paragraph.  Lessee also waives and releases
Lessor,  its agents,  officers  and  employees of and from any and all rights of
recovery,  claim, action or cause of action for any loss or damage to the extent
the same is insured  against  under any other  policies of insurance  carried by
Lessee.

         8.8 Payment of Premium Increase.

                           (1)  After  the  term of this  Lease  has  commenced,
         Lessee  shall  not be  responsible  for  paying  Lessee's  Share of any
         increase in the property  insurance  premium for the Industrial  Center
         specified  by Lessor's  insurance  carrier as being  caused by the use,
         acts or  omissions  of  Lessor or any  other  lessee of the  Industrial
         Center,  or by the nature of Lessor's or such other lessee's  occupancy
         which create an extraordinary or unusual risk.

                            (2) Lessee,  however,  shall pay the entirety of any
         increase in the property  insurance  premium for the Industrial  Center
         over what is was immediately  prior to the  commencement of the term of
         this Lease if the increase is specified by Lessor's  insurance  carrier
         as being  caused by the  nature  of  Lessee's  occupancy  or any act or
         omission of Lessee.

                   8.9 Exemption of Lessor from Liability.  Lessee hereby agrees
that Lessor  shall not be liable for injury to Lessee's  business or any loss of
income  therefrom  or for  damage  to the  goods,  wares,  merchandise  or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the  Industrial  Center,  nor shall Lessor be liable
for injury to the person of Lessee,  Lessee's employees,  agents or contractors,
whether  such  damage  or  injury is caused  by or  results  from  fire,  steam,
electricity,  gas, water or rain, or from the breakage, leakage,  obstruction or
other  defects  of  pipes,   sprinklers,   wires,   appliances,   plumbing,  air
conditioning, or lighting fixtures, or from any other cause, whether said damage
or injury  results  from  conditions  arising  upon the  Premises  or upon other
portions  of the  Industrial  Center,  or  from  other  sources  or  places  and
regardless  of  whether  the  cause of such  damage  or  injury  or the means of
repairing the same is inaccessible to Lessee, Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Industrial  Center, nor from the failure of Lessor to enforce the provisions
of any other lease of the Industrial  Center.  Notwithstanding  anything in this
Paragraph 8.9 to the  contrary,  but subject to Paragraph  8.7,  nothing in this
Paragraph 8.9 shall limit Lessor's  liability for injuries to natural persons or
direct  damage to  property  to the extent  caused by the active  negligence  or
wilful misconduct of Lessor, its employees or agents.

         9. Damage or Destruction

                   9.1 Definitions

                           (1)  "Premises  Partial  Damage"  shall  mean  if the
         Premises are damaged or destroyed to the extent that the cost of repair
         is  less  than  fifty  percent  of the  then  replacement  cost  of the
         Premises.

                           (2) "Premises  Total  Destruction"  shall mean if the
         Premises are damaged or destroyed to the extent that the cost of repair
         is fifty percent or more of the then replacement cost of the Premises.

                            (3) "Premises Building Partial Damage" shall mean if
         the  Building of which the  Premises are a part is damaged or destroyed
         to the extent that the cost to repair is less than fifty percent of the
         then replacement cost of the Building.

                           (4) "Premises  Building Total Destruction" shall mean
         if the  Building  of  which  the  Premises  are a part  is  damaged  or
         destroyed  to the  extent  that the cost to repair is fifty  percent or
         more of the then replacement cost of the Building.

                           (5) "Industrial  Center  Buildings" shall mean all of
         the buildings on the Industrial Center site.

                           (6) "Industrial  Center Buildings Total  Destruction"
         shall mean if the Industrial  Center Buildings are damaged or destroyed
         to the extent  that the cost of repair is fifty  percent or more of the
         then replacement cost of the Industrial Center Buildings.

                           (7) "Insured  Loss" shall mean damage or  destruction
         which was caused by an event  required  to be covered by the  insurance
         described  in  paragraph 8 or where the cost to restore is less than 5%
         of the then replacement cost of the Building.  The fact that an Insured
         Loss has a deductible amount shall not make the loss an uninsured loss.

                           (8) "Replacement Cost" shall mean the amount of money
         necessary to be spent in order to repair or rebuild the damaged area to
         the condition that existed  immediately  prior to the damage  occurring
         excluding all improvements made by lessees.

                   9.2  Premises  Partial  Damage;   Premises  Building  Partial
Damage.

                           (1)  Insured  Loss:  Subject  to  the  provisions  of
         paragraphs  9.4 and 9.5,  if at any time  during the term of this Lease
         there is  damage  which is an  Insured  Loss and which  falls  into the
         classification  of either Premises Partial Damage or Premises  Building
         Partial  Damage,  then Lessor shall, at Lessor's  expense,  repair such
         damage to the Premises,  but not Lessee's fixtures,  equipment,  tenant
         improvements or Utility  Installations,  as soon as reasonably possible
         and this Lease shall continue in full force and effect.

                            (2)  Uninsured  Loss:  Subject to the  provisions of
         paragraphs  9.4 and 9.5,  if at any time  during the term of this Lease
         there is damage which is not an Insured Loss and which falls within the
         classification  of Premises Partial Damage or Premises Building Partial
         Damage,  unless  caused by a negligent  or willful act of Lessee or its
         agents,  contractors  or invitees (in which event Lessee shall make the
         repairs at Lessee's  expense),  which damage prevents Lessee from using
         the  Premises,  Lessor may at  Lessor's  option  either (i) repair such
         damage as soon as  reasonably  possible at Lessor's  expense,  in which
         event this Lease shall continue in full force and effect,  or (ii) give
         written  notice to Lessee within thirty (30) days after the date of the
         occurrence of such damage of Lessor's intention to cancel and terminate
         this  Lease as of the date of the  occurrence  of such  damage.  In the
         event Lessor elects to give such notice of Lessor's intention to cancel
         or  terminate  this Lease,  Lessee shall have the right within ten (10)
         days after the receipt of such notice to give written  notice to Lessor
         of  Lessee's  intention  to repair  such  damage at  Lessee's  expense,
         without  reimbursement  from  Lessor,  in which  event this Lease shall
         continue in full force and  effect,  and Lessee  shall  proceed to make
         such repairs as soon as  reasonably  possible.  If Lessee does not give
         such notice within such 10-day period this Lease shall be cancelled and
         terminated as of the date of the occurrence of such damage.

                   0.1  Premises  Total  Destruction;  Premises  Building  Total
Destruction;   Industrial   CenterBuildings   Total   Destruction
                   9.3  Premises   TotalDestruction;   Premises  Building  Total
 .estruction; Industrial Center BuildingsTotal Destruction

                           (3) Subject to the  provisions of paragraphs  9.4 and
         9.5,  if at any time  during  the term of this  Lease  there is damage,
         whether  or not  it is an  Insured  Loss,  and  which  falls  into  the
         classifications  of either  (i)  Premises  Total  Destruction,  or (ii)
         Premises  Building  Total  Destruction,   or  (iii)  Industrial  Center
         Buildings Total Destruction,  then Lessor may at Lessor's option either
         (i) repair  such  damage or  destruction,  but not  Lessee's  fixtures,
         equipment,  tenant  improvements  or Utility  Installations  as soon as
         reasonably possible at Lessor's expense,  and this Lease shall continue
         in full force and effect,  or (ii) give written notice to Lessee within
         thirty  (30)  days  after  the date of  occurrence  of such  damage  of
         Lessor's  intention to cancel and terminate  this Lease,  in which case
         this Lease  shall be  cancelled  and  terminated  as of the date of the
         occurrence of such damage.

                   9.3 Damage Near End of Term

                            (1)  Subject  to  paragraph  9.4(b),  if at any time
         during  the  last  six  months  of the  term of  this  Lease  there  is
         substantial damage,  whether or not an Insured Loss, which falls within
         the  classification of Premises Partial Damage,  Lessor may at Lessor's
         option cancel and terminate  this Lease as of the date of occurrence of
         such damage by giving written notice to Lessee of Lessor's  election to
         do so within 30 days after the date of occurrence of such damage.

                           (2)  Notwithstanding  paragraph  9.4(a), in the event
         that Lessee has an option to extend or renew this  Lease,  and the time
         within which said option may be exercised  has not yet expired,  Lessee
         shall  exercise such option,  if it is to be exercised at all, no later
         than twenty (20) days after the  occurrence  of an Insured Loss falling
         within the  classification  of Premises  Partial Damage during the last
         six months of the term of this  Lease.  If Lessee duly  exercises  such
         option during said twenty (20) day period,  Lessor  shall,  at Lessor's
         expense,  repair such damage, but not Lessee's  fixtures,  equipment or
         tenant  improvements,  as soon as  reasonably  possible  and this Lease
         shall continue in full force and effect  provided Lessee first deposits
         with  Lessor any  shortfall  in  necessary  funds.  If Lessee  fails to
         exercise  such option  during said twenty (20) day period,  then Lessor
         may at  Lessor's  option  terminate  and  cancel  this  Lease as of the
         expiration of said twenty (20) day period by giving  written  notice to
         Lessee of  Lessor's  election  to do so within  ten (10) days after the
         expiration of said twenty (20) day period,  notwithstanding any term or
         provision in the grant of option to the contrary.

                   9.4 Abatement of Rent; Lessee's Remedies

                           (1) In the  event  Lessor  repairs  or  restores  the
         Premises  pursuant  to the  provisions  of this  paragraph  9, the rent
         payable  hereunder for the period  during which such damage,  repair or
         restoration  continues  shall be abated in  proportion to the degree to
         which Lessee's use of the Premises is impaired. Except for abatement of
         rent, if any,  Lessee shall have no claim against Lessor for any damage
         suffered  by  reason  of  any  such  damage,  destruction,   repair  or
         restoration.

                            (2) If  Lessor  shall  be  obligated  to  repair  or
         restore the Premises under the provisions of this paragraph 9 and shall
         not  commence  such  repair or  restoration  within 100 days after such
         obligation  shall  accrue,  Lessee may at  Lessee's  option  cancel and
         terminate  this  Lease by giving  Lessor  written  notice  of  Lessee's
         election to do so at any time prior to the  commencement of such repair
         or restoration. In such event this Lease shall terminate as of the date
         of such  notice.  In the event that Lessor shall be obligated to repair
         or restore the Premises pursuant to Paragraph 9 of this Lease and shall
         not  commence  such  repair or  restoration  within 100 days after such
         obligation  shall accrue,  the right of Lessee to terminate  this Lease
         pursuant to this Paragraph 9.5(b) shall be the sole right and remedy of
         Lessee  against  Lessor,  and Lessor  shall have no other  liability to
         Lessee, for damages,  specific performance or otherwise,  in connection
         with any such failure.

                           (3) If any  repair  or  restoration  Lessor  shall be
         obligated to or shall elect to undertake  under the  provisions of this
         Paragraph 9 is  estimated  by Lessor's  architect to take more than 270
         days from the event of damage to complete, either party at such party's
         election, may cancel and terminate this Lease by giving the other party
         written  notice of the electing  party's  election to do so at any time
         prior to the commencement of such repair or restoration. In such event,
         this Lease shall terminate as of the date of such notice.

                   9.5  Termination-Advance  Payment.  Upon  termination of this
Lease  pursuant  to this  paragraph  9, an  equitable  adjustment  shall be made
concerning  advance  rent and any  advance  payments  made by Lessee to  Lessor,
Lessor shall, in addition, return to Lessee so much of Lessee's security deposit
as has not theretofore been applied by Lessor.

                   9.6 Waiver.  Lessor and Lessee  waive the  provisions  of any
statute which relate to termination of leases when leased  property is destroyed
and agree that such event shall be governed by the terms of this Lease.

         10. Real Property Taxes

                   10.1  Payment of Taxes.  Lessor  shall pay the real  property
tax, as defined in paragraph 10.3,  applicable to the Industrial  Center subject
to  reimbursement  by Lessee of Lessee's Share of such taxes in accordance  with
the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.

