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                                                                   EXHIBIT 10.28



                                                          [California Net Lease]

                                 LEASE AGREEMENT


        THIS LEASE AGREEMENT is made this 10th day of April, 2001, between
ProLogis California I LLC, a Delaware limited liability company ("Landlord"),
and the Tenant named below.


TENANT:                         Skechers U.S.A., Inc., a Delaware corporation

TENANT'S REPRESENTATIVE,        Paul Galliher
ADDRESS, AND PHONE NO.:         228 Manhattan Beach Blvd.
                                Manhattan Beach, CA 90266

PREMISES:                       That certain Building, containing approximately
                                763,228 rentable square feet, as determined by
                                Landlord's architect, as shown on Exhibit A.

PROJECT:                        Milliken Distribution Center #1

BUILDING:                       Milliken Distribution Center #1
                                4100 E. Mission Blvd.
                                Ontario, CA 91761

TENANT'S PROPORTIONATE
SHARE OF PROJECT:               100.000%

TENANT'S PROPORTIONATE
SHARE OF BUILDING:              100.000%

LEASE TERM:                     Beginning on the Commencement Date and ending on
                                the last day of the 120th full calendar month
                                thereafter.

COMMENCEMENT DATE:              The day following the Rejection Date as defined
                                in the Stipulation Regarding Rejection of
                                Ontario Lease, Including Mutual Releases as
                                described in Exhibit D attached hereto and
                                pursuant to the provisions of Addendum 4

INITIAL MONTHLY BASE RENT:                                        See Addendum 1

INITIAL ESTIMATED MONTHLY       1. Utilities:                $0.00
OPERATING EXPENSE PAYMENTS:
(estimates only and subject     2. Common Area Charges:  $5,343.00
to adjustment to actual costs
and expenses according to the   3. Taxes:               $24,958.00
provisions of this Lease)
                                4. Insurance:            $2,900.00

                                5. Others:      Mgmt Fee $3,816.00

INITIAL ESTIMATED MONTHLY
  OPERATING EXPENSE PAYMENTS:                                         $37,017.00

INITIAL MONTHLY BASE RENT AND
  OPERATING EXPENSE PAYMENTS:                                        $254,537.00

SECURITY DEPOSIT:               $250,000.00

BROKER:                         CB Richard Ellis, Lee & Associates

ADDENDA:                        1. Base Rent Adjustments
                                2. Construction (Allowance)
                                3. Two Renewal Options (Baseball Arbitration)
                                4. Miscellaneous Provisions

EXHIBITS:                       A. Site Plan;  B. Front Entrance Sign;
                                C. Monument Sign;  D. Name Sign;  E. Stipulation
                                Regarding Rejection of Ontario Lease, Including
                                Mutual Releases

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

        2.     ACCEPTANCE OF PREMISES. Except as otherwise set forth in the
Lease, Tenant shall accept the Premises in its condition as of the Commencement
Date, subject to all applicable laws, ordinances, regulations, covenants and
restrictions. Landlord has made no representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business, and Tenant
waives any implied warranty that the Premises are suitable for Tenant's intended
purposes. Except as otherwise set forth in the Lease, in no event shall Landlord
have any obligation for any defects in the Premises or any limitation on its
use. The taking of possession of the Premises shall be conclusive evidence that
Tenant accepts the Premises and that the Premises were in good condition at the
time possession was taken except for items that are Landlord's responsibility
under the Lease and any punchlist items agreed to in writing by Landlord and
Tenant. Landlord, to its knowledge, represents and warrants that as of the
Commencement Date (i) Landlord is unaware of any material defect or infirmity
adversely affecting the Premises, (ii) Landlord is currently not the subject of
any bankruptcy or insolvency proceeding, (iii) to Landlord's knowledge without
further inquiry, the Premises shall be in compliance with all Legal Requirements
(hereinafter defined) in effect as of the Commencement Date of this Lease, (iv)
Landlord has fee simple title to the Premises

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and Landlord has full power, right and authority to execute and perform this
Lease and all corporate action necessary to do so has been duly taken, and (v)
the zoning for the Premises is designated "planned industrial" by the Ontario
General Plan under the Bridgestone/Firestone Industrial Park Specific Plan dated
March, 1997, as revised May 14, 1997.

               Landlord warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such building and mechanical systems
servicing the Premises, other than those constructed by Tenant, shall be in good
operating condition on the Commencement Date, and that, subject to adverse
weather conditions in which case the provisions of Paragraph 15 shall apply, the
surface of the roof and structural elements of the roof, bearing walls and
foundation of the Building shall be free of material defects on the Commencement
Date. Landlord shall warrant the HVAC system for the first 90 days following the
Commencement Date, and shall further warrant all other building and mechanical
systems servicing the Premises for the first 30 days following the Commencement
Date. Landlord shall be obligated for any and all repairs to such systems during
such warranty periods at no cost to Tenant.

        3.     USE. The Premises shall be used only for the purpose of
receiving, storing, packaging, shipping and selling (but limited to wholesale
sales) products, materials and merchandise made and/or distributed by Tenant and
for such other lawful purposes as may be incidental thereto; provided, however,
with Landlord's prior written consent, Tenant may also use the Premises for
light manufacturing. Tenant shall not conduct or give notice of any auction,
liquidation, or going out of business sale on the Premises, without Landlord's
prior written consent which shall not be unreasonably withheld or delayed.
Tenant will use the Premises in a careful, safe and proper manner and will not
commit waste, overload the floor or structure of the Premises or subject the
Premises to use that would damage the Premises. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to
emanate from the Premises, or take any other action that would constitute a
nuisance or would disturb, unreasonably interfere with, or endanger Landlord or
any tenants of the Project. For purposes of the preceding sentence, noise or
vibrations from Tenant's material handling system shall not be considered
"objectionable" by Landlord. Outside storage, including without limitation,
storage of non-operable trucks and other non-operable vehicles, is prohibited
without Landlord's prior written consent; provided, however, that subject to
applicable Legal Requirements, Tenant shall be permitted to park trucks and
trailers used in Tenant's business operations on and from the Premises overnight
at the truck docks of the Premises and Tenant's customers shall be permitted to
park their vehicles overnight from time to time in the parking areas of the
Premises, provided such customer's vehicles and such trucks and trailers are at
all times in operable condition and there is no interference with the ingress
and egress of the Project, and provided, further, that subject to applicable
Legal Requirements, Tenant may store pallets, corrugated packaging supplies and
other similar shipping and storage supplies outside of the Premises in a fenced
location as mutually agreed to by Landlord and Tenant, so long as such storage
is conducted in a neat and orderly fashion. Except as otherwise set forth in the
Lease, Tenant, at its sole expense, shall use and occupy the Premises in
compliance with all laws, including, without limitation, the Americans With
Disabilities Act, orders, judgments, ordinances, regulations, codes, directives,
permits, licenses, covenants and restrictions now or hereafter applicable to the
Premises (collectively, "Legal Requirements"). Tenant shall, at its expense,
make any alterations or modifications, within or without the Premises, that are
required by Legal Requirements related to Tenant's specific use or occupation of
the Premises. Tenant will not use or permit the Premises to be used for any
purpose or in any manner that would void Tenant's or Landlord's insurance,
increase the insurance risk, or cause the disallowance of any sprinkler credits.
If any increase in the cost of any insurance on the Premises or the Project is
caused by Tenant's use or occupation of the Premises, or because Tenant vacates
the Premises, then Tenant shall pay the amount of such increase to Landlord. Any
occupation of the Premises by Tenant prior to the Commencement Date shall be
subject to all obligations of Tenant under this Lease.

               Notwithstanding anything contained herein to the contrary,
Tenant's obligations hereunder shall relate only to the interior of the Premises
and any changes to the Premises, the Building, or the Project that relate solely
to the specific manner of use of the Premises by Tenant; and Landlord shall make
all other additions to or modifications of the Project required from time to
time by Legal Requirements. The cost of such additions or modifications made by
Landlord shall be included in Operating Expenses pursuant to Paragraph 6 of this
Lease, except for those additions or modifications which are Landlord's sole
responsibility pursuant to the provisions of this Lease.

               Landlord represents that the improvements constructed or
installed by Landlord pursuant to the Construction Addendum attached to this
Lease shall comply in all material respects with all applicable covenants or
restrictions of record and all applicable laws, building codes, regulations and
ordinances in effect on the Commencement Date of this Lease.

               Notwithstanding anything contained herein to the contrary,
Landlord shall make such modifications as may be required by order or directive
of applicable governmental authority in order to bring the Building into
compliance with applicable laws as of the Commencement Date without cost or
expense to Tenant and without including such cost or expense as an Operating
Expense. Any modifications made by Landlord that are required by applicable laws
or regulations that become effective after the Commencement Date shall be
included in Operating Expenses pursuant to Paragraph 6 of this Lease, except for
those additions or modifications which are Landlord's sole responsibility
pursuant to the provisions of this Lease, or that are required as a result of
the Tenant's use of the Premises shall be chargeable to Tenant at its sole cost
and expense pursuant to the provisions of this Lease.


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        4.     BASE RENT. Tenant shall pay Base Rent in the amount set forth
above. The first month's Base Rent and the first monthly installment of
estimated Operating Expenses (as hereafter defined) shall be due and payable on
the date hereof, and Tenant promises to pay to Landlord in advance, without
demand, deduction or set-off, monthly installments of Base Rent on or before the
first day of each calendar month succeeding the Commencement Date. Payments of
Base Rent for any fractional calendar month shall be prorated. All payments
required to be made by Tenant to Landlord hereunder shall be payable at such
address as Landlord may specify from time to time by written notice delivered in
accordance herewith. The obligation of Tenant to pay Base Rent and other sums to
Landlord and the obligations of Landlord under this Lease are independent
obligations. Tenant shall have no right at any time to abate, reduce, or set-off
any rent due hereunder except as may be expressly provided in this Lease. If
Tenant is delinquent in any monthly installment of Base Rent or of estimated
Operating Expenses for more than 10 days, Tenant shall pay to Landlord on demand
a late charge equal to 5 percent of such delinquent sum. The provision for such
late charge shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as a penalty.