                   10.2 Additional Improvements. Lessee shall not be responsible
for paying  Lessee's Share of any increase in real property tax specified in the
tax   assessor's   records  and  work  sheets  as  being  caused  by  additional
improvements placed upon the Industrial Center by other lessees or by Lessor for
the exclusive  enjoyment of such other lessees.  Lessee shall,  however,  pay to
Lessor at the time that Operating  Expenses are payable under  paragraph  4.2(c)
the entirety of any increase in real  property tax if assessed  solely by reason
of  additional  improvements  placed upon the  Premises by Lessee or at Lessee's
request.

                   10.3  Definition of "Real Property Tax". As used herein,  the
term  "real  property  tax"  shall  include  any  form  of  real  estate  tax or
assessment,  general, special,  ordinary or extraordinary,  and any license fee,
commercial  rental  tax,  improvement  bond or bonds,  levy or tax  (other  than
inheritance,  personal income or estate taxes) imposed on the Industrial  Center
or any portion  thereof by any authority  having the direct or indirect power to
tax, including any city,  county,  state or federal  government,  or any school,
agricultural,  sanitary,  fire, street,  drainage or other improvement  district
thereof,  as against any legal or equitable interest of Lessor in the Industrial
Center or in any portion  thereof,  as against  Lessor's  right to rent or other
income  therefrom,  and as against  Lessor's  business of leasing the Industrial
Center.  The term "real  property  tax" shall also include any tax,  fee,  levy,
assessment or charge (i) in substitution of, partially or totally, any tax, fee,
levy,  assessment or charge hereinabove  included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore  included within the
definition  of "real  property  tax" or (iii)  which is imposed for a service or
right not charged  prior to June 1, 1978,  or, if previously  charged,  has been
increased since June 1, 1978 or (iv) which is imposed as a result of a transfer,
either partial or total, of Lessor's  interest in the Industrial Center or which
is added to a tax or charge hereinbefore  included within the definition of real
property  tax by reason of such  transfer,  or (v) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.

                   10.4  Joint  Assessment.  If  the  Industrial  Center  is not
separately assessed,  Lessee's Share of the real property tax liability shall be
an  equitable  proportion  of the real  property  taxes  for all of the land and
improvements  included  within the tax parcel  assessed,  such  proportion to be
determined by Lessor from the respective  valuations  assigned in the assessor's
work sheets or such other information as may be reasonably  available,  Lessor's
reasonable determination thereof, in good faith, shall be conclusive.

                   10.5 Personal Property Taxes

                           (1) Lessee shall pay prior to  delinquency  all taxes
         assessed against and levied upon trade fixtures, furnishings, equipment
         and all other personal  property of Lessee contained in the Premises or
         elsewhere.  When  possible,  Lessee  shall  cause said trade  fixtures,
         furnishings,  equipment and all other personal  property to be assessed
         and billed separately from the real property of Lessor.

                           (2) If any of Lessee's said personal  property  shall
         be assessed with Lessor's real property, Lessee shall pay to Lessor the
         Shares  attributable  to Lessee within ten (10) days after receipt of a
         written  statement  setting  forth the  taxes  applicable  to  Lessee's
         property.

                   10.6  Additional  Provisions  Regarding Real Property  Taxes.
Lessor shall have the sole right to contest or appeal any real property taxes or
assessments  applicable  to all or any portion of the  Industrial  Center and to
seek a  reduction  in the  assessed  valuation  of  all  or any  portion  of the
Industrial Center  (collectively,  "Tax Contests").  Any refund of real property
taxes  resulting  from any such Tax Contest  shall be applied first to reimburse
Lessor for its costs and expenses in connection with the Tax Contest (including,
without  limitation  attorneys' fees and the costs of consultants) and then, out
of and to the extent of the balance of such refund,  Lessor  shall  reimburse to
Lessee the portion of such reduction  attributable  to the Premises and the term
of  this  Lease,  as and to the  extent  previously  paid by  Lessee  as part of
Lessee's Share of Operating Expenses.

         11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other  utilities and services  supplied to the Premises,  together
with any taxes thereon.  If any such services are not separately  metered to the
Premises,  Lessee  shall pay at  Lessor's  option,  either  Lessee's  Share or a
reasonable  proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building. Electrical Power capacity to Lessee for the
Premises shall be 1200 AMP, 277/480 volt, 3-phase power.

         12. Assignment and Subletting

                   12.1 Lessor's Consent Required.  Lessee shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer
or  encumber  all or any  part  of  Lessee's  interest  in the  Lease  or in the
Premises,  without  Lessor's  prior  written  consent,  which  Lessor  shall not
unreasonably  withhold.  Lessor  shall  respond to Lessee's  request for consent
hereunder in a timely manner and any attempted assignment,  transfer,  mortgage,
encumbrance  or  subletting  without  such  consent  shall  be void,  and  shall
constitute  a  noncurable  breach of this Lease  without  the need for notice to
Lessee under paragraph 13.1. If at any time or from time to time during the term
of this  Lease,  Lessee  desires to assign or sublet all or any part of Lessee's
interest  in this Lease or in the  Premises,  Lessee  shall  give prior  written
notice  to  Lessor  setting  forth  the  terms  of the  proposed  assignment  or
subletting and the space so proposed to be assigned or sublet.  Such  assignment
or sublease shall be subject to, without limitation,  all the conditions in this
Paragraph 12 and the following conditions:

                           (1) The  assignment or sublease shall be on the terms
         set forth in the notice  given to  Lessor.  Any  subsequent  changes or
         modifications will require Lessor's prior written consent.

                            (2) Lessee  acknowledges that Lessor's  agreement to
         lease these  Premises to Lessee at the rent and terms stated  herein is
         made in material  reliance upon Lessor's  evaluation of this particular
         Lessee's  background,  experience and ability, as well as the nature of
         the use of the  Premises by this Lessee as set forth in Paragraph 6. In
         the event that Lessee shall request  Lessor's written consent to assign
         or sublease the Premises as required in this Paragraph  12.1, then each
         such request for consent shall be accompanied by the following:

                           (1)           Financial statements of the proposed
                  assignee or sublessee;

                           (2)              A statement of the specific uses for
                  which the Premises will be utilized by the proposed assignee
                  or sublessee; and

                           (3)  Preliminary  plans  prepared by an  architect or
                  civil  engineer for all  alterations  to the Premises that are
                  contemplated  to be made by Lessee,  the proposed  assignee or
                  sublessee.

                           (3) No assignment  or sublease  shall be valid and no
         assignee or sublessee shall take possession of the Premises assigned or
         subleased until an executed  counterpart of such assignment or sublease
         has been delivered to Lessor.

                           (4) No  sublessee  or  assignee  shall  have a  right
         further to sublet or assign.

                   12.2  Lease  Affiliate.  Notwithstanding  the  provisions  of
paragraph 12.1 hereof,  Lessee may assign or sublet the Premises, or any portion
thereof,  without Lessor's consent, to any corporation or other person or entity
which controls,  is controlled by or is under common control with Lessee,  or to
any  corporation  or entity  resulting  from the  merger or  consolidation  with
Lessee,  or to any person or entity which acquires all the assets of Lessee as a
going  concern of the business that is being  conducted on the Premises,  all of
which  are  referred  to  as  "Lessee  Affiliate,"  provided  that  before  such
assignment  shall  be  effective  said  assignee  shall  assume,  in  full,  the
obligations of Lessee under this Lease.  Any such  assignment  shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease, even
if after such  assignment or subletting  the terms of this Lease are  materially
changed or altered without the consent of Lessee,  the consent of whom shall not
be necessary.

0.2   Lessees Other Than Individuals        12.3  Lessees Other Than Individuals
      ------------------------------              ------------------------------

                           (1) If Lessee is a  partnership,  a  transfer  of any
         interest of a general partner, a withdrawal of any general partner from
         the partnership, or the dissolution of the partnership, shall be deemed
         to be an assignment of this Lease.

                           (2) If Lessee is a  corporation,  unless  Lessee is a
         public  corporation whose stock is regularly traded on a national stock
         exchange,  or is regularly  traded in the  over-the-counter  market and
         quoted on NASDAQ, any sale or other transfer of a percentage of capital
         stock of Lessee which results in a change of  controlling  persons,  or
         the  sale or other  transfer  of  substantially  all of the  assets  of
         Lessee, shall be deemed to be an assignment of this Lease.

                   12.3  Terms  and  Conditions  of  Assignment.  Regardless  of
Lessor's  consent,  no assignment  shall release Lessee of Lessee's  obligations
hereunder  or alter  the  primary  liability  of Lessee to pay the Base Rent and
Lessee's Share of Operating Expenses, and to perform all other obligations to be
performed by Lessee hereunder. Lessor may accept rent from any person other than
Lessee pending  approval or disapproval of such  assignment.  Neither a delay in
the approval or disapproval of such  assignment nor the acceptance of rent shall
constitute  a waiver or estoppel of Lessor's  right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 of this Lease.
Consent  to  one  assignment  shall  not be  deemed  consent  to any  subsequent
assignment.  In the event of default by any assignee of Lessee or any  successor
of Lessee,  in the  performance  of any of the terms hereof,  Lessor may proceed
directly  against  Lessee without the necessity of exhausting  remedies  against
said  assignee,  Lessor may consent to subsequent  assignments  of this Lease or
amendments  or  modifications  to this Lease with  assignees of Lessee,  without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.

                   12.4  Terms  and   Conditions   Applicable   to   Subletting.
Regardless of Lessor's  consent,  the following terms and conditions shall apply
to any  subletting  by  Lessee of all or any part of the  Premises  and shall be
included in subleases:

                            (1) Lessee  hereby  assigns and  transfers to Lessor
         all of Lessee's  interest in all  rentals and income  arising  from any
         sublease heretofore or hereafter made by Lessee, and Lessor may collect
         such rent and income and apply same toward Lessee's  obligations  under
         this Lease; provided,  however, that until a default shall occur in the
         performance  of  Lessee's  obligations  under this  Lease,  Lessee may,
         subject  to  paragraph  12.1(e)  receive,  collect  and enjoy the rents
         accruing  under such  sublease.  Lessor shall not, by reason of this or
         any other  assignment  of such  sublease to Lessor nor by reason of the
         collection  of the rents  from a  sublessee,  be  deemed  liable to the
         sublessee  for any  failure of Lessee to perform and comply with any of
         Lessee's  obligations  to such sublessee  under such  sublease.  Lessee
         hereby  irrevocably  authorizes  and directs any such  sublessee,  upon
         receipt of a written  notice from Lessor  stating that a default exists
         in the performance of Lessee's  obligations under this Lease, to pay to
         Lessor  the  rents due and to become  due  under the  sublease,  Lessee
         agrees that such  sublessee  shall have the right to rely upon any such
         statement and request from Lessor,  and that such  sublessee  shall pay
         such rents to Lessor  without any  obligation or right to inquire as to
         whether  such  default  exists and  notwithstanding  any notice from or
         claim from Lessee to the contrary.  Lessee shall have no right or claim
         against  such  sublessee  or Lessor  for any such rents so paid by said
         sublessee to Lessor.

                           (2) No  sublease  entered  into by  Lessee  shall  be
         effective  unless and until it has been  approved  in writing by Lessor
         which  Lessor shall not  unreasonably  withhold.  In entering  into any
         sublease,  Lessee shall use only such form of sublease as is reasonably
         satisfactory  to Lessor,  and once  approved by Lessor,  such  sublease
         shall not be  materially  changed or modified  without  Lessor's  prior
         written  consent.  Any  sublessee  shall,  by reason of entering into a
         sublease  under this Lease,  be deemed,  for the benefit of Lessor,  to
         have  assumed  and  agreed to conform  and  comply  with each and every
         obligation herein to be performed by Lessee other than such obligations
         as are  contrary to or  inconsistent  with  provisions  contained  in a
         sublease to which Lessor has expressly consented in writing.

                           (3) If  Lessee's  obligations  under  this Lease have
         been guaranteed by third parties, then a sublease, and Lessor's consent
         thereto,  shall not be  effective  unless  said  guarantors  give their
         written consent to such sublease and the terms thereof.

                           (4) The consent by Lessor to any subletting shall not
         release Lessee from its  obligations or alter the primary  liability of
         Lessee  to  pay  the  rent  and  perform  and  comply  with  all of the
         obligations of Lessee to be performed under this Lease.