        5.     SECURITY DEPOSIT. The Security Deposit shall be due and payable
on or before the Commencement Date of this Lease, and shall be held by Landlord
as security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or part of the Security Deposit to
pay delinquent payments due under this Lease, and the cost of any damage,
injury, expense or liability caused by such Event of Default, without prejudice
to any other remedy provided herein or provided by law. Tenant shall pay
Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee. If the Security Deposit is in the form of a cash sum
payment, interest will accrue on the Security Deposit, for the benefit of the
Tenant, at an annual rate equal to the savings account rate in effect at
NationsBank N.A. as of the Commencement Date and adjusted annually, and such
interest shall be paid to Tenant on an annual basis. The Security Deposit shall
be the property of Landlord, but shall be paid to Tenant when Tenant's
obligations under this Lease have been completely fulfilled. Landlord shall be
released from any obligation with respect to the Security Deposit upon transfer
of this Lease and the Premises to a person or entity assuming Landlord's
obligations under this Paragraph 5.

        6.     OPERATING EXPENSE PAYMENTS. During each month of the Lease Term,
on the same date that Base Rent is due, Tenant shall pay Landlord an amount
equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the
Project. Payments thereof for any fractional calendar month shall be prorated.
The term "Operating Expenses" means all costs and expenses incurred by Landlord
with respect to the ownership, maintenance, and operation of the Project
including, but not limited to costs of: Taxes (hereinafter defined) and fees
payable to tax consultants and attorneys for consultation and contesting taxes;
insurance; utilities; maintenance, repair and replacement of all portions of the
Project, including without limitation, paving and parking areas, roads, roofs
(including the roof membrane), alleys, and driveways, mowing, landscaping,
exterior painting, utility lines, heating, ventilation and air conditioning
systems, lighting, electrical systems and other mechanical and building systems;
amounts paid to contractors and subcontractors for work or services performed in
connection with any of the foregoing; charges or assessments of any association
to which the Project is subject; property management fees payable to a property
manager, including any affiliate of Landlord calculated at $0.06 ps.f. per
annum; security services, if any; trash collection, sweeping and removal; and
additions or alterations made by Landlord to the Project or the Building in
order to comply with Legal Requirements enacted after the Commencement Date
(other than those expressly required herein to be made by Tenant or Landlord) or
that are appropriate to the continued operation of the Project or the Building
as a bulk warehouse facility in the market area. The cost of additions or
alterations or repairs that are required to be capitalized for federal income
tax purposes shall be amortized on a straight line basis over a period equal to
the useful life thereof for federal income tax purposes. Operating Expenses do
not include costs, expenses, depreciation or amortization for capital repairs
and capital replacements required to be made by Landlord under Paragraph 10 of
this Lease, debt service under mortgages or ground rent under ground leases,
costs of restoration to the extent of net insurance proceeds received by
Landlord with respect thereto, leasing commissions, or the costs of renovating
space for tenants. Further, Operating Expenses shall not mean or include: (i)
costs incurred in connection with the construction or remodeling of the Project
or any other improvements now or hereafter located thereon, correction of
defects in design or construction; (ii) interest, principal, or other payments
on account of any indebtedness that is secured by any encumbrance on any part of
the Project, or rental or other payments under any ground lease, or any payments
in the nature of returns on or of equity of any kind; (iii) costs of selling,
syndicating, financing, mortgaging or hypothecating any part of or interest in
the Project; (iv) taxes on the income of Landlord or Landlord's franchise taxes
(unless any of said taxes are hereafter instituted by applicable taxing
authorities in substitution for ad valorem real property taxes); (v)
depreciation; (vi) Landlord's overhead costs, including equipment, supplies,
accounting and legal fees, rent and other occupancy costs or any other costs
associated with the operation or internal organization and function of Landlord
as a business entity (but this provision does not prevent the payment of a
management fee to Landlord as provided in this Paragraph 6); (vii) fees or other
costs for professional services provided by space planners, architects,
engineers, and other similar professional consultants, real estate commissions,
and marketing and advertising expenses; (viii) costs of defending or prosecuting
litigation with any party, unless a favorable judgment would reduce or avoid an
increase in Operating Expenses, or unless the litigation is to enforce
compliance with Rules and Regulations of the Project, or other standards or
requirements for the general benefit of the tenants in the Project; (ix) costs
incurred as a result of Landlord's violation or breach of this Lease or of any
other lease, contract, law or ordinance, including fines and penalties; (x) late
charges, interest or penalties of any kind for late or other improper payment of
any public or private obligation, including ad valorem taxes; (xi) costs of
removing Hazardous Materials or of correcting any other conditions in order


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to comply with any environmental law or ordinance (but this exclusion shall not
constitute a release by Landlord of Tenant for any such costs for which Tenant
is liable pursuant to Paragraph 30 of this Lease); (xii) costs for which
Landlord is reimbursed from any other source; (xiii) costs related to any
building or land not included in the Project, including any allocation of costs
incurred on a shared basis, such as centralized accounting costs, unless the
allocation is made on a reasonable and consistent basis that fairly reflects the
share of costs actually attributable to the Project; (xiv) the part of any costs
or other sum paid to any affiliate of Landlord that may exceed the fair market
price or cost generally payable for substantially similar goods or services in
the area of the Project; (xv) bad debt expenses; (xvi) costs arising from
Landlord's charitable or political contributions, if any; and (xvii) the cost of
Landlord's compliance with the provisions of Paragraphs 2, 3, 10 and 15 hereof,
or any other costs which are charged to Landlord and not to be borne by Tenant
under the terms of the Lease.

               Notwithstanding anything contained herein to the contrary, the
property management fees payable to a property manager, including any affiliate
of Landlord as set forth in this Paragraph 6 shall not exceed $0.06 p.s.f. per
annum throughout the initial Lease Term.

               Landlord shall provide Tenant within 90 days following the final
day of the calendar year Landlord's itemized year-end common area maintenance
reconciliation reports which reference and include all applicable Operating
Expenses for such year. Upon Tenant's written request (which request shall be
limited to once in a calendar year), Landlord shall provide photocopies of
invoices, bills and other verification to substantiate such costs. If Tenant's
total payments of Operating Expenses for any year are less than Tenant's
Proportionate Share of actual Operating Expenses for such year, then Tenant
shall pay the difference to Landlord within 30 days after demand, and if more,
then Landlord shall retain such excess and credit it against Tenant's next
payments. For purposes of calculating Tenant's Proportionate Share of Operating
Expenses, a year shall mean a calendar year except the first year, which shall
begin on the Commencement Date, and the last year, which shall end on the
expiration of this Lease. With respect to Operating Expenses which Landlord
allocates to the entire Project, Tenant's "Proportionate Share" shall be the
percentage set forth on the first page of this Lease as Tenant's Proportionate
Share of the Project as reasonably adjusted by Landlord in the future for
changes in the physical size of the Premises or the Project; and, with respect
to Operating Expenses which Landlord allocates only to the Building, Tenant's
"Proportionate Share" shall be the percentage set forth on the first page of
this Lease as Tenant's Proportionate Share of the Building as reasonably
adjusted by Landlord in the future for changes in the physical size of the
Premises or the Building. Landlord may equitably increase Tenant's Proportionate
Share for any item of expense or cost reimbursable by Tenant that relates to a
repair, replacement, or service that benefits only the Premises or only a
portion of the Project or Building that includes the Premises or that varies
with occupancy or use. The estimated Operating Expenses for the Premises set
forth on the first page of this Lease are only estimates, and Landlord makes no
guaranty or warranty that such estimates will be accurate.

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

        8.     TAXES. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof. If Landlord
fails to contest the real estate taxes, Tenant shall have the right to request
Landlord to contest such taxes, and Landlord shall so contest, at Tenant's sole
cost and expense (including, without limitation, Landlord's reasonable
attorneys' fees and reasonable fees payable to tax consultants and attorneys for
consultation and contesting taxes) , if, in Landlord's reasonable judgment, such
contest is warranted; provided, however, Tenant's request of such contesting of
Taxes shall be limited to one request in a calendar year. Landlord shall
cooperate in the institution and prosecution of any such proceedings of
contesting taxes and will execute any documents reasonably required therefor.
All reductions, refunds, or rebates of Taxes paid or payable by Tenant shall
belong to Tenant whether as a consequence of a Tenant proceeding or otherwise.
All capital levies or other taxes assessed or imposed on Landlord upon the rents
payable to Landlord under this Lease and any franchise tax, any excise,
transaction, sales or privilege tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents from the Premises and/or the Project
or any portion thereof shall be paid by Tenant to Landlord monthly in estimated
installments or upon demand, at the option of Landlord, as additional rent;
provided, however, in no event shall Tenant be liable for any net income taxes
imposed on Landlord unless such net income taxes are in substitution for any
Taxes payable hereunder. If any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require.
Tenant shall be liable for all taxes levied or assessed against any personal
property or fixtures placed in the Premises, whether levied or assessed against
Landlord or Tenant.

        9.     INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any


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increased premiums or additional insurance which Landlord reasonably deems
necessary as a result of Tenant's use of the Premises.

               Tenant, at its expense, shall maintain during the Lease Term: all
risk property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days' prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.

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

               Tenant and its subtenants, assignees, invitees, employees,
contractors and agents shall not be liable for, and Landlord hereby waives all
claims against Tenant and its subtenants, assignees, invitees, employees,
contractors and agents for damage to property sustained by Landlord or any
person claiming through Landlord resulting from any accident or occurrence in or
upon the Premises or in or about the Project from any cause whatsoever,
including, without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Tenant or its subtenants, assignees, invitees,
employees, contractors or agents; provided, however, such waiver shall only
apply to claims in excess of the commercially reasonable deductible under
Landlord's insurance policy.

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

               In the event of an emergency, Tenant shall have the right to make
such temporary, emergency repairs (and only such temporary, emergency repairs)
to the roof, foundation or exterior walls of the Project as may be reasonably
necessary to prevent material damage to Tenant's property at the Premises and/or
personal injury to Tenant's employees at the Premises (provided Tenant first
attempts to notify Landlord telephonically of such emergency and notifies
Landlord of such circumstances in writing as soon as practicable thereafter). In
such event, Landlord shall reimburse Tenant for the reasonable, out-of-pocket
costs actually incurred by Tenant in making such repairs. If Landlord fails to
reimburse Tenant for the reasonable, out-of-pocket costs incurred by Tenant in
making such repairs, up to but not to exceed $25,000.00 with respect to such
emergency, within 30 days after demand therefor, accompanied by supporting
evidence of the costs incurred by Tenant, then Tenant may bring an action for
damages against Landlord to recover such costs, together with interest thereof
at the rate provided for in Paragraph 37(j) of the Lease, and reasonable
attorney's fees incurred by Tenant in bringing such action for damages. In no
event, however, shall Tenant have a right to terminate the Lease.

        11.    TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligations as set forth in this Lease and subject to Paragraphs 9 and 15,
Tenant, at its expense, shall repair, replace and maintain in good condition all
portions of the Premises and all areas, improvements and systems exclusively
serving the Premises including, without limitation, dock and loading areas,
truck doors, plumbing, water and sewer lines up to points of common connection,
fire sprinklers and fire protection systems, entries, doors, ceilings, windows,
interior walls, and the interior side of demising walls, and heating,
ventilation and air conditioning systems. Such repair and replacements include
capital expenditures and repairs whose benefit may extend beyond the Term.
Heating, ventilation and air conditioning systems and fire sprinklers and fire
protection systems serving the Premises shall be maintained at Tenant's expense
pursuant to maintenance service contracts entered into by Tenant. The scope of
services and


                                      -5-
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contractors under such maintenance contracts shall be reasonably approved by
Landlord. If Tenant fails to perform any repair or replacement for which it is
responsible, Landlord may perform such work and be reimbursed by Tenant within
10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear
the full cost of any repair or replacement to any part of the Building or
Project that results from damage caused by Tenant, its agents, contractors, or
invitees and any repair that benefits only the Premises.

        12.    TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") in excess of $50,000 shall be subject to Landlord's
prior written consent, which shall not be unreasonably withheld provided that
such alteration does not materially affect the structure or the roof of the
Building, or modify the utility systems of the Project. Tenant shall cause, at
its expense, all Tenant-Made Alterations to comply with insurance requirements
and with Legal Requirements and shall construct at its expense any alteration or
modification required by Legal Requirements as a result of any Tenant-Made
Alterations. All Tenant-Made Alterations shall be constructed in a good and
workmanlike manner by contractors reasonably acceptable to Landlord and only
good grades of materials shall be used. All plans and specifications for any
Tenant-Made Alterations shall be submitted to Landlord for its approval.
Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall
reimburse Landlord for its reasonable costs in reviewing plans and
specifications and in monitoring construction. Landlord's right to review plans
and specifications and to monitor construction shall be solely for its own
benefit, and Landlord shall have no duty to see that such plans and
specifications or construction comply with applicable laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall furnish
security or make other arrangements reasonably satisfactory to Landlord to
assure payment for the completion of all work free and clear of liens and shall
provide certificates of insurance for worker's compensation and other coverage
in amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all contractors
and subcontractors who did work on the Tenant-Made Alterations and final lien
waivers from all such contractors and subcontractors. Upon surrender of the
Premises, all Tenant-Made Alterations and any leasehold improvements constructed
by Landlord or Tenant shall remain on the Premises as Landlord's property,
except to the extent Landlord requires removal at Tenant's expense of any such
items or Landlord and Tenant have otherwise agreed in writing in connection with
Landlord's consent to any Tenant-Made Alterations. Upon Tenant's written
request, Landlord shall provide Tenant, at the time of Tenant's request for
approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations
Landlord will require Tenant to remove upon surrender of the Premises. Tenant
shall repair any damage caused by such removal.

               Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.

        13.    SIGNS. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Upon surrender or
vacation of the Premises, Tenant shall have removed all signs and repair, paint,
and/or replace the building facia surface to which its signs are attached.
Tenant shall obtain all applicable governmental permits and approvals for sign
and exterior treatments. All signs, decorations, advertising media, blinds,
draperies and other window treatment or bars or other security installations
visible from outside the Premises shall be subject to Landlord's approval and
conform in all respects to Landlord's requirements. Notwithstanding anything
contained herein to the contrary, Tenant, at Tenant's sole cost and expense, may
place a new monument sign, in substantially similar form as described on the
attached Exhibit C, in front of the Building along the Mission Boulevard
frontage within the boundaries of the Project, as more fully described on the
attached Exhibit A. Further, Tenant, at Tenant's sole cost and expense, may
place its company logo sign, in substantially similar form as described on the
attached Exhibit B, above the two (2) main entrances of the Premises, as more
fully described on the attached Exhibit A. Further, Tenant, at Tenant's sole
cost and expense, may place a "name sign", in substantially similar form as
described on the attached Exhibit D, at the three (3) locations where the
current eToys signage is currently displayed, as more fully described on the
attached Exhibit A. Further, Landlord hereby agrees that Tenant, at Tenant's
sole cost and expense, may repaint the existing green accents on the Building to
the color of blue which is consistent with Tenant's branding. Such repainting
shall be performed in a good and workmanlike manner using first class grade
materials and paint, and shall not increase the width of such accents on the
Building or adversely impact the overall appearance of the Building.

        14.    PARKING. Tenant shall be allocated the parking areas of the
Building as more fully described on the attached Exhibit A. Landlord shall not
be responsible for enforcing Tenant's parking rights against any third parties.

        15.    RESTORATION. If at any time during the Lease Term the Premises
are damaged by a fire or other casualty, Landlord shall notify Tenant within 30
days after such damage as to the amount of time Landlord reasonably estimates it
will take to restore the Premises. If the restoration time is estimated to
exceed 4 months and such damage


                                      -6-
<PAGE>
materially interferes with Tenant's use of the Premises, Tenant may elect to
terminate this Lease upon notice to Landlord given no later than 30 days after
Landlord's notice. If Tenant elects not to terminate this Lease or if Landlord
estimates that restoration will take 4 months or less, then, Landlord shall
promptly restore the Premises excluding the improvements installed by Tenant or
by Landlord and paid by Tenant, subject to delays arising from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in accordance with
this Lease. Notwithstanding the foregoing, either party may terminate this Lease
if the Premises are damaged during the last 9 months of the Lease Term and
Tenant has not exercised its option to renew, as applicable, (as hereinafter
described in Addendum 3), and Landlord reasonably estimates that it will take
more than one month to repair such damage. Base Rent and Operating Expenses
shall be abated for the period of repair and restoration in the proportion which
the area of the Premises, if any, which is not usable by Tenant bears to the
total area of the Premises. Such abatement shall be the sole remedy of Tenant,
and except as provided herein, Tenant waives any right to terminate the Lease by
reason of damage or casualty loss.

        16.    CONDEMNATION. If any part of the Premises or the Project should
be taken for any public or quasi-public use under governmental law, ordinance,
or regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. Tenant shall have the right, to
the extent that same shall not diminish Landlord's award, to make a separate
claim against the condemning authority (but not Landlord) for such compensation
as may be separately awarded or recoverable by Tenant.

        17.    ASSIGNMENT AND SUBLETTING. Without Landlord's prior written
consent, which Landlord shall not unreasonably withhold or delay, Tenant shall
not assign this Lease or sublease the Premises or any part thereof or mortgage,
pledge, or hypothecate its leasehold interest or grant any concession or license
within the Premises and any attempt to do any of the foregoing shall be void and
of no effect. For purposes of this paragraph, a transfer of the ownership
interests controlling Tenant shall be deemed an assignment of this Lease unless
such ownership interests are publicly traded or unless such transfers do not
result in a loss of such control. Notwithstanding the above, Tenant may assign
or sublet the Premises, or any part thereof, to any entity controlling Tenant,
controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"),
without the prior written consent of Landlord. Tenant shall reimburse Landlord
for all of Landlord's reasonable out-of-pocket expenses in connection with any
assignment or sublease.

               It shall be reasonable for the Landlord to withhold its consent
to any assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the proposed
sublease or assignment; (ii) the assignee or sublessee does not have a net worth
calculated according to generally accepted accounting principles at least equal
to $100 million immediately prior to such assignment or sublease; (iii) the
intended use of the Premises by the assignee or sublessee is not reasonably
satisfactory to Landlord; (iv) the identity or business reputation of the
assignee or sublessee will, in the good faith judgment of Landlord, tend to
damage the goodwill or reputation of the Project; (v) in the case of a sublease,
the subtenant has not acknowledged that the Lease controls over any inconsistent
provision in the sublease; or (vi) the proposed assignee or sublessee is a
governmental agency. Tenant and Landlord acknowledge that each of the foregoing
criteria are reasonable as of the date of execution of this Lease. The foregoing
criteria shall not exclude any other reasonable basis for Landlord to refuse its
consent to such assignment or sublease. Any approved assignment or sublease
shall be expressly subject to the terms and conditions of this Lease. Tenant
shall provide to Landlord all information concerning the assignee or sublessee
as Landlord may request.