                            (5) The  consent by Lessor to any  subletting  shall
         not constitute a consent to any  subsequent  subletting by Lessee or to
         any  assignment  or subletting by the  sublessee.  However,  Lessor may
         consent to subsequent  sublettings  and  assignments of the sublease or
         any amendments or  modifications  thereto without  notifying  Lessee or
         anyone else liable on the Lease or sublease and without obtaining their
         consent and such action shall not relieve such persons from liability.

                           (6) In the event of any  default  under  this  Lease,
         Lessor may proceed directly  against Lessee,  any guarantors or any one
         else  responsible  for the  performance  of this Lease,  including  the
         sublessee, without first exhausting Lessor's remedies against any other
         person or entity  responsible  therefor to Lessor, or any security held
         by Lessor or Lessee.

                           (7)  In  the  event  Lessee  shall   default  in  the
         performance of its obligations under this Lease,  Lessor, at its option
         and without any  obligation  to do so, may  require  any  sublessee  to
         attorn to Lessor, in which event Lessor shall undertake the obligations
         of Lessee  under such  sublease  from the time of the  exercise of said
         option to the termination of such sublease;  provided,  however, Lessor
         shall not be liable for any prepaid  rents or security  deposit paid by
         such  sublessee  to Lessee or for any other  prior  defaults  of Lessee
         under such sublease.

                           (8) Each and every consent required of Lessee under a
         sublease shall also require the consent of Lessor.

                           (9) No sublessee  shall further  assign or sublet all
         or any part of the Premises without Lessor's prior written consent.

                           (10) Lessor's  written  consent to any  subletting of
         the Premises by Lessee shall not constitute an  acknowledgment  that no
         default then exists under this Lease of the obligations to be performed
         by  Lessee  nor  shall  such  consent  be  deemed a waiver  of any then
         existing  default,  except as may be otherwise  stated by Lessor at the
         time.

                           (11) With respect to any  subletting  to which Lessor
         has consented, Lessor agrees to deliver a copy of any notice of default
         by Lessee to the sublessee. Such sublessee shall have the right to cure
         a default of Lessee  within ten (10) days after  service of said notice
         of default upon such sublessee, and the sublessee shall have a right of
         reimbursement  and offset from and against Lessee for any such defaults
         cured by the sublessee.

                   12.5  Attorney's  Fees.  In the event  Lessee shall assign or
sublet the  Premises  or request  the  consent  of Lessor to any  assignment  or
subletting  or if Lessee shall  request the consent of Lessor for any act Lessee
proposes to do then  Lessee  shall pay  Lessor's  reasonable  attorney's  and/or
consultants' fees incurred in connection therewith,  such attorney's fees not to
exceed $350.00 for each such request.  Notwithstanding  anything to the contrary
in this  Paragraph  12.6,  the  parties  agree  that a payment  of  $750.00 is a
reasonable fee for Lessor's review of Lessee's request to assign or sublet.

         13. Default Remedies

                   13.1  Default.  The  occurrence  of any  one or  more  of the
following events shall constitute a material default of this Lease by Lessee:

                           (1)      The vacating or abandonment of the Premises
         by Lessee.

                           (2) The failure by Lessee to make any payment of rent
         or any other payment  required to be made by Lessee  hereunder,  as and
         when due,  where such failure  shall  continue for a period of ten (10)
         days after written notice  thereof from Lessor to Lessee.  In the event
         that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to
         applicable  Unlawful  Detainer statutes such Notice to Pay Rent or Quit
         shall also constitute the notice required by this subparagraph.


                           (3) Except as otherwise  provided in this Lease,  the
         failure  by  Lessee  to  observe  or  perform  any  of  the  covenants,
         conditions  or  provisions of this Lease to be observed or performed by
         Lessee, other than described in paragraph (b) above, where such failure
         shall continue for a period of thirty (30) days after written notice of
         such  failure  from Lessor to Lessee;  provided,  however,  that if the
         nature of  Lessee's  noncompliance  is such that more than  thirty (30)
         days are  reasonably  required  for its cure,  then Lessee shall not be
         deemed to be in  default  if Lessee  commenced  such cure  within  said
         thirty (30) day period and thereafter  diligently  prosecutes such cure
         to  completion.  To the extent  permitted by law,  such thirty (30) day
         notice shall  constitute the sole and exclusive  notice  required to be
         given to Lessee under applicable Unlawful Detainer statutes.

                            (4)  (i)  The  making  by  Lessee  of  any   general
         arrangement or general  assignment  for the benefit of creditors;  (ii)
         Lessee  becomes a  "debtor"  as  defined  in 11 U.S.C.  ss.  101 or any
         successor  statute  thereto  (unless,  in the case of a petition  filed
         against Lessee,  the same is dismissed  within sixty (60) days);  (iii)
         the  appointment  of a  trustee  or  receiver  to  take  possession  of
         substantially  all of  Lessee's  assets  located at the  Premises or of
         Lessee's  interest in this Lease,  where  possession is not restored to
         Lessee within thirty (30) days;  or (iv) the  attachment,  execution or
         other judicial seizure of substantially  all of Lessee's assets located
         at the  Premises  or of Lessee's  interest  in this  Lease,  where such
         seizure is not  discharged  within  thirty (30) days. In the event that
         any provision of this  paragraph  13.1(d) is contrary to any applicable
         law, such provision shall be of no force or effect.

                           (5)  The  discovery  by  Lessor  that  any  financial
         statement  given to Lessor by  Lessee,  any  assignee  of  Lessee,  any
         subtenant  of  Lessee,  any  successor  in  interest  of  Lessee or any
         guarantor of Lessee's obligations hereunder, was materially false.

                           (6) If the performance of Lessee's  obligations under
         this  Lease  is  guaranteed:  (i) the  death of a  guarantor,  (ii) the
         termination of a guarantor's liability with respect to this Lease other
         than in accordance with the terms of such guaranty, (iii) a guarantor's
         becoming  insolvent  or the  subject  of a  bankruptcy  filing,  (iv) a
         guarantor's refusal to honor the guaranty,  or (v) a guarantor's breach
         of  its  guaranty  obligation  on an  anticipatory  breach  basis,  and
         Lessee's failure, within sixty (60) days following written notice by or
         on behalf of Lessor to Lessee of any such event, to provide Lessor with
         written alternative assurance or security, which, when coupled with the
         then  existing  resources  of Lessee,  equals or exceeds  the  combined
         financial  resources of Lessee and the  guarantors  that existed at the
         time of execution of this Lease.

                   13.2  Remedies.  If Lessee  fails to perform any  affirmative
duty or  obligation  of Lessee under this Lease,  within ten (10)  business days
after  written  notice to Lessee (or in case of an emergency,  without  notice),
Lessor may at its option (but without obligation to do so), perform such duty or
obligation  on Lessee's  behalf  including  but not limited to the  obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals.  The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor  upon  invoice  therefor.  In the event of a
breach of this Lease by Lessee,  as defined in Paragraph  13.1,  with or without
further  notice or demand,  and without  limiting  Lessor in the exercise of any
right or remedy which Lessor may have by reason of such breach, Lessor may:

                            (1)  Terminate  Lessee's  right to possession of the
         Premises  by any  lawful  means,  in which case this Lease and the term
         hereof  shall   terminate  and  Lessee  shall   immediately   surrender
         possession  of the  Premises to Lessor.  In such event  Lessor shall be
         entitled to recover from Lessee: (i) the worth at the time of the award
         of the unpaid  rent which had been  earned at the time of  termination;
         (ii) the worth at the time of award of the  amount by which the  unpaid
         rent which would have been earned after  termination  until the time of
         award  exceeds the amount of such  rental  loss that the Lessee  proves
         could  have  been  reasonably  avoided;  (iii) the worth at the time of
         award of the  amount by which the  unpaid  rent for the  balance of the
         term after the time of award  exceeds  the amount of such  rental  loss
         that the Lessee proves could be reasonably avoided;  and (iv) any other
         amount necessary to compensate Lessor for all the detriment proximately
         caused by the Lessee's  failure to perform its  obligations  under this
         Lease or which in the  ordinary  course  of  things  would be likely to
         result  therefrom,  including but not limited to the cost of recovering
         possession of the Premises, expenses of reletting,  including necessary
         renovation and alteration of the Premises,  reasonable attorneys' fees,
         and that portion of the leasing commission paid by Lessor applicable to
         the unexpired term of this Lease. The worth of the time of award of the
         amount  referred to in  provisions  (i) and (ii) of the prior  sentence
         shall be  calculated  based on an interest  rate equal to the  Interest
         Rate.  The  worth at the time of award  of the  amount  referred  to in
         provision  (iii) of the prior sentence shall be 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.  Efforts by Lessor to
         mitigate  damages  caused by  Lessee's  breach of this Lease  shall not
         waive  Lessor's  right to  recover  damages  under this  Paragraph.  If
         termination of this Lease is obtained through the provisional remedy of
         unlawful  detainer,  Lessor  shall  have the right to  recover  in such
         proceeding the unpaid rent and damages as are recoverable  therein,  or
         Lessor may reserve therein the right to recover all or any part thereof
         in a separate suit for such rent and/or damages.  If a notice and grace
         period  required  under  subparagraphs  13.1(b),  (c)  or (d)  was  not
         previously  given, a notice to pay rent or quit, or to perform or quit,
         as the case may be, given to Lessee under any statute  authorizing  the
         forfeiture of leases for unlawful  detainer  shall also  constitute the
         applicable  notice for grace period purposes  required by subparagraphs
         13.1(b),  (c) or (d). In such case, the  applicable  grace period under
         subparagraphs  13.1(b),  (c) or (d) and  under  the  unlawful  detainer
         statute shall run concurrently after the one such statutory notice, and
         the failure of Lessee to cure the default within the greater of the two
         such grace  periods  shall  constitute  both an unlawful  detainer  and
         breach of this Lease entitling  Lessor to the remedies  provided for in
         this Lease and/or by said statute.

                            (2)  Continue  the  Lease  and  Lessee's   right  to
         possession in effect (in California under California Civil Code Section
         1951.4) after Lessee's  breach and  abandonment and recover the rent as
         it  becomes  due,  provided  Lessee  has the right to sublet or assign,
         subject only to reasonable  limitations.  See  Paragraphs 12 and 36 for
         the limitations on assignment and subletting which  limitations  Lessee
         and Lessor agree are reasonable.  Acts of maintenance or  preservation,
         efforts to relet the  Premises,  or the  appointment  of a receiver  to
         protect the Lessor's  interest under the Lease,  shall not constitute a
         termination of the Lessee's right to possession.

                           (3)  Pursue  any  other   remedy  now  or   hereafter
         available to Lessor  under the laws or judicial  decisions of the State
         of California.  Unpaid  installments  of rent and other unpaid monetary
         obligations of Lessee under the terms of this Lease shall bear interest
         from the date due at the maximum rate allowed by law.

                           (4) The  expiration  or  termination  of  this  Lease
         and/or  the  termination  of  Lessee's  right to  possession  shall not
         relieve  Lessee from liability  under any indemnity  provisions of this
         Lease as to matters  occurring or accruing during the term hereof or by
         reason of Lessee's occupancy of the Premises.

                   13.3 Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable time,
but in no event later than thirty  (30) days after  written  notice by Lessee to
Lessor and to the holder of any first  mortgage  or deed of trust  covering  the
Premises whose name and address shall have  theretofore been furnished to Lessee
in writing,  specifying  wherein  Lessor has failed to perform such  obligation;
provided,  however,  that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for  performance  then Lessor shall not be in
default if Lessor commences  performance  within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.

                   13.4  Late  Charges.  Lessee  hereby  acknowledges  that late
payment by Lessee to Lessor of Base Rent,  Lessee's Share of Operating  Expenses
or other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely  difficult to ascertain.
Such costs include,  but are not limited to, processing and accounting  charges,
and late charges  which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Property.  Accordingly, if any installment of Base Rent,
Operating  Expenses  or any other sum due from  Lessee  shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 3% of such overdue  amount.  The parties  hereby agree that
such late charge  represents a fair and reasonable  estimate of the costs Lessor
will incur by reason of late payment by Lessee.  Acceptance  of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue  amount,  nor prevent  Lessor from  exercising  any of the other
rights and remedies granted hereunder. 1.1

                   13.5  Notice   Before  Lage  Charges.   Notwithstanding   the
provisions of Paragraph  13.4,  the 3% late charge  described in Paragraph  13.4
shall not be imposed with respect to the first late payment in any calendar year
unless the  applicable  payment  due from  Lessee is not  received  by Lessor or
Lessor's designee within ten (10) days following written notice from Lessor that
such payment was not received when due.  Following the first such written notice
from Lessor in any calendar year (and regardless of whether such payment is then
received  within such  10-day  period),  a late  charge will be imposed  without
notice (as set forth in  Paragraph  13.4) for any  subsequent  payment  due from
Lessee during such  calendar year which is not received  within ten (10) days of
its due date.

         14.  Condemnation.  If the  Premises  or  any  portion  thereof  or the
Industrial Center are taken under the power of eminent domain, or sold under the
threat  of  the  exercise  of  said  power  (all  of  which  are  herein  called
"condemnation"),  this Lease shall  terminate  as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs.
If more than ten percent of the floor area of the Premises,  or more than twenty
percent of that  portion  of the  Common  Area  designated  as  parking  for the
Industrial  Center is taken by condemnation,  Lessee may, at Lessee's option, to
be  exercised in writing only within ten (10) days after Lessor shall have given
Lessee written  notice of such taking (or in the absence of such notice,  within
ten (10) days  after the  condemning  authority  shall  have  taken  possession)
terminate  this  Lease  as of the  date  the  condemning  authority  takes  such
possession.  If Lessee  does not  terminate  this Lease in  accordance  with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining,  except that the rent shall be reduced in the proportion
that the floor area of the  Premises  taken bears to the total floor area of the
Premises.  No reduction of rent shall occur if the only area taken is that which
does not have the Premises located  thereon.  Any award for the taking of all or
any part of the Premises  under the power of eminent  domain or any payment made
under  threat of the  exercise  of such power  shall be the  property of Lessor,
whether such award shall be made as compensation  for diminution in value of the
leasehold  or for the  taking of the fee,  or as  severance  damages;  provided,
however,  that  Lessee  shall be  entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property.  In the event that this
Lease is not  terminated  by reason of such  condemnation,  Lessor  shall to the
extent  of  severance  damages  received  by  Lessor  in  connection  with  such
condemnation,  repair any  damage to the  Premises  caused by such  condemnation
except to the extent that Lessee has been reimbursed  therefor by the condemning
authority.  Lessee  shall pay any  amount in  excess of such  severance  damages
required to complete such repair.

         15. Broker's Commissions

         Lessee and Lessor each  represent and warrant to the other that neither
has had any dealings with any person,  firm,  broker or finder (other than those
persons,  if any,  whose names are set forth at the end of this paragraph 15) in
connection  with the  negotiation of this Lease and/or the  consummation  of the
transaction  contemplated  hereby, and no other broker or other person,  firm or
entity is entitled to any  commission  or finder's fee in  connection  with said
transaction  and Lessee and Lessor do each hereby  indemnify  and hold the other
harmless from and against any costs, expenses,  attorneys' fees or liability for
compensation,  commission  or charges  which may be claimed by any such  unnamed
broker,  finder or other  similar  party by reason of any dealings or actions of
the indemnifying party. Named brokers:

                  Lessor's Broker:  CB Commercial Real Estate Group, Inc.

                  Lessee's Broker:   Lee & Associates

The  commission  payable to Lessor's  Broker with respect to this Lease shall be
pursuant to the terms of the separate  commission  agreement  in effect  between
Lessor  and  Lessor's  Broker.  Lessor's  Broker  shall  pay a  portion  of  its
commission to Lessee's Broker,  if so provided in any agreement between Lessor's
Broker and Lessee's Broker. Nothing in this Lease shall impose any obligation on
Lessor to pay a commission or fee to any party other than Lessor's Broker.

         16. Estoppel Certificate

                           (1) Each party (as  "responding  party") shall at any
         time upon not less than ten (10) business  days' prior  written  notice
         from the other party,  ("requesting  party")  execute,  acknowledge and
         deliver to the  requesting  party a statement in writing (i) certifying
         that this Lease is  unmodified  and in full force and  effect  (or,  if
         modified,  stating the nature of such  modification and certifying that
         this Lease,  as so modified,  is in full force and effect) and the date
         to which the rent and other  charges are paid in advance,  if any,  and
         (ii)  acknowledging  that  there  are not,  to the  responding  party's
         knowledge, any uncured defaults on the part of the requesting party, or
         specifying such defaults if any are claimed.  Any such statement may be
         conclusively  relied upon by any prospective  purchaser or encumbrancer
         of the Premises or of the business of the requesting party.

                            (2) At the requesting party's option, the failure to
         deliver such statement  within such time shall be a material default of
         this Lease by the party who is to respond,  without any further  notice
         to such party,  or it shall be conclusive upon such party that (i) this
         Lease is in full force and effect,  without  modification except as may
         be  represented  by the  requesting  party,  (ii)  there are no uncured
         defaults in the requesting party's performance,  and (iii) if Lessor is
         the requesting  party,  not more than one month's rent has been paid in
         advance.

                           (3) If Lessor desires to finance,  refinance, or sell
         the Property,  or any part thereof,  Lessee hereby agrees to deliver to
         any lender or purchaser  designated by Lessor such financial statements
         of Lessee as may be  reasonably  required by such lender or  purchaser.
         Such  statements  shall  include  the past three (3)  years'  financial
         statements of Lessee.  All such financial  statements shall be received
         by Lessor and such lender or purchaser in confidence  and shall be used
         only for the purposes herein set forth.

         17. Lessor's Liablity. The term "Lessor" as used herein shall mean only
the owner or  owners,  at the time in  question,  of the fee title or a lessee's
interest  in a  ground  lease  of the  Industrial  Center,  in the  event of any
transfer  of such title or  interest.  Lessor  herein  named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the  time of such  transfer,  in  which  Lessee  has an  interest,  shall  be
delivered  to the  grantee.  The  obligations  contained  in  this  Lease  to be
performed  by Lessor  shall,  subject  as  aforesaid,  be  binding  on  Lessor's
successors and assigns, only during their respective periods of ownership.

         18.  Severability.  The  invalidity  of any  provision of this Lease as
determined  by a court of  competent  jurisdiction,  shall in no way  affect the
validity of any other provision hereof.

         19.  Interest  on  Past-due  Obligations.  Except as  expressly  herein
provided,  any amount due to Lessor not paid when due shall bear interest at the
Interest Rate.  Payment of such interest shall not excuse or cure any default by
Lessee under this Lease;  provided,  however, that interest shall not be payable
on late  charges  incurred by Lessee nor on any amounts  upon which late charges
are paid by Lessee. As used herein, the term "Interest Rate" means the lesser of
(a) a floating  annual  interest  rate equal to five percent (5%) over the prime
rate (for corporate loans at large United States money center  commercial banks)
published in The Wall Street Journal on the first business day of each month, or
(b) the maximum  rate  permitted by  applicable  law. In the event that The Wall
Street Journal fails to publish such a prime rate, the "prime rate" shall be the
prime  rate or  reference  rate  quoted by a  national  bank  having  offices in
California selected by Lessor in its sole discretion.
1.

         20.  Time  of  Essence.  Time is of the  essence  with  respect  to the
obligations to be performed under this Lease.

         21. Additional Rent. All monetary obligations of Lessee to Lessor under
the  terms  of this  Lease,  including  but not  limited  to  Lessee's  Share of
Operating  Expenses and insurance and tax expenses payable shall be deemed to be
rent.

         22. Incorporation of Prior Agreements;  Amendments of Prior Agreements;
Amendments.  This Lease  contains all  agreements of the parties with respect to
any  matter  mentioned  herein.  No  prior  or   contemporaneous   agreement  or
understanding  pertaining to any such matter shall be effective.  This Lease may
be  modified in writing  only,  signed by the parties in interest at the time of
the  modification.  Except as  otherwise  stated in this  Lease,  Lessee  hereby
acknowledges  that neither the real estate  broker listed in paragraph 15 hereof
nor any cooperating broker on this transaction nor the Lessor or any employee or
agents  of any of said  persons  has  made  any oral or  written  warranties  or
representations  to Lessee  relative  to the  condition  or use by Lessee of the
Premises  or the  Property  and Lessee  acknowledges  that  Lessee  assumes  all
responsibility  regarding the Occupational  Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and  regulations  in effect  during the term of this Lease  except as  otherwise
specifically stated in this Lease.

         23.  Notices.  Any notice  required or permitted to be given  hereunder
shall be in writing and may be given by personal  delivery or by certified  mail
and if given  personally  or by  mail,  shall be  deemed  sufficiently  given if
addressed to Lessee or to Lessor at the address noted below the signature of the
respective  parties, as the case may be. Either party may by notice to the other
specify a different address for notice purposes except that upon Lessee's taking
possession of the Premises,  the Premises shall constitute  Lessee's address for
notice  purposes.  A copy of all notices  required or  permitted  to be given to
Lessor  hereunder shall be concurrently  transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter  designate by notice to
Lessee.

         Any notice given pursuant to this Lease shall be personally  delivered,
delivered by Federal Express or comparable overnight courier,  providing written
evidence of delivery,  or delivered by U.S. registered or certified mail, return
receipt  requested,  postage  prepaid  and  sent to  Lessor  and  Lessee  at the
following addresses:

LESSOR:

                           Prudential Real Estate Investors
                           2029 Century Park East
                           Suite 2050
                           Los Angeles, California 90067
                           Attn:  Regional Counsel

         With a copy by the same method to:

                           Cushman & Wakefield of California, Inc.
                           555 South Flower Street, Suite 4200
                           Los Angeles, California 90017-2413
                           Attn:  Mark Harryman

LESSEE:

                           Big Dog Sportswear
                           121 Gray Avenue
                           Santa Barbara, CA  93101
                           Attention:  Real Estate Administrator

or such other  address as either  party may from time to time  designate  as its
notice  address by notifying  the other party  thereof.  Notice so sent shall be
deemed given (a) when  personally  delivered,  or (b) on the first  business day
following deposit with Federal Express or a comparable overnight courier service
providing  written  evidence of delivery,  or (c) five business  days  following
deposit in the United  States mail, if notice is sent by registered or certified
mail, return receipt requested, postage prepaid.

         24.  Waivers.  No waiver by any party of any provision  hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by the
other party of the same or any other provision. Lessor's consent to, or approval
of, any act shall not be deemed to render  unnecessary the obtaining of Lessor's
consent to or approval of any subsequent  act by Lessee.  The acceptance of rent
hereunder by Lessor shall not be a waiver of any  preceding  breach by Lessee of
any  provision  hereof,  other than the failure of Lessee to pay the  particular
rent so accepted,  regardless of Lessor's  knowledge of such preceding breach at
the time of acceptance of such rent.

         25.  Recording. Lessee shall not record this Lease.

         26.  Holding  Over.  If  Lessee,  with  Lessor's  consent,  remains  in
possession of the Premises or any part thereof after the  expiration of the term
hereof,  such  occupancy  shall be a tenancy from month to month upon all of the
provisions of this Lease  pertaining to the  obligations of Lessee,  except that
the  monthly  rent  shall be 120% of the rent  payable  in the last month of the
lease term but all Options,  if any, granted under the terms of this Lease shall
be deemed  terminated  and be of no further  effect  during  said month to month
tenancy.

         27.  Cummulative  Remedies.  No remedy or election  hereunder  shall be
deemed  exclusive but shall,  wherever  possible,  be cumulative  with all other
remedies at law or in equity.

         28. Covenants and Conditions.  Each provision of this Lease performable
by Lessee shall be deemed both a covenant and condition.

         29. Binding  Effect;Choice  of Law.  Subject to any  provisions  hereof
restricting  assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors  and  assigns.  This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation  concerning this Lease
between  the  parties  hereto  shall be  initiated  in the  county  in which the
Industrial Center is located.