               Notwithstanding anything contained herein to the contrary,
Landlord hereby consents to the entering into of that certain Sublease Agreement
dated March 30, 2001 ("eToys Sublease") between Tenant, as sublessor, and eToys,
Inc., as subtenant ("Subtenant"), upon the express understandings and conditions
that (a) Landlord neither approves nor disapproves the terms, conditions and
agreements contained in the eToys Sublease (all of which shall be subordinate
and subject at all times to the terms, covenants and conditions of this Lease)
and assumes no liability or obligation of any kind whatsoever on account of
anything contained in the eToys Sublease; (b) by consenting to the eToys
Sublease, Landlord shall not be deemed to have waived any rights under this
Lease nor shall Landlord be deemed to have waived Tenant's obligations to obtain
any required consents under this Lease (other than consent to the eToys Sublease
itself); (c) Notwithstanding anything in the eToys Sublease to the contrary,
Tenant shall be and continue to remain liable for the payment of rent and the
full and prompt performance of all of the obligations of Tenant under and as set
forth in this Lease; (d) Nothing contained in the eToys Sublease shall be taken
or construed to in any way modify, alter, waive or affect any of the terms,
covenants or conditions contained in this Lease, or be deemed to grant Subtenant
any privity of contract with Landlord, or require Landlord to accept any
payments from Subtenant on behalf of Tenant; (e) The eToys Sublease shall be
deemed and agreed to be a sublease only and not an assignment and there shall be
no further subletting or assignment of all or any portion of the Premises under
this Lease (including the premises demised by the foregoing eToys Sublease)
except in accordance with the terms and conditions of this Lease; and (f) If
Landlord terminates this Lease as a result of a default by Tenant thereunder,
the eToys Sublease shall automatically terminate concurrently therewith.


                                      -7-
<PAGE>

               Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder 50% of all such excess
rental and other excess consideration within 10 days following receipt thereof
by Tenant, except as the same applies to the eToys Sublease, in which case
Tenant shall not be obligated to Landlord for the payment of such excess rental
or other excess consideration.

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

        18.    INDEMNIFICATION. Except for the negligence of Landlord, its
agents, employees or contractors, and to the extent permitted by law, Tenant
agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents,
employees and contractors, from and against any and all losses, liabilities,
damages, costs and expenses (including attorneys' fees) resulting from claims by
third parties for injuries to any person and damage to or theft or
misappropriation or loss of property occurring in or about the Project and
arising from the use and occupancy of the Premises or from any activity, work,
or thing done, permitted or suffered by Tenant in or about the Premises or due
to any other act or omission of Tenant, its subtenants, assignees, invitees,
employees, contractors and agents. The furnishing of insurance required
hereunder shall not be deemed to limit Tenant's obligations under this Paragraph
18. Further, the foregoing provisions of this Paragraph 18 shall not be deemed
to limit the mutual waiver of subrogation between Landlord and Tenant as set
forth in Paragraph 9 of this Lease in connection with any loss or damage caused
by any risk coverable by all risk property insurance, whereby Landlord and
Tenant waive any claims against each other, and its officers, directors,
employees, managers, agents, invitees and contractors for such loss or damage
coverable by all risk property insurance.

        19.    INSPECTION AND ACCESS. Landlord and its agents, representatives,
and contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose. Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants. Landlord may erect a suitable sign on the
Premises stating the Premises are available to let or that the Project is
available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.

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

        21.    SURRENDER. Upon termination of the Lease Term or earlier
termination of Tenant's right of possession, Tenant shall surrender the Premises
to Landlord in the same condition as received, broom clean, ordinary wear and
tear and casualty loss and condemnation covered by Paragraphs 15 and 16 and
Tenant's removal or non-removal of Tenant-Made Alterations pursuant to the
provisions of Paragraph 12 excepted. Any Trade Fixtures, Tenant-Made Alterations
and property not so removed by Tenant as permitted or required herein shall be
deemed abandoned and may be stored, removed, and disposed of by Landlord at
Tenant's expense, and Tenant waives all claims against Landlord for any damages
resulting from Landlord's retention and disposition of such property. All
obligations of Tenant hereunder not fully performed as of the termination of the
Lease Term shall survive the termination of the Lease Term, including without
limitation, indemnity obligations, payment obligations with respect to Operating
Expenses and obligations concerning the condition and repair of the Premises.

        22.    HOLDING OVER. If Tenant retains possession of the Premises after
the termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to double the
Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over. All other payments shall
continue under the terms of this Lease. In addition, Tenant shall be liable for
all damages incurred by Landlord as a result of such holding over. No holding
over by Tenant, whether with or without consent of Landlord,


                                      -8-
<PAGE>

shall operate to extend this Lease except as otherwise expressly provided, and
this Paragraph 22 shall not be construed as consent for Tenant to retain
possession of the Premises.

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

               (i)    Tenant shall fail to pay any installment of Base Rent or
        any other payment required herein when due, and such failure shall
        continue for a period of 10 days from the date such payment was due.

               (ii)   Tenant or any guarantor or surety of Tenant's obligations
        hereunder shall (A) make a general assignment for the benefit of
        creditors; (B) commence any case, proceeding or other action seeking to
        have an order for relief entered on its behalf as a debtor or to
        adjudicate it a bankrupt or insolvent, or seeking reorganization,
        arrangement, adjustment, liquidation, dissolution or composition of it
        or its debts or seeking appointment of a receiver, trustee, custodian or
        other similar official for it or for all or of any substantial part of
        its property (collectively a "proceeding for relief"); (C) become the
        subject of any proceeding for relief which is not dismissed within 60
        days of its filing or entry; or (D) die or suffer a legal disability (if
        Tenant, guarantor, or surety is an individual) or be dissolved or
        otherwise fail to maintain its legal existence (if Tenant, guarantor or
        surety is a corporation, partnership or other entity).

               (iii)  Any insurance required to be maintained by Tenant pursuant
        to this Lease shall be cancelled or terminated or shall expire or shall
        be reduced or materially changed, except, in each case, as permitted in
        this Lease.

               (iv)   Tenant shall not occupy or shall vacate the Premises or
        shall fail to continuously operate its business at the Premises for the
        permitted use set forth herein, whether or not Tenant is in monetary or
        other default under this Lease.

               (v)    Tenant shall attempt or there shall occur any assignment,
        subleasing or other transfer of Tenant's interest in or with respect to
        this Lease except as otherwise permitted in this Lease.

               (vi)   Tenant shall fail to discharge any lien placed upon the
        Premises in violation of this Lease within 30 days after any such lien
        or encumbrance is filed against the Premises.

               (vii)  Tenant shall fail to comply with any provision of this
        Lease other than those specifically referred to in this Paragraph 23,
        and except as otherwise expressly provided herein, such default shall
        continue for more than 30 days after Landlord shall have given Tenant
        written notice of such default.

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

               Except as otherwise provided in the next paragraph, if Tenant
breaches this Lease and abandons the Premises prior to the end of the term
hereof, or if Tenant's right to possession is terminated by Landlord because of
an Event of Default by Tenant under this Lease, this Lease shall terminate. Upon
such termination, Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the Civil Code of California: (i) the worth at the time of
award of the unpaid Base Rent and other charges under this Lease that had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the reasonable value of the unpaid Base Rent and other charges
under this Lease which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; (iii) the worth at the time of the award by which the
reasonable value of the unpaid Base Rent and other charges under this Lease for
the balance of the term of this Lease after the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or that in the ordinary course of things would be likely to result
therefrom. As used herein, the following terms are defined: (a) the "worth at
the time of award" of the amounts referred to in Sections (i) and (ii) is
computed by allowing interest at the lesser of 18 percent per annum or the
maximum lawful rate. The "worth at the time of award" of the amount referred to
in Section (iii) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent;
(b) the "time of award" as used in clauses (i), (ii), and (iii) above is the
date on which judgment is entered by a court of competent jurisdiction; (c) The
"reasonable value" of the amount referred to in clause (ii) above is computed by
determining the mathematical product of (1) the "reasonable annual rental value"
(as defined herein) and (2) the number of years, including fractional parts
thereof, between the date of termination and the time of award. The "reasonable
value" of the amount referred to in clause (iii) is computed by determining the
mathematical product of (1) the annual Base Rent and other charges under this
Lease and (2) the number of years including fractional parts thereof remaining
in the balance of the term of this Lease after the time of award.


                                      -9-
<PAGE>

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

               Exercise by Landlord of any one or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Premises and/or a termination of this Lease by Landlord,
whether by agreement or by operation of law, it being understood that such
surrender and/or termination can be effected only by the written agreement of
Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding,
Landlord shall have the right at all times to enforce the provisions of this
Lease in strict accordance with the terms hereof; and the failure of Landlord at
any time to enforce its rights under this Lease strictly in accordance with same
shall not be construed as having created a custom in any way or manner contrary
to the specific terms, provisions, and covenants of this Lease or as having
modified the same. Tenant and Landlord further agree that forbearance or waiver
by Landlord to enforce its rights pursuant to this Lease or at law or in equity,
shall not be a waiver of Landlord's right to enforce one or more of its rights
in connection with any subsequent default. A receipt by Landlord of rent or
other payment with knowledge of the breach of any covenant hereof shall not be
deemed a waiver of such breach, and no waiver by Landlord of any provision of
this Lease shall be deemed to have been made unless expressed in writing and
signed by Landlord. To the greatest extent permitted by law, Tenant waives the
service of notice of Landlord's intention to re-enter as provided for in any
statute, or to institute legal proceedings to that end, and also waives all
right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms "enter," "re-enter," "entry" or
"re-entry," as used in this Lease, are not restricted to their technical legal
meanings. Any reletting of the Premises shall be on such terms and conditions as
Landlord in its sole discretion may determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any tenant
and leasing any or all other portions of the Project before reletting the
Premises). Landlord shall not be liable, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet the Premises or
collect rent due in respect of such reletting.

        25.    TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be
in default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, it being understood that Landlord shall not be released from any
obligations accruing prior to such transfer unless such obligations have been
assumed in writing by Landlord's successor, but such obligations shall be
binding during the Lease Term upon each new owner for the duration of such
owner's ownership. Any liability of Landlord under this Lease shall be limited
solely to its interest in the Project, and in no event shall any personal
liability be asserted against Landlord in connection with this Lease nor shall
any recourse be had to any other property or assets of Landlord.

        26.    Intentionally deleted.

        27.    SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Tenant hereby appoints Landlord attorney
in fact for Tenant irrevocably (such power of attorney being coupled with an
interest) to execute, acknowledge and deliver any such instrument and
instruments for and in the name of the Tenant and to cause any such instrument
to be recorded. Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with respect
to this Lease as though this Lease had been executed prior to the execution,
delivery and recording of such mortgage and had been assigned to such holder.
The term "mortgage" whenever used in this Lease shall be deemed to include deeds
of trust, security assignments and any other encumbrances, and any reference to
the "holder" of a mortgage shall be deemed to include the beneficiary under a
deed of trust.

               Tenant shall not be obligated to subordinate the Lease or its
interest therein to any mortgage, deed of


                                      -10-
<PAGE>

trust or ground lease on the Project unless concurrently with such subordination
the holder of such mortgage or deed of trust or the ground lessor under such
ground lease agrees not to disturb Tenant's possession of the Premises under the
terms of the Lease in the event such holder or ground lessor acquires title to
the Premises through foreclosure, deed in lieu of foreclosure or otherwise.
Landlord shall use commercially reasonable and good faith efforts to obtain a
non-disturbance agreement from any such holder or ground lessor existing as of
the Commencement Date for the benefit of Tenant.

        28.    MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease. Tenant shall give Landlord immediate written notice of the placing
of any lien or encumbrance against the Premises and cause such lien or
encumbrance to be discharged within 30 days of the filing or recording thereof;
provided, however, Tenant may contest such liens or encumbrances as long as such
contest prevents foreclosure of the lien or encumbrance and Tenant causes such
lien or encumbrance to be bonded or insured over in a manner satisfactory to
Landlord within such 30 day period.

        29.    ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within
10 days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate. Tenant hereby irrevocably appoints Landlord as
its attorney in fact to execute on its behalf and in its name any such estoppel
certificate if Tenant fails to execute and deliver the estoppel certificate
within 10 days after Landlord's written request thereof.

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

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

               Landlord shall have access to, and a right to perform inspections
and tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's


                                      -11-
<PAGE>

operations. Such inspections and tests shall be conducted at Landlord's expense,
unless such inspections or tests reveal that Tenant has not complied with any
Environmental Requirement, in which case Tenant shall reimburse Landlord for the
reasonable cost of such inspection and tests. Landlord's receipt of or
satisfaction with any environmental assessment in no way waives any rights that
Landlord holds against Tenant.

               Landlord represents and warrants that except for information
contained in the Phase I Environmental Assessment Report dated June 19, 2000 and
prepared by ATC Associates Inc., Landlord, to Landlord's knowledge without
further inquiry, is unaware of any environmental conditions affecting the
Premises.

               Notwithstanding anything to the contrary in this Paragraph 30,
Tenant shall have no liability of any kind to Landlord as to Hazardous Materials
on the Premises caused or permitted by (i) Landlord, its agents, employees,
contractors or invitees; or (ii) any other tenants in the Project or their
agents, employees, contractors, subtenants, assignees or invitees; or (iii) any
other person or entity located outside of the Premises or the Project.

               Landlord shall indemnify, defend and save Tenant harmless from
any claims, fines, penalties, liabilities, losses, damages, costs and expenses
(including reasonable attorney's fees, expert witness fees and other costs of
defense) which arise from any environmental condition existing prior to the
Commencement Date adversely affecting the Premises and in violation of
Environmental Requirements.

        31.    RULES AND REGULATIONS. Tenant shall, at all times during the
Lease Term and any extension thereof, comply with all reasonable rules and
regulations at any time or from time to time established by Landlord covering
use of the Premises and the Project. The current rules and regulations are
attached hereto. In the event of any conflict between said rules and regulations
and other provisions of this Lease, the other terms and provisions of this Lease
shall control. Landlord shall not have any liability or obligation for the
breach of any rules or regulations by other tenants in the Project.

        32.    SECURITY SERVICE. Tenant acknowledges and agrees that, while
Landlord may patrol the Project, Landlord is not providing any security services
with respect to the Premises and that Landlord shall not be liable to Tenant
for, and Tenant waives any claim against Landlord with respect to, any loss by
theft or any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.

        33.    FORCE MAJEURE. Except for monetary obligations, neither Landlord
nor Tenant shall be held responsible for delays in the performance of its
obligations hereunder when caused by strikes, lockouts, labor disputes, acts of
God, inability to obtain labor or materials or reasonable substitutes therefor,
governmental restrictions, governmental regulations, governmental controls,
delay in issuance of permits, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of Landlord or Tenant ("Force Majeure").

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

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

        36.    BROKERS. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, other than the
broker, if any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction. Landlord hereby acknowledges and agrees that the broker referenced
on Page One of this Lease shall be entitled to a leasing commission from
Landlord by virtue of this Lease, which leasing commission shall be deemed
earned and shall be paid by Landlord to said broker in accordance with, and
subject to the terms of, a separate written agreement.

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

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


                                      -12-
<PAGE>

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

        (d)    Except as otherwise expressly provided in this Lease or as
otherwise required by law, Landlord's right to withhold any consent or approval
shall not be unreasonably withheld or delayed.

        (e)    Intentionally deleted.

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

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

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

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

        (j)    Any amount not paid by Tenant within 10 days after its due date
in accordance with the terms of this Lease shall bear interest from such due
date until paid in full at the lesser of the highest rate permitted by
applicable law or 12 percent per year. It is expressly the intent of Landlord
and Tenant at all times to comply with applicable law governing the maximum rate
or amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken ,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.

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

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

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

        38.    LANDLORD'S LIEN/SUBORDINATION. Provided Tenant is not in default
under the Lease, Landlord, at the request of Tenant, agrees to subordinate
Landlord's lien, if any, arising under the Lease against Tenant's property or
any of Tenant's leased or financed property located on the Premises and agrees
that Tenant's property or its leased or financed property shall not become part
of the Premises or encumbered by a lien by Landlord regardless of the manner in
which the leased or financed property may be attached or affixed to the
Premises. Such subordination shall be required only if the lender or lessor
shall be a bank or other financial institution or the vendor of Tenant's
equipment or a financing entity related to such vendor and shall be subject to
such conditions as Landlord may reasonably require. Tenant shall reimburse
Landlord for all reasonable out-of-pocket expenses incurred by Landlord in
negotiating and executing such agreement with Tenant's lender.

        39.    LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS
OF PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument, transaction, or undertaking contemplated hereby shall not be
personally binding upon, nor shall resort for the enforcement thereof be had to
the property of, its trustees, directors, shareholders, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort, or otherwise.

        40.    LIMITATION OF LIABILITY OF DIRECTORS, SHAREHOLDERS, AND OFFICERS
OF SKECHERS U.S.A., INC. Any obligation or liability whatsoever of Skechers
U.S.A., Inc., a Delaware corporation, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument,


                                      -13-
<PAGE>

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



                                      -14-
<PAGE>

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


TENANT:                                  LANDLORD:

SKECHERS U.S.A., INC                     PROLOGIS CALIFORNIA I LLC

                                         BY: PROLOGIS TRUST, ITS MANAGING MEMBER


By:    /s/ DAVID WEINBERG                By:    /s/ NED K. ANDERSON
   ---------------------------------        ------------------------------------
Name:  David Weinberg                    Name:  Ned K. Anderson
     -------------------------------     Title: Managing Director
Title: CFO
      ------------------------------

                                         Address:

By:    /s/ PHILIP G. PACCIONE            47775 Fremont Blvd.
   ---------------------------------     Fremont, CA  94538
Name:  Philip G. Paccione
     -------------------------------
Title: V.P. and Corporate Secretary

Address:

228 Manhattan Beach Blvd.
Manhattan Beach, CA  90266



                                      -15-
<PAGE>

                              Rules and Regulations

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

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

3.      Except for seeing-eye dogs, no animals shall be allowed in the offices,
        halls, or corridors in the Project.

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

5.      Except as otherwise set forth in the Lease, if Tenant desires
        telegraphic, telephonic or other electric connections in the Premises,
        no boring or cutting of wires will be permitted without Landlord's prior
        consent, which shall not be unreasonably withheld or delayed. Any such
        installation or connection shall be made at Tenant's expense.

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

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

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

9.      Landlord reserves the right to exclude or expel from the Project any
        person who, in the judgment of Landlord, is intoxicated or under the
        influence of liquor or drugs or who shall in any manner do any act in
        violation of the Rules and Regulations of the Project.