         30. Subordination

                           (1) This Lease,  and any Option  granted  hereby,  at
         Lessor's  option,  shall be subordinate to any ground lease,  mortgage,
         deed of trust, or any other  hypothecation or security now or hereafter
         placed upon the  Industrial  Center and to any and all advances made on
         the   security   thereof   and   to   all   renewals,    modifications,
         consolidations,  replacements and extensions  thereof.  Notwithstanding
         such subordination,  Lessee's right to quiet possession of the Premises
         shall  not be  disturbed  if Lessee  is not in  default  and so long as
         Lessee shall pay the rent and observe and perform all of the provisions
         of this Lease,  unless this Lease is otherwise  terminated  pursuant to
         its terms.  If any  mortgagee,  trustee or ground lessor shall elect to
         have this Lease and any Options granted hereby prior to the lien of its
         mortgage,  deed of trust or ground lease, and shall give written notice
         thereof to Lessee, this Lease and such Options shall be deemed prior to
         such mortgage,  deed of trust,  or ground lease,  whether this Lease or
         such  Options  are  dated  prior  or  subsequent  to the  date  of said
         mortgage,  deed of trust  or  ground  lease  or the  date of  recording
         thereof.

                            (2) Lessee agrees to execute any documents  required
         to effectuate an attornment,  a subordination  or to make this Lease or
         any Option  granted  herein prior to the lien of any mortgage,  deed of
         trust or  ground  lease,  as the case may be,  provided  that  Lessee's
         failure to execute such  documents  within ten (10) business days after
         written demand shall  constitute a material default by Lessee hereunder
         without further notice to Lessee or, at Lessor's  option,  Lessor shall
         execute   such    documents   on   behalf   of   Lessee   as   Lessee's
         attorney-in-fact.  Lessee does hereby make,  constitute and irrevocably
         appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place
         and stead,  to execute such documents in accordance with this paragraph
         30(b).



         31. Attorneys Fees

                   31.1 If  either  party  brings an  action  or  proceeding  to
enforce the terms hereof or declare rights  hereunder,  the prevailing  party in
any such  proceeding,  action,  or  appeal  thereon,  shall be  entitled  to his
reasonable  attorney's  fees and such fees as may be awarded in the same suit or
recovered  in a separate  suit,  whether  or not such  action or  proceeding  is
pursued to decision or judgment.  The term,  "prevailing  party" shall  include,
without  limitation,  a party  who  obtains  legal  counsel  or brings an action
against  the other by reason of the other's  breach or  default,  or who defends
such action, and substantially obtains or defeats the relief sought,  whether by
compromise,  settlement, judgment, or abandonment of the claim or defense by the
other party.

                   31.2 The  attorney's  fee  award  shall  not be  computed  in
accordance with any court fee schedule,  but shall be such as to fully reimburse
all attorney's fees reasonably incurred in good faith.

                   31.3 Lessor shall be entitled to attorney's  fees,  costs and
expenses  incurred  in the  preparation  and  service of notices of default  and
consultations  in  connection  therewith,  whether  or  not a  legal  action  is
subsequently commenced in connection with such default.  Lessor and Lessee agree
that $150.00 is a reasonable sum per occurrence for legal services and costs per
preparation  and  service of a notice of  default  and that  Lessor may  include
$150.00 as additional  rent due in each such notice of default as an amount that
must be paid to cure said default.

         32. Lessor's Access. Lessor and Lessor's agents shall have the right to
enter the  Premises  at  reasonable  times for the purpose of  inspecting  same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations,  repairs,  improvements  or  additions  to the  Premises  or to the
building  of which  they are part as Lessor  may deem  necessary  or  desirable.
Lessor  may at any time  place on or about  the  Premises  or the  Building  any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary  "For Lease"  signs.
All activities of Lessor pursuant to this paragraph  shall be without  abatement
of rent, nor shall Lessor have any liability to Lessee for the same.

         33.  Auctions.  Lessee shall not conduct,  nor permit to be  conducted,
either voluntarily or involuntarily, any auction upon the Premises or the Common
Areas   without  first  having   obtained   Lessor's   prior  written   consent.
Notwithstanding  anything to the  contrary in this  Lease,  Lessor  shall not be
obligated to exercise any standard of reasonableness  in determining  whether to
grant such consent.

         34.  Signs.  Lessee  shall not place any sign upon the  Premises or the
Industrial Center without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Industrial Center.

         35. Merger.  The voluntary or other  surrender of this Lease by Lessee,
or a mutual cancellation  thereof, or a termination by Lessor,  shall not work a
merger,  and  shall,  at the  option of Lessor,  terminate  all or any  existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.

         36. Consents.  Except for paragraphs 33, 34, 46 and 47 hereof, wherever
in this Lease the consent of one party is required to an act of the other party,
such consent  shall not be  unreasonably  withheld or delayed and wherever  this
Lease grants the other party the right to take action, exercise discretion, make
a judgment  or other  determination,  or request or require  documents  or other
items, and the same is not expressly  stated to be in the "sole  discretion" (or
words of similar meaning) of such party,  such party shall act reasonably and in
good faith.

         37.  Guarantor.  In the event that there is a guarantor  of this Lease,
said guarantor shall have the same obligations as Lessee under this Lease.

         38. Quiet Possession.  Upon Lessee paying the rent for the Premises and
observing and  performing  all of the  covenants,  conditions  and provisions on
Lessee's  part to be observed and performed  hereunder,  Lessor  covenants  that
Lessee  shall have quiet  possession  of the Premises for the entire term hereof
peacefully  and quietly  have,  hold and enjoy  without  hindrance,  ejection or
molestation by any person lawfully claiming under Lessor,  subject to all of the
provisions  of  this  Lease  and  all  easements,   covenants,   conditions  and
restrictions of record. The individuals executing this Lease on behalf of Lessor
represent  and  warrant to Lessee  that they are fully  authorized  and  legally
capable of executing  this Lease on behalf of Lessor and that such  execution is
binding upon all parties holding an ownership interest in the Property.

         39. Options

                   39.1 Definition. As used in this paragraph, the word "Option"
has the  following  meaning:  (1) the right or option to extend the term of this
Lease or to renew this Lease or to extend or renew any lease that  Lessee has on
other property of Lessor;  (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the  Industrial  Center or other property of
Lessor or the right of first offer to lease other  space  within the  Industrial
Center or other  property  of Lessor;  (3) the right or option to  purchase  the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial  Center,  or the right of first offer to purchase the
Premises or the  Industrial  Center,  or the right or option to  purchase  other
property of Lessor,  or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchaser other property of Lessor.

                   39.2 Options Personal.  Each Option granted to Lessee in this
Lease is personal to Lessee and may not be exercised or be assigned, voluntarily
or  involuntarily,  by or to any person or entity other than  Lessee,  provided,
however,  the Option may be exercised by or assigned to any Lessee  Affiliate as
defined in  Paragraph  12.2 of this Lease and any  assignee of  Lessee's  entire
interest in this Lease  consented to by Lessor.  The Options  herein  granted to
Lessee are not assignable separate and apart from this Lease.

                   39.3  Multiple  Options.  In the event  that  Lessee  has any
multiple  options  to  extend  or renew  this  Lease a later  option  cannot  be
exercised  unless  the prior  option to extend or renew  this  Lease has been so
exercised.

                   39.4 Effect of Default on Options

                            (1)  Lessee  shall  have no  right  to  exercise  an
         Option,  notwithstanding  any  provision  in the grant of Option to the
         contrary,  (i) during the time commencing from the date Lessor gives to
         Lessee a notice of default  pursuant to  Paragraphs  13.1(b) or 13.1(c)
         and continuing  until the default  alleged in said notice of default is
         cured,  or (ii) during the period of time commencing on the day after a
         monetary  obligation  to Lessor is due from Lessee and unpaid  (without
         any  necessity  for  notice  thereof to  Lessee)  continuing  until the
         obligation  is paid,  or (iii)  at any time  after an event of  default
         described in Paragraphs 13.1(a),  13.1(d),  13.1(e) or 13.1(f) (without
         any  necessity of Lessor to give notice of such default to Lessee),  or
         (iv) in the event that Lessor has given to Lessee three or more notices
         of default  under  Paragraph  13.1(b),  where a late  charge has become
         payable under  Paragraph 13.4 for each of such  defaults,  or Paragraph
         13.1(c),  whether or not the  defaults  are cured,  during the 12 month
         period  prior to the time that Lessee  intends to exercise  the subject
         Option.

                           (2) The period of time within  which an Option may be
         exercised  shall not be  extended  or  enlarged  by reason of  Lessee's
         inability to exercise an Option  because of the provisions of Paragraph
         39.4(a).

                           (3) All rights of Lessee under the  provisions  of an
         Option  shall   terminate  and  be  of  no  further  force  or  effect,
         notwithstanding  Lessee's  due and timely  exercise of the Option,  if,
         after such exercise and during the term of this Lease, (i) Lessee fails
         to pay to Lessor a  monetary  obligation  of Lessee  for a period of 30
         days after such obligation becomes due (without any necessity of Lessor
         to give notice thereof to Lessee),  or (ii) Lessee fails to commence to
         cure a default  specified in Paragraph 13.1(c) within 30 days after the
         date that Lessor gives notice to Lessee of such default  and/or  Lessee
         fails  thereafter to diligently  prosecute said cure to completion,  or
         (iii)  Lessee  commits  a  default  described  in  Paragraphs  13.1(a),
         13.1(d),  13.1(e) or 13.1(f)  (without any  necessity of Lessor to give
         notice of such default to Lessee).

                   39.5  Option.  Lessor  hereby  grants to Lessee the option to
extend the term of this Lease for a five (5) year period  commencing on the date
the prior term expires (the "Option  Period") upon each and all of the following
terms and conditions:

                           (1)  Lessee  gives to  Lessor,  and  Lessor  actually
         receives,  on a date which is prior to the date that the Option  Period
         would  commence  (if  exercised)  by at least six (6) and not more than
         nine (9) months,  a written  notice of exercise of the option to extend
         this Lease for said additional term, time being of the essence. If said
         notification  of the  exercise  of  said  option  is not so  given  and
         received, this option shall automatically expire;

                           (2) The  provisions  of Paragraph  39,  including the
         provision relating to default of Lessee set forth in Paragraph 39.4, of
         this Lease are conditions of this option;

                           (3) All of the terms  and  conditions  of this  Lease
         except where specifically  modified by this option shall apply,  except
         that  Lessee  shall have no  further  option to extend the term of this
         Lease;

                            (4) Any  prior  Lessee  that has not been  expressly
         released  from  liability  under this Lease,  and any  guarantor of the
         Lessee's  performance  hereunder,  expressly  reaffirms  in writing the
         extension of their liability for the term of the option; and

                           (5) Subject to  adjustment  as provided in  Paragraph
         39.7,  the monthly Base Rent for each month of the Option  Period shall
         be the Fair Market Rent (as  defined  below) of the  Premises as of the
         commencement  of the  Option  Period,  but in no  event  less  than the
         monthly  Base Rent  scheduled  to be paid during the month prior to the
         commencement of the Option Period.

                   39.6 Fair Market Rent

                           (1) The term "Fair Market Rent" as used in this Lease
         is  defined  to mean the  rent,  including  all  escalations,  at which
         tenants  are leasing  non-sublease,  non-encumbered,  non-equity  space
         comparable in size and quality to the Premises for the Option Period as
         to which Fair Market Rent is being  determined  in the Mid Cities Area,
         giving appropriate  consideration to the annual rental rates per square
         foot and the  standard of  measurement  by which the square  footage is
         measured. In determining Fair Market Rent it shall be assumed that:

                           (1) The Premises are in good condition and repair and
                  there shall be no deduction for depreciation,  obsolescence or
                  deferred  maintenance  except  that  attributable  to Lessor's
                  failure to meet its maintenance  obligations  under this Lease
                  (but less  reasonable wear and tear as long as well maintained
                  by Lessee).

                           (2) The  Premises  would be leased  for the period of
                  the  option  being  exercised  by a  tenant  with  the  credit
                  standing of Lessee, as the same exists at that time.

                           (3) The Premises would be leased on the same terms of
                  this Lease insofar as the obligations for repair, maintenance,
                  insurance and real estate taxes  existed as of the  expiration
                  of the original term of this Lease.

                           (4) No  deduction  shall be given  nor  consideration
                  given to allowances for free rent.

                           (5)      The Premises will be used for its highest
                  and best use.

                           (6)      The rent escalation in Paragraph 39.7 will
                  be applicable.