10.     Tenant shall not cause any unnecessary labor by reason of Tenant's
        carelessness or indifference in the preservation of good order and
        cleanliness. Landlord shall not be responsible to Tenant for any loss of
        property on the Premises, however occurring, or for any damage done to
        the effects of Tenant by the janitors or any other employee or person.

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

12.     Except as otherwise set forth in the Lease, Tenant shall not permit
        storage outside the Premises, including without limitation, outside
        storage of trucks and other vehicles, or dumping of waste or refuse or
        permit any harmful materials to be placed in any drainage system or
        sanitary system in or about the Premises.

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

14.     No auction, public or private, will be permitted on the Premises or the
        Project without Landlord's prior written consent, which consent shall
        not be unreasonably withheld or delayed.

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

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

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

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

19.     Tenant shall not install or operate on the Premises any machinery or
        mechanical devices of a nature not related to Tenant's use of the
        Premises as permitted under the Lease.


                                      -16-
<PAGE>

                                   ADDENDUM 1

                              BASE RENT ADJUSTMENTS

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


        Base Rent shall equal the following amounts for the respective periods
set forth below:

<TABLE>
<CAPTION>
               Period                                     Monthly Base Rent
               ------                                     -----------------
<S>                                                       <C>
        Month 1 through Month 60                          $217,520.00

        Month 61 through Month 90                         $236,601.00

        Month 91 through Month 120                        $251,865.00
</TABLE>





                                      -17-
<PAGE>

                                   ADDENDUM 2

                                  CONSTRUCTION
                                   (ALLOWANCE)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


               (a)    Landlord agrees to furnish or perform those items of
construction and those improvements (the "Initial Improvements") specified
below:

                      Dock equipment packages including levelers, seals,
                      shelters, bumpers, lighting and foil insulation (provided
                      such insulation is installed in such a manner that it is
                      held back from the purlin hangers in a manner approved by
                      Landlord) and general purpose electrical wiring and
                      distribution which shall be mutually agreed upon between
                      Landlord and Tenant.

Landlord shall pay for the Initial Improvements up to a maximum amount of
$650,000.00, and Tenant shall pay for the cost of the Initial Improvements in
excess of such amount. If the cost of the Initial Improvements is estimated to
exceed such amount, such estimated overage shall be paid by Tenant before
Landlord begins construction and a final adjusting payment based upon the actual
costs of the Initial Improvements shall be made when the Initial Improvements
are complete.

Landlord will competitively bid all Initial Improvements and will disclose such
bids to Tenant on an "open book" basis.

               (b)    If Tenant shall desire any changes, Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Initial
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.

               (c)    Landlord shall proceed with and complete the construction
of the Initial Improvements in a good and workmanlike manner. As soon as such
improvements have been Substantially Completed, which such date shall be no
later than 120 days following mutual agreement between the parties of the plans
and specifications for the Initial Improvements, unless otherwise agreed to by
the parties, Landlord shall notify Tenant in writing of the date that the
Initial Improvements were Substantially Completed. The Initial Improvements
shall be deemed substantially completed ("Substantially Completed") when, in the
opinion of the construction manager (whether an employee or agent of Landlord or
a third party construction manager) ("Construction Manager"), the Premises are
substantially completed except for punch list items which do not prevent in any
material way the use of the Premises for the purposes for which they were
intended. In the event Tenant, its employees, agents, or contractors cause
construction of such improvements to be delayed, the date of Substantial
Completion shall be deemed to be the date that, in the opinion of the
Construction Manager, Substantial Completion would have occurred if such delays
had not taken place. Without limiting the foregoing, Tenant shall be solely
responsible for delays caused by Tenant's request for any changes in the plans,
Tenant's request for long lead items or Tenant's interference with the
construction of the Initial Improvements. After the Initial Improvements are
Substantially Completed, Tenant shall, upon demand, execute and deliver to
Landlord a letter of acceptance of delivery of the Premises. In the event of any
dispute as to the Initial Improvements, the certificate of the Construction
Manager shall be conclusive absent manifest error.

               (d)    The failure of Tenant to take possession of or to occupy
the Premises through no fault of Landlord shall not serve to relieve Tenant of
obligations arising on the Commencement Date or delay the payment of rent by
Tenant. Subject to applicable ordinances and building codes governing Tenant's
right to occupy or perform in the Premises, Tenant shall be allowed to install
its tenant improvements, machinery, equipment, fixtures, or other property on
the Premises during the final stages of completion of construction provided that
Tenant does not thereby interfere with the completion of construction or cause
any labor dispute as a result of such installations, and provided further that
Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from
any loss or damage to such property, and all liability, loss, or damage arising
from any injury to the Project or the property of Landlord, its contractors,
subcontractors, or materialmen, and any death or personal injury to any person
or persons arising out of such installations, unless any such loss, damage,
liability, death, or personal injury was caused by Landlord's negligence. Any
such occupancy or performance in the Premises shall be in accordance with the
provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease,
and shall be subject to Tenant providing to Landlord satisfactory evidence of
insurance for personal injury and property damage related to such installations
and satisfactory payment arrangements with respect to installations permitted
hereunder. Delay in putting Tenant in possession of the Premises shall not serve
to extend the term of this Lease or to make Landlord liable for any damages
arising therefrom.

               (e)    Except for incomplete punch list items which are not of a
material nature, Tenant upon Substantial Completion of the Initial Improvements
shall have and hold the Premises as the same shall then be without


                                      -18-
<PAGE>

any liability or obligation on the part of Landlord for making any further
alterations or improvements of any kind in or about the Premises.





                                      -19-
<PAGE>

                                   ADDENDUM 3

                               TWO RENEWAL OPTIONS
                             (BASEBALL ARBITRATION)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


        (a)    Provided that as of the time of the giving of the First Extension
Notice (as hereafter defined) and the Commencement Date of the First Extension
Term (as hereafter defined), (x) Tenant is the Tenant originally named herein
(or a Tenant Affiliate or a permitted assignee), (y) Tenant (or a Tenant
Affiliate or a permitted assignee) actually occupies all of the Premises
initially demised under this Lease and any space added to the Premises, and (z)
no Event of Default exists or would exist but for the passage of time or the
giving of notice, or both; then Tenant shall have the right to extend the Lease
Term for an additional term of 5 years (such additional term is hereinafter
called the "First Extension Term") commencing on the day following the
expiration of the Lease Term (hereinafter referred to as the "Commencement Date
of the First Extension Term"). Tenant shall give Landlord notice (hereinafter
called the "First Extension Notice") of its election to extend the term of the
Lease Term at least 9 months, but not more than 12 months, prior to the
scheduled expiration date of the Lease Term.

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

        (c)    The Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the greater of:

               (i)    the Base Rent in effect on the expiration of the Lease
        Term, and

               (ii)   the Fair Market Rent, as defined and determined pursuant
        to Paragraphs (e), (f), and (g) below.

        (d)    The Base Rent payable by Tenant to Landlord during the Second
Extension Term shall be the greater of:

               (i)    the Base Rent in effect on the expiration of the First
        Extension Term, and

               (ii)   the Fair Market Rent, as defined and determined pursuant
        to Paragraphs (e), (f), and (g) below.

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

        (f)    Landlord shall notify Tenant of its determination of the Fair
Market Rent (which shall be made in Landlord's sole discretion and shall in any
event be not less than the Base Rent in effect as of the expiration of the Lease
Term or the First Extension Term, as applicable) for the First Extension Term or
the Second Extension Term, as applicable, and Tenant shall advise Landlord of
any objection within 10 days of receipt of Landlord's notice. Failure to respond
within


                                      -20-
<PAGE>

the 10-day period shall constitute Tenant's acceptance of such Fair Market Rent.
If Tenant objects, Landlord and Tenant shall commence negotiations to attempt to
agree upon the Fair Market Rent within 30 days of Landlord's receipt of Tenant's
notice. If the parties cannot agree, each acting in good faith but without any
obligation to agree, then the Lease Term shall not be extended and shall
terminate on its scheduled termination date and Tenant shall have no further
right hereunder or any remedy by reason of the parties' failure to agree unless
Tenant or Landlord invokes the arbitration procedure provided below to determine
the Fair Market Rent.

        (g)    Arbitration to determine the Fair Market Rent shall be in
accordance with the Real Estate Valuation Arbitration Rules of the American
Arbitration Association. Unless otherwise required by state law, arbitration
shall be conducted in the metropolitan area where the Project is located by a
single arbitrator unaffiliated with either party. Either party may elect to
arbitrate by sending written notice to the other party and the Regional Office
of the American Arbitration Association within 5 days after the 30-day
negotiating period provided in Paragraph (f), invoking the binding arbitration
provisions of this paragraph. Landlord and Tenant shall each submit to the
arbitrator their respective proposal of Fair Market Rent. The arbitrator must
choose between the Landlord's proposal and the Tenant's proposal and may not
compromise between the two or select some other amount. Notwithstanding any
other provision herein, the Fair Market Rent determined by the arbitrator shall
not be less than, and the arbitrator shall have no authority to determine a Fair
Market Rent less than, the Base Rent in effect as of the scheduled expiration of
the Lease Term or the First Extension Term, as applicable. The decision of the
arbitrator shall be final, binding and non-appealable. The cost of the
arbitration shall be paid by Landlord if the Fair Market Rent is that proposed
by Landlord, and by Tenant if the Fair Market Rent is that proposed by Tenant;
and shall be borne equally otherwise. If the arbitrator has not determined the
Fair Market Rent as of the end of the Lease Term or the First Extension Term, as
applicable, Tenant shall pay 105 percent of the Base Rent in effect under the
Lease as of the end of the Lease Term or the First Extension Term, as
applicable, until the Fair Market Rent is determined as provided herein. Upon
such determination, Landlord and Tenant shall make the appropriate adjustments
to the payments between them.

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

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

        (j)    If Tenant does not send the First Extension Notice or the Second
Extension Notice, as applicable, within the period set forth in Paragraphs (a)
and (b), Tenant's right to extend the Lease Term shall automatically terminate.
Time is of the essence as to the giving of the First Extension Notice and the
Second Extension Notice, as applicable, and the notice of Tenant's objection
under Paragraph (f).

        (k)    Landlord shall have no obligation to refurbish or otherwise
improve the Premises for the First Extension Term or the Second Extension Term,
as applicable, but in no event shall Landlord be relieved of its continuing
repair, maintenance and other obligations under the Lease. Subject to the
foregoing, the Premises shall be tendered on the Commencement Date of the First
Extension Term and the Second Extension Term, as applicable, in "as-is"
condition.

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

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


                                      -21-
<PAGE>

                                   ADDENDUM 4

                            MISCELLANEOUS PROVISIONS

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


        1.     COMMENCEMENT DATE LEASE CONTINGENCY. The Commencement Date of
this Lease shall be the day following the Rejection Date as defined in the
Stipulation Regarding Rejection of Ontario Lease, Including Mutual Releases
attached hereto as Exhibit E. If, however, the Rejection Date does not occur on
or before May 30, 2001, then this Lease shall automatically terminate and the
parties shall be released and discharged from all liability and responsibility
hereunder. Landlord shall have no obligation to contract for or fund the Tenant
Improvement Allowance referenced in Addendum 2 until this contingency expires or
is waived by Landlord and Tenant.

        2.     FIRST RIGHT OF OPPORTUNITY FOR SINGLE ASSET BUILDING SALE. If
during the Term of the Lease Landlord desires to market the Building for Sale as
a single asset sale, Landlord grants Tenant, provided that Tenant is not in
default under the Lease, a First Right of Opportunity to negotiate with Landlord
for purchase of the Building. If Landlord and Tenant, following good faith
negotiations, are unable to agree to terms within ten (10) business days after
Landlord's written notice to Tenant, Landlord shall be free to market the
Building to third parties without any further obligation to Tenant. This Right
of First Opportunity expressly excludes any sale or conveyance in whole or in
part of Landlord's interest in the Building if such sale or conveyance of
interest is part of or connected in any way with a portfolio sale or conveyance.
Such a portfolio sale or conveyance includes i) any transaction involving the
Building and any other asset where Landlord (or any other entity with which
ProLogis Trust or the New York Common Retirement Fund) has an ownership interest
or ii) any conveyance to a third party with whom Landlord or ProLogis Trust has
an ongoing business relationship.

        3.     LANDLORD'S RECAPTURE RIGHT. If during the Term of the Lease
Landlord deems it necessary to relocate its existing Ontario branch office,
Landlord shall have the right upon 30 days prior written notice to Tenant to
recapture a portion of the Premises located at the southwest corner of the
Building and consisting of approximately 2,000 s.f. as more fully described on
the attached Exhibit A ("Landlord's Office Space"), for purposes of general
office use, to be used by Landlord as a branch office for its normal business
operations. Landlord shall cause the utilities with respect to Landlord's Office
Space to be separately metered (except for water and sewer which shall be
jointly metered) and Landlord and Tenant shall pay their respective
Proportionate Share of such charges. Landlord shall, at its sole cost and
expense, be responsible for any build-out of Landlord's Office Space. Upon the
effective date of such recapture of Landlord's Office Space, the monthly Base
Rent and Operating Expenses payable by Tenant to Landlord and Tenant's
Proportionate Share of the Project and the Building shall be adjusted
accordingly in the proportion that Landlord's Office Space bears to the total
square footage of the Premises.


                                      -22-
<PAGE>

                                    EXHIBIT A

                                    SITE PLAN

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.



                                 [ILLUSTRATION]



<PAGE>

                                    EXHIBIT B

                               FRONT ENTRANCE SIGN

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


                                 [ILLUSTRATION]


<PAGE>

                                    EXHIBIT C

                                  MONUMENT SIGN

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.



                                 [ILLUSTRATION]


<PAGE>

                                    EXHIBIT D

                                    NAME SIGN

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.



                                 [ILLUSTRATION]


<PAGE>

                                    EXHIBIT E

   STIPULATION REGARDING REJECTION OF ONTARIO LEASE, INCLUDING MUTUAL RELEASES

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                            DATED 4/10, 2001, BETWEEN
                            PROLOGIS CALIFORNIA I LLC
                                       and
                              SKECHERS U.S.A., INC.


                STIPULATION REGARDING REJECTION OF ONTARIO LEASE,
                            INCLUDING MUTUAL RELEASES

        ProLogis California I LLC, as successor to ProLogis Development Services
Incorporated (collectively, "ProLogis"), eToys, Inc. ("Inc.") and eToys
Distribution L.L.C. ("eToys" collectively with Inc., the "Debtors") hereby enter
into this Stipulation Regarding Rejection of Ontario Lease, Including Mutual
Releases (the "Agreement") with reference to the following:

                                       I.

                                    RECITALS

        A.     ProLogis, as landlord, and eToys, as tenant, are parties to that
certain Lease Agreement (the "Ontario Lease") dated as of February 28, 2000,
pursuant to which eToys leases premises commonly known as ProLogis Park,
Milliken Avenue, Ontario, California (the "Premises"). The Premises consist of
an entire building, containing approximately 763,228 rentable square feet,
together with certain surrounding land, parking areas, and improvements.

        B.     The Ontario Lease is for a term of 60 months, which commenced on
June 9, 2000, and requires eToys to make monthly payments of base rent,
operating expenses, and amortized improvements totaling approximately $258,840.

        C.     To secure payment of all sums due under the Ontario Lease,
ProLogis required, and received from eToys, a security deposit of $2,029,090,
which ProLogis continues to possess. Additionally, eToys, Inc., guaranteed the
obligations of eToys under the Ontario Lease.

        D.     The Debtors filed voluntary petitions for relief under chapter 11
of title 11 of the United States Code (the "Bankruptcy Code") on March 7, 2001
(the "Petition Date"), thereby commencing their respective bankruptcy cases
(collectively, the "Bankruptcy Cases").

        E.     Since the Petition Date, the Debtors have continued to operate
their respective businesses as debtors in possession. However, the Debtors have
concluded that it is not possible to reorganize their business and have
undertaken to liquidate their assets as quickly as possible.

<PAGE>

        F.     The Debtors have attempted to sell the Ontario Lease, but their
efforts have not been successful; the monthly payments due under the Ontario
Lease are slightly higher than current fair market rates. The Debtors therefore
desire to reject the Ontario Lease pursuant to Bankruptcy Code section 365.

        G.     ProLogis and the Debtors understand that Skechers USA, Inc.
("Skechers") desires to enter into a new lease with ProLogis, pursuant to which
Skechers would lease the Premises for a term greater than the remaining term of
the Ontario Lease (the "Skechers Lease"). ProLogis has advised the Debtors that,
in order to induce Skechers to enter into the Skechers Lease, ProLogis will have
to incur new tenant improvement costs and leasing commission costs in an
aggregate amount greater than $1.5 million. In addition to such expenditures,
ProLogis is incurring additional damages as a result of eToys' rejection of the
Ontario Lease: (i) eToys currently owes ProLogis $10,953.64 on account of
underpayments of operating expenses during the year 2000, and (ii) ProLogis will
collect approximately $170,000 less rent under the Skechers Lease during the
next 50 months than it would have collected under the Ontario Lease. Thus,
ProLogis will sustain total mitigation costs and rejection damages of
approximately $1,700,000, not including related attorneys' fees and costs.

        H.     The Debtors and ProLogis desire to settle all claims relating to
the Ontario Lease, expedite rejection of the Ontario Lease, and increase the
likelihood that Skechers will enter into the Skechers Lease.

        I.     Certain personal property of the Debtors is located at the
Premises. The Debtors and ProLogis understand that Skechers is prepared to enter
into the Skechers Lease as of the first calendar day after the Rejection Date,
as defined below, and to sublease a portion of the Premises to the Debtors for a
term sufficient for them to liquidate or otherwise remove such personal property
from the Premises.


                                       2
<PAGE>

                                       II.

                                   STIPULATION

        WHEREFORE, based upon the foregoing Recitals for other good and valuable
consideration, the receipt of which is hereby acknowledged, ProLogis and the
Debtors hereby covenant and agree as follows:

        2.1.   Rejection of Ontario Lease. The Ontario Lease shall be rejected
effective on the first business day after ten days after the date on which an
order is entered in the Bankruptcy Cases (the "Rejection Date"); provided that
such order has not been appealed.

        2.2.   Delivery of Premises. The Debtors shall remove all of their
personal property, including all inventory, furniture, fixtures, and equipment,
except such personal property as Skechers consents to have remain in or on the
Premises for any period after the commencement of the Skechers Lease ("permitted
personal property"), before the Rejection Date, and shall deliver the Premises,
vacant (except for permitted personal property) and broom-clean, in the same
condition as received from ProLogis, ordinary wear and tear excepted, to
ProLogis on the Rejection Date.

        2.3.   Partial Repayment of Security Deposit. Within five business days
after the Debtors' performance of their obligations under the preceding
paragraph 2.2, and only after they have performed such obligations, ProLogis
shall remit payment to the Debtors' bankruptcy counsel of the sum of $1 million
less an amount equal to all rent and other amounts payable under the Ontario
Lease (at the rate of $8,628.01 per diem), for the period from April 1, 2001
through the later of (a) the Rejection Date and (b) the date the Debtors perform
their obligation under the preceding paragraph 2.2.