                           (2)  Determination By Lessor.  Lessor shall initially
         determine the Fair Market Rent in each instance,  and shall give Lessee
         notice (the "Market Rent Notice") of such  determination  and the basis
         on which such determination was made on or before the 60th day prior to
         the date on which  such  determination  is to take  effect,  or as soon
         thereafter as is reasonably practicable.

                           (3) Disputes re Fair Market  Rent.  In the event that
         Lessee notifies  Lessor in writing,  on or before the 20th business day
         following  any Market  Rent  Notice,  that  Lessee  disagrees  with the
         applicable  determination,  Lessor and Lessee  shall  negotiate in good
         faith to resolve such dispute within 10 business days  thereafter  (The
         30th business day after any Market Rent Notice is referred to herein as
         the "Outside Agreement Date.") If not resolved by the Outside Agreement
         Date each party  shall  submit to the other its  determination  of Fair
         Market  Rent and the  dispute  shall be  submitted  to  arbitration  in
         accordance   with   the   following   paragraph   titled   "Arbitration
         Procedures."  Until  any  such  dispute  is  resolved,  any  applicable
         payments   due  under  this  Lease   shall   correspond   to   Lessor's
         determination  and,  if  Lessee's   determination   becomes  the  final
         determination, Lessor shall refund any overpayments to Lessee, within 5
         business days following the final resolution of the dispute.

                           (4)      Arbitration Procedures.

                           (1)Lessor   and  Lessee   shall  each   appoint   one
                  arbitrator who shall by profession be a real estate broker who
                  shall have been  active over the 5-year  period  ending on the
                  date of such appointment in the leasing of properties  similar
                  to the Premises in the surrounding area of Los Angeles County.
                  The  determination of the arbitrators  shall be limited solely
                  to the issue of whether  Lessor's or Lessee's  submitted  Fair
                  Market Rent for the Premises is the closest to the actual Fair
                  Market Rent for the Premises as determined by the arbitrators,
                  taking into  account  the  requirements  of this  subparagraph
                  regarding the same.  Each such  arbitrator  shall be appointed
                  within 15 days after the Outside  Agreement  Date.  Lessor and
                  Lessee may not consult  with either such  arbitrator  prior to
                  resolution.

                            (2) The two arbitrators so appointed shall within 15
                  days of the  date of the  appointment  of the  last  appointed
                  arbitrator, meet and attempt to reach a decision as to whether
                  the parties  shall use  Lessor's or  Lessee's  submitted  Fair
                  Market  Rent,  and shall  notify  Lessor  and  Lessee of their
                  decision, if any.

                           (3) If the two  arbitrators  are  unable  to  reach a
                  decision,  the two  arbitrators  shall,  within 30 days of the
                  date of the  appointment  of the  last  appointed  arbitrator,
                  agree upon and appoint a 3rd  arbitrator who shall be a broker
                  who  shall be  qualified  under  the same  criteria  set forth
                  hereinabove for qualification of the initial 2 arbitrators.

                           (4) The 3  arbitrators  shall,  within 30 days of the
                  appointment  of the 3rd  arbitrator,  reach a  decision  as to
                  whether the parties  shall use Lessor's or Lessee's  submitted
                  Fair Market Rent, and shall notify Lessor and Lessee thereof.

                           (5) The decision of the majority of the 3 arbitrators
                  shall be binding upon Lessor and Lessee.

                           (6) If either  Lessor or Lessee  fails to  appoint an
                  arbitrator  within 15 days after the Outside  Agreement  Date,
                  the  arbitrator  appointed  by  one  of  them  shall  reach  a
                  decision,   notify  Lessor  and  Lessee   thereof,   and  such
                  arbitrator's decision shall be binding upon Lessor and Lessee.

                           (7) If the 2  arbitrators  fail to agree  upon and to
                  appoint  a 3rd  arbitrator,  then the  appointment  of the 3rd
                  arbitrator  shall be  dismissed,  and the matter to be decided
                  shall  be  forthwith   submitted  to  arbitration   under  the
                  provisions  of  the  American  Arbitration  Association,   but
                  subject to the instructions set forth in this Lease.

                           (8) The cost of  arbitration  shall be paid by Lessor
and Lessee equally.

                   39.7 Rent Escalations - Option Term

                           (1) Upon the  commencement  of the 31st  month of the
         Option Period,  the monthly Base Rent payable under  Paragraph 4 of the
         Lease as modified by Paragraph  39, shall be adjusted by the  increase,
         if any, from the date the Option Period commenced, in the C.P.I.

                            (2) The monthly base rent payable in accordance with
         Paragraph 39.7(a),  above shall be calculated as follows: The Base Rent
         payable  as set  forth  in  Paragraph  4 of the  Lease as  modified  by
         Paragraph  39, shall be multiplied by a fraction the numerator of which
         shall be the C.P.I.  of the calendar  month during which the adjustment
         is to take effect, and the denominator of which shall be the C.P.I. for
         the calendar  month in which the Option  Period  commences.  The sum so
         calculated  shall  constitute  the new  monthly  Base  Rent  hereunder,
         subject to Paragraph 39.7(e) below.

                           (3)  Pending  receipt  of  the  required  C.P.I.  and
         determination of the actual  adjustment,  Lessee shall pay an estimated
         adjusted rental, as reasonably determined by Lessor by reference to the
         then available  C.P.I.  information.  Upon  notification  of the actual
         adjustment after  publication of the required  C.P.I.,  any overpayment
         shall be credited  against the next  installment  of rent due,  and any
         underpayment  shall be immediately due and payable by Lessee.  Lessor's
         failure to request  payment of an estimated  or actual rent  adjustment
         shall not constitute a waiver of the right to any  adjustment  provided
         for in the Lease or this Paragraph 39.7.

                           (4) In the event the compilation  and/or  publication
         of the C.P.I. shall be transferred to any other governmental department
         or  bureau  or agency  or shall be  discontinued,  then the index  most
         nearly the same as the C.P.I.  shall be used to make such  calculation.
         In the event that Lessor and Lessee  cannot  agree on such  alternative
         index,  then the matter shall be submitted for decision to the American
         Arbitration  Association  in  accordance  with the  then  rules of said
         association and the decision of the  Arbitrators  shall be binding upon
         the  parties.  The cost of said  Arbitrators  shall be paid  equally by
         Lessor and Lessee.

                           (5) The adjustment(s) required by this Paragraph 39.7
         shall be subject to the following additional agreements:

                           (1) The  increase  under  Paragraph  39.7(b),  above,
                  shall  be  subject  to  the  following   minimum  and  maximum
                  percentage  increases  per  year  involved  in the  adjustment
                  period, on a cumulative and compounded basis:

                           Minimum yearly percentage increase:3%

                           Maximum yearly percentage increase:5%

                  The  "adjustment  period" is defined as the period  commencing
                  with the month designated in Paragraph 39.7(b),  above, as the
                  reference for determining the  "denominator",  and ending with
                  the  month  preceding  the  month  designated  therein  as the
                  reference  for   determining  the   "numerator".   Should  the
                  adjustment  period  include a partial  year,  the  minimum and
                  maximum percentages shall be prorated for that partial year by
                  multiplying  them by a fraction,  the numerator of which shall
                  be the number of full calendar months or major portion thereof
                  contained in said partial year,  and the  denominator of which
                  is twelve (12).

                           (2) The new  monthly  Base Rent  shall in no event be
                  less than the rent scheduled to be paid immediately  preceding
                  the rent adjustment.

         40. Security  Measures.  Lessee hereby  acknowledges  that Lessor shall
have no  obligation  whatsoever  to  provide  guard  service  or other  security
measures  for the  benefit of the  Premises  or the  Industrial  Center.  Lessee
assumes all responsibility for the protection of Lessee, its agents and invitees
and the  property of Lessee and of  Lessee's  agents and  invitees  from acts of
third parties.  Nothing herein  contained  shall prevent Lessor at Lessor's sole
option, from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).

         41. Easements.  Lessor reserves to itself the right, from time to time,
to grant such easements,  rights and dedications  that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as  such  easements,   rights,   dedications,   Maps  and  restrictions  do  not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned  documents upon request of Lessor and failure to do so
shall constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.

         42. Performance Under Protest.  If at any time a dispute shall arise as
to any  amount or sum of money to be paid by one  party to the  other  under the
provisions  hereof,  the party  against whom the  obligation to pay the money is
asserted shall have the right to make payment  "under  protest" and such payment
shall not be regarded as a voluntary payment,  and there shall survive the right
on the part of said party to  institute  suit for  recovery  of such sum.  If it
shall be adjudged  that there was no legal  obligation on the part of said party
to pay such sum or any part  thereof,  said party  shall be  entitled to recover
such sum or so much  thereof  as it was not  legally  required  to pay under the
provisions of this Lease.

         43. Authority. If Lessee is a corporation, trust, or general or limited
partnership,  each  individual  executing  this  Lease on behalf of such  entity
represents and warrants that he or she is duly authorized to execute and deliver
this  Lease on behalf of said  entity.  If  Lessee  is a  corporation,  trust or
partnership,  Lessee  shall,  within  thirty (30) days after  execution  of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.

         44. Intentionally Omitted

         45. Amendments to Lease

                   45.1 At such  times  as a rental  adjustment  is made to this
Lease by virtue of any  provision  of this Lease,  the parties  shall  execute a
written amendment to this Lease to reflect said change.

                   45.2 Lessee agrees to make any non-monetary  modifications to
this Lease that may be required by an institutional mortgagee of Lessor.

         46. Storage Tanks

                   46.1  Notwithstanding  anything to the  contrary in Paragraph
7.3 hereof,  Lessee shall not install  storage tanks of any size or shape in the
Premises,  above or below ground, without the consent of the Lessor which can be
withheld in Lessor's  sole  discretion.  If Lessor  elects to grant its consent,
Lessor  shall have the right to condition  its consent  upon Lessee  agreeing to
give to Lessor  such  assurances  that  Lessor,  in its sole  discretion,  deems
necessary  to  protect  itself  against   potential   problems   concerning  the
installation,  use, removal and contamination of the Premises as a result of the
installation  and/or  use  of  such  tank,  including  but  not  limited  to the
installation of a concrete  encasement for said tank. Lessee shall comply at its
expense with all applicable permit and/or  registration  requirements and repair
any damage caused by the installation, maintenance or removal of such tank. Upon
termination of the Lease, Lessee shall, at its sole cost and expense, remove any
tank from the Premises,  remove and replace any  contaminated  soil or materials
(and compact or treat the same as then required by law) and repair any damage or
change to the  Premises  caused by said  installation  and/or  removal.  Nothing
contained  herein shall be construed to diminish or reduce Lessee's  obligations
under Paragraph 47.

                   46.2  Lessor  shall have the right to employ  experts  and/or
consultants,  at  Lessee's  expense,  to  advise  Lessor  with  respect  to  the
installation,  operation, monitoring, maintenance and removal and restoration of
any such tank.

         47. Hazardous Materials

                   47.1 Lessee's Covenants Regarding Hazardous Materials

                           (1) Lessor's Prior Consent.  Notwithstanding anything
         contained  in this  Lease to the  contrary,  Lessee  has not  caused or
         permitted,  and shall not cause or permit any "Hazardous Materials" (as
         defined in subparagraph  (b) below) to be brought upon,  kept,  stored,
         discharged, released or used in, under or about the Premises by Lessee,
         its  agents,  employees,  contractors,   subcontractors,  licensees  or
         invitees,  unless (1) such Hazardous Materials are reasonably necessary
         to  Lessee's  business  and will be  handled,  used,  kept,  stored and
         disposed of in a manner which  complies with all  "Hazardous  Materials
         Laws" (as defined in  subparagraph  (b) below);  (2) Lessee will comply
         with such other rules or  requirements  as Lessor may from time to time
         impose,  including  without  limitation  that (i) such materials are in
         small quantities,  properly labeled and contained,  (ii) such materials
         are handled and  disposed of in  accordance  with the highest  accepted
         industry standards for safety,  storage,  use and disposal,  (iii) such
         materials are for use in the ordinary course of business (i.e., as with
         office or cleaning  supplies),  (3) notice of and a copy of the current
         material  safety  data  sheet is  provided  to  Lessor  for  each  such
         Hazardous Material, and (4) Lessor shall have granted its prior written
         consent to the use of such Hazardous Materials.

                            (2)  Compliance  with Hazardous  Materials  Laws. As
         used  herein,  the  term  "Hazardous  Materials"  means  any  (1)  oil,
         petroleum,   petroleum  products,  flammable  substances,   explosives,
         radioactive materials,  hazardous wastes or substances, toxic wastes or
         substances or any other wastes,  materials or pollutants which (i) pose
         a hazard to the Premises or to persons on or about the Premises or (ii)
         cause the Premises to be in violation of any Hazardous  Materials  Laws
         (as hereinafter  defined);  (2) asbestos in any form, urea formaldehyde
         foam   insulation,   transformers  or  other  equipment  which  contain
         dielectric fluid containing  levels of  polychlorinated  biphenyls,  or
         radon gas; (3) chemical,  material or substance  defined as or included
         in  the  definition  of  "hazardous  substances,"  "hazardous  wastes,"
         "hazardous   materials,"   "extremely   hazardous  waste,"  "restricted
         hazardous  waste," or "toxic  substances"  or words of  similar  import
         under  any  applicable  local,  state  or  federal  law  or  under  the
         regulations  adopted  or  publications  promulgated  pursuant  thereto,
         including,   but  not  limited  to,  the  Comprehensive   Environmental
         Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
         ss. 9601, et seq.; the Resources  Conservation  Recovery Act, 42 U.S.C.
         ss. 6901,  et seq.;  the  Hazardous  Materials  Transportation  Act, as
         amended,  49 U.S.C.  ss. 1801,  et seq.;  the Federal  Water  Pollution
         Control Act, as amended,  33 U.S.C. ss. 1251, et seq.;  Sections 25115,
         25117,  25122.7,   25140,  25249.8,  25281,  25316  and  25501  of  the
         California  Health and Safety Code; and Title 22 of the California Code
         of Regulations,  Division 4.5, Chapter 11; (4) other chemical, material
         or substance, exposure to which is prohibited,  limited or regulated by
         any governmental  authority or may or could pose a hazard to the health
         and  safety of the  occupants  of the  Premises  or the  owners  and/or
         occupants of property  adjacent to or surrounding the Premises,  or any
         other  Person  coming upon the Premises or adjacent  property;  and (5)
         other chemical, materials or substance which may or could pose a hazard
         to the  environment.  As used here the term "Hazardous  Materials Laws"
         means any  federal,  state or local laws,  ordinances,  regulations  or
         policies relating to the environment,  health and safety, and Hazardous
         Materials   (including,   without   limitation,   the  use,   handling,
         transportation,  production, disposal, discharge or storage thereof) or
         to  industrial  hygiene or the  environmental  conditions  on, under or
         about the Premises,  including,  without limitation,  soil, groundwater
         and indoor and ambient air conditions. Lessee shall at all times and in
         all respects comply with all Hazardous Materials Laws.

                           (3) Hazardous  Materials Removal.  Upon expiration or
         earlier  termination of this Lease, Lessee shall, at Lessee's sole cost
         and expense, cause all Hazardous Materials brought on the Premises with
         Lessor's consent to be removed from the Premises in compliance with all
         applicable  Hazardous  Materials  Laws.  If  Lessee  or its  employees,
         agents,  or  contractors  violates the  provisions of the foregoing two
         paragraphs,  or if Lessee's acts,  negligence,  or business  operations
         contaminate,  or  expand  the scope of  contamination  of,  the  Leased
         Premises from such Hazardous Materials,  then Lessee shall promptly, at
         Lessee's  expense,   take  all  investigatory  and/or  remedial  action
         (collectively,  the "Remediation")  that is necessary in order to clean
         up,  remove  and  dispose  of  such  Hazardous  Materials  causing  the
         violation on the Leased  Premises or the underlying  groundwater or the
         properties   adjacent  to  the  Leased  Premises  to  the  extent  such
         contamination  was caused by Lessee,  in compliance with all applicable
         Hazardous Materials Laws. Lessee shall further repair any damage to the
         Leased Premises caused by the Hazardous Materials contamination. Lessee
         shall provide prior written notice to Lessor of such  Remediation,  and
         Lessee shall  commence such  Remediation no later than thirty (30) days
         after such notice to Lessor and  diligently and  continuously  complete
         such  Remediation.  Such written  notice  shall also  include  Lessee's
         method,  time and procedure for such  Remediation and Lessor shall have
         the  right  to  require  reasonable  changes  in such  method,  time or
         procedure of the Remediation.  Lessee shall not take any Remediation in
         response to the  presence of any  Hazardous  Materials  in or about the
         Premises  or enter into any  settlement  agreement,  consent  decree or
         other  compromise  in respect to any claims  relating to any  Hazardous
         Materials  in any  way  connected  with  the  Premises,  without  first
         notifying  Lessor of Lessee's  intention to do so and affording  Lessor
         ample  opportunity  to appear,  intervene  or  otherwise  appropriately
         assert and protect Lessor's interests with respect thereto.

                           (4) Notices.  Lessee shall immediately  notify Lessor
         in  writing  of:  (i)  any  enforcement,   cleanup,  removal  or  other
         governmental or regulatory action threatened,  instituted, or completed
         pursuant to any Hazardous  Materials Laws with respect to the Premises;
         (ii) any claim,  demand,  or complaint made or threatened by any person
         against Lessee or the Premises relating to damage,  contribution,  cost
         recovery  compensation,  loss or injury  resulting  from any  Hazardous
         Materials;  and (iii) any reports  made to any  governmental  authority
         arising out of any Hazardous Materials on or removed from the Premises.
         Lessor  shall  have  the  right  (but not the  obligation)  to join and
         participate,  as a party, in any legal proceedings or actions affecting
         the Premises initiated in connection with any Hazardous Materials Laws.

                   47.2  Indemnification  of  Lessor.  Lessee  shall  indemnify,
protect,  defend and forever  hold  Lessor  harmless  from any and all  damages,
losses, expenses, liabilities,  obligations and costs arising out of any failure
of Lessee to observe any of the covenants contained in paragraphs 46 and 47.

                   47.3 Preexisting Conditions.  Notwithstanding anything to the
contrary in this Lease,  Lessee  shall not be liable to Lessor  under this Lease
for any cost associated with Hazardous Materials, if any, to the extent that the
Hazardous  Materials existed on the Premises prior to the date of this Lease and
were  not  brought  on  to  the  Premises  by  Lessee,  its  agents,  employees,
contractors,   subcontractors,   licensees   or   invitees   (the   "Preexisting
Conditions").  Without limiting any other provision of this Lease,  Lessee shall
provide Lessor with the original of any notices or other  documents  received by
Lessee in connection with the Preexisting Conditions.

                   47.4 Studies.  Lessee acknowledges  receipt of a copy of that
certain Soil and Ground Water Investigation,  Former Best Foods Facility,  Santa
Fe  Springs,   California  dated  June  10,  1996  prepared  by  Harding  Lawson
Associates,  and  that  certain  Environmental  Site  Assessment,  Mid  Counties
Business Park, 15700 and 15614 Shoemaker  Avenue,  Santa Fe Springs,  California
dated June 11,  1996,  prepared  by  Harding  Lawson  Associates  (collectively,
"Hazardous  Substance  Reports").  Lessor,  except as provided in the  following
sentence of this paragraph, makes no representations or warranties whatsoever to
Lessee  regarding:  (i) the  Hazardous  Substance  Reports  (including,  without
limitation,  the  contents  and/or  accuracy  thereof)  or (ii) the  presence or
absence  of toxic or  Hazardous  Materials  in, at, or under the  Premises,  the
Building or the Industrial  Center.  Lessor does acknowledge to Lessee that: (i)
Lessor has not authorized any other studies for hazardous or toxic  materials at
the Premises or Building other than the Hazardous  Substance  Reports;  and (ii)
Lessor  does not know of any  surveys for toxic or  Hazardous  Materials  at the
Premises  or  the  Building   other  than  the  Hazardous   Substance   Reports.
Notwithstanding the preceding sentence, Lessee: (a) shall not rely on and Lessee
hereby  represents to Lessor that it has not relied on the  Hazardous  Substance
Reports; and (b) shall make such studies and investigations,  conduct such tests
and surveys,  and engage such specialists as Lessee deems  appropriate to fairly
evaluate  the  Premises  and any risks from  hazardous  or toxic  materials.  In
connection  with any  inspections  or tests to be  conducted  by  Lessee  at the
Premises  or  Building,  Lessee  shall  first  notify  Lessor  of each  proposed
inspection or test and the scope, impact, and intent thereof and obtain Lessor's
written  consent to perform the same.  Lessee shall restore the Premises and the
property  on which the leased  premises  are located to the  condition  existing
immediately  prior to any such test and/or  inspection  and will provide  Lessor
with true and  complete  copies of any survey or report  obtained  by or for the
benefit of Lessee in connection  with hazardous or toxic  materials that concern
the Building, the Industrial Center or the Premises.

         48. Lessor's Default

                  Any damages or  judgments  arising out of Lessor's  default of
its  obligations  under  this  Lease  shall be  satisfied  only out of  Lessor's
interest and estate in the Industrial  Center, and Lessor shall have no personal
liability  beyond  such  interest  and estate  with  respect to such  damages or
judgments.

         49. Offer.  Preparation  of this Lease by Lessor or Lessor's  agent and
submission  of same to Lessee shall not be deemed an offer to lease.  This Lease
shall become  binding upon Lessor and Lessee only when fully  executed by Lessor
and Lessee.

         50.  Lessor  Improvements.  Lessor  shall  construct on the Premises at
Lessor's cost the following improvements ("Lessor's Work") prior to November 26,
1997:

                   50.1 A demising  wall  between the  Premises and the adjacent
leasable area in the Building.

         51.  Lessee  Improvement  Allowance.  Lessor shall  provide to Lessee a
building  allowance  (the  "Lessee  Improvement   Allowance"),   not  to  exceed
$183,867.30,  to be disbursed  to Lessee in  reimbursement  of costs  reasonably
incurred  by  Lessee in the  design  and  construction  of  improvements  in the
Premises in  accordance  with plans and  specifications  reasonably  approved by
Lessor (the "Approved  Plans").  Provided that such improvements shall have been
completed  substantially  in accordance  with the Approved  Plans, as reasonably
determined by Lessor,  Lessor shall disburse the Lessee Improvement Allowance to
Lessee one time only, 30 days  following the date on which Lessee  commences its
ordinary business operations in the Premises, upon receipt by Lessor of invoices
and other evidence in form and substance  reasonably  satisfactory  to Lessor in
support  of the  performance  of the work and the  payment  therefor  by Lessee,
together with appropriate lien releases. Lessor shall have no obligation to make
any disbursement of the Lessee Improvement Allowance after December 31, 1998.

         52.  Signage Right.  Lessee shall have the right,  at its sole cost and
expense,  to  install a sign on the  exterior  of the  Building  and on 2 shared
monument signs as shown on the attached Signage Exhibit identifying its name and
logo. The graphics,  materials,  color,  design,  lettering,  size, location and
specifications  of  Lessee's  signage  shall be  subject  to the  prior  written
approval  of  Lessor,  which  approval  shall not be  unreasonably  withheld  or
delayed,  and the  approval of the City of Santa Fe Springs.  The signs shall be
installed and  maintained,  at Lessee's  sole cost and expenses,  pursuant to an
installation and maintenance  program approved and supervised by Lessor.  At the
expiration or earlier  termination of this Lease, Lessor shall, at Lessee's sole
cost and expense,  cause the sign to be removed and the exterior of the Building
and Common Area affected by the signs to be restored to the  condition  existing
prior to the  installation  of the signs Lessor may  disapprove any signage that
contains a name which relates to an entity or individual which is of a character
or reputation,  or is associated with a political orientation or faction,  which
is materially  inconsistent with the quality of the Industrial  Center, or which
would otherwise  reasonably offend the landlord of a comparable building or that
would conflict with any covenants in leases of space in the  Industrial  Center.
This signage right is personal to Big Dog U.S.A.

LESSOR AND LESSEE HAVE  CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION  CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY  CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS  EXECUTED,  THE TERMS OF THIS  LEASE ARE  COMMERCIALLY  REASONABLE  AND
EFFECTUATE  THE INTENT AND  PURPOSE  OF LESSOR  AND LESSEE  WITH  RESPECT TO THE
PREMISES.