        2.4.   Retention of Security Deposit in Satisfaction of Claims. ProLogis
shall retain the security deposit received from eToys, net of the payment
remitted to Debtors' counsel pursuant to the preceding paragraph 2.3, together
with all interest accrued thereon (approximately $15,000),


                                       3
<PAGE>

in full satisfaction of all claims of ProLogis with respect to the Ontario Lease
against either of the Debtors.

        2.5.   Mutual Releases. Upon the performance by the Debtors of their
obligations under paragraph 2.2 of this Agreement and the performance by
ProLogis of its obligations under paragraph 2.3 of this Agreement, the releases
granted in Article III of this Agreement shall be effective and Inc.'s guaranty
of the Ontario Lease (the "Guaranty") shall be terminated.

                                      III.

                      RELEASE AND DISCHARGE OF GUARANTY AND

                               ALL RELATED CLAIMS

        3.1.   Release by ProLogis. ProLogis hereby releases and discharges each
of the Debtors and their present and former representatives, assigns,
shareholders, agents, officers, directors, employees, professionals, and
subsidiaries, shareholders and affiliates (collectively, the eToys Parties"),
from, and waives and relinquishes any and all Claims (as defined below), which
it, or any person or entity claiming from, through or under it, ever had, now
has, or hereafter can, shall, or may have against the eToys Parties in any way,
manner, or fashion related to (i) the Ontario Lease or the Guaranty as either
may have been modified, amended, or supplemented, (ii) any agreements entered
into in connection therewith, and (iii) the Bankruptcy Cases.

        3.2.   Release by the Debtors. Each of Inc. and eToys hereby releases
and discharges ProLogis and its predecessors, and each of their present and
former representatives, assigns, subsidiaries, partnerships, affiliates,
shareholders, agents, officers, directors, employees, and professionals, and
each of them (the "ProLogis Parties"), from, and waives and relinquishes, any
and all Claims (as defined below), which it, or any person or entity claiming
from, through or under it, ever had, now has, or hereafter can, shall, or may
have against the ProLogis Parties in any way, manner, or fashion related to (i)
the Ontario Lease or the Guaranty as either may have


                                       4
<PAGE>

been modified, amended, or supplemented (ii) any agreements entered into in
connection therewith, and (iii) the Bankruptcy Cases.

        3.3.   "Claim" Defined. As used in this Agreement, the term "Claim"
means any and all rights, claims, counterclaims, demands, debts, liabilities,
obligations, actions, omissions, causes of action, setoffs, suits, sums of
money, accounts, defenses, reckonings, covenants, contracts (whether express or
implied, oral or written, or otherwise) and all breach thereof, complaints,
objections, controversies, agreements, promises, understandings, breaches of
duty or any relationship, malfeasance, nonfeasance, compensation, damages
(including actual, consequential, and punitive damages), penalties, costs,
losses, expenses or circumstances of every type, kind, nature, description or
character and irrespective of how, why, or by reason of whatever facts whether
heretofore existing or hereafter arising, or which could, might, or may be
deemed to exist, whether known or unknown, suspected or unsuspected, contingent
or fixed, liquidated or unliquidated, matured or unmatured, in law, equity,
bankruptcy or otherwise, each as though fully set forth herein at length,
whether or not the same arises out of contract, tort, fraud, misrepresentation,
duress, breach of duty, or violation of laws or regulations.

        3.4.   California Civil Code Section 1542. EACH PARTY HERETO EXPRESSLY
UNDERSTANDS that Section 1542 of the Civil Code of the State of California
provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.

        3.5.   Waiver. EACH PARTY TO THIS AGREEMENT HEREBY AGREES THAT THE
PROVISIONS OF SECTION 1542 of the Civil Code of the State of California and all
similar federal or state laws, rights, rules, or principles, legal or equitable,
which may be applicable hereto ARE HEREBY KNOWINGLY AND VOLUNTARILY WAIVED AND
RELINQUISHED BY EACH PARTY TO THIS AGREEMENT to the full extent that such


                                       5
<PAGE>

rights and benefits may be waived, and each party to this Agreement hereby
agrees and acknowledges that this waiver and relinquishment is an essential term
of this Agreement, without which the consideration provided to it would not have
been given.

        3.6.   Subsequently Discovered Claims. In connection with the waiver and
relinquishment of the Claims and rights as set forth in this Agreement, each
party to this Agreement acknowledges that it is aware that it may hereafter
discover Claims presently unknown or unsuspected, or facts in addition to or
different from those which it now knows or believes to be true. Nevertheless, it
is the intent of each party in executing this Agreement fully, finally, and
forever to settle and release all such matters, and all Claims relative thereto,
which exist, may exist, or might have existed (whether or not previously or
currently asserted in any action) which are the subject of the releases granted
by each party under this Agreement.

                                       IV.

                           CONDITIONS TO EFFECTIVENESS

        This Agreement shall be effective only upon the satisfaction of each of
the following conditions:

        4.1.   Entry of a final order in the Debtors' respective Bankruptcy
Cases approving, authorizing, and directing the Debtors to enter into this
Agreement, which order shall not have been appealed.

        4.2.   Execution and delivery by Skechers to ProLogis, and acceptance by
ProLogis of the Skechers Lease in a form acceptable to ProLogis in its sole
discretion.

        4.3.   Occurrence of the Rejection Date on or before May 10, 2001.

                                       V.

                         REPRESENTATIONS AND WARRANTIES

        The parties hereby represent, warrant, and agree with one another as
follows:

        5.1.   Representation by Counsel. Each party acknowledges that it has
been represented by counsel of its choice throughout the negotiations which
preceded the execution of the


                                       6
<PAGE>

Agreement, and in connection with the preparation and execution of this
Agreement, each party acknowledges that it has executed this Agreement
voluntarily, without coercion or duress of any kind, and on the advice of its
independent counsel.

        5.2.   No Reliance. Neither party, nor any person acting on its behalf,
has made any statement or representation to the other party regarding any fact
relied upon in entering into this Agreement, and the parties do not rely upon
any statement, representation, or promise of the other party or other person
acting on behalf of the other party in making the settlement provided for
herein, except as expressly stated in this Agreement.

        5.3.   Independent Investigation. Each party has made such investigation
of the facts pertaining to this Agreement, and of all the matters pertaining
thereto, as it deemed necessary.

        5.4.   Comprehension. Each party has read this Agreement and understand
its contents.

        5.5.   Construction. Each party has cooperated in the drafting and
preparation of this Agreement. Hence, this Agreement shall not be construed
against any party.

        5.6.   No Transfer of Claims. Each party warrants and represents that
there has been no assignment, sale, or transfer, by operation of law or
otherwise, of any Claim to be released by the release contained herein. The
parties agree to indemnify, defend, and hold harmless each other party from any
claim, liability, or expense which may be incurred as a result of the assertion
of any such Claim by any other person by reason of such assignment, sale, or
transfer.

        5.7.   Authority. Each party has taken all appropriate corporate action
to authorize execution of this Agreement and grant the releases contained
herein, and the peon executing this Agreement on behalf of each respective party
has full authority to do so.

                                       VI.

                                  MISCELLANEOUS

        6.1.   Complete Agreement. This Agreement represents the complete
agreement among the parties, and supersedes all prior and contemporaneous
agreements, understandings, and


                                       7

<PAGE>

representations, if any. This Agreement may only be amended or modified by a
written agreement executed by all of the parties.

        6.2.   Attorneys' Fees and Expenses. In any litigation or other
proceeding arising out of or relating to this Agreement, the prevailing party or
parties shall recover all attorneys' fees and other expenses and costs incurred
in connection with the litigation or other proceeding.

        6.3.   Governing Law. This Agreement shall be governed by the
substantive laws of the State of California (without regard to any doctrine of
conflict of laws).

        6.4.   Headings. The headings of the articles and sections of this
Agreement have been inserted for convenience of reference only and shall not
modify, define, or limit any of the terms or provisions hereof.

        6.5.   Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.

        6.6.   No Third Party Beneficiaries. The provisions of this Agreement
are for the benefit of the parties hereto and the released parties identified in
Article III hereof, and not for any other person, and may not enforced or relied
upon by any person other than the parties and the parties released under Article
III hereof.

        6.7.   Severability. If any provision of this Agreement is declared by a
court of competent jurisdiction to be illegal, unenforceable, or void, that
provision shall be modified so as to be enforceable and as nearly as possible to
reflect the original intention of the applicable parties, it being agreed and
understood by the parties hereto that (a) this Agreement and all the provisions
hereof shall be enforceable in accordance with their respective terms to the
fullest extent permitted by law; and (b) the remainder of this Agreement shall
remain in full force and effect.


                                       8

<PAGE>

PROLOGIS CALIFORNIA I LLC, as            ETOYS, INC.
successor to PROLOGIS DEVELOPMENT
SERVICES INCORPORATED

                                         By:
                                            ---------------------------------
                                         Name:
By:                                      Title:
   ---------------------------------
Name:
Title:

                                         ETOYS DISTRIBUTION L.L.C.


                                         By:
                                            ---------------------------------
                                         Name:
                                         Title:


Approved as to form and content:

MAYER, BROWN & PLATT
KIMBERLY S. WINICK


By:
   ---------------------------------
        Kimberly S. Winick

Attorneys for ProLogis California I LLC,
as successor to ProLogis Development
Services Incorporated


IRELL & MANELLA
HOWARD J. STEINBERG


By:
   ---------------------------------
        Howard J. Steinberg

Attorneys for eToys, Inc. and eToys Distribution L.L.C.


                                       9