"LESSOR"                                           "LESSEE"

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA        BIG DOG U.S.A., INC. a
                                                   California corporation
By       Cushman & Wakefield of California,
         Inc.
         Its Managing Agent                        By     /s/ANTHONY WALL
                                                   Executive Vice President
   By _______________________
         ______________________                    By __________________________
          Printed Name and Title                      __________________________
                                                        Printed Name and Title
   By _______________________
           ---------------------
          Printed Name and Title

Executed on__________________                      Executed on__________________






<PAGE>


                                 LEASE GUARANTY


         This Lease  Guaranty  ("Guaranty"),  dated as of November  4, 1997,  is
executed by BIG DOG  HOLDINGS,  INC., a Delaware  corporation  ("Guarantor")  in
favor of THE PRUDENTIAL  INSURANCE COMPANY OF AMERICA,  a New Jersey corporation
("Landlord"),  in conjunction  with, and to induce  Landlord to enter into, that
certain Lease of even date herewith (the "Lease")  between  Landlord and BIG DOG
U.S.A.,  a  California  corporation  ("Tenant"),  pursuant to which  Landlord is
leasing to Tenant  certain real  property  (the  "Premises")  more  particularly
described in the Lease. Capitalized terms used and not otherwise defined in this
Guaranty shall have the meanings set forth for them in the Lease.

         In   consideration   of  the   foregoing,   and  for   other   valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Guarantor hereby agrees as follows:

         1. Guaranty of Tenant's Obligations.  Guarantor hereby  unconditionally
and  irrevocably  guarantees to Landlord (a) the prompt payment by Tenant of all
Base Rent, additional rent and other amounts from time to time owing to Landlord
under the Lease,  and (b) the prompt and diligent  performance and observance of
all other obligations and provisions of the Lease by Tenant.  The payment of all
such amounts and the  performance  and observance of all such other  obligations
and  provisions  shall  be  collectively  referred  to  herein  as  the  "Tenant
Obligations." This Guaranty will apply to the Lease, any extension or renewal of
the Lease,  and any holdover term  following the term of the Lease,  or any such
extension or renewal.

         2. Modification of Lease;  Assignment and Subletting.  Guarantor agrees
that the Lease may be supplemented,  amended and/or otherwise modified from time
to time without Guarantor's consent, in which event this Guaranty shall continue
to apply to the Lease as so modified.  In addition,  no assignment or subletting
of all or any portion of Tenant's  interests in the Lease shall impair or affect
the continuing  force of this Guaranty.  Notwithstanding  the foregoing,  in the
event that,  following  any  assignment  of Tenant's  interests in the Lease (in
accordance  with the Lease) to a person or entity not  affiliated  with  Tenant,
Landlord  and such  assignee  modify the Lease in such a way as to increase  any
Tenant Obligation, Guarantor shall not, unless Guarantor then otherwise consents
in writing,  be liable for the  incremental  portion of such  Tenant  Obligation
corresponding to such increase.

         3. Guarantor  Waivers.  Guarantor hereby waives,  to the fullest extent
allowed by law, all suretyship  rights,  defenses and other benefits to which it
might otherwise be entitled.  Without  limiting the generality of the foregoing:
(a) Landlord shall be entitled to proceed against  Guarantor with respect to any
unfulfilled Tenant Obligation  regardless of whether Landlord has proceeded,  is
then proceeding,  or intends to proceed, against Tenant or any other person with
respect thereto,  and Guarantor expressly waives the benefits of Section 2845 of
the Civil Code of  California;  (b)  Landlord  shall not be  required to furnish
Guarantor  with  copies of any  notices  given or required to be given to Tenant
under the Lease,  including  without  limitation  notices of default,  except as
provided in the Lease;  (c)  Guarantor's  liability  for the Tenant  Obligations
shall not be affected, released,  terminated,  discharged or impaired by (i) the
existence of any bankruptcy,  insolvency,  reorganization or similar  proceeding
with respect to Tenant or any other person,  (ii) any exercise,  non-exercise or
delay or lack of  diligence  in the  exercise of  remedies  by Landlord  against
Tenant or any other  person  (except to the extent that the same has resulted in
the fulfillment of the applicable  Tenant  Obligation),  (iii) any assignment or
other transfer  (voluntary or involuntary)  of Tenant's  interests in the Lease,
(iv) the  rejection of the Lease in any  bankruptcy  proceeding  with respect to
Tenant,  or any  other  release  or  discharge  of  Tenant  in  any  bankruptcy,
insolvency,  reorganization  or similar  proceeding;  (v) any  amendment  of the
Lease; (vi) any change in the time,  manner or place of payment,  performance or
observance  of any of the  Tenant  Obligations;  (vii)  any  waiver  of,  or any
assertion  or  enforcement  or failure or refusal to assert or  enforce,  or any
consent or indulgence  granted by Landlord with respect to a departure from, any
term of the Lease,  including  without  limitation  the waiver of any default by
Tenant,  or the making of any other  arrangement  with,  or the accepting of any
compensation or settlement from, Tenant; provided that to the extent that Lessor
provides Lessee with a written waiver of, or written agreement with respect to a
consent or indulgence  with respect to a departure  from, any term of the Lease,
the Tenant Obligations for which Guarantor is liable under the Guaranty shall be
deemed modified to reflect the terms of such written waiver or agreement; (viii)
any other guaranty now or hereafter executed by Guarantor or any other guarantor
or  the  release  of  any  other  guarantor  from  liability  for  the  payment,
performance or observance of any of the Tenant Obligations, whether by operation
of law or otherwise;  or (ix) any defect in or invalidity of the Lease caused by
Tenant;  and (d) Guarantor  hereby  expressly waives (i) notice of acceptance of
this  Guaranty  and of any change in the  financial  condition  of Tenant,  (ii)
presentment,  demand and protest,  (iii) until such time as all defaulted Tenant
Obligations  are  fulfilled,  all  right  of  subrogation  with  respect  to any
obligation of Tenant that is fulfilled by Guarantor hereunder, (iv) the right to
trial by jury in any action or proceeding arising out of or with respect to this
Guaranty or the  interpretation,  breach or enforcement hereof, (v) the right to
interpose any setoff or counterclaim in any action or proceeding  arising out of
or with respect to this Guaranty,  and (vi) any right or claim of right to cause
a  marshalling  of the  assets of Tenant  or to cause  Landlord  to apply to any
Tenant  Obligation  any  security  deposit or to proceed  against  Tenant or any
collateral or security held by Landlord at any time or in any particular  order.
The liability of Guarantor  hereunder  shall be reinstated and revived,  and the
rights of Landlord  under this  Guaranty  shall  continue,  with  respect to any
amount  at any  time  paid on  account  of any  Tenant  Obligation  which  shall
thereafter  be  required  to be  restored  or  returned  by  Landlord  upon  the
bankruptcy,  insolvency  or  reorganization  of Tenant or any other  person,  or
otherwise,  as though such amount had not been paid. Guarantor  subordinates any
liability or indebtedness of Tenant held by Guarantor to the Tenant Obligations.

         4.  Jurisdiction.  All disputes with respect to this Guaranty,  and all
actions to enforce  this  Guaranty,  may be  adjudicated  in the state courts of
California  or the federal  court sitting in  California;  and Guarantor  hereby
irrevocably submits to the jurisdiction of such courts in any action relating to
this  Guaranty.  To the fullest  extent  permitted by law,  this  submission  to
California  jurisdiction  shall be self-operative  and no further  instrument or
action, other than service of process,  shall be required to confer jurisdiction
over Guarantor in any such court.  Nothing in this paragraph  shall be construed
to limit the right of Landlord to serve process in any manner  permitted by law,
or to institute any action against  Guarantor in the courts of other appropriate
jurisdictions.

         5.  Notices All notices and other  communications  provided for in this
Guaranty  shall be in writing and be delivered to the  appropriate  party at its
address as follows:

                  If to Guarantor:

                           Big Dog Holdings
                           121 Gray Avenue
                           Santa Barbara, CA 93101
                           Attention: Anthony Wall



<PAGE>



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                  If to Landlord:

                           The Prudential Realty Group
                           2029 Century Park East
                           Suite 2050
                           Los Angeles, California 90067
                           Attention:  Regional Counsel

                  With a copy by the same method to:

                           Cushman & Wakefield of California, Inc.
                           555 South Flower Street, Suite 4200
                           Los Angeles, California 90017-2413
                           Attention:  Mark Harryman

Addresses  for notice may be changed from time to time by written  notice to all
other parties.  All  communications  shall be effective when actually  received;
provided,  however,  that  nonreceipt  of any  communication  as the result of a
change of address of which the sending  party was not  notified or as the result
of a refusal to accept delivery shall be deemed receipt of such communication.

         6. Attorneys'  Fees. In the event that any litigation is commenced with
respect to this  Guaranty,  the party  prevailing  in such  litigation  shall be
entitled to recover,  in  addition to such other  relief as may be granted,  its
reasonable  costs  and  expenses,   including  without   limitation   reasonable
attorneys' fees and court costs,  whether or not taxable,  as awarded by a court
of competent jurisdiction.

         7. Representations and Warranties. Guarantor represents and warrants to
Landlord that: (a) the execution,  delivery and  performance of this Guaranty by
Guarantor will not violate any provision of any law, regulation, order or decree
of any governmental authority or of any court binding on Guarantor,  or conflict
with,  result in a breach of or  constitute a default under any provision of any
instrument  to which  Guarantor is a party or which it or any of its property is
bound, and will not result in the imposition or creation of any lien,  charge or
encumbrance  on, or security  interest in, any of its  property  pursuant to the
provisions of any of the foregoing; and (b) this Guaranty has been duly executed
and delivered by Guarantor and constitutes a legal, valid and binding obligation
of Guarantor, enforceable against it in accordance with its terms, subject as to
enforcement of rights and remedies to any applicable bankruptcy, reorganization,
moratorium  or  other  laws  affecting  the  enforcement  of  creditors'  rights
generally  and  doctrines  of equity  affecting  the  availability  of  specific
enforcement or other equitable remedies.

         8. Estoppel Certificate.  Landlord, by its acceptance of this Guaranty,
and  Guarantor  agree  that (a) each  will,  from  time to time,  within 10 days
following request by the other (the "Requesting Party"),  execute and deliver to
the Requesting Party a statement certifying that this Guaranty is unmodified and
in full force and effect (or if modified, that it is in full force and effect as
modified  and stating  such  modifications),  and (b) such  certificates  may be
relied upon by anyone  holding or proposing to acquire from or through  Landlord
or Guarantor any interest in the premises of which the Premises are a part or by
any mortgagee or prospective  mortgagee of such premises or any interest therein
or by any prospective assignee or subtenant of Tenant.

         9.  Miscellaneous.  This  Guaranty  shall (a)  remain in full force and
effect  until the  payment,  performance  or  observance  in full of the  Tenant
Obligations  and all other amounts  payable under this Guaranty,  (b) be binding
upon Guarantor,  its heirs, legal  representatives,  successors and assigns, and
(c) inure to the benefit of and be  enforceable  by Landlord and its  successors
and  assigns or by any person to whom  Landlord's  interest  in the Lease or any
part thereof,  including the rents, may be assigned,  whether by way of mortgage
or otherwise. Wherever in this Guaranty reference is made to Landlord or Tenant,
the same shall be deemed to refer also to the then heir,  legal  representative,
successor  or assign of Landlord or Tenant,  respectively.  No provision of this
Guaranty  that is held to be  inoperative,  unenforceable  or otherwise  invalid
shall affect the remaining  provisions,  and to this end all  provisions  hereof
shall be  severable.  In the event that more than one person or entity  executes
this Guaranty as Guarantor,  the obligations of each shall be joint and several.
Time is of the essence of this Guaranty.  This Guaranty shall be governed by the
laws of the State of California.

         IN WITNESS  WHEREOF,  Guarantor  has caused  this  Guaranty  to be duly
executed as of the date first written above.


                                                     "Guarantor":

                                                     BIG DOG HOLDINGS, INC.,
                                                     a Delaware corporation


                                                     By:      /s/ANTHONY WALL
                            Executive Vice President